## Facts

- Samuel A. Peugh conveyed Washington, D.C. property (Squares 910 and 911) to Henry S. Davis by a deed dated March 4, 1857, recorded September 7, 1857; the deed was absolute in form with a special warranty.
- Peugh asserted the deed was intended as security for a $2,000 loan, leaving him an equitable right to redeem.
- Davis contended the transaction was an outright sale and relied on later writings, including:
  - A February 9, 1858 covenant by Peugh reciting he had “heretofore sold and conveyed” the squares to Davis and agreeing to warrant and defend title and indemnify Davis against title litigation.
  - A contemporaneous receipt stating Davis paid $2,000 “in full for the purchase” of the squares.
- Evidence indicated Peugh remained in possession, later enclosed and cultivated the land, and the property’s value greatly exceeded the amount advanced.
- In 1869, Peugh filed a bill in equity in the Supreme Court of the District of Columbia to redeem; the court denied redemption, treating the deed as an absolute conveyance.

## Issues

1. Whether an absolute deed may be treated in equity as a mortgage when executed as security for a loan, and whether extrinsic evidence is admissible to show that character.
2. Whether the equity of redemption may be waived or cut off by stipulations made at the time the security is given.
3. What is required for a valid subsequent release of the equity of redemption to the mortgagee, and whether the later writings effected such a release.

## Decision

- The Supreme Court reversed and remanded.
- The Court held the transaction operated as a mortgage, permitting Peugh to redeem upon payment of the debt with interest, subject to an accounting.
- The Court concluded the later writings did not constitute a valid subsequent release of the equity of redemption, given the circumstances, including inadequate consideration relative to value and Peugh’s continued possession.

## Legal Principles

- A deed absolute in form, if intended as security for a loan, is treated in equity as a mortgage; written and oral evidence is admissible to prove the true transaction.
- The equity of redemption is inseparably connected with a mortgage and cannot be waived or abandoned by any stipulation made at the time the mortgage is created, even if stated in the instrument.
- A later release of the equity of redemption to the mortgagee is recognized only if it is:
  - evidenced by a writing that, in terms, transfers the mortgagor’s remaining interest, or
  - supported by facts creating an estoppel,
  and in either case must be supported by adequate consideration.
- Later papers describing the deal as a “purchase” are evaluated with the deed and surrounding facts and are not conclusive of a release where the original conveyance was security in substance.
- In assessing whether a true post-mortgage sale occurred, equity considers factors such as disparity between property value and amount paid, and the mortgagor’s continued possession and acts of ownership.

## Conclusion

The Court held that an absolute deed intended as loan security is an equitable mortgage; the right to redeem cannot be contracted away at inception and is extinguished only by a clear, fairly compensated later transfer or estoppel. The decree denying redemption was reversed and the case remanded to allow redemption with appropriate accounting.


Peugh v. Davis, 96 U.S. 332 (1877)