Hoffman v. Ryan

Green, Judge, announced the opinion of the Court: Many questions were raised in this case, in the court below, and have been argued in this Court, which in my judgment are not questions which can be considered or determined in this cause, though much evidence was taken in reference to them. It is these questions not properly in this case, which have so swelled this record. It contains three hundred and sixty-five manuscript pages, most of which have no bearing on the real questions proper to be decided in this case. In stating the case, I have merely stated enough' of this foreign matter to show the questions on which it was thus attempted to have the Court act in this case; but I have not stated the facts in full in reference to them. The first questtion really to be determined in this cause is, what is the true character of the transactions, which culminated on March 20, 1876, in Benjamin Ryan and wife executing a deed with general warranty of title, to John W. Cor-rothers, for the tract of land belonging to said Ryan in Monongalia county, containing two hundred and eighty-five — 429 — acres more or less, excepting six and one fourth acres sold to L. M. Gidley; and at tbe same time signing, together with John W. Corrothers, the agreement bearing date the same day, and which was a part and parcel of the same transaction? "Was this a conditional sale of this tract of land, as contended for by Corrothers, or was it a mortgage as contended for by Ryan, or was it an absolute sale of the land with certain rights and privileges conferred on Ryan, with reference to this land, by this written agreement ? The law on this subject is thus stated in Davis, Committee, v. Demming et al., 12 W. Va. p. 281, 282: .“A. conditional sale with a right to repurchase, very nearly resembles a mortgage. The distinction is, that if the money advanced is not loaned, but the grantor has a right to refund it in a given time and have a reconveyance, if the debt remains, the transaction is a mortgage, otherwise not. See Robinson v. Cropsey et al., 2 Ed. Chy. 137; Slee v. Manhattan Co., 1 Paige’s Ch. 56; Hicks v. Morris, 5 Gill. & J. 75. In a case of doubt however, the court of equity will always lean in favor of a mortgage rather than a conditional sale. Conway’s Ex’r v. Alexander, 7 Cranch 237; see also Dougherty v. McColgar, 275. Parol evidence, the declaration and conduct of parties at the time of the transaction or subsequently, as well as all the circumstances attending or surrounding the same are received to show, whether the transaction was a conditional sale or a mortgage; and this is done though the deed or bill of sale be absolute on its face. Robertson v. Campbell, 2 Call 354; King v. Newman, 2 Munf. 40; Lamb v. Shears, 1 Wend. 437; Horner v. Kiteltas, 46 N. Y. 605.” (See also Morris v. Executor of Nixon et al., 1 How. 118; Russell v. Southard et al., 12 How. 139; Pierce v. Robinson, 13 Cal. 116; Key v. McCleary, 25 Ia. 191; Crane v. Buckhannon et al., 29 Ind. 570; Stupp v. Phelps, 7 Dana 297; Emerson v. Atwater, 7 Mich. 12; Johnson v. Huston, 17 Mo. 58; Sweet v. Parker, 22 N. J. Eq. 453; Van Buren v. Olmstead, 5 Paige 9; Hills et ux. v. Loomis, 42 Vt. 565; Mann v. Falcon, 25 Texas 271.) And again on page 282: “The fact that by the papers executed no right of redemption exists, will be considered a matter of no importance, if it be shown by proof or surrounding circumstances, that a security or pledge for debt was intended; for a party is never — 430 — allowed to take from bis debtor by any form of contract bis right to redeem. See Chapman v. Turner, 1 Call 280; Thompson v. Davenport, 1 Wash. 128; Pennington v. Handy et al., 4 Munf. 140; Scott v. Britton, 2 Yerg. 215; Bennett v. Holt, 2 Yerg. 6; King v. Newman, 2 Munf. 40; Holdridge v. Gillespie, 2 John. Chy. 30; Clarke v. Cowan, 2 Cow. 325; Horn v. Kiteltas, 46 N. Y. 605. If the vendor remains in possession of the land after the alleged sale, this is a circumstance that tends to show, that it was not really a sale but a mortgage, for such continuing possession in the vendor after a sale, if not inconsistent with a sale is an unusual accompaniment of it. Ross v. Norvell, 1 Wash. 40; Thompson v. Davenport, 1 Wash. 125; Bennett v. Holt, 2 Yerg. 6. The law as thus stated seems to me to settle, that the transaction of Mach 20, 1876, between Benjamin Ryan and John W. Corrothers, constituted not a conditional sale, or a sale with certain rights of afterwards selling in a given