Smith v. Smith

• Decision Date: 14 November 1907
• Citation: 153 Ala. 504,45 So. 168
• Parties: SMITH ET AL. v. SMITH ET AL.
• Court: Alabama Supreme Court

45 So. 168

153 Ala. 504

SMITH ET AL. v. SMITH ET AL.

Supreme Court of Alabama

November 14, 1907

Rehearing Denied Dec. 19, 1907.

Appeal from City Court of Talladega; G. K. Miller, Judge.

Bill by M. L. Smith and others against E. J. Smith and others. Decree for complainants, and defendants appeal. Affirmed.

Whitson & Dryer and Knox, Dixon & Burr, for appellants.

Cecil Browne, for appellees.

DENSON J.

This appeal is prosecuted from a decree of the city court of Talladega overruling a motion to dismiss a bill for want of equity and overruling a demurrer to the bill. The bill has been carefully read and considered, and without stating its contents in detail we will proceed to a discussion of the theories upon which the complainants (appellees) seek to support it.

One purpose of the bill is to have a conveyance absolute on its face declared a mortgage and that the complainants be let in to redeem from the mortgage. In respect to this theory of the bill, the conveyance (Exhibit A) is one of lands, executed by the complainant M. L. Smith, and his wife, to E. J. Smith. It is absolute on its face, with nothing in its terms to indicate that a mortgage was intended, or that it should be taken otherwise than as an absolute conveyance. Nevertheless such an instrument may, in equity, by means of extrinsic and parol evidence, be shown to be in reality a mortgage. "The principle which underlies this doctrine * * * is that it would be a virtual fraud for the grantee to insist upon the deed as an absolute conveyance of the title, which had been intentionally given to him and which he had knowingly accepted merely as a security, and therefore in reality as a mortgage." 3 Pom. Eq. Jur. § 1196. The essential fact to characterize such a conveyance as a mortgage, and which must be distinctly averred in the bill is that the conveyance was given as a security for a debt--that the relation of debtor and creditor existed between the parties. "If there is no indebtedness, the conveyance cannot be a mortgage." Ellington v Charleston, 51 Ala. 166; Martin v. Martin, 123 Ala. 191, 26 So. 525; West v. Hendrix, 28 Ala. 226; Peeples v. Stolla, 57 Ala. 53.

It is not averred in, nor can it be fairly inferred from, the alegations of the bill, that E. J. Smith was to look to the complainants, or to either of them, for the payment of any money, or that E. J. Smith held any debt against the complainants or either of them. M. L. Smith, the complainant with whom all the transactions which led up to the execution of the conveyance were had, was thought to be insolvent, and it was agreed that he should go (and he did go) into bankruptcy, and a composition of his unsecured indebtedness was accomplished at 40 cents on the dollar. This of itself is incompatible with the idea that his prior contractual obligations should continue, against his voluntary consent after his discharge. While the bill avers that prior to the filing of the petition in bankruptcy by M. L. Smith there was a statement made by E. J. Smith to M. L. Smith that he would procure and advance to him the money necessary to enable him to pay off secured debts, and the amount necessary to pay the proposed composition of his unsecured debts, yet it was stated in the same connection, as shown by the bill, "that the money so advanced could be paid out of M. L. Smith's assets." Furthermore, it plainly appears that up to that time there was not any agreement sufficiently certain to make a binding legal contract between them. E. J. Smith had agreed to nothing definite. It is manifest that he had merely held out the hope that something might be done whereby M. L. Smith might escape with something from his insolvent condition. This is made clear, and it may be said to be admitted, by the complainants in the last sentence of the sixth section of the bill, wherein, referring to the time after M. L. Smith was adjudged a bankrupt, it is averred: "At this time nothing had been said as to how the money was to be raised for the said M. L. Smith, except that E. J. Smith was to assist him in making some arrangement therefor." So the matter was left without any of the elements of certainty as to the amount, the time for the advance to be made, and the time for repayment; and it may be said that the bill on its face concedes as much. Therefore, from the averments, it cannot be said that up to the time the conveyance was executed there was any debt due or to become due from M. L. Smith to E. J. Smith.

