Guilford-Chester Water Co. v. Town of Guilford , 107 Conn. 519 ( 1928 )

The questions upon which advice is desired are, briefly stated, as follows: Is the contract, Exhibit B, a mortgage? Are the water mains installed in accordance with this contract, or any of them, taxable by the town of Guilford? If not all, but a part, which: — all of the mains outside the territorial limits of the association; those from Jones Bridge to the association limits; and those, beyond these limits, to Vineyard Point? Is the appellant company aggrieved by the action of the board of relief? We discuss these in order.

The appellant company claims that, under the contract, Exhibit B, all the mains described therein and installed in conformity thereto are sold and transferred to, and are the property of, the association, and leased by it to the company with privilege of purchase by the latter, all as provided in paragraph fifteen, quoted above. The contention of the defendant town is that the contract, when considered in its entirety, does not amount to a sale, conditional or absolute, but is, in effect, a mortgage given by the company to the association to secure the amount paid by the latter toward the cost of the mains, and that the company still owns the mains and a tax thereon was properly assessed against it.

These water mains are personal property. Norwalk v. New Canaan, 85 Conn. 119, 126, 81 A. 1027; Field v. Guilford Water Co., 79 Conn. 70, 72, 63 A. 723. The distinction between a sale of personal as well as real property and a mortgage of such property is that the former is a transfer of the absolute title therein for a price, whereas a mortgage is at most a conveyance of property as security for the payment of a debt or the performance of some other obligation, subject to the condition that on performance title shall revest in the mortgagor. The controlling consideration in determining whether a transaction is a sale or a mortgage is the intention of the parties, ascertained in view of all the circumstances, as to the purpose which the transaction is to effectuate. If it resolves itself into security for a debt or other obligation, it will be held to be a mortgage, otherwise, a sale. Among the facts to be considered in ascertaining such intention are whether there has been a change of possession; whether there is a great disparity between the value of the property and the price; whether the sale is accompanied by a defeasance; whether there is a provision for redemption or an agreement for a reconveyance; whether a borrowing or lending accompanies the execution of the instrument or is contemplated thereby or at the time; and, most significant of all, whether there is a continuation of indebtedness on the part of the seller. The absence of personal obligation on the part of the vendor shows that the transaction was not a mortgage.

The general test to be applied is: If the transfer is intended merely to secure an existing indebtedness it is a mortgage; but if the debt is extinguished, or if the money advanced is not by way of a loan, and the grantor merely has the privilege of refunding if he pleases and thereby entitling himself to a reconveyance, the transaction is a conditional sale. The fact that there is an agreement to resell the property to the seller at a fixed price or that he has an option to repurchase it does not, of itself, establish that the transaction is a mortgage, especially where there is no debt secured and no obligation to repay. Williams v.Chadwick, 74 Conn. 252, 255, 50 A. 720; Anderson v. Colwell, 93 Conn. 61, 65, 104 A. 242; Fosdick v.Roberson, 91 Conn. 571, 575, 100 A. 1059; French v.Burns, 35 Conn. 359; Jarvis v. Woodruff, 22 Conn. 548,550; 11 Corpus Juris, "Chattel Mortgages," § 96 etseq.; 1 Jones on Mortgages (7th Ed.) §§ 258 to 265; L.R.A. 1916B, p. 132, note; 19 R. C. L., "Mortgages," § 34 et seq.

The foregoing principles are generally recognized and adopted. The difficulty is in their application to individual cases, each of which must be decided in view of the peculiar circumstances which pertain to it and mark its character, since the criterion, the intention of the parties, is to be ascertained by considering their situation and surrounding facts, as well as the written memorials of the transaction. 1 Jones on Mortgages (7th Ed.) § 258. We therefore proceed to apply the above-mentioned tests to the facts in the present case.

Our first inquiry is whether there exists a debt as between the parties to the contract in question. A debt is "that which one . . . is bound to pay to another or to perform for his benefit; that of which payment is liable to be exacted." Cook v. Bartholomew,60 Conn. 24, 26, 22 A. 444; 1 Bouvier's Law Dictionary (3d Rev.) 786. It contemplates not only an obligation upon the debtor to pay, but a reciprocal right on the part of the creditor to enforce payment by appropriate proceedings. 1 Jones on Mortgages (7th Ed.) § 265.

