Koch v. Wasson

• Decision Date: 17 September 1968
• Docket Number: No. 53061,53061
• Citation: 161 N.W.2d 173
• Parties: Elmer KOCH and Lucille Koch, Appellees, v. Jasper E. WASSON and Marie A. Wasson, Appellants.
• Court: Iowa Supreme Court

Page 173

161 N.W.2d 173

Elmer KOCH and Lucille Koch, Appellees, v. Jasper E. WASSON and Marie A. Wasson, Appellants.

No. 53061.

Supreme Court of Iowa.

Sept. 17, 1968.

Louis J. Kehoe, Washington, and Ralph L. Neuzil, Iowa City, for appellants.

Bailey C. Webber, Ottumwa, for appellees.

BECKER, Justice.

Plaintiffs bring action in three counts to recover title to and possession of 218 acres of Washington County farm land conveyed by them to defendants in February 1961. In Count I plaintiffs allege they conveyed legal title to the land to defendants and received back an option agreement allowing them to repurchase the property on stated terms, all as a part of a security transaction. They pray the deed be construed as a mortgage, title to the real estate be quieted in them subject to a lien in favor of defendants, in an amount to be computed and determined by the court and for general equitable relief.

Under our view of the case, the issues raised in the next count are moot. We therefore do not discuss Count II.

In Count III plaintiffs allege exercise of the option created a binding contract with defendants, they are ready to pay the amount found to be due under the option contract, ask that such sum be determined, a chance to pay, and for general equitable relief.

The trial court found against plaintiffs on the first two counts but in their favor on the third count, ordered plaintiffs to pay $6,200 (the option price), $1,340.30 (the 1961 to 1964 taxes), the costs of the improvements placed on the real estate by defendants, ordered defendants to pay all taxes for years 1965 through 1967, awarded crops and income for the crop years to and including 1967 to defendants, allowed defendants to file supplemental claim for costs of improvements to the farm (which was not done), ordered defendants to present to the clerk current abstract of title and deed to plaintiffs and, on approval thereof, defendants were to get the sums provided for and plaintiffs were to get the property. Possession was to be seasonably delivered after the crops were harvested.

Defendants contend the deed, regular on its face, conveyed title to them: the plaintiffs failed to exercise their option properly and the property now belongs to defendants. Plaintiffs have cross-appealed. They contend the court should have allowed their Count I claim and considered the fair rental value of the property during the years defendants have had possession in fixing the amount plaintiffs must pay for the return of the land. We find the contract between the parties was a security transaction. We agree with the result reached by the trial court with one exception. Plaintiffs were entitled to possession within a reasonable time after January 29, 1965. Defendants are therefore liable for the fair rental value of the farm since March 1, 1965. We therefore remand, modify and affirm.

I. Early in February, 1961, Elmer Koch was indebted to his brother-in-law in the sum of $2,800 and had other debts he desired to pay. He sought a $5000 loan from defendant Jasper Wasson. Koch insists he eventually got the $5000 as a loan. Wasson equally insists he did not make a loan but told Koch he would buy the farm for $5000 and actually did buy the farm for that sum.

On February 9, 1961, the parties met at the office of Ralph L. Neuzil, attorney for defendants and a brother of defendant Marie A. Wasson. A contract for the sale of land was drawn and signed. This contract called for payment of $750 on execution of the contract and $4250 upon delivery of deed. The contract is silent as to purchase rights. The Kochs deny they understood this to be a contract for the outright sale of land.

On February 17, 1961, the parties met in the office of Louis J. Kehoe, also defendants' attorney. At that time a warranty deed from the Kochs to the Wassons was prepared and executed and the Kochs got their $4250., part of which was paid directly to their creditors. An option to purchase was also prepared and executed. The latter instrument provided the Kochs should have the option to repurchase the land by paying $5000, plus $300 per year, plus taxes accrued or paid by sellers, plus reimbursement for improvements. The option was to be exercised by written notice, delivered to sellers at their home at least 30 days prior to March 1st of any subsequent year to and including 1965. Upon payment of the stipulated sums defendants were to deliver abstract of title, showing good title in them, and warranty deed transferring the property to plaintiffs.

Both Mr. and Mrs. Koch said they wanted to have the option agreement examined by their attorney but Mr. Neuzil said: 'Well now, it is either this or nothing.', and the matter would have to be concluded that day or the Wassons didn't want to go ahead with it. Mr. Wasson stated he did not remember such a request.

