Pollak v. Millsap , 219 Ala. 273 ( 1928 )

On Rehearing. It is urged that the court has not properly interpreted the transaction, but that it is in effect a conditional sale, and that complainant had in reality only an option, or right to pay the note and take up the deed. Surely we agree that upon that question the whole case hinges. It is well stated so to be the rule in 41 Corpus Juris, 297, as follows:

"When property has been sold at a judicial sale, and a stranger, at the request of the debtor, advances the money necessary to effect a redemption from such sale, taking to himself an assignment of the sheriff's deed or certificate of purchase, with an agreement to convey the property back to the debtor on being reimbursed for the amount of his advances, if the parties meant to treat the advance made by the stranger as a loan to the debtor, and intended that he should hold the land simply for security for the payment of the debt thus created, it will be regarded and treated in equity as a mortgage of the land; but if the arrangement between the parties does not create the relation of debtor and creditor, but leaves it optional with the original owner to repay the stranger advances or not, it is merely a sale with a right of repurchase." 41 Corpus Juris, § 39, p. 297.

"If a person who has contracted for the purchase of land procures another to lend him the money necessary to make the payments, or to advance it to him, and has the deed made to the latter, with an agreement that he will convey the title to the former on repayment of the amount advanced, the transaction will amount to an equitable mortgage if it was the understanding and intention of the parties that the one should become debtor to the other for the money advanced, and that the land should be held merely as security for this debt. If this was their contract, the form in which they may have cast the agreement is immaterial. It is not necessary that the agreement to reconvey should be under seal, or even that it should be in writing; a mere oral agreement will be sufficient in equity, if fully established; but one having no interest in land, legal or equitable, at the time a deed was executed by the owner to a third party, cannot assert the rights of a mortgagor therein against the grantee, solely by virtue of an oral agreement made by the grantee to convey the land to him upon payment of a certain sum. While it is necessary, as stated, that the transaction should be intended as a security for a debt or loan, no promise or personal covenant on the part of the borrower to repay the money is required to make it a mortgage in equity. * * * The question of the intention of the parties, if not undisputably established by the face of the papers, is one of fact, which must be determined on the testimony of witnesses and evidence of pertinent circumstances. And if it thus appears that there was no design to pledge the land as security for a loan, but merely that the person who advanced the money to make the purchase should take the title absolutely in himself, with an option or privilege to the original purchaser to acquire the title, or to take the property off the other's hands, within a limited time, on paying a certain amount of money, then the transaction is not a mortgage of the land, as in that case an essential element of mortgages is lacking, namely, a debt or obligation to be secured." 41 Corpus Juris, § 40, pp. 297, 298.

The notes in Corpus Juris, supra, cite our Alabama cases and many others in support of the conclusion. We have shown that the Alabama cases support that conclusion. If all the facts show an option to purchase merely, it will not be treated as a mortgage.

The bill of complaint distinctly alleges: "Complainants borrowed the sum of $3,526.00 either through or from Joel B. Brown," and evidenced the transaction by the execution of a note. The note copied shows an unconditional promise to pay money, with interest until paid, and costs of collection, and an attorney's fee, with a waiver of exemption, and recites that for the purpose of securing this indebtedness a deed is to be deposited in the bank, to be held by the bank until the debt is paid; if not paid at maturity, the bank is authorized to deliver the deed to the grantee. The bill further says that the transaction was a mortgage securing the loan of money. The bill was dismissed for want of equity. If there was a loan of money, secured by a deposit in the bank of the deed executed to the lender, our cases all hold the transaction enforceable as a trust in the nature of a mortgage. Can complainant prove those allegations of a loan creating an unconditional debt? If so, the case is well supported. It is not now a case of proof, but of averment.

