Manget Realty Co. v. Carolina Realty Co., Inc.

• Decision Date: 16 November 1929
• Docket Number: 7167.
• Citation: 150 S.E. 828,169 Ga. 495
• Parties: MANGET REALTY CO. et al. v. CAROLINA REALTY CO., Inc.
• Court: Georgia Supreme Court

150 S.E. 828

169 Ga. 495

MANGET REALTY CO. et al. v. CAROLINA REALTY CO., Inc.

No. 7167.

Supreme Court of Georgia

November 16, 1929

Rehearing Denied Dec. 16, 1929.

Syllabus by the Court.

The facts alleged in the petition do not make a case of fraud on the part of the defendant in procuring from one of the plaintiffs the deed which is absolute on its face, and under which the defendant claims title to the property involved in this litigation.

(a) There is no allegation that the defendant by its officers and agents made any false representations as to the nature of the instruments executed by the plaintiff Manget to the defendant. It is well settled that a person executing an instrument is not defrauded because he failed to read or understand it.

(b) General allegations that the deed from Manget to the defendant was obtained through fraud, without a statement of any specific facts on which such allegations are based, are not sufficient to withstand a general demurrer, and to bring the case within the purview of section 3258 of the Civil Code 1910.

While a deed or bill of sale, absolute on its face, and conceding that it was accompanied with possession of the property cannot be proved, at the instance of the parties, by parol evidence, to be a mortgage only, where fraud in its procurement is not the issue to be tried, when such a deed is executed and delivered and possession thereunder is surrendered to the grantee, who gives to the grantor an instrument which purports upon its face to be an option to repurchase the land conveyed, and where the transaction is a scheme or device to cover usury, it does not fall within the purview of section 3258 of the Civil Code 1910, and its true character can be shown by parol evidence.

(a) Whether such a transaction was a bona fide sale with a right in the vendor to repurchase, or whether it was a ruse devised to evade the usury laws and to take security for the loan of money, can be shown by parol evidence. The whole transaction is to be looked into; and if, upon the whole, it appears that a loan and security for its payment were in truth the purpose and intent of the parties, it will be treated as such notwithstanding very strong language may be used at the time to give it a different appearance.

(b) If the writings which were signed by both parties correctly set forth the agreement between them, then these writings evidence a sale and conveyance of the land, with an option to the vendor to repurchase it within a definite period. "However, if a loan was in point of fact made, and these writings merely furnished the cloak for a usurious transaction, then the truth may be shown by parol, and the writings cancelled on payment" of the debt.

(c) While a valid written contract cannot be contradicted or varied by parol, it is competent by such evidence to show that the writing is but a mere cover for usury, penalty or forfeiture. "The ingenuity of man has not devised a contrivance by which usury can be legalized, if it appears that the purpose of the scheme was to exact a larger profit for the use of the money actually furnished than 8 per cent per annum. In determining whether the contract is usurious, the substance of the transaction will be critically inspected and analyzed; for the name by which the transaction is denominated is altogether immaterial, if it appears that a loan of money was the foundation and basis of agreement which is under consideration."

The allegations of the petition made a case to be passed upon by the jury; and the court erred in sustaining the demurrer to the petition.

Error from Superior Court, Fulton County; Virlyn B. Moore, Judge.

Action by the Manget Realty Company and another against the Carolina Realty Company, Incorporated. To review a judgment dismissing the petition on general demurrer, plaintiffs bring error. Reversed.

Russell C.J., dissenting.