Defendants took possession of the farm immediately.

Plaintiffs both testified they intended to negotiate a loan with the deed as security and thought they had done so. Defendants testified the $300, added to the principal for each year the option remained unexercised, represented 6% Interest on $5000 and during the period from February 17, 1961 to March 1, 1965 they regarded the Kochs as owing them, the Wassons, $5000. Mr. Wasson also testified on redirect examination, 'My understanding of P--3 (the option agreement) was to receive $5000 plus $300 a year, plus taxes, plus improvements if the option was exercised. If the option was not exercise, the farm was to be mine. My understanding as to when the farm should be mine was March 1, 1965.' Mrs. Wasson also testified she regarded the Kochs as owing $5000, and if it was not repaid by March, 1965 then the farm was to be theirs (Wassons). This testimony is inconsistent with the theory that the February 17, 1961 deed was intended to convey unconditional title at the time of delivery and is consistent with the argument that the deed was, in fact, a security instrument.

II. The problem raised by Count I is succinctly stated in Brown v. Hermance, 233 Iowa 510, 514, 10 N.W.2d 66, 68, 'The only real issue is whether appellant had a mere option to purchase the property from appellee or whether appellee took title as security for a loan for part of the purchase price.'

The basic general rule controlling our review was clearly stated as early as 1865 in Trucks v. Lindsey, 18 Iowa 504. 'A conveyance absolute on its face may, by proper evidence, be shown to be but a mortgage, and parol testimony is admissible and competent to establish such fact. * * *

'It is a rule of equity that the right to redeem attaches necessarily and conclusively to every grant made as a security. In other words, equity forbids an irredeemable mortgage.'

More recent decisions couch the rule against denial of redemption rights in the following terms, 'It is the rule that where the mortgagor deeds the property to the mortgagee, the deed is presumed to be but a continuation of the security and the right of redemption is presumed to continue. This right is a favorite of equity and the transfer will operate as a bar only when it clearly appears both parties intended an absolute sale.' Swartz v. Stone, 243 Iowa 128, 132, 49 N.W.2d 475, 477.

Under a variety of circumstances we have adhered to the above principles. One of the leading Iowa cases in this field oft relied upon by debtors seeking to redeem their property, is Guttenfelder v. Iebsen, 230 Iowa 1080, 1084, 300 N.W. 299, 301, where we said: 'To summarize the law applicable to this case, such a transaction as appellants seek to enforce will be closely scrutinized and upheld only where it is perfectly fair, based upon adequate consideration and it clearly and unmistakably appears that an absolute sale and not a transfer for security only was within the contemplation of the parties. In arriving at the intention of the contracting parties, courts look behind the form of the instruments to the real relationship between the parties. Fort v. Colby, 165 Iowa 95, 121, 144 N.W. 393. The instruments must be read in the light of the surrounding circumstances and the practical construction which the parties themselves placed thereon. McGuire v. Halloran, 182 Iowa 209, 219, 160 N.W. 363, 165 N.W. 405; McRobert v. Bridget, 168 Iowa 28, 32, 149 N.W. 906; Keeline v. Clark, 132 Iowa 360, 364, 106 N.W. 257.'

III. In Guttenfelder there was a creditor-debtor, mortgagor-mortgagee relationship present at the inception of the questioned transaction. This is an important factor but not a necessary element to the application of the principle. It is enough if the creditor-debtor relationship is created by the transaction itself. In Harrington v. Foley, 108 Iowa 287, 79 N.W. 64, the plaintiff furnished the money to help defendant redeem her land. No prior creditor-debtor relationship existed between the parties.

In Fort v. Colby, 165 Iowa 95, 116, 144 N.W. 393, 401, the debtor was also under pressure from creditors other than the grantee of the deed executed in that case. Fort owed Colby nothing but needed money to pay others. The factual situation is so similar to the case at bar that our conclusion reached there bears repeating. 'Concerning the nature of the transaction culminating in the conveyances and contracts made in October 2 and December 3, 1901, we think the evidence quite conclusively establishes the truth of plaintiff's claim that it was in substance and effect a loan or advancement of money for the use of plaintiff, repayment of which was secured by a conveyance of the lands; that plaintiff was asking a loan, and that he then believed and understood the effect of the deed to be an actual loan of the money to relieve his necessities, and the conveyance to be in the nature of mortgage security for its repayment there is scarcely room for doubt; that such was also the understanding of C. H. Colby, and the basis upon which the negotiations were opened and carried on is but little less...