Kegley v. Skillman

Ellis, J. Action for unlawful detainer of leased premises, and for unpaid rent. The complaint alleges the plaintiff’s ownership of the property, the tenancy of the defendants, that they had failed to pay the rent for the months of September and October, 1910, that three days’ notice in writing to pay the rent or vacate the premises had been given defendant, and prayed for judgment for the rent, damages for the unlawful holding over, and for possession. The answer denied the principal allegations of the complaint, admitted the service of notice to quit, and set up affirmative matter as follows: “For an affirmative answer defendants say: That all of the interest plaintiff owns or holds in the described premises is an equitable mortgage by reason of certain advances made by plaintiff; and say further that certain payments were made by these defendants to plaintiff for the current month of September, which were designated as rent, but which were in fact, in equity and in good conscience intended as, and received as, interest upon the described equitable mortgage; and that the payment to be made in the month of October was duly and properly paid into the Olympia National Bank for the use of plaintiff at the time agreed for the making of said payment, where the said payment now is subject to the order of the plaintiff, unless the same has been drawn by him.” This affirmative matter was traversed by the reply. From the evidence, which is by no means clear, we gather that the defendants were, prior to November, 1908, owners of lots 8 and 4, block 4, Chambers’ addition to Olympia, subject to a mortgage held by one Frye; that the mortgage was foreclosed and the property sold to Frye early in November, 1908; that when the period for redemption had about expired, in November, 1909, the defendant Phil Skillman, being unable to redeem, went to one Gordon Mackay and, according to his testimony, said: “I will convey the whole thing to you. I think the words I used was, ‘Take the whole shooting match, because if I must lose it eventually, I would rather you would have it than the other party ;’ ” that Mackay [639] said, “I will help you out on the matter. I don’t want you to lose the property.” It further appears that Mackay, being unable to make the redemption, applied to the plaintiff, who furnished the money, $1,834.67, under verbal understanding with Mackay that plaintiff should receive an'absolute title to the property and that Mackay would take it off his hands in about six months. The redemption was made, and on November 5, 1909, the defendants, at the instance of Mackay and without any meeting or conversation with the plaintiff, executed to the plaintiff an absolute warranty deed of the property without reservation of any kind. On the following day, Mackay gave to the defendants, for an express consideration of $84.67, an option to purchase the property for $1,870, at any time before May 6, 1910. This instrument was a naked option, recognizing no debt and containing no undertaking on the defendants’ part to buy the property or to pay the money except at their own election. The plaintiff knew nothing of this option or of any arrangement between Mackay and the defendants. The defendants, apparently under some agreement with Mackay, the nature of which is not disclosed, remained in possession of the property. Within the six months from the time of plaintiff’s purchase, the agreement between him and Mackay that the latter would take the property off the plaintiff’s hands was abandoned by mutual consent. The plaintiff then for the first time came into direct communication with the defendants. On August 2, 1910, the plaintiff and the defendants entered into a written agreement whereby the plaintiff leased the premises to the defendants for a period of three months from August 1 to November 1, 1910, at a monthly rental of $18.50, payable monthly in advance, and at the time it seems, though the evidence is much confused, that the defendants paid some of the back rent from May 6 to August 2. The lease recited: “First parties agree to vacate said premises at the expiration of the said term, unless they purchase the [640] said property from the said second party.” On the same day, the plaintiff executed to the defendants an option for the purchase of the property for $1,850, on or before November 1, 1910, the date of the expiration of the lease. The option expressly declared that it was the only agreement existing at that time between the parties excepting the lease. This lease and option were arranged through Mackay, and hé a few days later wrote the defendants that there was unpaid the rent from May 16 (he testified that this date should have been May 6) to August 1, amounting, at $15 per month, to about $37.50, and certain taxes amounting to $42.40, which plaintiff had paid, and that by oversight these items had not been included in the option price. Accordingly on August 29, 1910, a memorandum signed by the plaintiff and the defendant Phil Skillman was appended to the option agreement, changing the price at