It is obvious that from the contents of the conveyance of the lands and the written agreement executed contemporaneously with it nothing is to be gathered which in the remotest degree tends to show that the relation of debtor and creditor existed between the grantors and grantee, that M. L. Smith owed E. J. Smith anything, or that there was any contingent liability from M. L. Smith to E. J. Smith. On the contrary, the wording and the substance of the conveyance of the lands and of the written agreement plainly exclude the theory that a debt existed or that a mortgage was intended. The two papers, having been executed at one and the same time, and the written agreement referring to the conveyance of the land, will be construed together. The agreement (Exhibit B) sets out in detail the existing conditions, explains the transaction and its meaning, and leaves nothing to be inferred or implied. After reciting that the consideration paid is the full value of the property, it recites, further, that the conveyance of the lands (Exhibit A) and the property embraced in the transaction is, without any reservation, to be held in fee simple to E. J. Smith, forever, absolutely as his own, and states that the grantors "will make, execute, and deliver to the said E. J. Smith any and all further or additional conveyances, transfers, and assignments of any or all of said property hereinbefore described, transferred, and conveyed (except the homestead), as he may request. So far, then, as the writings are concerned, there is an express stipulation that the conveyance shall not operate as a mortgage. Whether so or not, and whether such a stipulation may be overridden by parol evidence that the conveyance should be operative as a mortgage, it is clear, and the fact remains, that it could not so operate in the absence of any proof of a debt to be secured by it. Swift v. Swift, 36 Ala. 137; Worley v. Dryden, 57 Mo. 226-231. As was said in Peeples v. Stolla, supra: "The effect of a mortgage * * * is to leave on the mortgagor a personal liability for the residuum of the debt, if, on foreclosure, the property mortgaged fails to yield a sum sufficient to pay it in full." In other words, the instrument must be capable of enforcement by either of the parties as a mortgage. In the bill it cannot be found that a debt is averred in such sort that E. J. Smith might foreclose the conveyance as a mortgage to collect the debt.

Furthermore to show that a conveyance should operate as a mortgage, it is indispensable that the bill should aver the concurring intention of both parties, at the time of the execution of the instrument, that it should so operate. Douglass v. Moody, 80 Ala. 61; Mitchell v. Wellman, 80 Ala. 17; Martin v. Martin, 123 Ala. 191, 26 So. 525; Reeves v. Abercrombie, 108 Ala. 535, 19 So. 41. In the fifteenth paragraph of the bill it is averred "that the making and signing of said two conveyances, Exhibits A and B, was merely intended, should they be approved by Brown & McElderry, as security for said moneys so to be procured and advanced by the said E. J. Smith to and for the said M. L. Smith aforesaid." According to the wellestablished rule that pleadings must be construed most strongly against the pleader, this cannot be held to allege intention on the part of E. J. Smith that the conveyances should operate merely as mortgages. Indeed, considering the bill as a whole, it seems that the pleader intended to negative, and does negative, the idea that E. J. Smith intended that the conveyances should operate as mortgages. There is in the bill, it is true, the averment that E. J. Smith stated that when he got back out of the property the money he had advanced he would deed the remainder back to M. L. Smith; but this statement or allegation, if proved, would not impress on the conveyances the characteristics of equitable mortgages. Pearson v. Dancer, 144 Ala. 427, 39 So. 474. And the bill, in connection with this averment and referring to it, avers that at the time E. J. Smith did not intend to do so, and that he obtained the conveyances for the purpose of acquiring the property, and to accomplish his purpose "did in reality fraudulently conspire, plot, intend, and seek to get control of the affairs and assets of M. L. Smith for the purpose of getting rid of the competition of his business with that of Smith Bros. and E. J. Smith, and in carrying out such design the said E. J. Smith did cause the said conveyances (Exhibits A and B) to be prepared and drawn, without mentioning the same to M. L. Smith until they were presented by E. J. Smith to M. L. Smith for his signature on the 16th day of December, 1904, only three days before the day set for the creditors' meeting for the consideration of an offer of composition," and that, "when the said M. L. Smith did agree to sign said conveyances upon condition that they should not go into effect or be filed for record until approved by Brown & McElderry, and should be destroyed in the event they were not so approved, the said E. J. Smith assented and so agreed to do, fraudulently intending not to comply with his said agreement, but to immediately file said conveyances for record, and mortgage the said property." It is apparent from these allegations that M. L. Smith himself did not consider the...