Although there was no court of equity in provincial Massachusetts, the law courts were able to develop the real estate mortgage into an effective and flexible instrument of finance. In the usual transaction the mortgagor gave the mortgagee an obligation in the form of a bond or note for the amount borrowed; this obligation was secured by the mortgage itself, a deed to the mortgaged premises in fee simple, conditioned on the repayment of the sum covered by the obligation. Both the liability of the land and the general personal liability of the mortgagor were thus established. In the event of default the mortgagee could bring an action on either obligation or mortgage, but he could proceed only at law.1 If common law forms had been followed literally in these suits, injustice might have resulted. In some cases at least, the plaintiff could have recovered both land and money, and, in an action on a sealed obligation such as a bond, payment other than according to the precise terms of the instrument would not have been a bar. Further, the common law did not recognize the mortgagor's right, protected by the court of equity in England, to redeem the lands by tender of the debt and costs after the time for payment had run.2

Such defects might have discouraged potential borrowers from offering their lands as security, had it not been for a Massachusetts Act of 1698 which gave the common-law courts the equity powers necessary to overcome them. Under the statute in actions brought on sealed instruments and on mortgages when judgment or verdict was for the plaintiff, the court was empowered “to moderate the rigour of the law and on consideration of such cases, according to equity and good conscience to chancer the forfeiture, and enter up judgment for the just debt and damages.” In real 232actions on mortgages the judgment was “to be conditional,—that the mortgager or vender, or his heirs, executors or administrators do pay unto the plaintiff such sum as the court shall determin to be justly due thereupon, within two months time after judgment entred up for discharging of such mortgage or sale, or that the plaintiff recover possession of the estate sued for, and execution to be awarded for the same.”3 By the same Act, “where any mortgagee or vendee of any houses or lands granted on condition hath recovered, or entred into and taken possession of the same for the condition broken,” the mortgagor within three years after entry could tender the unpaid balance and costs and disbursements in court and have possession restored by quitclaim deed from the mortgagee or a purchaser, or by judgment.4

Thus, under the statute if the mortgagee sued upon his bond, he could recover the actual debt, but not the penalty of double the face value usually attached to such instruments; moreover, the debtor presumably was credited with any partial satisfaction which he had made. If the mortgagee wished to proceed against the land, he might either enter peaceably, or sue for it in ejectment, asserting his title under the mortgage deed. In the latter event he could enter under a judgment in his favor if the mortgagor did not pay the debt within two months. In either case the mortgagee's title became absolute if the mortgagor did not redeem within three years after entry. This was the process of strict foreclosure, still substantially in effect in Massachusetts. It resembled the procedure at equity in England, with the significant difference that there the court had unlimited discretion to open up the foreclosure for redemption if justice required.5

There was the further difference that in England, if the mortgagee re-233covered the land through foreclosure, a subsequent action against the mortgagor on his personal obligation opened up the right to redeem, although the land might be worth less than the debt. The cases are not clear, but there even seems to have been some 18th-century authority for the proposition that foreclosure barred an action on the bond altogether, unless the premises had been sold by the mortgagee. In England and in many of the United States, these problems were ultimately met by the device of foreclosure by sale, the usual modern practice, in which on a bill to foreclose the court will order a sale of the property and adjudge any deficiency against the mortgagor, but will allow him to take a surplus.6 Prout v. Minot shows that, although provincial Massachusetts had not developed foreclosure by sale, the courts were able to accommodate the conflict between recovery on the land and recovery on the debt through flexible use of the statutory procedures just discussed.

The case arose out of a complicated series of transactions. Timothy Prout borrowed £100 from Christopher Minot in December 1753, giving a mortgage of his real estate on Milk Street in Boston and a bond in the penal sum of £200 to secure the loan. In October 1755 Prout gave a second bond and mortgage on the same property to one William Brown for a loan of £184. Two years later Brown foreclosed in an action on the second mortgage and was awarded possession in December 1757. In December 1758 Minot assigned to Brown his rights in Prout's first bond and mortgage for a consideration of £112, the sum of the principal and unpaid interest. Brown, having rid himself of this encumbrance, was apparently content with his bargain until the house on the mortgaged premises was destroyed in the great fire of March 1760, which significantly reduced the value of his investment.7

At the July 1761 Suffolk Inferior Court an action of debt on the first bond was commenced against Prout in Minot's name, a procedure made necessary by the common-law rule against assignments of “choses in action,” that is, rights legally accrued but not reduced to possession. That Brown, rather than Minot, was the real party in interest seems certain from the fact that the instrument by which the bond was assigned gave the former power to sue upon it and keep the proceeds. At the April 1762 term, after argument on the pleadings, the court held Prout's plea in confession and avoidance bad and awarded Minot “chancery” of £136 6s., the actual amount of the debt plus interest.8

Prout appealed to the Superior Court, where at the August 1762 term argument was again had on the lower court pleadings. Prout's plea, which had been filed by Oxenbridge Thacher, averred Minot's assignment of bond and mortgage to Brown, and alleged that on the day of the assignment Brown had elected to enter upon the premises for nonpayment of the sum secured, rather than to sue upon the bond. Minot's replication, by Richard Dana, denied that the entry was for nonpayment as alleged. Thacher demurred, asserting that the replication contained a negative pregnant (a denial of a particular allegation which implicitly admits the rest). Dana, joined by Jeremy Gridley, countered by attacking the plea, a permissible tactic at common law, because a demurrer at any stage made all of the pleadings fair game for either side. The ground of the attack was that Brown's election was not a bar to the action, since an entry under the 235mortgage did not discharge the bond. The court in a unanimous opinion upheld this contention and found the plea bad. Prout, however, was not content with the usual procedure by which the court chancered the bond to the debt appearing in the record. He asked for and was granted leave to be heard further “in chancery” at the next term.9

Accordingly, he filed a “Bill in Chancery” (Document I), at the February 1763 session of the court, setting forth the facts and praying relief from what he urged was an inequitable double recovery in Brown's behalf. The matter was continued term by term until it finally came on in August 1766. Samuel Fitch now argued for Prout against Dana and Gridley. Adams was not of counsel, but made brief minutes of the argument and opinion, which are printed as Document II.

