Spence v. Steadman

McCay, Judge.

A sale with an agreement to repurchase, or as is usually termed a conditional sale, though nearly allied to a mortgage, is yet very distinct in its effect, if the terms of the condition be not complied with. By the strict rules of the common law even in the case of a mortgage, if payment was not made according to the agreement, the estate was forfeited, and the title remained absolutely in the mortgagee. But Courts of equity, taking into consideration the important fact that it was not the intent of the parties to sell, but only to secure the payment of a debt, came to the relief of the mortgagor and gave him the right of redemption even after condition broken. The fundamental idea of the doctrine of the equity of redemption in a mortgagor, was that it was not the intent of the parties to sell and buy — that the transaction was, in truth, an arrange-meat to secure the payment of money, and that on the payment of the money due, with lawful interest, the whole intention of the parties was complied with. But when cases arose in which it appeared that the loan or securitiy of money was not the intent, but that there was a real intent to sell and fix a condition of repurchase, which might or might not be afterwards performed by the mortgagor, all the foundation for the interference of equity was gone, and the parties were necessarily left to their contract as they made it. In reference to a conditional sale, Chief Justice Marshall, in Conway vs. Alexander, 7 Cranch, 237, says: “To deny the power of two individuals capable of acting for themselves, to make a contract for the purchase and sale of lands, defeasible by the payment of money at a future day, or in other words, with a reservation to the vendor of the right to repurchase the same land at a fixed price and at a specified time, would be to transfer to the Court of chancery, in a considerable degree, the guardianship of adults as well as infants.”

Such contracts may be made under circumstances, and by words, which not only make the intent plain, but show that such intent was the natural and probable course for the seller to take under the circumstances. It is unquestionably sometimes difficult to determine what was the real intent. Men having money to lend, or debts to secure, not unnaturally desire to put the debtor under as strict and heavy terms as they can exact from his necessities; and thus, often, when the real intent is only security, they obtain instruments having all the forms of a conditional sale. It is, therefore, a settled rule that the mere form of the paper — the words used — such as purchase, sale, repurchase, etc., if the real intent be only to secure the payment of money, will not make the instrument other than a mortgage: 4 Kent’s Com., 144. And equity will lean to the construction that will give to the vendor the right to redeem: 23 Pickering, 529. In 6 Watts, 131, Judge Gibson says, it is too late to say that what was intended to be a security for money may become a conditional sale by the accidental form of the transaction, or that an agreement to make it such, in default of payment, may not be relieved against, or that a jury are not the proper judges of the intent.”

The great question in every such case is, what was the intent of the parties? We are very clear, from the answers and affidavits here, that it was the intent to make a conditional sale — that the relation of debtor and creditor did not at any time exist, and that if, at the end of the first or second year, Steadman fails to buy, these parties have no remedy agaiifst him. If the property burns up, if the dam breaks, if Stead-man refuses to insure the property, the whole risk is on the part of the defendants. Steadman does not owe them a dollar except for rent. If the mills should, as we have said, get burned up, and the defendants lose in any way the insurance, which at best is only three-fourths of the value, they have no right to go on Steadman for any debt but the rent. In fact, the relation of debtor and creditor does not and never did exist between them. Now, if this is a mortgage as to Stead-man, it is a mortgage as to the defendants, and he owes them the amount of their payments with interest. It seems to us that all the facts indicate that such was not the intent of the parties. There was a better way to secure money than that. Some of their money was already better secured. They had judgments for it, and it was easy to put their whole payment in that shape by paying and taking a transfer of the other judgments which their money discharged.

As a matter of course, we do not say, or undertake to say, what a jury may find in the proof as it will be made on the trial. The question of intention is one of fact, to be decided from all the circumstances, including the papers. It is impossible to lay down any accurate, rigid rule by which to ascertain the motives of the parties. They are to be gathered from all the circumstances. Even the papers are open to contradiction by parol, though in this State, if the possession has changed, a deed absolute on its face cannot be shown to be a mortgage, unless, indeed, fraud in its procurement is the issue: See Revised Code, 3756.

