Helbreg v. Schumann

Mr. Justice Craig delivered the opinion of the Court: The Superior Court referred the cause to the master in chancery to take the evidence, and report his conclusions as to both law and fact. The evidence was taken and a report filed, in which the master, among other things, found that the warranty deed from Julius Schumann to Gustav Schumann, and the agreement providing for a conveyance, constituted a mortgage, and that complainant was entitled to redeem. Numerous exceptions were filed to the report, a part of which was sustained, a part overruled and a portion remained undecided, and a decree was rendered dismissing the bill. It will not, however, in the view we take of the case, be necessary to go over the different exceptions in detail. We will therefore content ourselves with considering the questions presented by the record, which must control the decision of the case. It is claimed, on the one hand, that the transaction wherein Julius Schumann conveyed the land to Gustav Schumann and executed a contract to reconvey, amounted to a purchase by Gustav Schumann and a contract to re-sell, while, on the other hand, it is claimed that the transaction was a mortgage. Parol evidence was introduced for the purpose of showing the intention of the parties at the time the arrangement was consummated. The law is well settled, in a case of this character, that resort may be had. to parol evidence to establish the intention of the parties. (Preschbaker v. Feaman, 32 Ill. 481; Ennor v. Thompson, 46 id. 220; Darst v. Murphy, 119 id. 343.) The declarations and statements of the parties, made pending the negotiations and at the time of the final execution of the deed and contract, are admissible, and the rule that the terms and conditions of a written contract can not be varied does not apply to such evidence. The law is well settled that a deed absolute on its face may be shown, by parol, to have been executed for the payment of money, when it will be treated, in equity, as a mortgage. Miller v. Thomas, 14 Ill. 430. The warranty deed from Julius Schumann to Gustav Schumann, and the contract for a reconveyance, and the note and trust deed given by Gustav Schumann to the administrators of the estate of Johann Yon der Heide to secure $1310, were all executed at the same date, in pursuance of the same agreement, and they are all a part of the same transaction, and “they must be taken together as constituting one entire arrangement” or contract. When they are all considered together as one contract, in connection with the circumstances under which they were executed, we are inclined to the view that but one construction can be placed on the transaction, and that is, that it was a mortgage. Julius Schumann was indebted to the administrators of the estate of Johann Yon der Heide in a certain sum of money. This was secured by a mortgage on his land and the land of Gustav, his brother. A bill was filed to foreclose the mortgage. If a decree should be rendered, Gustav’s land was liable to be sold in payment of the debt, and he had no indemnity or security of any char! acter from Julius to make him whole. He was therefore interested to have some arrangement made under which he could be secured. The administrators agreed to extend the time of- payment, and take a new note and mortgage on all the land for the debt, the interest to be increased from six to seven per cent, and the costs paid. In order that Gustav might make the mortgage and at the same time be secure, Julius conveyed the land to him, and he executed a note and mortgage for the debt, and then gave Julius a contract to reeonvey, providing he paid the mortgage debt, interest and the $125 advanced by Gustav, from his own funds. This, in brief, was the transaction, and when analyzed it amounts merely to this: that Gustav Schumann assumed the mortgage debt which Julius Schumann owed the administrators, and the latter, in order to secure Gustav, conveyed him his half of the land, under an agreement that the land should be re-conveyed upon payment of the debt, interest and costs. The agreement for a reconveyance contains no provision or recitation that Gustav Schumann has sold the land to Julius Schumann. It merely provides, after reciting the facts under which Gustav Schumann obtained the title, that if Julius Schumann paid .as therein provided, then Gustav should reconvey to him. George W. Bowman, who filed the bill to foreclose the deed ■of trust for the administrators of the estate of Johann Yon der Heide, deceased, testified that “about ten days after the bill was filed, Gustav Schumann, in company with his brother, Julius Schumann, called at my office in Blue Island. Gustav said they eame for the purpose of seeing whether they could not make some arrangement for an extension of the loan and a settlement of the then pending suit. Gustav Schumann informed me at that time that he was going to help his brother out, and that he would advance him sufficient money to make a payment on this indebtedness secured by the trust deed which we were then foreclosing. He desired to know whether I could help them to make a settlement. I told him I could only take full payment of the debt, and advised him to see the administrators. He said he would, and they left. They returned the same evening, and Gustav informed me that Mr. Guenther had told them that if they paid all the costs in the suit then pending, and the attorney’s fees, and made a new note and trust deed covering the entire property, for what was then due, and included in that note a judgment recovered against Julius by the administrators, and increased the interest from six to seven per cent, he would give them an extension of time. He inquired the amount of the costs. He then asked me what kind of security he would be able to get for his money which he was about to advance. I told him that he could obtain a second mortgage on Julius Schumann’s share. A few days after that Gustav came to see me again. He then informed me that he was dissatisfied with the arrangement of obtaining a second mortgage on his brother’s interest. He said that he doubted very much whether his brother would ever pay that indebtedness, and he did not want to be put to the expense of a foreclosure suit in case his brother made •default. Then it was for the first time that we discussed together the question of making an absolute deed from Julius Schumann arid his wife to Gustav, and a trust deed back from Gustav to secure the Von der Heide indebtedness, and the giving by Gustav to Julius of a contract to reconvey to him the property, to be deeded by him to Gustav in case Julius made the payments as provided in the trust deed to be given to