(11 Or. 188)

STEPHENS v. ALLEN and others.

Filed January 14, 1884.

1. The only safe criterion in determining whether a transaction was intended as an absolute sale or a mortgage to secure the payment of a debt, is the intention of the parties; and this necessarily requires evidence of the situation of the parties, of the price fixed in connection with the value of the property, the conduct of the parties before and after, and all the surrounding facts and circumstances so far as they are adapted to explain the real character of the transaction.

2. Evidence of these circumstances and relations is admitted, not for the purpose of contradicting or varying the deed, but to establish an equity superior to its

terms.

3. As a consequence of this doctrine, each case must be scrutinized and judged by its own special facts; and when the result of the evidence is to produce doubt, the courts incline to construe the transaction to be a mortgage.

4. It seems to be clear, upon admitted principles of law, that on the payment by H. & A. to L. & T. of the money due from S. to L. & T., S. became the debtor of H. & A. for that amount, as it was paid at his request and for his benefit.

5. The object of a mortgage is to secure a debt; to effect that purpose the right of disposition must exist somewhere, and be founded on the contract of the parties, either expressed or implied.

6. The conveyance of lands for the purpose of securing the payment of a sum of money, if it leaves a right of redemption upon payment of the debt, and if there is a power of sale, whether in the creditor or some third person to whom the conveyance is made for that purpose, it is still in effect a mortgage.

7. It is always with regard to the actual facts, and not to the form of the transaction, by which equity is governed in determining the real character of the instrument; whether intended as an absolute conveyance or a mortgage, it is equally valid, and equity will give effect to it according to the substantial interest of the parties.

Appeal from Multnomah county.

Geo. H. Williams and B. Killin, for appellants.

Thayer & Williams and H. T. Bingham, for respondent.

LORD, J. The object of this suit is to have certain conveyances of land, made by the plaintiff to the defendants by deeds absolute upon. their face, declared to be mortgages, to secure an accounting for so much of said lands as have been sold by the defendants, and to compel them to reconvey the residue of said lands to the plaintiff. The principal question involved, and to which the argument is almost wholly directed, is whether the transaction between the parties was an absolute sale of the lands in dispute, or a pledge of them to secure the payment of the debt and expenses which the defendants paid and assumed on behalf of the plaintiff. As such a transaction receives its character from what the parties intended to make it at its inception, the ascertainment of that intention always becomes the important inquiry. This necessarily requires evidence of the situation of the parties, of the price fixed in connection with the value of the property, the conduct of the parties before and after, and all the

surrounding facts and circumstances so far as they are adapted to explain the real character of the transaction. "As the equity upon which courts act," says FIELD, J., "arises from the real character of the transaction, it is of no consequence in what manner this character is established, whether by deed or other writing, or by parol. Whether the instrument-it not being apparent upon its face-is to be regarded as a mortgage, depends upon the circumstances under which it was made and the relations subsisting between the parties. Evidence of these circumstances and relations is admitted, not for the purpose of contradicting or varying the deed, but to establish an equity superior to its terms." Pierce v. Robinson, 13 Cal. 116; Peugh v. Davis, 96 U. S. 336; Cornell v. Hall, 22 Mich. 377; Campbell v. Dearborn, 109 Mass. 130; Brant v. Robertson, 16 Mo. 143; Horn v. Keteltas, 46 N. Y. 608; Jones, Mortg. § 258. As a consequence of this doctrine, each case must be scrutinized and judged by its own surrounding facts and circumstances; and when the result of the evidence is to produce doubt, the courts incline to construe the instrument to be a mortgage. Conway's Ex'rs v. Alexander, 7 Cranch, 218; Edrington v. Harper, 3 J. J. Marsh. 354; Jones, Mortg. § 279.