time, and not afterwards conferred on Ryan, but a mortgage of the land by Ryan to Corrothers, to secare to Corrothers the repayment of all the moneys he should advance for Ryan under the agrément- in writing made at the same time; and also to secure the interest on said advances and the old debt then amounting to five hundred and thirty-seven dollars and fifty cents, which Ryan owed to Corrothers, but from the compulsory payment of which, Ryan had been discharged as a bankrupt, together with the interest on said debt. As in other cases of mortgages Ryan, the grantor, was to remain in the possession of the said land. It is true, that he was to pay what was called a rent on this land of two hundred and forty-two dollars a year; but then on the face of this agreement he had the right to pay off the advances made by Corrothers for him, by paying the principal of it only, so that this nominal rent of two hundred and forty-two dollars, was really but a substitute for the interest on the money to be advanced by Corrothers. Ryan says this interest agreed on was eight per cent, per annum, and the interest on the moneys advanced at that rate would be two hundred and forty-three dollars, or only one dollar more than this nominal rent; and this one dollar was probably allowed, because the rent was charged from a time some,- — 431 — wbat in advance of tbe time at which the money was expected to be advanced, and was actually advanced. The taxes too, on this land, were by this agreement to be paid by Ryan, precisely what would have been done had he been a mortgager of the land. Then too, neither this nominal rent nor any part of it was ever paid by Ryan, though he held the lan'd for years. This would be perfectly natural if it was interest secured by a mortgage, hut very unusual if he was really a tenant of Corrothers. The parol testimony in this case, all tends to prove, that the parties understood the conveyance made by Ryan and wife to Corrothers, as a mortgage and not as a sale. Ryan states the details of the transaction, and clearly if he is to be believed, the transaction was a mortgage and not a sale; it was a borrowing of money of Corrothers, and not a sale of his 'land to him. Corrothers on the other hand, does not pretend to state the details of this transaction, but relies solely on the face of the deed and on this agreement of the same date to show, that it was a conditional sale. But really this agreement on its face strongly indicates, that the transaction was a mortgage and not a sale, either absolute or conditional. It is true, that this agreement begins by saying, that Ryan has this day sold to Corrothers this tract of land, but it immediately adds, that Ryan may sell this land to others and have all that he can make over the purchase-money, that is over the amount of money that Corrothers was to advance for his use, at any time within three years; and that Ryan was to reserve a homestead, which he had laid off and had recorded, or any part of this homestead when he had sold enough of the rest of the farm to satisfy Corrothers’s claim. Now these provisions are utterly irreconcilable with either an absolute sale or a conditional sale of the land to Corrothers, but are perfectly, consistent with a mortgage of the land; and indeed they seem to me to demonstrate, that the absolute deed was thereby declared by the parties to be a mortgage; it was simply a defeasance. A mortgage can as well be made by an absolute deed with a separate paper, as a defea-sance, as by expresssing the defeasance on the face of the deed. Where then it is said, that the land has this day been sold, — 432 — all that was meant was, that it had that day been conveyed by an absolute deed, referring to the deed made at the same time. But the next clause in this agreement is, “and it is further agreed, that if the said rent of two hundred and forty-two dollars is not paid as it becomes due, then this article is null and void of effect.” As no rent was ever paid, it is insisted, that this rendered the deed absolute by making this defeasance void. But the rent was a mere substitute for interest at eight per cent, per annum on the moneys to be advanced, and this provision is simply, that if the interest on the money secured by the mortgage is not punctually paid, then the condition or defeasance in the mortgage is to become void and the deed absolute; and this is but the provision inserted in every mortgage, and is such a forfeiture as is never enforced, without