Smith v. Swendsen

• Decision Date: 14 May 1937
• Docket Number: 6411
• Parties: ADDISON T. SMITH and MARY A. SMITH, Husband and Wife, Appellants, v. WARREN G. SWENDSEN, Otherwise Known as W. G. SWENDSEN, and BIRDIE SWENDSEN, Husband and Wife, Respondents
• Court: Idaho Supreme Court

69 P.2d 131

57 Idaho 715

ADDISON T. SMITH and MARY A. SMITH, Husband and Wife, Appellants, v. WARREN G. SWENDSEN, Otherwise Known as W. G. SWENDSEN, and BIRDIE SWENDSEN, Husband and Wife, Respondents

No. 6411

Supreme Court of Idaho

May 14, 1937

MORTGAGES-DEED ABSOLUTE AS MORTGAGE-PAROL EVIDENCE.

1. Parol evidence is admissible to prove that a deed absolute on its face is a mortgage, even where parties have declared in writing that they do not intend a mortgage, if such writing is ambiguous or uncertain. (I. C. A., sec. 44-805.)

2. Where owner conveyed realty to holder of second mortgage under option to repurchase, which provided that second mortgage holder's filing of release of second mortgage should be conclusive evidence of owner's performance of conditions, of satisfaction of debt due from owner, and of absolute nature of conveyance to mortgage holder, whether such deed and option constituted a mortgage or an absolute conveyance was uncertain and hence parol evidence to show preliminary negotiations and circumstances was improperly excluded, since apparently parties intended option to continue as security for performance of owner's obligation, but duration of such continuance was uncertain. (I. C. A., sec. 44-805.)

APPEAL from the District Court of the Eleventh Judicial District for Twin Falls County. Hon. T. Bailey Lee, Judge.

Suit to have a deed, bill of sale and option contract declared a mortgage. Judgment for defendants. Reversed and remanded.

Reversed and remanded. Costs awarded to appellants. Petition for rehearing denied.

Harry Benoit and John W. Graham, for Appellants.

Parol evidence is admissible in equity to show that a deed absolute upon its face, was intended as a mortgage. (Secs 44-804, 44-805, I. C. A.; Pierce v. Robinson, 13 Cal. 116; Kelley v. Leachman, 3 Idaho 392, 29 P. 849; Oliver v. Oliver, (Penn.) 4 Rawle, 141, 26 Am. Dec. 123; Russell v. Southard et al., 12 How. 139, 13 L.Ed. 927; Thompson v. Burns, 15 Idaho 572, 99 P. 111; Investors' Mortgage Secur. Co. v. Hamilton, 51 Idaho 113, 4 P.2d 347.)

The intention of the parties controls, and, in case of doubt, courts always incline to and determine the instrument to be a mortgage. (2 Washburn on Real Property, pp. 60-66; Russell v. Southard, supra; Peugh v. Davis, 96 U.S. 332, 24 L.Ed. 775, L. R. A. 1916B, note 447; Conway v. Alexander, 7 Cranch, 218, 3 L.Ed. 321.)

Karl Paine and Edwin Snow, for Respondents.

Where a person signs an otherwise valid written contract there is a conclusive presumption, except as against fraud, that it was read, understood, and assented to. (Fivey v. Pennsylvania R. Co., 67 N. J. L. 627, 52 A. 472, 91 Am. St. 445; Constantine v. McDonald, 25 Idaho 342, 137 P. 531; Milner v. Earl Fruit Co., 40 Idaho 339, 232 P. 581; Hampton v. Lee, 49 Idaho 16, 285 P. 1023; 49 Idaho 22, 287 P. 205.)

In Milner v. Earl Fruit Co., supra, this court said:

"A written contract cannot be avoided by one of the parties thereto on the ground that he signed it without reading it and did not understand it. Failing (sic) to read the contract or to have the same read to him or to otherwise inform himself as to the nature, terms, and conditions thereof constituted gross negligence on his part."

". . . . In the absence of fraud or mistake, parol or extrinsic evidence is not admissible to vary, add to, modify, or contradict the terms or provisions of the written instrument by showing the intentions of the parties of their real agreement with reference to the subject matter to have been different from what is expressed in the writing; . . . . " (Milner v. Earl Fruit Co., supra; Wigmore on Evidence, 2d ed., vol. 5, sec. 2437, p. 321; Thomas v. Scutt, 127 N.Y. 133, 27 N.E. 961; Marsh v. McNair, 99 N.Y. 174, 1 N.E. 660; Miller v. Carpenter, 68 A.D. 346, 74 N.Y.S. 231.)

GIVENS, J. Morgan, C. J., Holden and Ailshie, JJ., concur.

OPINION

GIVENS, J.

