Orton v. Citizens' State Bank

All of the assignments of error are grouped together and argued under the proposition "that the trial court erred in rendering judgment in favor of the defendants and against the plaintiff."

Since the only question involved in this proceeding, as viewed by this court, is whether the findings of fact and conclusions of law by the trial court are sustained by the evidence, a determination of this question must be decisive of this proceeding. The findings of fact made by the trial court so far as material here read as follows:

"That said conveyance was made absolutely and unconditionally and was only qualified to the extent indicated in said collateral written contract attached to said petition as Exhibit D.

"That there was no agreement, oral or otherwise, between said J.A. Orton and the defendants, or either of them, whereby, said premises or any portion thereof, were conveyed in trust or for any fiduciary purpose.

"That no personal obligation subsisted in favor of the defendants, or either of them against said J.A. Orton after the execution and delivery of said conveyances and after the execution and delivery of said collateral contract attached to the petition as Exhibit D."

This being an equitable proceeding, this court is authorized to weigh the evidence, and if the findings of fact made by the trial court are clearly against the weight of the evidence, to render or cause to be rendered such judgment as should have been rendered in the trial court. Voris v. Robbins,52 Okla. 671, 153 P. 120; Haynes v. Gaines, 76 Okla. 268, 185 P. 74; Mobley v. Rhoades, 77 Okla. 64, 186 P. 230; Hogan v. Grimes,78 Okla. 184, 189 P. 353; Wyatt v. Shackleford, 79 Okla. 325,193 P. 427; Tracy v. Norvell, 81 Okla. 94, 196 P. 929.

In this case there is practically no conflict in the evidence as to the situation of the parties and the circumstances under which the instruments in controversy were executed. Harrill and his associates had sold the bank sometime prior to this transaction to J.A. Smith and his associates with the understanding that certain notes included in the assets of the bank might be returned to the sellers within a certain time if found to be worthless and the new owners of the bank should receive the face value of such worthless notes in cash. In this class of doubtful paper was included the note of J.A. Orton for $2,625, secured by a third mortgage on the mill property described as certain lots in blocks 242 and 243 in the city of Wagoner. At the time of the transaction made the basis of this action the bank nor Mr. Harrill neither held any other or additional security for the payment of this note. J.A. Orton had shortly prior to this time executed deed of trust or power of attorney in favor of one Eby covering all of the property owned by Orton, and which was thereafter conveyed to the bank, for the purpose of enabling Eby to handle and dispose of said property for the use and benefit of Orton in paying off the various mortgages and debts against said property and preserving to Orton his equities therein. With matters in this attitude, Orton was recalled from a trip which he had commenced for the benefit of his health, and it was represented to him that unless he executed conveyances to the bank covering this property and cancelled his conveyances thereof to Eby, that Harrill and his associates would be heavy losers. Orton was not willing to convey the property direct to Harrill, and the bank was not willing to release Orton from his personal liability on the note unless it had other security for its payment. It was thereupon agreed between Harrill and the bank that Harrill should guarantee the payment of the note provided Orton would convey all of his property to the bank. Smith, the cashier of the bank, and Harrill both testified, in substance, that while the legal title to the property after execution of the deeds by Orton was in the bank, it was conveyed by the bank only upon the direction of Harrill and to the persons designated by him. It is further shown by their testimony that the note continued as an existing indebtedness in favor of the bank and against Harrill, and that the only effect of the collateral agreement executed by the bank was to relieve Orton from the possibility of a deficiency judgment being taken against him upon foreclosure of the mortgage. And the mortgage was afterwards foreclosed. It is further shown by the testimony of Smith and Harrill that in the various transactions thereafter by which Harrill handled and disposed of Orton's property, the title to all property, taken in exchange therefor was vested in Harrill and not in the bank. The conclusion is therefore inescapable that Harrill and not the bank was the person beneficially interested in the legal title conveyed by Orton. His interest grew out of his contract as guarantor, and after such guaranty contract was entered into the bank had no further direct interest in the mortgage security, while by reason of the transaction Harrill became indemnified to the extent of Orton's equity in all of the other property against liability or loss by reason of his special contract as guarantor, as well as against liability and loss under the original agreement between him and his associates and Smith and his associates. The consideration of all of these matters is authorized by Comp. Stat. 1921, sec. 5050, as follows:

"A contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates."

