Clarke v. Phillips

A deed absolute on its face may be shown to have been made to secure a debt, provided the maker remains in possession of the property conveyed; but, where the grantee in a deed absolute on its face is in possession of the property, such deed shall not be proved (at the instance of the parties) by parol evidence to be a mortgage, unless fraud in its procurement is the issue to be tried. The allegations of the petition in the instant case were insufficient to authorize the introduction of parol evidence to show that the deed absolute on its face was actually made to secure a debt.

No. 16513. FEBRUARY 16, 1949. The plaintiff in error, hereinafter referred to as the plaintiff, filed in the Superior Court of Hancock County an equitable proceeding against the defendant in error, hereinafter referred to as the defendant, in which he sought, besides process: (1) a decree declaring the defendant to be a trustee ex maleficio; (2) a judgment against the defendant for the reasonable value of his interest in the property in question, the reasonable value of his interest in the timber sold from the property, and for attorney fees; and (3) other relief.

The plaintiff was seeking this relief based on substantially the following facts as set forth in his petition and the amendment thereto: He was the owner, by inheritance, of a one-fourth undivided remainder interest in certain described farm property located in Hancock County, Georgia. In 1935, while the life estate was in existence, he borrowed $250 from the defendant, and secured the loan by a deed to his remainder interest. This deed, while appearing to convey the fee-simple title, was actually a deed to secure debt, and was so understood by both parties. As rapidly as possible, and by 1938, the loan, together with the interest, was repaid, as evidenced by signed receipts from the defendant, which were attached to and made a part of the petition. The defendant then assured the plaintiff that he would get the deed from the courthouse, cancel it, and put the title back in the plaintiff. In 1941 the plaintiff reminded the defendant that the deed was still uncanceled on the record, and the defendant then, for the first time, claimed absolute title to the property and refused to cancel the deed. In January, 1948, the defendant sold the fee-simple title to the property for $8650.

The plaintiff alleged that he has never been in possession, nor entitled to the possession of his undivided remainder interest; that "during the time defendant held plaintiff's property in trust," and in 1942, he sold the timber, but that he never accounted to the plaintiff for his share of the proceeds; that the reasonable value of his undivided remainder interest in the property is $2000; that after payment of the loan the defendant held the remainder interest in the property in trust for the plaintiff's benefit, and after the sale the reasonable value of such remainder interest. He prayed that the defendant be declared to be a trustee ex maleficio holding such moneys in trust for his benefit.

By his general demurrer the defendant attacked the sufficiency of the petition to state a cause of action on the ground that no facts were alleged which would authorize the plaintiff to show that the absolute deed was actually given to secure a debt. After hearing argument the court sustained the demurrer and dismissed the petition, to which judgment the plaintiff excepted. The plaintiff seeks to invoke the aid of equity by his prayer for a decree declaring the defendant to be a trustee ex maleficio, based upon the theory that the deed absolute on its face was actually made to secure a debt, and after its full payment, the defendant held title to the property in trust for the plaintiff, and after the alleged fraudulent sale, he became a trustee ex maleficio holding the plaintiff's share in the proceeds of such sale. The plaintiff now contends that full payment of the alleged loan, together with the interest thereon, constituted a sufficient part performance of the agreement to put title back in him on payment of the loan, to take the case out of the statute of frauds, and parol evidence would therefore be admissible to show the true nature of the instrument. However, this is not a case in which the plaintiff seeks the specific performance of a parol contract for the sale of land, which would come within the exceptions to the statute of frauds (Code § 20-402) upon proof of such alleged part performance. Neither would such remedy be available to him even though his grantee in the absolute deed retained the legal title to the property. But it is a case in which the plaintiff has for a stated cash consideration, made and executed an absolute deed conveying the fee-simple title to his undivided one-fourth remainder interest in the property, and whether he states a cause of action or not must necessarily depend on whether sufficient facts are alleged to authorize the introduction of parol evidence to show that the deed was actually made to secure a debt.

It is a well-recognized principle of law that a deed absolute in form may be shown to have been made to secure a debt, provided the maker remains in possession of the property conveyed.Mercer v. Morgan, 136 Ga. 632 (71 S.E. 1075); Berry v.Williams, 141 Ga. 642 (81 S.E. 881); Simpson v. Ray,180 Ga. 395 (2) (178 S.E. 726); Powell on Actions for Land, § 388. This is true for the reason that under the Code, § 85-408, "Possession of land is notice of whatever right or title the occupant has." But it is provided by the Code, § 67-104, that "A deed or bill of sale, absolute on its face and accompanied with possession of the property, shall not be proved, at the instance of the parties, by parol evidence to be a mortgage only, unless fraud in its procurement shall be the issue to be tried."

As applied to the allegations of the petition in the instant case, it was alleged that the plaintiff was never in possession, nor entitled to the possession of his undivided remainder interest in the land because of the existence of the life estate. And it was also alleged that, "during the time defendant held plaintiff's property in trust," he sold the timber therefrom, and that in 1948 he sold and conveyed the fee-simple title to the whole property. Construing the allegations of the petition most strongly against the plaintiff, as we are required to do when considering it on general demurrer, it was sufficient to show that at some time subsequent to the date the plaintiff made the absolute deed, the defendant was in possession of the lands, cutting and selling the timber therefrom. Such possession in the grantee being alleged, and there being no allegations that the absolute deed was procured by fraud, parol evidence would be inadmissible to show that the deed was a mortgage only. And it is immaterial that possession was not surrendered or acquired at the time of the execution of the absolute deed. Durden-Powers Co. v. O'Brien, 165 Ga. 728 (142 S.E. 90).

The petition, under the principles of law above announced, was therefore fatally defective in two respects: (1) it is only where the maker of a deed absolute on its face remains in possession of the land conveyed that he can prove by parol evidence that such deed was made to secure a debt, and the petition here affirmatively showed that the grantor was never in possession nor entitled to such possession; and (2) the allegations of the petition were sufficient to show possession in the grantee under the deed in question and there being no allegations of fraud in the procurement of the deed, parol evidence would be inadmissible to show that it was a mortgage only.

In view of the foregoing ruling, it becomes unnecessary to determine whether, under all the facts and circumstances, the plaintiff was guilty of laches so as to preclude his recourse to the action sought to be maintained, or barred by the applicable statute of limitations.

Accordingly, the trial judge did not err in his judgment sustaining the general demurrer and dismissing the petition.

Judgment affirmed. All the Justices concur.