--October, 1931, appellants owed R. C. Little a balance of $ 29,500 on a purchase price first mortgage on an apartment house; a second mortgage of $ 10,000 originally given to Sudler, Epperson, Grubb & Company assigned to appellant W. G. Swendsen November 8, 1930; and a third mortgage due Hugh F. Smith in the sum of $ 3,500. Appellants were delinquent in payments of principal and interest on the first mortgage and feared foreclosure thereof. After unsuccessful attempts to refinance by securing a loan sufficient to take up all the outstanding indebtedness, and after a series of negotiations between appellants and respondents, apparently for years close and intimate friends, appellants deeded the property in question to respondents on October 8, 1931, and entered into an agreement the same day, contended by respondents to give appellants solely an option to repurchase the property within 15 months, declared by appellants to constitute, together with the negotiations leading up to the signing of the agreement, a mortgage, and this action was instituted February 1, 1935, to have the same so declared by the trial court, which found in favor of respondents, hence this appeal.

The assignment of error which we deem determinative of this appeal is based upon the action of the trial court in sustaining respondents' objections to all appellants' evidence of the negotiations preceding the signing of the agreement, submitted to show the deed and agreement constituted a mortgage and not an absolute conveyance and option for repurchase.

Respondents admit the general rule that parol evidence is admissible to show a deed absolute on its face is a mortgage (sec. 44-805, I. C. A.), but contend the trial court correctly ruled because of an asserted exception that where the parties have declared their intention and purpose in clear unequivocal writing that the transaction is an option to repurchase or a sale absolute and not a mortgage, parol evidence is not admissible, citing Milner v. Earl Fruit Co., 40 Idaho 339, 232 P. 581; Wigmore on Evidence, second edition, volume 5, section 2437, page 321; Thomas v. Scutt, 127 N.Y. 133, 27 N.E. 961; Marsh v. McNair, 99 N.Y. 174, 1 N.E. 660; Miller v. Carpenter, 68 A.D. 346, 74 N.Y.S. 231; Carter v. Simpson Estate Co., 103 Ore. 383, 193 P. 913, 203 P. 580; Thomas v. Ogden State Bank, 80 Utah 138, 13 P.2d 636; Pindar v. Resolute Fire Ins. Co., 47 N.Y. 114, 117; Gerton Carriage Co. v. Richardson, 6 Misc. 466, 27 N.Y.S. 625; Peugh v. Davis, 96 U.S. 332, 24 L.Ed. 775.)

The exception however does not prevail if the writing is ambiguous or uncertain. (41 C. J. 353, sec. 118; Shelp v. Decker, (Tex. Civ. App.) 262 S.W. 807; and respondents' authorities virtually so hold.

McMurry v. Mercer, (Tex. Civ. App.) 73 S.W.2d 1087, announces the rule contended for by respondents:

". . . . The notes executed by Mercer, payable to Clarence and Sam McMurry, representing the unpaid consideration, and the option agreement executed at the same time, obligating Mercer to reconvey on terms specified, constituted parts of the consideration for the conveyances, are contractual in nature, unambiguous in terms, not attributable to either fraud, accident, or mistake, clearly evidencing the intention of the parties, and cannot, in our opinion, be varied, contradicted, or added to by parol evidence . . . ." though the court nevertheless considered the circumstances and negotiations leading up to the signing of the option agreement and held the evidence was not sufficiently clear, satisfactory and convincing that the parties intended a mortgage, and Texas has held if there is doubt as to the meaning of the instrument (option or defeasance) parol evidence is admissible. (Johns v. Hilburn, (Tex. Civ. App.) 64 S.W.2d 1009; Wells v. Hilburn, (Tex. Civ. App.) 129 Tex. 11, 98 S.W.2d 177.) (Apparently Illinois is at the other extreme holding that if the instrument leaves it doubtful it will be construed a mortgage. Graham v. Mullins, 286 Ill.App. 393, 3 N.E.2d 723.)

We will therefore proceed to examine the agreement to see if it is uncertain in material respects, that is, as to whether it indicated with certainty that appellants were granted only the right to repurchase and that the agreement clearly did not constitute a mortgage. The material parts of the agreement are as follows:

" . . . The condition of this option is that, in order to exercise it, the buyers shall pay to the owners in cash, at the time of the exercise thereof, the following:

"(1) The principal sum of the second mortgage now on said premises, together with all interest accruing thereon, at the rate therein specified, from the date of the last interest payment to the date of the exercise of the option.

"(2) Any and all amounts that may have been paid by the owners upon the first mortgage against said premises, together with interest thereon at the rate of eight per cent per annum from the date of said payments.

"(3) Any and all amounts that may be paid by the owners upon taxes, insurance, repairs, and/or the amount of any operating deficit incurred subsequent to the date of this agreement, with interest on all such payments and/or expenses from the date thereof, at the rate of eight per cent per annum.

"It is mutually agreed that the owners shall keep an account of the income from and expenses of the said Reed Apartments, and that any net amounts of income remaining after the payment of taxes, insurance, repairs and operating expenses, shall be credited upon the amounts herein provided to be paid by the buyers in order to exercise this option, if and when they do exercise it; that is, that upon the exercise of the option the buyers shall pay the amounts hereinabove provided for, less any credits that may be due thereon from the net operating income, if any, computed as above set forth; it being provided, however, that in...