giving to the mortgager his right to redeem after the forfeiture. The other provisions of this agreement are, that Ryan had turned over to Corrothers his contract, which had been signed by eighteen of his creditors, whereby in view of the dividend, which they would get from Fitch, the trustee and assignee in bankruptcy, they would take ten per cent, on the amount of their claims. It was known, that the dividends of these eighteen creditors would amount to about fifteen per cent, on their claims, so that the creditors agreed in consideration of getting the money at once, to abate about one-third of their dividend. Corrothers was to pay them this ten per cent., and all that was realized from the dividend on these claims above this ten per cent., it was expressly stipulated, should belong to Ryan and not to Corrothers, and Corroth-ers agreed to buy up all the other claims for Ryan’s benefit at the same rate. In consideration of the large profit that Ryan would thus realize from the advance of this money by Corrothers, and from the labor of Corrothers in buying up, for his Ryan’s benefit, the balance of these claims at less than their value, Ryan agreed to pay him the old debt he owed him of five hundred and thirty-seven dollars and fifty cents, after crediting it with the dividends Corrothers would get from Fitch, the trustee and assignee of Ryan. It is claimed, that this agreement by Ryan to pay this old debt made this transac — 433 — tion usurious, and that this five hundred and thirty-seven dollars and fifty cents should, in the settlement between Cor-rothers and Ryan, be rejected as usurious interest. But it does seem to me, that this is clearly an erroneous view. Ryan was under a moral obligation to pay this debt, which he honestly owed, though he had been discharged from its enforced payment by having been declared a bankrupt. Still he was under a moral obligation to pay the whole of it, and his promise in this agreement had there been no other consideration for such promise than this moral obligation, would have been legally binding on him, and the payment of this old debt could have been enforced against him. IIow then can the fact, that he. received for this promise, which was at any rate binding on him without any valuable consideration, a consideration which enabled him to realize an amount exceeding the balance on this old debt, render this promise void ? The existence of this old debt, was a sufficient consideration for his promise; and his borrowing money at the same time at six per cent, did not certainly vitiate this promise. But for the money he was borrowing he was to pay two hundred and forty-two dollars a year, or about eight per cent, per annum. The excess of this interest over six per cent, was usurious, and cannot be enforced. No part of this rent of two hundred and forty-two dollars, or more properly interest, has been paid, and none of it can he enforced in excess of interest at the rate of six per cent, per annum on the money actually advanced by Corrothers for his, Ryan’s, use. This rent should be treated- precisely as if it had not been promised to be paid by Ryan, and in view of it, Ryan should be required to pay at the rate of six per cent, per annum on all moneys advanced by Corrothers for his benefit. In this mode this contract will be purged of all usury. Of course, Ryan should be required to pay all the taxes on this land, and if Corrothers has paid any of them, in the settlement of their accounts the amount so paid by Corrothers in taxes, with the interest thereon, should be charged against Ryan as so much money advanced for his use, and secured by this mortgage. Corrothers can charge, as money advanced for Ryan’s use secured by this mortgage, only .such — 434 — sums as be paid to Ryan’s creditors, and not tbe bull amount paid to Fitch, trustee; as tbe contract expressly provided, that tbe purchase of these claims from Ryan’s creditors was for the benefit of Ryan, and not for tbe benefit of Corrothers; and this was the case not only with the eighteen claims against Ryan, in regard to which Ryan had already made a contract, but with all the other creditors with whom Cor-rothers, for Ryan’s benefit, should make contracts. And it applies as well to the five creditors, with whom Corrothers made contracts to pay more than ten per cent, on their claims, as to others. All these purchases of the claims of Ryan’s creditors, made by Corrothers, must under this contract be regarded as made for Ryan’s