## Facts

- Ms. Lee bought real property from Mr. and Mrs. Beagell, received a deed, and took possession, but did not record the deed.
- Several years later, Lee borrowed money from the Beagells (about $50) and delivered her unrecorded deed to them as security for the loan.
- The parties understood that if Lee did not repay the loan on the agreed terms, the property would “belong” to Mr. Beagell.
- After Lee did not repay as agreed, the Beagells delivered a deed for the same property to George and Hazel Card.
- The Beagells told Lee that if she repaid within a stated time, the deed to the Cards would be destroyed and Lee’s deed would be returned; if she failed to repay within that time, the Cards’ deed would be recorded.
- Lee did not repay within the stated time, and the Cards recorded their deed.
- Lee brought an equitable action against the Beagells and the Cards, claiming the deed deposit was only security for the debt (an equitable mortgage), not a transfer of ownership on default.

## Issues

1. Whether Lee’s delivery of her unrecorded deed to the Beagells as security for a loan, with an understanding that the property would “belong” to the Beagells on nonpayment, should be treated in equity as a mortgage rather than a forfeiture or absolute transfer.
2. Whether the equitable-mortgage rule can apply where the borrower does not execute a new deed to the lender, but instead deposits an existing deed as collateral.

## Decision

- The court held for Lee.
- The transaction was treated as an equitable mortgage securing Lee’s debt, not as an arrangement that vested absolute title in the Beagells upon default.
- The Beagells therefore held only a mortgagee’s interest, and Lee retained ownership subject to the debt and a right to redeem.
- Because the Beagells’ interest was only security for the loan, the later deed delivered to the Cards could not defeat Lee’s equitable ownership as recognized by the court.

## Legal Principles

- A conveyance absolute in form, if intended merely as security for an obligation, will be treated in equity as a mortgage.
- Courts of equity determine the character of a transaction by what the parties meant it to accomplish—security for a debt versus a true transfer of ownership—rather than by the labels used or the formal appearance of the papers.
- The equitable-mortgage doctrine is not limited to cases where the borrower signs a new “absolute deed” to the lender; depositing an existing deed as security can also create an equitable mortgage.
- A term stating that the property becomes the lender’s upon nonpayment is treated as a security arrangement with a right of redemption, not as an automatic forfeiture of the borrower’s ownership.

## Conclusion

Lee v. Beagell holds that when a property owner hands over an unrecorded deed to secure repayment of a loan, equity will treat the arrangement as an equitable mortgage even if the parties used “the property is mine on default” language; the lender receives only a security interest, the borrower keeps ownership subject to the debt and a right to redeem, and later deeds given by the lender cannot cut off the borrower’s rights as recognized in equity.


Lee v. Beagell, 19 N.Y.S.2d 613 (1940)