Manget Realty Company, a corporation, and John A. Manget filed their petition against Carolina Realty Company, Incorporated, in which they made substantially the following allegations: Prior to December 14, 1923, John A. Manget applied to Adair Realty & Trust Company to arrange to place a second mortgage-loan on his property known as the Cecil Hotel, Atlanta, Ga. At the time of this application there was a first mortgage on said property in favor of G. L. Miller & Co., a part of which had been paid, leaving a balance of principal due of $506,625. Manget requested a loan of $100,000 on the property, subject to said bond issue. At that time he was in default on this bond issue to the extent of $56,142.72, and Miller was insisting upon immediate payment. The entire bond issue was subject to accelerated maturity because of the default in this payment. After negotiations, Adair Realty & Trust Company told Manget that it could arrange a transaction by which $100,000 would be paid to him or for his benefit, but that the transaction would have to be closed in the form of an absolute conveyance of the Cecil Hotel to the party advancing the money, but that said party would execute coincidentally an instrument creating and establishing an option in favor of John A. Manget, so that Manget might repay said sum of money together with certain charges and expenses that were connected with the transaction. After further negotiations, an agreement between Manget and the defendant was reduced to writing, and a copy of it is attached to the petition as "Exhibit A." As a part of the security for the repayment of the money advanced under the terms of said contract and the agreements between the parties under which said transaction was put in the form of a deed with an option (both of said instruments being simultaneously executed and together constituting evidence of the contract between the parties), it was further agreed that the defendant corporation was to have control and possession of the property so that it might collect, hold, and disburse the income therefrom, so that it might be assured that said income should be applied to the protection and reduction of the bond issue which constituted a lien upon the property prior to that of defendant; and in accordance with said agreement said possession was delivered to defendant for said purpose.

The original agreement was entered into on December 14, 1923. On December 15, 1923, Manget transferred and assigned his interest in the Cecil Hotel to Manget Realty Company. The essential part of this transfer (Exhibit B) is that: "For and in consideration of $1, and other valuable consideration, in hand paid, receipt of which is hereby acknowledged, I hereby sell, assign, transfer, set over, and deliver to Manget Realty Company, a corporation, its successors or assigns, all my right, title, and interest in the within contract and the property therein described." On February 6, 1924, a further agreement was entered into between defendant and Manget Realty Company, by the terms of which the defendant paid $37,500 to Manget Realty Company, the option to purchase the Cecil Hotel for $600,000 on December 31, 1925, was canceled, and the price in the option to purchase the property on December 31, 1928, was increased from $650,000 to $687,500. The writings entered into between the parties evidence the fact that the true transaction between them was not to be an unconditional, absolute sale, but that it was a loan of money, and that the exactions for the use of such money were such as to make the loan usurious. The transaction was put in the form of instruments as executed, for the purpose of giving the defendant an advantage over the plaintiffs, so that it might more surely compel payment of the sums provided to be paid. The payments provided for as compensation or interest in consideration of the advances of money are unlawful exactions, and are usurious under the laws of this state; and said transaction was given the form and clothed with the appearance of an absolute conveyance, when in fact it was only an advance of money secured by the equity in said property, and it constituted a ruse, scheme, and device to cover up and seek to avoid the usury charged petitioners, and for the purpose of keeping it from appearing that said transaction was a loan of money for an unlawful and usurious consideration.

The true value of said property in December, 1923, was approximately $1,000,000. It was yielding an annual rent of approximately $68,000. Manget then had an equity therein of approximately $493,375. He had been offered $750,000 for the property which he refused as inadequate. In the transaction with defendant he did not receive $100,000, but received only $12,930.69. The balance of the $100,000 was paid out by defendant or Adair Realty & Trust Company in the liquidation of items owed upon the account of the property, including $56,142.72 paid to G. L. Miller & Co., Inc., to apply upon bond debt, and the commission retained by Adair Realty & Trust Company. All of these payments were in the interest of Manget when the contract is considered as a loan of money. None of them were for his benefit if the transaction should stand as a sale of the property, but all be for the benefit of defendant; so that the sum of money actually received by Manget on account of the loan was only $12,930.69. Under option 2 of the contract, petitioners will be compelled to pay the $181,000 as charges and commissions or compensations for the use of the money actually received by them. These charges are in excess of 8 per cent, and are usurious. At the time the parties entered into the contract, the transaction in truth and in fact was to be an advance and loan of money by the defendant, to be secured by the conveyance of the equity of Manget in said property; and the form in which the transaction was closed was...