Cannon v. Seattle Title Trust Co.

• Decision Date: 01 February 1927
• Docket Number: 20188.
• Citation: 252 P. 699,142 Wash. 213
• Parties: CANNON v. SEATTLE TITLE TRUST CO.
• Court: Washington Supreme Court

252 P. 699

142 Wash. 213

CANNON v. SEATTLE TITLE TRUST CO.

No. 20188.

Supreme Court of Washington

February 1, 1927

Department 1.

Appeal from Superior Court, King County; Findley, Judge.

Action by Harry Cannon against the Seattle Title Trust Company. Judgment for defendant, and plaintiff appeals. Reversed and remanded.

Tucker Hyland & Elvidge and Stephen V. Carey, all of Seattle, for appellant.

Roberts & Skeel and D. D. Mote, all of Seattle, for respondent.

MAIN J.

The plaintiff brought this action seeking to recover a money judgment for interest which he claims had been exacted from him by the defendant in a greater amount than the law permits. The cause came on for trial before the court and a jury. At the conclusion of the plaintiff's evidence the defendant challenged the sufficiency thereof and moved the court to enter a judgment in its favor. This motion was overruled. At the conclusion of all of the evidence the motion was repeated and by the court sustained. From the judgment dismissing the action, the plaintiff appeals.

The facts essential to be stated are these: The respondent is a corporation and is engaged in business in the city of Seattle. The corporation's business was divided into three departments, that of loan, trust, and safe deposit. The appellant owned a second mortgage upon what is referred to as the Keystone Apartments, in the city of Seattle, upon which there was a balance due of approximately $49,500. The appellant desired to borrow $32,000 and give the mortgage as collateral security. For this purpose he went to the loan officer of the respondent and was told, as he testifies, that the company could not let him have the money in the form of a loan, but would take an assignment or transfer of the mortgage to the corporation and give an option of repurchase. On October 6, 1924, the appellant by bill of sale regularly executed and acknowledged transferred the mortgage to the respondent. At the same time and as a part of the same transaction, the respondent gave him a written option, duly signed and acknowledged, to repurchase the mortgage within a period of 90 days. This time was subsequently extended for a period of 30 days. Before the time had expired the appellant desired to redeem the mortgage by paying interest thereon at the rate of 12 per cent. per annum. This request was refused by the officer of the respondent having charge of the transaction. The respondent before the option expired, sold the mortgage to another person for $40,000, $34,000 of which was paid to the respondent to take up the mortgage and the balance to the appellant. Thereafter the appellant, claiming that the transaction was a loan and that usurious interest had been exacted of him, brought this action for the purpose above stated.

The question is whether the transaction was a loan or a sale with an option of repurchase. Where there has been a sale absolute in form and an option to repurchase given and the claim of usury is made, the form of the transaction will be disregarded and its substance will control. Uhler v. Olympia, 87 Wash. 1, 151 P. 117, 152 P. 998; Washington Fire Ins. Co. v. Maple Valley Lumber Co., 77 Wash. 686, 138 P. 553. In the latter case it was said:

'The respondent, Maple Valley Lumber Company, by affirmative defense, charged that the transaction was usurious. Where the defense of usury is relied upon, the burden of proving the usurious character of the transaction is upon the party alleging it. 29 Am. & Eng. Ency. Law (2d Ed.) p. 541. In determining whether the particular transaction is usurious, courts will disregard the form and look to the substance of the transaction. 39 Cyc. 918; Cooper v. Nock, 27 Ill. 301; Lukens v. Hazlett, 37 Minn. 441, 35 N.W. 265; Clemens v. Crane, 234 Ill. 215, 84 N.E. 884.'

Whether the transaction was a loan or an absolute sale with the right of repurchase depends upon the intention of the parties at the time. In Johnson v. National Bank of Commerce, 65 Wash. 261, 118 P. 21, L. R. A. 1916B, 4, it was said:

'The only question we need to consider is, Did the parties intend that the transaction should be a mortgage? It is well settled that the character of the transaction is fixed at its inception and that it is what the intention of the parties makes it.'

The controlling question being the one of the intention of the parties, either party has a right to testify as to what that intention was. In Malloy v. Drumheller, 68 Wash. 106, 122 P. 1005, it is said:

'It is well settled that, when the character of the transaction depends upon the intention of a party, he may testify what his intention was when he did the particular thing in controversy. The weight of such testimony is for the jury.'

In a note to the case of Rogers v. Blouenstein, 3 L. R. A. (N. S.) 213, it is said:

'The question whether a purchase of property with an agreement to reconvey at an advanced price payable in the future constitutes a usurious transaction depends upon the intent of the parties, since intent is the essential element of usury. The real inquiry in every case is whether there has been a borrowing and lending at a greater rate of interest than the law allows, and this is purely a question of fact to be determined from all the circumstances of the particular case.'

It will be admitted that the rule is that, where the conveyance is absolute in form with an option of repurchase, the one asserting that it was a loan must establish that fact by evidence which is clear and convincing. Reynolds v. Reynolds, 42 Wash. 106, 84 P. 579; Nutter v. Cowley Investment Co., 85 Wash. 207, 147 P. 896.

The first error assigned relates to the ruling of the trial court in withdrawing the case from the jury and entering a judgment for the defendant. Whether this ruling was correct depends upon whether there was evidence which the jury had a right to believe was clear and convincing and from which they could find that the intention of the parties was that the transaction, while in form a sale and option, was, in fact, a loan. The appellant testified:

'In the early part of October, 1924, I went to the Seattle Title Trust Company to deal with respect to this mortgage. I was dealing with Mr. Younger, who was at the head of the loan department of the Seattle Title Trust Company, assistant secretary, I think. I told Mr. Younger I wanted to borrow $30,000. I offered to give him this mortgage as security for that loan. I told him that I had this mortgage which he was familiar with, and I wished to borrow $30,000 on it. He was absolutely familiar with it. He was trustee for it. I had made the Seattle Title Trust Company trustee for the mortgage, for the former owner, which was given originally in September, 1923. From September, 1923, to October, 1924, I had several conversations with Mr. Younger concerning this mortgage. Then in October, 1924, I went to him and applied for a loan. He told me that he would take it up with the board and let me know at 9 o'clock the morning following. The papers were executed the day after I applied. They were executed on October 6th. I first talked to Mr. Younger on the 4th; at 9 o'clock on the morning of October 5th at the office of Seattle Title Trust Company, at the corner of Second and Columbia, Mr. Younger said he could not make it in the form of a loan, but they could handle it by

...