benefit, whether he bought them at ten per cent, or at a greater price. They were all included in this agreement with Corrothers and Ryan of March 20, 1876, no matter what per cent. Corrothers gave for them. Of course any amount of money, which arose from the sale of land by Ryan himself prior to the 20th of March, 1876, to Job Hartley or to any one else, and which was not actually advanced by Corrothers out of his own funds, though it may have been handed over to the trustee, Fitch, by Cor-rothers and included in the receipts, which the trustee, Fitch, delivered to Corrothers, can not in the settlement with Ryan be charged by Corrothers as money actually advanced by him for the use of Ryan. The next enquiry is: 'When Corrothers advanced under the contract of March 20, 1876, with Ryan the funds, out of which he paid off the trustee, Fitch, or the cestui que trust in this deed of trust, creditors of Ryan, to an extent, which they were willing to accept in lieu of their dividend under the deed of trust to Fitch, trustee, did he become entitled by subrogation, to the benefit of this deed of trust by Ryan and wife to Fitch, trustee, of date September 13, 1875? This question seems to me to involve no difficulty, but to be fully answered by the view vre have taken of the transaction between Ryan and Corrothers of March 20, 1876, under which all payments made by Corrothers to Fitch, or to the creditors of Ryan, wTere made by Corrothers. Whenever a debt is paid out of the funds of the debtor, — 435 — who is primarily bound for the debt, the debt is thereby satisfied both in law and in equity. This is the case even when there is a joint debtor, who is also a principal in the debt. And it is much more obviously so, when there is but one bound for the debt, and when it is paid with his funds. See Kinley v. Hill, 4 W. & S. 426; Bartlet v. McRae, 4 Ala. 689; Jones v. Davids, 4 Russ. 277; (3 Cond. Eng. Chy. Cas. 665.) If the means are furnished by a third person, who is interested in keeping the debt alive, and there is no understanding that the old debt is to be kept alive, and it is paid oil, though a mortgage, taken when the advance of the money was made to pay off the old debt, be pronounced void, yet, if it be paid off, it can not in a court of equity be kept alive by subrogation, so as to give priority to the person making such advance over a subsequent judgment. Wiley v. Boyd, 38 Ala. 635. But if instead of taking a second mortgage the person advancing the money on the promise of the mortgagee to secure him gives the money to the mortgagee, who pays it to the mortgager, whether or not he takes a formal assignment of the mortgage, it will not be regarded as satisfied but will be kept alive for the benefit of the person advancing the money. See White v. Knapp, 8 Paige 173; Graves v. Mumford, 26 Barb. 95; Hoy v. Bramhall, 4 C. E. Green (N. J.) 74 and 563. In the case before us, Corrothers by the agreement of March 20, 1876, agreed to advance the funds to pay off the debt of Byan to Fitch, the trustee. There was obviously no understanding with Byan or with Eitch, the trustee, that the deed of trust to Eitch, trustee, was to be kept alive for the benefit of Corrothers. Eitch testifies, that his understanding was the very reverse, and therefore he gave receipts for the money to Byan himself, as paid in satisfaction of the debt by the hands of Corrothers. It seems to me equally clear, that there was no such understanding between Byan and Cor-rothers ; nothing of the kind is expressed in their agreement of March 25, 1876; on the contrary it seems clear, that this was not expected by the parties, and Corrothers did not then rely on the deed of trust to Eitch, as his security for the money he was to advance, but he took a new mortgage from Byan and his wife on this land, to secure his advances. The — 436 — parol evidence too shows that, at that time he expected to have to pay these five judgments against Ryan, evidently regarding them as prior liens to the one he relied upon. All this is inconsistent with the idea, that there was any understanding by Corrothers with any one at that time, that the deed of trust to Fitch though paid off was to be regarded as kept alive for his Corrothers’s benefit. This deed of trust must therefore be regarded as paid off by the express agreement of the parties, and that it was paid by Corrothers with the understanding, that it was fully satisfied; in fact he expressly contracted to do so. On the face of