In determining, as we are here called upon to do, whether a contract is a mortgage or a sale with right of repurchase, a test generally accepted as decisive is "the mutuality and reciprocity of the remedies of the parties — that is to say, if the grantee enjoys a right, reciprocal to that of the grantor to demand a reconveyance, . . . to compel the latter to pay the consideration named in the stipulation for reconveyance, the transaction is a mortgage; while if he has no such right to compel payment, the transaction is a conditional sale. This test is a derivation of the consideration that personal liability . . . is regarded either as the sinequa non of a mortgage or as a factor whose existence or nonexistence points strongly to the fact that a conveyance is or is not a mortgage." 19 R. C. L. p. 266.

Here, while under paragraph fifteen of the contract, the company, the vendor, has the right if it so elects to repay to the association the amount paid by the latter toward the construction of the mains and extensions and thereupon the thereby obtain a reconveyance of such mains and extensions, we fail to discover any right in the association, the vendee, to require and obtain such payment, at any time or in any manner. The only pecuniary obligation enforceable by the association is that contained in paragraph eight, concerning annual payments of gross revenue in excess of eighteen per cent on the net cost to the company for the mains and extensions, and it cannot reasonably be claimed that the purpose of paragraph fifteen is to secure these payments, as such. In this respect, then, the contract exhibits the characteristics of a sale rather than a mortgage. Neither do we find in the contract or the circumstances any indication that the payments made by the association toward the cost of the system were intended as in the nature of a loan; this would be so conspicuously ultra vires of its charter powers that the fact that bonds for these payments were issued and sold would seem to be a sufficient refutation of any suggestion to that effect.

"It will be found, also, that in all cases in which this court has held a conveyance absolute on its face to be in fact a mortgage, there has been a defeasance either in writing or by parol agreement." Fosdick v.Roberson, supra, p. 575. We find no express or implied provision that this conveyance shall be void upon performance of any specified condition, or other contradiction of the plain implication of the language used that an agreement for repurchase and reconveyance is intended rather than anything in the nature of a right of redemption residing in the water company.

The company expended about $102,000 to provide and install the mains in question. The cash consideration presently moving from the association to the company was slightly less than half that sum; however, that was far from the sole benefit accruing to the company. The extension obviously afforded a very considerable increase of business, at specified rates which the contract discloses to be extremely favorable to the company, a monopoly of all revenue up to eighteen per cent of the net cost, to it, of the system, a ninety-nine year lease free of rent or charge, a right of repurchase for the amount contributed by the association. without interest, and other desirable incidental advantages. All in all, there is surely not such a disparity between the value conveyed and the consideration as, at most, should over-balance all the other weighty considerations pointing to an opposite conclusion.

We conclude, therefore, that the contract, Exhibit B, was intended by the parties to be, and is, an instrument effecting a sale with a lease to and right of repurchase in the vendor, and not a mortgage.

This conveyance is to be construed as covering, in terms, all the pipes mentioned and described in paragraph one of the contract, including those located outside the corporate limits of the association, and such additional and future extensions of the system, beyond the pipe line so described, only, as are or may be located within the corporate limits. It follows, then, that the ownership of the mains the taxability of which is now in question is in the association and that they are taxable, if at all, against it as such owner. This question we do not determine, since the association is not a party to this proceeding.

We advise, therefore, in answer to the questions propounded, that (1) Exhibit B is not a mortgage; (2, 3, 4 and 5) the water mains installed in accordance with the contract, Exhibit B, within the territorial limits of the association, and between these limits and Jones Bridge are not taxable by the town of Guilford against the appellant; (6) those so installed between the limits of the association and Vineyard Point are not taxable by the town of Guilford against the appellant; (7) the appellant company is aggrieved, to the extent indicated by the foregoing answers, by the action of the Board of Relief.

No costs will be taxed in this court in favor of or against either party.

In this opinion the other judges concurred.