O'Briant v. Lee

• Decision Date: 01 February 1939
• Docket Number: 754.
• Parties: O'BRIANT et al. v. LEE et al.
• Court: North Carolina Supreme Court

200 S.E. 865

214 N.C. 723

O'BRIANT et al. v. LEE et al.

No. 754.

Supreme Court of North Carolina

February 1, 1939

Appeal from Superior Court, Durham County; S. J. Ervin, Jr., Special Judge.

Suit by L. E. O'Briant and others against Mrs. E. Frank Lee and others to have a deed from plaintiffs to named defendant and a contract of reconveyance from such defendant to plaintiffs delivered contemporaneously construed as and adjudged to be in equity a mortgage, for redemption of such mortgage, and for an accounting. From a judgment for the named defendant plaintiffs appeal.

Judgment reversed.

STACY C.J., and WINBORNE, J., dissenting.

In determining whether transaction was a mortgage, there need be no independent evidence of the debt, which may rest wholly on implication from the nature, facts and circumstances of the transaction.

This is an action to have a deed from plaintiffs to defendant and a contract of reconveyance from defendant to plaintiffs delivered contemporaneously construed as and adjudged to be in equity a mortgage; for the redemption of said mortgage and for an accounting. The case was here on a prior appeal at the Spring Term, 1938, and is reported in 212 N.C. 793, 195 S.E. 15. The facts, including an exact copy of the instrument executed by the defendant, are there set forth. Since the former appeal the complaint has been amended to allege "That the relationship of debtor and creditor did and does now exist between the plaintiffs and the defendant."

When the case came on for trial below a jury was empaneled and evidence was offered by the plaintiffs. During the examination of the plaintiff, Lex O'Briant, the jury was excused and the plaintiffs were permitted to continue with the examination for the purpose of allowing the record to show what the witness would have testified if permitted to do so. This evidence is substantially as recited in the former appeal. The evidence was excluded over plaintiffs' exception. Other similar testimony was likewise excluded. The plaintiffs rested, and upon motion by the defendant for judgment upon the record, the Court, being of the opinion that there is no issue of fact to be submitted to the jury upon the record and being of the opinion that upon the record and upon the admitted paper writings in controversy the plaintiffs are not entitled to the relief sought in the complaint, rendered judgment dismissing the plaintiffs' action and granting defendant judgment in the sum of $250 against plaintiffs. The plaintiffs excepted and appealed.

Bennett & McDonald and Guthrie & Guthrie, all of Durham, for appellants.

Brooks, McLendon & Holderness, of Greensboro, and Hedrick & Hall, of Durham, for appellee.

BARNHILL Justice.

After this cause was remanded for a new trial on the former appeal, on motion of plaintiffs, Claude V. Jones, Trustee, Mrs. E. Frank Lee, Guardian, and Victor S. Bryant, Trustee for Elsie Lois Lee, were made additional parties defendant and the complaint was amended accordingly. Immediately after the empaneling of the jury the defendants stipulated in open court that the additional parties defendant claim no right or interest in the real estate involved in this controversy superior to the rights of Mrs. E. Frank Lee and that such rights as they may have are subject and subordinate to the terms, provisions, and conditions of any contract which may be finally established in this action between the plaintiffs and the defendant, Mrs. E. Frank Lee, individually. Thus, it appears that Mrs. E. Frank Lee is the only real defendant party in interest on this appeal.

The plaintiffs admit that they executed and delivered to the defendant a paper writing which is a deed absolute in form and that contemporaneously therewith, and as a part of the same transaction, they received from the defendant a paper writing in which the defendant bound herself, under the conditions therein stipulated, to re-convey the property to the plaintiffs on or before 2 December, 1934. Is parol proof of the facts and circumstances surrounding the transaction, tending to show the real intent of the parties, and that the relationship of debtor and creditor existed, competent for the purpose of showing that the two instruments construed together constitute a mortgage? This is the one question presented.