which the option might be exercised from $1,850 to $1,900. This option contained no recognition of any debt from the defendants to the plaintiff, nor did it obligate them to purchase the property except at their own election. The cause was tried to the court, and a judgment was entered for $37 and costs against the defendants, and awarding the possession of the premises to the plaintiff. The defendants appealed. The appellants contend that the evidence shows that the deed to the respondent was intended' as a mortgage, and that the money paid for it was a loan. The intention of the parties, when properly ascertained, must determine this question. It is a rule established by almost universal authority that, when property is conveyed by a deed absolute in form without any defeasance or collateral agreement in writing to reconvey, clear and convincing evidence is required to establish that the deed was intended as a mortgage. Reynolds v. Reynolds, 42 Wash. 107, 84 Pac. 579; Hesser v. Brown, 40 Wash. 688, 82 Pac. 934; Dabney v. Smith, 38 Wash. 40, 80 Pac. 199; Reed v. Parker, 33 Wash. 107, 74 Pac. 61; [641] Swarm v. Boggs, 12 Wash. 246, 40 Pac. 941; Runyon's Adm'r v. Pogue, 19 Ky. Law 940, 42 S. W. 910; 28 Am. & Eng. Ency. Law (2d ed.), 954; Jones, Mortgages (6th ed.), § 335. While there are authorities which hold that, when there is a contemporaneous agreement in writing for a resale of the property to the grantor, courts of equity will incline to construe the transaction as a mortgage, and that the burden is then upon the party asserting that a conditional sale was intended to establish that fact by clear evidence, the distinction seems to us hardly logical. If the papers do not show upon their face an intention to create a mortgage, but rather a conditional sale, there seems no good reason for requiring a different measure of proof to establish an intention contrary to their purport in the case of two instruments from that required where there is only one, and we see no reason for shifting the burden of proof. “We think the better rule is that where there is a deed absolute in form, either with or without a contemporaneous agreement for a resale of the property, there being nothing upon the face of the collateral papers to show a contrary intent, the presumption of law, independent of evidence, is that the transaction is what it appears to be, and that he who asserts that the writing should be given a different construction must show by clear and convincing evidence, that a mortgage and not a sale with the right to repurchase was intended. This rule has the support of at least two decisions of the supreme court of the United States. Wallace v. Johnstone, 129 U. S. 58; Bogk v. Gassert, 149 U. S. 17.” Johnson v. National Bank of Commerce, 65 Wash. 261, 118 Pac. 21. Applying this rule to the case before us, we think that the appellants failed to establish by the requisite measure of evidence that a loan and security were intended. There is no evidence that any debt was created. The appellants did not testify that they ever agreed, even verbally, to repay the money. They took a mere option to repurchase the land, [642] and no one testified that anything different was intended. The contention that the value of the property was so greatly in excess of the consideration paid for it as to brand the transaction as an equitable mortgage cannot prevail. The evidence as to the value was conflicting. We will not discuss it further than to say that, though the value was doubtless considerably in excess of the price paid, the disparity was not so great as to overcome the clearly expressed purport of the written evidence, especially in view of the further circumstance that there was no debt, either antecedent or created at the time, and no obligation to pay. It cannot be seriously contended that, had the respondent sued the appellants for the amount he paid for this property as for a debt, he could have recovered judgment for that sum. The transaction manifestly lacked the reciprocal obligations necessarily incident to a mortgage. Sullivan v. Woods, 5 Ariz. 196, 50 Pac. 113; Johnson v. National Bank of Commerce, supra. The claim that the rent was paid for the full term was not established. A paid check for $18.50, bearing memorandum, “Rent Sept.,” is in evidence, but the respondent testified that it was given in payment of the rent for August, and there was no evidence that the August rent was otherwise paid. Another check bearing a memorandum, “Sept, and Oct. rent,” was also introduced. It was dated November 12, 1910, and made payable December 17, 1910. The respondent presented it at the bank for payment before the latter date, and payment was refused for lack of funds. The appellant claims that the money to meet this check was subsequently placed in the bank, but admits that he still later checked it out. In any view of the matter, he cannot claim that this check was a payment, when he failed to leave the money in the bank with which to meet it. The judgment is affirmed. Dunbar, C. J., Fullerton, Morris, and Mount, JJ., concur.