It appears by the evidence that at the time the transaction in question took place "the times were unusually dull," and the sales of real estate, in that vicinity, slow and low in price. By a series of untoward circumstances the plaintiff had become financially embarrassed, and his property, much of it consisting of city lots, mortgaged and about to be subjected to a forced sale. In this emergency, and to prevent what the plaintiff conceived would result in the sacrifice of his property, he sought the counsel and assistance of the defendants, who were his friends of many years, and whom he had accommodated and assisted with his means when the circumstances of their lives were reversed, and which they acknowledged had materially aided them in securing the competency they then enjoyed. Indeed, it is to the credit of the defendants that the evidence is replete with so many. acts and declarations which indicate the deep sense of their gratitude and obligation to him, their genuine sympathy at his embarrassment, and disposition to afford him whatever assistance or relief they could. The result was that they determined to help him out of his financial troubles and difficulties in which he was involved. They agreed to raise the money and to pay off the indebtedness of the plaintiff, and that he should deed to them, as security for the same and the interest that might accrue thereon, all his property; that the defendants should have the right to sell such property in parcels, as purchasers could be obtained, and that the money realized from such sales should be applied to the indebtedness assumed by him on his behalf, and also accruing interest and expenses attending the sales of the same; that the defendant Allen should give his personal attention in conjunction with the plaintiff in making sales of the property, and that he should be allowed a reasonable compensation therefor, and that

after the payment of the amount so due the defendants, including interest and expenses of management, the plaintiff was to have back the entire residue of property so deeded. In compliance with this agreement the plaintiff, by deeds absolute upon their face, conveyed to the defendants all his property, and they paid off his indebtedness, and the defendant Allen entered upon the business of negotiating sales, and did thereafter affect sales of a considerable portion of the same, which he applied to the payment of the principal and interest so due by him to them, and the expenses attending the management of the property. Let it be noted here that the indebtedness of the plaintiff, which the defendants paid, was only about half the value of the property, and that he remained in possession of the most valuable portion of the property, the sales referred to being principally city lots.

It is objected, conceding the facts to be true, that there was no debt created by the transaction between the plaintiff and defendants. But it is said in Campbell v. Dearborn, 109 Mass. 130, that "a mortgage may exist without any debt, or other personal liability of the mortgage. If there is a large margin between the debt or sum advanced and the value of the land conveyed, that, of itself, is an assurance of the payment stronger than any promise or bond of necessitous borrower or debtor." And in the case of Russell v. Southard, 12 How. (U. S.) 139, where the question raised was that there was no promise to repay the money, the court say:

"The memorandum does not contain any promise by Russell to repay the money, and no personal security was taken, but it is settled that this circumstance does not make the conveyance less a mortgage."

The fact that no note or other personal obligation was given is not conclusive of the nature of the transaction. A debt may well exist without these, and when the whole evidence of it rests in the memory of witnesses. Brant v. Robertson, 16 Mo. 143. But the fact is a debt was created by the transaction. When the defendants paid to Ladd and Tilton the amount of the indebtedness the plaintiff owed them, the plaintiff became the debtor of the defendant for that amount, because it was paid at his request and on his account. The want of an express promise to repay in such case is not fatal to the transaction, for the law will imply a promise to do so, and, as was said in Southard v. Russell, supra, an action of assumpsit would lie. Note the language of Judge STORY in Flagg v. Mann, 2 Sumn. 534:

"Now, it seems to me clear, upon admitted principles of the law, that, on the payment by Walker and Fisher to Bennett of the money due from Richardson to Bennett, Richardson became the debtor of Walker and Fisher for that amount, as it was paid at his request and for his benefit."

And the decision of the court in that case was that the conveyance from Richardson to Walker and Fisher was a mortgage. change of names, apply this language to the case at bar, and Stephens, plaintiff, becomes the debtor of Hawthorn and Allen, defend

ants, for the amount paid Ladd and Tilton, as it was paid at his request, and for his benefit. Jones, Mortg. § 272, and authorities cited in note. It is with regard to the actual facts, and not to the form of the transaction, by which equity will be governed in ascertaining and fixing the real character of the instrument. Whether intended as an absolute conveyance or a mortgage, the instrument is equally valid, and equity will give effect to it according to the substantial interest of the parties. Horn v. Keteltas, 46 N. Y. 606. And it seems to us when the facts show that the plaintiff conveyed his real property to the defendants to secure them in the payment of money advanced or paid by them for his benefit, and agreed with them that they should proceed together and sell off the different parcels of it to liquidate that indebtedness, and that when this object should be accomplished the remainder of the land should come back, or belong to the plaintiff, the transaction bears impress of a mortgage. It is the conveyance of lands for the purpose of securing the payment of a sum of money, and when that object is accomplished the purpose of the transaction is consummated, and the right to the residue, to redeem the remainder, would seem to belong to the plaintiff upon every principle of justice and equity. In Jones, Mortg. § 271, it is said that "an agreement that the grantee may sell all the property for the best possible price and retain from the proceeds the amount due him, paying the residue to the grantor, shows that the transaction is a mortgage until the power of sale is executed;" and in Crane v. Buchanan, 29 Ind. 570, it was held, after the sale, the excess over the amount of the debt should be paid to the grantor.