Another Alabama case very much in point is Hughes v McKenzie,101 Ala. 415, 13 So. 609. In that case complainant had purchased land and taken a bond for title. The price was $1,000. He paid $600, and borrowed $400 from defendant, and executed his note to him, and the seller executed an unconditional conveyance to defendant. Complainant alleged that the deed was security for the debt, and sought to redeem. The court used the following language:

"From a careful review of the evidence, we ascertain that the relation of debtor and creditor did not exist between the complainant and defendant prior to the transaction we consider; that it began in a negotiation for a loan from the defendant to the complainant; that the negotiation ended in defendant advancing for complainant to Boswell the sum of $400, for which complainant executed his note to defendant for $480, payable on October 1, 1885; that said note has been from that date to this a continuing debt in the hands of defendant against the complainant, on which he has been, and is liable to suit; that Boswell had no negotiation with defendant for the land, but executed his deed to him by the direction of complainant, in consideration of the payment by defendant for complainant of the balance due on the land; that the land was sold in the beginning, and was conveyed for $1,000, and that $400, the sum defendant says he paid as a consideration for his conveyance, is in great disproportion to its real value. After this, if any doubt remained as to the character of the transaction, we would resolve it in favor of its being a security or equitable mortgage for a loan. Daniels v. Lowery, 92 Ala. 521, 8 So. 352; Knaus v. Dreher, 84 Ala. 320, 4 So. 287; Vincent v. Walker,86 Ala. 333, 5 So. 465; Turner v. Wilkinson, 72 Ala. 366.

"The defendant does not deny that complainant procured him to pay the balance due by himself on the land to Boswell, and, according to his account of the transaction, the agreement was that, if complainant repaid the $480 in 12 months, he should have the property. Such a transaction is construed in equity to be a mortgage and not a conditional sale. Nelson v. Kelly,91 Ala. 574, 8 So. 690."

In that case it was upon allegation and proof on final decree. The court refers to the fact that there was no evidence that defendant negotiated for a purchase of the land, but that it originated in a loan. Defendant, however, contended, as here, that complainant only had an option to purchase. But the court held that the transaction should be construed in equity as a mortgage, and not a conditional sale.

This court cannot say that the transaction was a conditional sale, when the bill alleges otherwise, and there is nothing in the bill inconsistent with that allegation. What will the proof show, that is not now before us? The allegations fully state the essentials of a right of recovery, if they are proven. The true inquiry is stated as follows in Knaus v. Dreher, 84 Ala. 319,320, 4 So. 287, 288:

"There is an additional element which enters into such inquiry. To establish the proposition that the conveyance, absolute in form, was in intention and in fact only a mortgage — security, there must be a continuing binding debt from the mortgagor to the mortgagee to uphold it; a debt in its fullest sense. Not a mere privilege reserved in the grantor to pay or not at his election, but a debt which the grantee can enforce as a debt, and for its collection may foreclose the conveyance as a mortgage. Where there is no debt, there can be no mortgage; for if there is nothing to secure, there can be no security. Eiland v. Radford, 7 Ala. 724 [42 Am. Dec. 610]; West v. Hendrix, 28 Ala. 226; Swift v. Swift, 36 Ala. 147; Peoples v. Stolla, 57 Ala. 53; Haynie v. Robertson, 58 Ala. 37; Logwood v. Hussey, 60 Ala. 417; Douglass v. Moody, 80 Ala. 61; Perdue v. Bell, 83 Ala. 396 [3 So. 698]; 1 Jones on Mort. § 267."

If there is a debt for borrowed money, for which the creditor may sue, and the title of the land was made security for that debt it is a mortgage — either an equitable mortgage, or a trust in the nature of such, as herein explained. If there is no debt, but only an option, there is no mortgage, nor trust in the nature thereof. As above stated in Hughes v. McKenzie, all doubts are resolved in favor of it being a mortgage, and not a conditional sale. But the question of doubt is not here involved, because it is here one of positive averment. When there is such a positive averment, we may not indulge the contrary presumption to dismiss the bill, when the written instruments are consistent with such allegations.

It follows that, if complainants can prove their allegations, they are entitled to relief.

The case of Glendenning v. Johnston et al., 33 Wis. 347, is cited by appellees. That was a case heard on the pleadings and proof. The alleged borrower, after there was default in the payment of the alleged debt, directed a delivery of the papers to the defendant. The voluntary act of plaintiff in causing a surrender of the papers is emphasized in the opinion. It is said:

Such default and voluntary surrender amounted to a complete cancellation of the defeasance, and left the conveyance to take effect on delivery as an absolute conveyance."