the deed executed to him this is expressed to be the very consideration, on which the deed was made. "When the circuit court held, that he was entitled by sub-rogation to the benefit of this Fitch deed of trust, of September 13, 1875, it must have done so on the assumption, that the transaction between him and Ryan of March 25, 1876, was not a mortgage or such a transaction as we regard it, but was either an absolute or conditional sale. And so regarding it under such decisions as Barnes et al. v. Mott, 64 N. Y. 397, and McClaskey & Crim v. O’Brien, 16 W. Va. 791, even had this deed of March 20, 1876, been an absolute sale, it seems to me under these and other decisions, that Corrothers could not have been subrogated to the rights of the creditors of Ryan, under this deed of trust of September 13, 1875. But this question I have not considered, as it does not arise; the deed of Corrothers of March 20, 1876, being clearly a mortgage. It is claimed, that Corrothers committed a gross fraud on the creditors of Ryan, when he took a bond from Ryan with security for two hundred dollars, either in satisfaction of his five hundred dollar debt against Ryan, or as a bonus for consenting to the compromise made by Ryan with his creditors. That it was taken as such bonus and not as a satisfaction is obvious from the fact, that with Ryan’s assent, he took his dividend on this debt from Fitch, the trustee. This was a fraud on Ryan’s other creditors, but Ryan was fully as much implicated in it, if not more so, than Corrothers. It was a matter to be dealt with by the federal court, if it had been brought to its notice, which ! presume was not done. At — 437 — any rate this Court has in this case nothing to do with it. The two hundred dollar bond has been surrendered, and the improper giving of it can in no way affect this case. It has been urged too, that the debt due to Corrothers ought not to be provided for by the court, because he was guilty of fraud in refusing, it is claimed in violation of his contract of March 20, 1876, to make deeds to Brown, Lyons or McClure, whereby Eyan has been grossly wronged. If this be true, Eyan’s remedy is clearly not in this suit. Corrothers was guilty of no fraud in making the contact of March 20, 1876, and is entitled in this suit to the benefits it conferred on him, even though he subsequently violated this contract, by refusing to make these deeds. Whether he did or not cannot be enquired into in this case. These questions in no manner arise out of the pleadings and proofs, on the part of the plaintiff and defendants, in this suit. And it is well settled, that a decree between co-defendants can only be based upon the pleadings and proofs between complainants and defendants, and that no such decree can be made between co-defendants founded on matters not stated in the bill, nor in litigation between the plaintiffs and defendants or some of them. See Vance v. Evans et al., 11 W. Va. p. 370; Elliott v. Pell, 1 Paige 263; Jones v. Grant, 10 Paige 348; Tripp v. Vincent, 3 Barb. Ch. R. 613; Buffalow v. Buffalow, 2 Ired. Eq. R. 113. These matters were foreign to the objects of this suit. It is also claimed by Ryan, that three hundred dollars was to be paid to him by Corrothers as a mere gift. This statement of Eyan is in the highest degree improbable, and the reason assigned for not inserting it in the agreement of March 20, 1876, is to me unintelligible. It is also unsus-tained by other evidence, and is denied by Corrothers. It is not improbable from the evidence, that there was some other understanding, probably a very indefinite one, that Corrothers would loan him some other money for his private purposes. But if it was only to be a loan, as I presume it was, Eyan has suffered no loss from its not having been made. -The evidence would certainly have to be much stronger than it is to induce the belief, that Corrothers was to make him a gift of this three hundred dollars. But in — 438 — truth, no amount of proof could have been received in support of this provision to the agreement of March 20, 1876, when it appears, as it does, that it was purposely left out of it. I have considered this cause as if the decree of March 24, 1879, as well as the decree of July 14, 1879, was before us for review, but the most of the errors assigned in the petition for an appeal, were errors on the first of these decrees. They have been argued as if this decree had been appealed from, and of course if we deemed there was any