The record is silent as to whether Harrill's contract as guarantor to the bank was written or oral, but this is immaterial under the second subdivision of sec. 5127, Comp. Stat. 1921, which reads:

"A promise to answer for the obligation of another, in any of the following cases, is deemed an original obligation of the promisor and need not be in writing: * * *

"Second, where the creditor parts with value, or enters into an obligation, in consideration of the obligation in respect to which the promise is made, in terms or under circumstances such as to render the party making the promise the principal debtor, and the person in whose behalf it made his surety."

It is further shown by the testimony that at some time after these conveyances by Orton, presumably after the sale of the mill property, Harrill paid the Orton note to the bank, and both Smith and Harrill testified that the bank now holds no obligation against Orton or his estate. After Harrill had been handling the Orton properties for some time, and after he had sold the mill property and the 160 acres of land in Wagoner county, Orton returned to Wagener and while there went to the state of Arkansas, according to the testimony of Harrill, and inspected certain property there which Harrill had taken in exchange when he sold the Wagoner county lands.

It is very clear from a consideration of all the testimony shown in the record that the conveyances by Orton to the bank were intended by all the parties as security to Harrill for his contract of guaranty, and that the bank held merely the naked legal title to the properties without any beneficial interest therein whatever. This being the case it is equally clear that Harrill could derive no beneficial interest from legal title vested in the bank except upon the theory that the bank held the legal title in trust for his benefit It is nowhere claimed that it was the intention of Orton to convey this property to Harrill, but it is evident that it was his intention to indemnify Harrill against loss under his contract as guarantor. That this intention has reached fruition is shown in the record. Harrill has realized on Orton's property at least to the extent of paying off all the mortgages against it, and the legal titles to the lands in Beaver and Pottawatomie counties and to the lots in Wagoner in block 334 are held by the bank free and clear of incumbrances.

Upon a consideration of the entire record in this case it must be held that all of the essential elements necessary to constitute a deed, absolute on its face, an equitable mortgage or deed of trust are shown to be present. There was a debt in existence which was inadequately seemed. Its payment was guaranteed by one already secondarily liable thereon. The guarantor was indemnified by the debtor conveying additional assets as security. The Creditor accepted the guaranty, and thereafter looked to the indemnified guarantor for payment. The debt was thereafter discharged by such indemnified guarantor from proceeds of a part of the property conveyed for his benefit. As was said in Worley v. Carter, 30 Okla. 642,121 P. 669:

"The real intention of the parties, either as shown upon the face of the writing, or as disclosed by extrinsic evidence, must govern in equity."

To the same effect, see: Farrow v. Works, 39 Okla. 734,136 P. 739; Vorhis v. Robbins, 52 Okla. 681, 153 P. 120; Messer v. Carroll. 60 Okla. 910, 159 P. 62; Hall v. Russell,72 Okla. 47, 178 P. 679; Haynes v. Gaines, 76 Okla. 268,185 P. 74; McKean v. McLeod, 81 Okla. 77, 196 P. 935.

It is, therefore, concluded that the findings of fact made by the trial court are against the clear weight of the evidence, and that the conclusions of law based thereon are erroneous. It is, therefore, recommended that this cause be reversed with directions to the trial court to vacate the judgment rendered herein and to enter a decree in favor of the plaintiff decreeing the deeds in controversy to be equitable mortgages, and that an accounting be had in said trial court between the parties, and for such further proceedings as may be necessary and proper to conform to the views herein expressed.

By the Court: It is so ordered