"The principle that equity looks beneath the external form in determining questions connected with mortgage has frequently been applied to a particular mode of dealing with real property. Where land is conveyed by an absolute deed, and an instrument is given back as a part of the same transaction, not containing the condition ordinarily inserted in mortgages, but being an agreement that the grantee will re-convey the premises if the grantor shall pay a certain sum of money at or before a specified time, the two taken together may be what on their face they purport to be-a mere sale with a contract of re-purchase-or they may constitute a mortgage. In the first case, where the transaction is merely a sale and a contract of re-purchase, the agreement must be fulfilled according to its terms. * * * In the second case, if the transaction be a mortgage, all the qualities and incidents of a mortgage attach, whatever be its external form, and whatever be the collateral stipulations, the maxim, Once a mortgage, always a mortgage, applies to this condition of fact with a special emphasis." Sec. 1194, 3 Pom.Eq.Jur., 4th Ed. "Whether any particular transaction does thus amount to a mortgage or to a sale with a contract to re-purchase must, to a large extent, depend upon its own special circumstances; for the question finally turns, in all cases, upon the real intention of the parties as shown upon the face of the writings, or as disclosed by extrinsic evidence. A general criterion, however, has been established by an overwhelming concensus of authorities, which furnishes a sufficient test in the great majority of cases; and whenever the application of this test still leaves a doubt, the American courts, from obvious motives of policy, have generally leaned in favor of the mortgage. This criterion is the continued existence of a debt or liability between the parties, so that the conveyance is in reality intended as a security for the debt or indemnity against the liability. If there is an indebtedness or liability between the parties, either a debt existing prior to the conveyance, or a debt arising from a loan made at the time of the conveyance, or from any other cause, and this debt is still left subsistent, not being discharged or satisfied by the conveyance, but the grantor is regarded as still owing and bound to pay at some future time, so that the payment stipulated for in the agreement to re-convey is in reality the payment of this existing debt, then the whole transaction amounts to a mortgage, whatever language the parties may have used, and whatever stipulation they may have inserted in the instruments. * * * The writings may show on their face that the relation of debtor and creditor still continues, and that its existence and consequences are contemplated by the parties; or they may entirely fail to show any such fact, and may consist simply of an absolute conveyance and of a naked agreement to re-convey. * * * In the latter case extrinsic parol evidence is always admissible to show the real situation of the parties, the existence of a debt, their intention to secure payment of that debt, and the actual character of the instruments as constituting a mortgage." Sec. 1195, 3 Pom.Eq.Jur., 4th Ed.

"From the controlling principle that a conveyance is a mortgage irrespective of its form, if designed to secure the performance of an obligation, it results that a deed, though absolute in form and unqualified by any accompanying agreement for a reconveyance of the property or a defeasance, must be construed to be a mortgage subject to redemption where it is made manifest from a consideration of all surrounding facts and circumstances that the parties thereto intended the conveyance to operate by way of security and in no other mode." 19 R.C.L., Sec. 29, Page 261. (This doctrine has been adopted with limitations by this Court.) "Since an instrument, irrespective of its form, is a mortgage if intended as security, it follows that a deed with a provision for a re-conveyance or a defeasance of the estate on the performance of certain conditions, whether the provision is made in the deed itself or in an accompanying instrument, is a mortgage if intended to secure the performance of the conditions stipulated, even though it is in form a conditional sale or conveyance of some other character. In this connection it is important to note that the deed and the provision for re-conveyance do not of themselves constitute a mortgage although the rule is sometimes loosely so stated. On the contrary, it is absolutely essential that at the inception of the transaction the deed be intended to operate by way of security." 19 R.C.L., Sec. 34, page 265.

"Very frequently no expressions are used in either the deed proper or the stipulation for re-conveyance which indicate either that the transaction was intended to operate as a mortgage or that the relationship of debtor and creditor existed between the parties after the conveyance." In such instances, "According to one view the transaction is presumed as a matter of law to be a mortgage. * * * Elsewhere, however, the transaction is presumed as a matter of fact to be a mortgage, evidence being admissible to rebut that presumption. In other jurisdictions the transaction is regarded prima facie as what it purports to be, a conditional sale, this view having the support of the weight of authority." 19 R.C.L., Sec. 37, page 267.

"Regardless of the view that they may...