technical obstacle in the way of reviewing the decree of March 28, 1879, we would amend the order granting an appeal-in this cause, and include in the appeal this decree also; but as it has been treated as though it had been appealed from by the counsel of the appellee, Con-others, as well as by the counsel for the appellants, we deem it unnecessary to go through the form of amending the order granting the appeal, and will determine this case as if this decree of March 28, 1879, had been formally appealed from. It was, from what we have said, so defective in confirming the report of Commissioner Brown, that it should be reversed not in part but altogether. This report of Commissioner Brown, ascertained the principal debt against Ryan upon an entirely improper basis; assuming as its basis, that he was entitled to the money, which he had paid to Fitch, the trustee, when he was really entitled to the money, which he had advanced for the use of Ryan, under the agreement of March, 20, 1876, and also to thebalance due him on his old'debt of five hundred dollars, due from Ryan to him before Ryan was declared a bankrupt. But there was a still graver error in Commissioner Brown’s report, that of reporting the debt of Con-others as the first lien on the land of Ryan, when in fact it was the last of those, which were reported; it being a lien only as from March 20, 1876. When these errors are corrected, it will leave nothing of Brown’s report, except the report of the judgment-liens, about which there is no controversy. I say no controversy, for it is obvious, that the sureties of Ryan who paid the judgment in favor of the Morgantown bank, are entitled to the benefit of this judgment by substitution. The entire decree — 439 — therefore of March 28, 1879, must be reversed and set aside. I say the entire decree because though that portion of it which directed a sale of the land would not be set aside if a sale under it had been made and property confirmed, yet as the sale under it was improperly confirmed by the decree of July 14, 1879, the whole of this decree of March 28, 1879, should be reversed. There was an upset bid of five hundred dollars offered the court on the price formerly bid, which was more than twenty per cent, on the price at which the land was knocked off. It is true that Corrothers agreed to have credited on his debt, which had been declared a prior lien on this land, the price he had bid upon it, two thousand three hundred dollars, and also five hundred dollars more, the amount or this advanced bid. But as we have concluded that Corrothers has no first lien for any amount, on which to credit these sums, and as he did not indicate his willingness to give this five hundred dollars more, except as a credit on his debt as a first lien on this land, this Court can not property decree him to pay this two thousand eight hundred dollars for this land. Nor can it at this late day, after nearly three years have elapsed, hold G. ~W. Johns to his advanced bid ot five hundred dollars; and therefore the entire decree of July 14, 1879, should be likewise reversed and annulled. There is no necessity to make Job Hartley a party defendant in this cause. His land was not embraced in the deed of March 20, 1876, to Corrothers, as I understand; it having been previously sold by Ryan, nor do I suppose, that the judgments against Ryan are liens upon it. And if they were, its sale is entirety unnecessary to pay off these judgments, as the other lands of Ryan are first bound for them, and Corrothers does not even claim, that he has any lien upon this land of Job Hartley’s. The circuit court will only have, when it again decrees this land to be sold, to except from the quantity so sold this land of Job Hartley’s. After reversing these decrees of March 28, 1879, and July 14, 1879, and decreeing that the appellee, John W. Corrothers, do pay to the appellants their costs in this Court expended, this Court will render such decree as the court below should have rendered, referring this — 440 — cause to a commissioner to ascertain the liens on said land and their amounts and priorities, with such instructions as will accord with the views we have expressed; and this cause must be remanded to the circuit court of Monongalia county, to be further proceeded with according to the principles laid down in this opinion, and further according to the principles governing courts of equity. Judges Johnson and Snyder Concurred. Decree Reversed. Cause Remanded.