secure the Von der Heide indebtedness, and also this indebtedness for the money to be advanced by Gustav. The result of that conversation was, that within a short time I drew up the contract (the contract here involved.) A day was set for the execution of the papers. On the day fixed, Gustav Schumann came to the office, I think somewhere about seven o’clock in the evening. He informed me that the parties would be there in 'a short time. He asked me whether I had the contract drawn up from him to Julius. I told him I had. He told me to be sure to make the provisions in that contract stringent, because he did not want to have any trouble of a foreclosure suit in case his brother did not pay promptly when he ought to pay.” After detailing the fact of the execution of the warranty deed, the contract for a reconveyance, and the new trust deed, the witness further testified: “I never proposed to Gustav Schumann that he should buy any portion of Julius Schumann’s land involved in this suit. The question of his buying any portion of the land, or the whole of it, never came up in my presence. The question of a sale of that land to him was never discussed.” This witness was entirely disinterested, and was in a position to know and understand the facts connected with the transaction better than any other person. He was familiar with all that was said and done from the inception of the transaction until its final consummation, resulting in the execution of the papers, and we think much reliance should be placed on his evidence. From the evidence of this witness, and from the papers that were executed, it seems plain that the transaction was a mortgage. If Julius Schumann sold the land to his brother, no necessity existed for the execution of a contract providing for a reconveyance containing stringent provisions as Gustav insisted should be inserted in the contract. If the evidence of this witness be true, a sale of the property was never mentioned or discussed. Gustav Schumann, in order to protect his own property, which was embraced in the deed of trust to the administrators, concluded to assume the indebtedness, and as security the deed was made to him. When the negotiations first commenced, the understanding was that a second mortgage should be given, but finally finding Julius would not pay promptly, the deed was made to save the trouble and expense of a foreclosure in case there was a default in payment. But it is said there was no debt to be secured, and there can be no mortgage in the absence of a debt, and in support of this position Rue v. Dole, 107 Ill. 275, and Fisher v. Green, 142 id. 80, and other like eases, are cited. If there was no other evidence in this case but the warranty deed and the contract to reconvey, there might be much force in the position of counsel; but when the other evidence in the record is considered in connection with the deed and contract, a different question is presented. When all the evidence is considered, it can not be said there was no debt to be secured. Gustav Schumann paid the costs on the suit brought by the administrators to foreclose their deed of trust, amounting to $125, and assumed the payment of the mortgage debt, amounting to $1310. The deed was made by Julius to Gustav Schumann as security for these two items, and the plain import of all that was done is, that Julius Schumann was to pay those sums, and interest. There was, therefore, a debt, which might properly be secured by mortgage. It is also insisted that Julius Schumann failed to pay, as required by the contract, and hence a specific performance of the contract can not be decreed. The note for $1310 which Gustav Schumann executed and delivered to the administrators, was payable five years after date, with interest payable semi-annually. At what time the $125 should be repaid does not seem to be specified. Julius Schumann failed to pay the interest that became due on July 21, 1888, and January 21, 1889, and also taxes on the land, but no forfeiture of the contract was declared, nor was any attempt made to terminate the contract on account of this failure. On the 18th day of July, 1889, before another installment of interest became due, he was adjudged insane, and his failure to pay interest or taxes after that date would not authorize Gustav Schumann to declare a forfeiture of the contract, unless done by decree of a court of competent jurisdiction, where the insane person was properly represented by conservator or guardian. Courts of equity will set aside contracts made with insane persons, on the ground of fraud. Insane persons being incapable, for the want of capacity, to enter into a valid contract or do any valid act, all persons dealing with them with knowledge of their incapacity are regarded as perpetrating a fraud upon them. 1 Story’s Eq. Jur. sec. 227. In Encking v. Simmons, 28 Wis. 273, where a mortgage with power of sale was foreclosed, under the power of sale contained in the mortgage, after the mortgagor had become insane, it was held that the sale should be set aside for fraud. In-the opinion it is said: “In equity the proceeding was fraudulent, and the sale will be set aside, whether the mortgagee knew of the mortgagor’s insanity or not. This will always be done where it is for the benefit of the person non compos mentis, and w'here injustice will not thereby be done to the other parties to the transaction, or they can be placed in statu quo. No injustice will be done here. The plaintiff (the purchaser at the sale) will be entitled to the redemption money so far as that goes, and for the rest he has the bond or covenant of the mortgagor for repayment. The mortgagee will have the full amount of his debt and interest, which is all he can require. The parties may be placed m statu quo. In equity this seems to fall within the third kind of fraud enumerated by Lord Hardwicke in Chesterfield v. Janssen, 1 Lead. Cas. in Eq. 472, namely, fraud which must be presumed from the circumstances of the parties, and which goes farther than the rule of law, which is, that it must be proved, not presumed. But it is wisely established in the court of chancery to prevent taking surreptitious advantage of the weakness or necessity of another, which knowingly to do is equally against conscience as to take advantage of his ignorance.” So here, the attempted forfeiture by demanding and obtaining possession of the premises from the wife of Julius Schumann, after he had been adjudged insane, must be regarded as fraudulent, and we think complainant, on making full payment of all moneys agreed to be paid, and interest and taxes, was entitled to relief, in equity. The decree will be reversed and the cause remanded. Decree reversed.