Fitch produced authorities to show that assignments of choses in action are invalid at law but convey a right which the assignee alone can enforce in equity. His point seems to have been that since this was in effect an equitable proceeding, the court should treat Brown as the real party in interest, even though the action was in Minot's name. This position could have been the basis for an argument that Brown should not recover because he did not have a claim to the bond which a court of equity would recognize. His acquisition of the mortgagee's title by assignment after he had acquired the mortgagor's equity through foreclosure could be said to have effected a merger which extinguished the debt. Adams' notes do not show whether Fitch pressed such a contention, but he must at least have argued that if Brown had an equitable claim, his entry on the land had satisfied it, and there could be no recovery in his behalf against the bond. Implicit in these positions was the basic equitable argument, expressly made in Prout's bill (Document I), that, even if merger and entry were not absolute bars, the action should not lie because at the time of entry the land had been worth more than both bonds together.

According to Adams, Gridley “Seem'd to conceed” that the action was really in Brown's behalf, probably because there were ample grounds on which to argue that he was not barred. The court apparently found these grounds adequate, since, despite the concession, it entered judgment against Prout for £176 10s., the principal of the bond, with 6 percent interest from the date of the last payment in 1756.10

Although it is not clear that the merger argument was raised, the result in this case is consistent with later authority on the question. In 1849 Chief Justice Shaw of Massachusetts, in an opinion synthesizing earlier English and American decisions, announced the proposition that a merger of the 236equity and the mortgage takes place when the purchaser of the mortgage is under a duty to clear the equity from the encumbrance, or, in the absence of such a duty, the purchaser has no proper interest in keeping mortgage and equity separate.11 Under this theory one who purchases the equity of redemption at its actual value and then takes an assignment of the mortgage cannot maintain an action on the obligation against the mortgagor, because the gist of the purchaser's bargain is that, having bought the equity for less than the full value of the land, he will pay the rest of the price by indemnifying the mortgagor against the debt. This he does either by paying to the mortgagee the amount due, or by allowing the land to be taken in satisfaction. He is doing no more than fulfilling his bargain when he pays the mortgagee for an assignment. It would be inequitable if he could also recover the amount so paid against the mortgagor personally, because he would end up with clear title, but would be out of pocket only what he had bargained to pay for an encumbered title.12

Brown, however, did not purchase the equity outright, but obtained it only in an effort to satisfy the mortgagor's debt to him. The bargain out of which that debt arose was that Brown should get back the money which he had loaned, not that he should become obligated to pay out further sums. Thus, when Brown bought the first mortgage, he was not performing a contractual duty to the mortgagor, but was acting to protect his own investment from the effects of the mortgagor's default. Since he had not bargained to pay the debt, it would have been inequitable if he could not have recovered what he had paid out both on his own loan to Prout and for the assignment from Minot.13 If the value of the land had been 237sufficient to provide this recovery, there still would have been a merger, because Brown would have had no valid interest in preserving the obligation. If there was a deficiency, however, the obligation would survive as a basis for action against the mortgagor.14

Adams' notes show that the court did deal with the question of recovery against the bond after recovery of the land. Justice Benjamin Lynde apparently recalled the court's earlier ruling on demurrer that an entry under the mortgage did not bar an action on the bond. The result here carried the principle further, asserting the mortgagee's right not only to pursue both remedies, but to take satisfaction out of both sources up to the amount of the debt. The complexities of English practice were rejected in favor of a simple rule, focused on the debt rather than the security, which was characteristic of later American mortgage law.15

The questions whether Prout's personal obligation survived in Brown's hands and, if it did, whether Brown could pursue it despite his entry under the mortgage, both turned on the value of the land. If this figure exceeded the amount of the debt, Prout's complaint was justified and Brown should have been barred. If there was a deficiency, however, it was equitable for Prout to be responsible for all of his indebtedness. The total of principal and interest on the two debts was at least £481.16 Prout alleged in his bill (Document I) that in 1758, when Brown entered, the premises were worth more than the debt, but the only figures which he set forth were 1760 values of £200 for the house and “at least” £133 6s. 8d. for the land. Accepting these figures and adding in Prout's figures of £50 for rent at £20 a year from Brown's first entry in December 1757 until the fire in March 1760, there would still have been a deficiency of nearly £100.17 Thus, even by Prout's calculations, Brown was entitled to recover against the bond, and the only question open was the amount. The court's actual award of £176, the maximum possible on the bond, was probably based on the value of the land after the fire, when the deficiency would have been nearly £300. This valuation seems harsh from Prout's standpoint, but it could have been justified by the fact that Brown's title was subject to Prout's right to redeem until December 1761. It might have been argued that in the determination of a deficiency the mortgagee's interest cannot fairly be valued until foreclosure is complete and his title is absolute in equity as well as at law.18