This post is a reprint of a part of a longer post which originally appeared in this blog in March, 2007.
In this case, an individual, Robertson, approached Mobile Building & Loan Association (Loan Association) for a loan of $2,000 to purchase lots upon which he agreed to make $600 of repairs and improvements. Robertson had already negotiated the purchase and had entered into a contract with the seller. The transaction was structured as a sale by the owner of the lots to the Loan Association with a contemporaneous lease to Robertson with an option to buy. Upon completion of the repairs and the improvements by Robertson, the transaction was consummated, with Robertson taking possession of the premises pursuant to its lease from the Loan Association.
Ultimately, a dispute arose between the parties resulting in Robertson ceasing his lease payments, and the Loan Association commencing an action at law for the breach of the lease. Robertson countered by filing a bill for an injunction against the suit at law, and to have the contract declared a mortgage and for the redemption of the premises.
The lower court found that the transaction was in effect a mortgage, and that the stipulation for rent was a mere device to obtain more than lawful interest on the money loaned.
In affirming the lower court decision that the transaction between Robertson and the Loan Association was a mortgage, it based its decision on the following rationale:
- Every conveyance of land, without regard to its form, which is in fact a security for an antecedent debt, or for a contemporaneous loan, in the contemplation of a court of equity is a mortgage. It inures and operates as a mortgage only, conferring on the parties reciprocal rights and remedies. The grantee may resort to a court of equity to have it so declared, and for its foreclosure, as well as the debtor for redemption. -- Bryan v. Cowart, 21 Ala. 92; Hughes v. Edwards, 9 Wheat. 489 [6 L. Ed. 142].
- When it is ascertained that the parties intend security for a debt, the court intervenes, and without regard to any agreement existing between them,--rather upon a general policy the parties can not contravene,--attaches, as an inseparable incident, the right of redemption upon the payment of the debt. -- Eiland v. Radford, 7 Ala. 724 [42 Am. Dec. 610]; Wiliamson v. Culpepper, 16 Ala. 211 [50 Am. Dec. 175]; Locke's Ex'r v. Palmer, 26 Ala. 312; Skinner v. Miller, 5 Litt. 84; Walling v. Aikin, McMul. Eq. 1.
- This is the well-defined legal consequence, when the fact is established, that security for a debt is what was intended, and this is the concurring intention at the time of the contract, which is to be deduced from the facts and circumstances attending the transaction.
- There may be no independent evidence of the debt,--no bond, bill, or note, taken for its payment; it may rest wholly on implication from the nature, facts and circumstances of the transaction; it is sufficient that its existence is the fair, just implication. -- Conway v. Alexander, 7 Cranch 218 [3 L. Ed. 321]; Robinson v. Farrelly, 16 Ala. 472; Locke's Ex'r v. Palmer, 26 Ala. 312; Russell v. Southard, 12 How. 139 [13 L. Ed. 927]."
- Indeed, when the purpose of the creditor is to avoid the appearance of a mortgage, it is not to be expected that he would defeat it by the introduction of an express covenant for the payment of the debt, or any other independent security, disclosing its existence.
- In the numerous cases of this character, which have been before this court, there was no other evidence of the debt, than an absence in the conveyance of any words showing that it rested in the mere option of the grantor, whether he would perform the condition, and the inferences from the nature, facts and circumstances of the transaction. There can be no doubt, that the absence of independent evidence of the debt is a circumstance favoring an absolute or conditional sale, or other contract, in which it is optionary whether there shall or shall not be payment. It is but a circumstance, dependent for its weight upon other facts and circumstances, with which It may be connected.-- Conway v. Alexander, supra; Russell v. Southard, supra; Brown v. Dewey, 1 Sandf. Ch. 56.
- Though there is no express promise to pay, yet, when from all the facts and circumstances it is fairly collected that the relation of debtor and creditor exists, and the amount which ought to be paid is ascertained, the law implies the promise, and an action of assumpsit will lie (Russell v. Southard, supra, and authorities cited on page 152 [12 How. 139, 13 L. Ed. 927]); thus affording the creditor, in all events, security, and a remedy for the debt.
-----------------------In light of the fact that the Alabama high court found it unnecessary to have an express promise to pay, and considering that the bylaws of the Loan Association indicated that one purpose for its existence was to loan money to its members, it affirmed the lower court decision declaring the arrangement a mortgage, and agreed with the lower court that the characterization of the periodic payments as "rent" was a disguise in order to evade the statute against usury. It concluded its opinion with the following statement:
- The stipulation for the payment of rent was intended as compensation for the use of the money loaned. It is the only compensation contemplated, and the only compensation that, according to the contract, the borrower was bound to make. It is in excess of lawful interest, and is usurious. Whatever color or disguise ingenuity may throw over a loan for illegal interest, the courts are bound to disregard, or the statute against usury will be practically abrogated.-- