Keithley v. Wood

Mr. Justice Craig

delivered the opinion of the Court:

When this case was first submitted we were inclined to hold that the decree of the Circuit Court, and the judg_ ment of the Appellate Court were erroneous and a judgment of reversal ivas entered, but upon the petition of complainant a rehearing was ordered, and upon a further examination of the case, we have arrived at a different conclusion . At the time the deed and agreement were executed, no one was present but Wood and his wife and Keithley. They, and they alone, are the persons who know the facts under which the deed and contract were executed. Rejecting the testimony of Mrs. Wood, on the ground that she being the wife of the complainant is disqualified as a witness, we have complainant and defendant as the only witnesses testifying to the nature and character of the transaction. Wood testified in substance that he borrowed of Keithley, a certain amount of money in addition to the amount of the judgment Keithley held against him, and that the deed and agreement were executed as a mortgage to secure the payment of the amount agreed to be due, $937.50, and that a sale of the land was not made. On the other hand, Keithley testified that he purchased the land, paying therefor the-amount named in the contract which was made up of the judgment he held against Wood and the balance in money which he paid at the time, that the agreement was given which authorized Wood to repurchase, as provided by its terms,, and that the transaction was not a loan. It is thus seen that the testimony of the two parties, in regard to the matter in dispute, whether the transaction was intended as a loan, or a sale and resale is irreconcilable. Where land is conveyed in fee by a deed with conven ants of warranty, and there is no condition or defeasance either in the deed or in a collateral paper, and parol evidence is resorted to for the purpose of establishing that the deed was given as a mortgage, such evidence must be clear and convincing, otherwise the presumption that the deed is what it purports upon its face to be, must always prevail. This principle is well established. In Coyle v. Davis, 116 U. S. 108, in discussing the question, the court said: “The conveyance-to Davis of the undivided one-tliirdof Coyle, being to him, his heirs and assigns forever, with a covenant of warranty, and without a defeasance either in the conveyance or in a collateral paper, the parol evidence that it was to operate cnly as a mortgage must be clear and convincing, or the presumption that the deed is what it purports to be must prevail.”

So, in the case of Cadman v. Peter, 118 U. S. 73, the court said: “If the conveyance is in fee, with a covenant cf warranty, and there is no defeasance either in the conveyance or in a collateral paper, parol evidence that it was given to operate as a mortgage must be clear and convincing.”

But where there is a conveyance by deed and a defeasance in a collateral paper, or a contract for a resale, and the evidence leaves it in doubt whether the transaction was intended as a conditional sale or a mortgage, it will, as a gen-, eral rule, be treated as a mortgage.

In Crosby v. Buchanan, 81 Ala. 574, there was a deed and an agreement to reconvey, as is the case here. The court said: “The character of the deed must be determined by the intention of the parties, clearly and satisfactorily proved. When it is absolute, and only parol evidence is relied on, the party affirming that the conveyance was intended as a security for a debt, must show that such was the intention by clear and convincing evidence. But when it is admitted or shown by a separate written instrument, that the transaction is not an unconditional sale, as the deed imports, but either a mortgage or sale with right to repurchase, the court, in the interest of complete justice, is inclined to construe the transaction as a mortgage. Any doubt as to the intention will be resolved in favor of the construction that the conveyance is a security for a debt.” Citing Mitchell v. Wellman, 80 Ala. 60. See, also, Turner v. Wilkinson, 72 Ala. 361; and McNeil v. Noseworthy, 39 id. 136.

