Arizona Copper Estate v. Watts, 237 F. 585

Arizona Copper Estate v. Watts

237 F. 585 | 9th Cir. | 1916

GILBERT, Circuit Judge

(after stating the fácts as above). [1] The appellant contends that the intention and express agreement of the parties cannot be shown by parol to change the essential nature of the instruments, and that a conveyance to secure a debt is a mortgage, and the stipulation of the parties cannot make it otherwise. But there can be no mortgage unless there is a debt to be secured thereby. “A debt, ‘either pre-existing or created at the time, is an essential requisite to a mortgage. When there is no debt and no’ loan/ it is impossible to say that an agreement to resell will change an absolute deed into a mortgage.” Jones on Mortgages, § 265. Here there was no debt. The relation of debtor and creditor did not exist. The undisputed evidence is that the appellant never at any time owed Syme and Mathews any sum whatever. It is true that the appellant signed promissory notes to the amount of $100,000; but they were not intended to be obligatory upon the maker, or ever to be paid unless the *588appellant made a sale of the land. They were intended only to register the nature of the transaction, which, while it was in the contemplation of the parties only an option, was placed in the form of a deed to the appellant and notes and a mortgage from the appellant to the owners. In Daniels v. Lowery, 92 Ala. 519, 8 South. 352, the court said:

“In determining whether a particular transaction was a mortgage or a conditional sale, there are some facts which may be regarded as of controlling importance. Did the relation of debtor and creditor exist before and at the time of the transaction? Or did the transaction begin in a negotiation for the loan of money? Was there great disparity between the value of the property, and the consideration passing for it? It there a debt continuing for which the vendor is liable?”

[2] It is universally held that a deed absolute upon its face may by parol evidence be' shown, as between the parties, to have been intended as a mortgage. The reason why such evidence is admissible, notwithstanding the statute of frauds, is that a court of equity will not construe a statute designed to prevent fraud in such a manner as to produce fraud. That reason applies in full force to the present case. Said the court in Peugh v. Davis, 96 U. S. 332, 336 (24 L. Ed. 775):

“The object of parties in such cases will be considered by a court of equity. It constitutes a ground for the exercise of its jurisdiction, which will always be asserted to prevent fraud or oppression, and to promote justice.”

The appellant says there is ncv allegation here of fraud or mistake. But such allegations are unnecessary. When the appellant insists that the reconveyance is a mortgage, the. fraud is established, and equity takes jurisdiction. 2 Pomeroy, Equity Juris. (2d Ed.) § 1196; Campbell v. Dearborn, 109 Mass. 130, 12 Am. Rep. 671. The contention of the appellant, if sustained here, would result in a monstrous fraud. The appellant was incorporated for the sole purpose of accomplishing the transactions which are evidenced by the instruments executed between the parties in the year 1899. From that time on it did no corporate act until after the commencement of the present suit. At that time it seems to have been resurrected and resuscitated sufficiently to make an answer to the complaint. In the meantime, if the indenture is to be held a mortgage, the statute of limitations has long since run thereon, and, according to the appellant’s contention, it has acquired title to 99,000 acres of land without having paid a dollar therefor. Every consideration of justice and, equity requires that the real intention of the parties be given effect. We find no error in the decree of the court below, which accomplished that result.

The decree is affirmed.