In Lawrence v. Farmers' Loan & Trust Co. 13 N. Y. 209, the court say:

"But I do not understand that a power of sale granted by the mortgagor at the time when the mortgage is made, conflicts with the policy, or the rules established by courts of equity. The object of the pledge is to secure a debt. To effect this purpose the right of disposition must exist somewhere, and be founded on the contract of the parties, either expressed or implied. A judicial sale is but the enforcement of the contract-one mode of appropriating the mortgaged property to the satisfaction of the debt. The authority resulting from the contract, what a court may exercise in behalf of one of the parties, the mortgagor may confer upon the mortgagee, or a third person, it would seem, without any violation of principle. A power to dispose of the property, to satisfy the debt for which it is pledged, is not collateral, but, like the right of redemption, inheres in the subject. It is not in addition to the mortgage, but a part of it; and the mode in which it may be exercised is a proper subject of agreement prima facie, as the terms of the mortgage itself."

A conveyance of lands for the purpose of securing the payment of a sum of money, if it leaves a right of redemption upon payment of the debt, and if there be a power of sale, whether in the creditor or in some third person to whom the conveyance is made for the purpose, it is still, in effect, a mortgage. "If there is a power of sale," says MILLER, J., in Shillaber v. Robinson, 97 U. S. 68, "whether in the creditor or some third person, it is still, in effect, a mortgage,

though in form a deed of trust, and may be foreclosed by sale in pursuance of the terms in which the the power is conferred, or by suit in chancery." To effect the object of this transaction, it was necessary to convey the property in the form adopted, not only as security for the payment of the money advanced, or paid for the plaintiff, but to enable them to make the sales necessary to liquidate the debt, and when this was done, when the transaction had accomplished its purpose, it would seem, upon equitable principles, that the residue of the property, like the excess over the amount of the debt after sale, as decided in Crane v. Buchanan, supra, would belong to the grantor or plaintiff. Such being the object of the transaction, it would be a fraud on the plaintiff, when the debt secured by the property is paid, to defeat the right of the plaintiff to the residue. Equity, which abhors fraud, will not permit this, (Sweetzer's Appeal, 71 Pa. St. 264;) nor a fraudulent use of the statute for the prevention of frauds. Ryan v. Dox, 34 N. Y. 308.

The evidence indicates quite clearly that it was not expected to require the sale of the whole property to liquidate this indebtedness. The amount of the debt assumed or paid by the defendant for the plaintiff was scarcely half the value of the lands conveyed; and when it is considered that immediately before these conveyances were made that Mr. Ladd, to whom the plaintiff owed the indebtedness which was subsequently paid by the defendants for the plaintiff, and for which the deeds in question were taken, offered, in consideration that the plaintiff would deed these same lands to him, that he would cancel this indebtedness, and, in addition thereto, give the plaintiff $10,000 in cash and the use of the homestead for life; and that the plaintiff refused to accede to this proposition, and the defendants knew this when he sought them; and that the arrangement which was effected was considered the better for his interests and a sufficient security to them,-inadequacy of the price, considered as a sale, becomes apparent, and an important element in establishing the character of the transaction. Kerr, Fraud & M. 186, and note. Another circumstance, too, which is entitled to much weight is the fact that the plaintiff continued to use and occupy a valuable portion of this property, and received rent for some other, after these apparent conveyances were made.

The declarations and conduct of the defendants at the time, and after the conveyances were made, taken in connection with these facts and the relations of intimacy and friendship subsisting between the parties, are of decisive import in fixing the real character of this transaction. While it is true declaration or admissions should be closely scrutinized and weighed with caution on account of the liability of witnesses misapprehending the language used, and the difficulty of correctly repeating its import, yet when such admissions are of like import they become the most satisfactory evidence. All through the testimony-and there is no attempt to deny or dispute it-ale