In this case Steadman remained in possession, for if the real. intent was only to secure the payment of the money which these defendants advanced to take up the executions, or which was due them on the executions they held, and which they entered satisfied, we do not think the putting the interest in the shape of rent, and the agreement that Steadman should be the tenant of the defendants, would change the possession. A lease is consistent with the relation of mortgagor and mortgagee. Hence a lease does not change a mortgage to a conditional sale: See Kunkle vs. Wolfersberger, 8 Watts, 131. And we think that section of the Code, denying the right of showing by parol that an absolute deed was intended as a mortgage, when the deed is accompanied by the possession of the property, means an actual possession, and not that sort of possession which consists in agreeing to hold possession for the grantee in the deed. The statute evidently recognizes the formal change of possession as an act indicating on the part of the grantor in the deed, by the deliberate abandonment of his own possession, that his agreement is fully expressed in the deed. The consent to be the tenant of the grantee is only another term of the agreement, and is not an act in furtherance and in pursuance of the agreement indicating that it is in truth what it purports to be.

As we have said, the whole question is one of intent. If Steadman’s account of the transaction, as contained in the charges in the bill, be the true one, the intent was, doubtless, a mere device to secure money and to get illegal interest. But if the answers of the defendants, and the decided weight of the affidavits, state the truth of the case, then it was almost certainly a conditional sale. The form of the papers, the words used, the acts of the parties at the time, as the absence of any evidence of debt as anote or bond, the satisfaction of the judgments, the taking of receipts from Steadman, the want of any great disparity between the real value and the amount paid by the defendants, and the strong, decided, positive statements of the answers, and the affidavit of the scrivner who wrote the papers, are, so far as the issue of injunction or no injunction is concerned, very strong in favor of a conditional sale.

On the other hand, there is really nothing but the statements of the complainant and the general suspicion which, in the nature of things, must attach to all such transactions. The strongest view of the case for the defendants is, to our mind, the evident intent that the right to repurchase is optional with Steadman. He may buy back, if he pleases; or if he pleases, he may not. -

If, at the end of the first or second year, the property is still worth the money, and he is able, he has, by the bargain, the right to repurchase; but if the property has depreciated, or if he thinks he can do better in some other way with his money, he can let it alone. Even Steadman, himself, does not, in his own statements, say or pretend that the intent was otherwise than this. If this was the truth of the transaction — if it was, in fact, simply a contract of sale, with a right, an option in Steadman to rebuy, with no corresponding right, either express or implied, in the other parties to insist on the repayment of the money — then it was not a mortgage. We do not mean that there shall be an express stipulation of this right to the lender.' If the facts, the nature of the transaction indicates it, that would be sufficient. There may be, too, when the case comes to a trial, something added by the proof to the charges in the bill, that, whether there was any agreement in terms of a loan or not, the real intent of the whole transaction was to evade the usury laws; not to make a mortgage, in terms, either in writing or by parol, but to violate the law against usury, and thus bring the transaction within the usury law, so as to make it void.

But as the bill, answers and affidavits now before us make the case, it seems to us almost impossible to escape the conclusion that the intent was to sell and to buy, giving to Steadman the right to rebuy. He had a right to make such a bargain, if he pleased. If, with his eyes open to the risk he was running, he did, in fact, sell his property, then rent it, intending or giving the others to believe that he intended, in reality, to sell, and to reserve the right to rebuy if he saw fit, he has made his own bed and must lie down under it. As we have said, under the evidence before us, that appears to have been the intent of both parties, and for this reason, we think the injunction ought not to have been granted, as prayed for.

As to the executions sought to be enjoined, the answers are so positive, decided and specific (and there is nothing in any of the affidavits contrary to them,) that unless the rule that the defendant is entitled to the benefit of his answer in the granting or dissolving an injunction is to be entirely disregarded, we see no reason for the injunction. All the moneys covered by the original trade are fully accounted for by receipts under the complainant’s own hand, and the ownership of these ft. fas. seems almost without question to be in the defendants, by purchase and transfer, entirely independent of the contract originally made. We think tbe injunction as to these ft. fas. is entirely improper, and that there is nothing in any of the facts appearing at the hearing to justify the Court in staying the regular process of the law, as to them, however hard it may be.

We think, however, there is ground for an injunction. It is very apparent that the defendants have avowed their intention to insist on the payment of the full $10,000 00 rent. And if complainant fails to pay that, they have given him notice that they will treat the condition as broken. Perhaps, by the strict letter of the contract, they are right, but one cannot but feel, on the reading of the contract itself, that the additional machinery to be bought with the $10,000 00 was a large ingredient of the rent. That money has not, in fact, been paid. The defendants still have that money, and the complainant has not got the benefit of it. And, whilst we have some doubt of the power of a Court to interfere, yet, under the circumstances, we think the defendants ought to be restrained from insisting on more rent for 1872 than has already been paid; at least, that he be not allowed to take possession for non-compliance with the conditions until a jury can, on regular proof by both parties, pass upon the issue.

Judgment reversed, with instructions.