In Russell v. Southard, 12 Howard, 145, where there was an absolute deed and an agreement to resell upon the payment of a specified amount at a certain time, on a bill to redeem, the court held the transaction to be a mortgage. In the decision of the case the court said: “It is not to be forgotten that the same language which truly describes a real sale may also be employed to cut off the right of redemption in case of a loan on security; that it is the duty of the court to watch vigilantly these exercises of skill, lest they should be effectual to accomplish what equity forbids; and that, in doubtful cases, the court leans to the conclusion that the reality was a mortgage and not a sale.” Citing, in support of what is said, Conway v. Alexander, 7 Cranch, 218; Flagg v. Mann, 2 Sumn. 533; Secrest v. Turner, 2 J. J. Marsh, 471; Edrington v. Harper, 3 id. 354; Crane v. Bonnell, 1 Green Ch. 164; Robertson v. Campbell, 2 Call. 421; Poindexter v. McCannon, 1 Dev. Eq. Cas. 373.

In the case first cited, Chief Justice Marshall, in delivering the opinion of the court, in plain terms declared, that doubtful cases have generally been decided to be mortgages. See, also, Peugh v. Davis, 96 U. S. 332, and Buck v. Buck, 98 U. S. 514.

• In Jones on Mortgages, sec. 279, the author says: “When it is doubtful whether the transaction is a mortgage or a conditional sale, it will generally be treated as a mortgage, although it is, in some of the cases, said that the transaction appearing upon its face to be a conditional sale, will be held to be such when no circumstances appear showing an intention that it should be considered a mortgage. But generally courts of equity incline against conditional sales, and give the benefit of any doubt arising upon the evidence in favor of the grantor’s right to redeem.” See, also, sec. 278.

In O’Neill v.Capelle, 62 Mo. 202, where there was a deed and a contract to resell: the court held, where the matter was in doubt, the doubt would be thrown in favor of the theory of a mortgage.

Trucks v. Lindsay, 18 Iowa, 504, is a case in point. It is there said: “A resort, however, to a formal conditional sale, as a devise to defeat the equity of redemption, will, of course, be unavailing for that purpose. And the possibility of suchresort, together with other considerations, has driven courts of equity to adopt as a rule, that when it is doubtful whether the transaction is a conditional sale or a mortgage, it will be held to be the latter.”

In Rockwell v. Humphrey, 57 Wis. 412, the same doctrine is announced.

The Supreme Court of Virginia, in Snavely v. Pickle, 29 Gratt. 27, in discussing the question, said: “There is a well defined distinction between a mortgage and a conditional sale, but it is often very difficult to determine whether a particular transaction amounts to one or the other; and, after all, each case must be determined on its own circumstances, and in doubtful cases the courts incline to construe the transaction to be a mortgage rather than a conditional sale.”

Substantially the same rule has been adopted in the following cases: Holton v. Meighan, 15 Minn. 69; Rich v. Doane, 35 Vt. 125; Bacon v. Brown, 19 Conn. 29; Klein v. McNamara, 54 Wis. 90.

In Pomeroy’s Equity Jurisprudence, sec. 1194, the author lays down the rule, where there is a conveyance with an agreement to repurchase, the two papers taken together may be what on their face they purport to be—a mere sale with a contract to repurchase—or they may constitute a mortgage.

In sec. 1195 it is said: “A general criterion, however, has been established by an overwhelming consensus of authorities, which furnishes a sufficient test in the great majority of cases; and whenever the application of this test still leaves a doubt, the American courts, from obvious motives of policy, have generally leaned in favor of the mortgage. This criterion is the continued existence of a debt or liability between the parties, so that the conveyance is in reality intended as a security for the debt, or indemnity against the liability. If there is an indebtedness or liability between the parties, either a debt existing prior to the conveyance, or a debt arising from a loan made at the time of the conveyance, or from any other cause, and this debt is still left subsisting, not being discharged or satisfied by the conveyance, but the grantor is regarded as still owing, and bound to pay it at some future time, so that the payment stipulated for in the agreement to reconvey is in reality the payment of this existing debt, then the whole transaction amounts to a mortgage, whatever language the parties may have used, and whatever stipulations they may have inserted in the instruments. On the contrary, if no such relation whatsoever of debtor and creditor is left subsisting, then the transaction is not a mortgage, but a mere sale and a contract of repurchase.” The principle announced by the author was sanctioned by this court in Rue v. Dole, 107 Ill. 275, and the transaction there involved was held not to be a mortgage. But there is a clear distinction between that case and this one.