It is also said that the transaction is this:

"The Johnstons advanced a sum of money for the use and benefit of the plaintiff. It was agreed between them that suchadvance, if repaid in 30 days, should be a loan, but, if not repaid in that time, it should be the consideration for an absolute conveyance of the land in question. For that period it was optional with the plaintiff to make the transaction either a loan of money or an absolute purchase and sale of land. By failing to repay the money he elected that the transaction should become a valid, executory contract for an absolute sale of the land, which was fully consummated by the delivery of the deed. Until the plaintiff made default, the character of the conveyance held by Hobkirk was undetermined. The plaintiff might have rendered it a mortgage, but he failed to do so; and hence, upon being duly delivered to the grantees named in it, it conveyed to them the title which it purports to convey, to wit, an absolute, unconditional title to the land in controversy."

In the case we are considering the allegations of the bill show no optional right but an unconditional promise to pay a debt for borrowed money. The bases of the above decision are that (1) by the agreement the alleged debtor had an option, and (2) after the debt became due he "voluntarily directed its [the deed's] delivery." It is also said: "In this case the defeasance was reduced to writing, signed by the parties, and deposited in escrow, and the plaintiff voluntarily directedthat it be surrendered to the Johnstons, which surrender, as before observed, canceled it." It was also said that what would have been a contract for defeasance "was, by the default and the voluntary act of the plaintiff, entirely annulled." On the other hand, in a later case in Wisconsin, Beebe v. Wis. L. Co.,117 Wis. 328, 93 N.W. 1103, the rule we have asserted is applied, and it is there said: "A transfer of property as security, regardless of the form thereof, is a mortgage." Likewise the same court held a transaction was enforceable where a holder of a contract to convey procured another to advance the money and took a deed, though there was no other writing. The court made such creditor stand by his contract on the doctrine of estoppel, and cited the quotation from Cyc. (now Corpus Juris) which we have cited above. To the same effect is Hoile v. Bailey, 58 Wis. 434, 17 N.W. 322.

None of the cases cited conflict with our holding, in the light of the allegations of the bill we have before us.

In 2 L.R.A. (N.S.) 628, there is a note on the subject of the effect of a deposit in escrow by a debtor of a deed, to be delivered upon default in the payment of a stipulated sum. The result reached is that, if the deed is executed and delivered in escrow as a part of the transaction of borrowing money, it is in effect an effort to cut off the equity of redemption by a contemporaneous transaction; but if the deed is so delivered in escrow by a subsequent transaction after the loan is effected, it thereby cuts off such redemption. This may be done by a bona fide subsequent transaction, but not a contemporaneous one.

In the case of First Nat. Bank v. Sargeant, 65 Neb. 594,91 N.W. 595, 69 L.R.A. 296, it was held that, when a deed is given to secure a debt, although the parties agree that upon default of payment the deed shall become absolute, it is nevertheless a mortgage in equity and subject to redemption. To the same effect is State Bank of O'Neill v. Mathews,45 Neb. 659, 63 N.W. 930, 50 Am. St. Rep. 565.

The case of Bodwell v. Webster, 13 Pick. (Mass.) 411, is different from the one at bar. In that case the court distinctly stated that the question of the delivery of the defeasance, constituting the deed a mortgage, depended upon a contingency. The bill here alleged to the contrary of that, but that there was a debt (nothing else) secured by the deed.

It is also insisted that the fact of deferred payments in the case of Millsap is not sufficient as an equivalent of notice to him to that extent, because the note may be negotiable and may be negotiated for value, and held by an innocent purchaser, and that thereby Millsap is bound to pay it. There is no fact alleged from which such implication may be drawn. The court will not indulge in such speculation. If a condition of that nature exists, it should be set up in the answer. We hold the grounds of demurrer as to notice were not good, for that Kenney was an original party to the transaction and cannot be an innocent purchaser, and the bill shows that the purchase money had not all been paid by Millsap, and therefore, to that extent, he is not an innocent purchaser. If any circumstance exists to militate against such a result, it is not shown in the bill. The bill need not negative vague speculations.

It follows that the application for a rehearing should be, and is, denied.

SAYRE and GARDNER, JJ., concur.