Here it is true that the $566.50 judgment held by appellant against Wood, and the mortgage previously given to secure the notes upon which judgment had been entered, were canceled, but after the execution of the warranty deed and the agreement to reconvey, was there no debt existing? While the debt assumed a new form when all the facts and circumstances are considered, we do not think it was paid and discharged, but, on the other hand, it was enlarged by appellant advancing an additional sum, increasingthe amount from $566.50 to $937.50. The appellant himself testified: “When I handed him the deed to read it over, he said, ‘this is a warranty deed, and you agreed to give me an agreement back,’ and I said, ‘yes, I will, but I can’t draw them both at once.’ ” If Wood had sold the land to appellant, and the transaction was a sale and not a mortgage, why should Wood object to a warranty deed. After appellant had receipted the indebtedness and paid over the additional sum advanced to Wood, he testified that the following occurred: I said, “Chauncey, now this is a matter of business, and you must look out for yourself. This contract means just what it says, that you have got to pay me back this money within that time or you will not get any chance to pay it back afterwards—the property is mine.” He said, “Don’t you worry a bit about that. You will get your money a long time before it is due.” I said, “Very well.”

It is apparent from this conversation that the parties both understood that there was a debt existing, one insisting that the money should be paid back on a specified date, the other affirming it would be paid before due.

Again, appellant testified that Wood came to his office on December 31, and said: “I am not able to pay you back that money to-day.” I said, “Chauncey, this is the last day, the money is due, and you know what I told you when you took it.” He said, “Well, I know that, but I did not sell the thirty acres.” And he says, “I want a little more time.”

Appellant also testified that Wood, referring to the thirty-acre tract, said, “Your option expires on the 10th of January,” he says, “Now, give me a chance to rebuy the interest in the home place until that option expires.” I said, “Well, I will do it; but now Chauncey, I will tell you for the last time that you get no further extensions out of me. You are not in the habit of paying your debts very promptly, and I have been a little easy with you, but this a finality; you will get no further extensions.”

If no debt existed, what did appellant mean when he said, “the money is due, you know what I told you when you took it. I will extend the time, but you will get no further extensions.” There is another fact which indicates that the parties did not regard the transaction a sale. Wood owned only one-seventh of the one hundred and twenty acre tract of land, and that interest was subject to the dower interest of his mother, and yet the deed executed to appellant was a general warranty, purporting to convey the entire one hundred and twenty acre tract. If the deed was but a mortgage to secure the repayment of a small amount of money, which was expected to be repaid in a short time, Wood might well conclude that it was not necessary to be particular about describing the land accurately. On the other-hand, if he was selling his undivided one-seventh interest, it is unreasonable to believe that he would be willing to execute a deed conveying lands that he never owned, where he could be held liable at once on his covenants of title. Whether a deed and an agreement to resell, like those in question, are to be regarded as an absolute sale, or as a mortgage, depends upon the existing facts and circumstances which led to their execution, and not upon the form the parties saw proper to give the transaction. Hence, the facts and circumstances surrounding the transaction may be proved by parol evidence, not for the purpose of contradicting the deed, but for the purpose of raising an equity paramount to its terms and conditions. Carter v. Carter, 5 Texas, 93; Purviance v. Holt, 3 Gilman, 394. Here Wood testified that the transaction was a loan, and the deed executed as security. And we are inclined to the opinion that the facts and circumstances tend to establish the correctness of his version of the transaction. But even if the matter was left in doubt, which is as favorable a view as can under all the facts be taken of the question, under the rules of law established by the authorities, the court would be compelled to hold that the deed was a mortgage. The judgment of the Appellate Court will be affirmed.

Judgment affirmed.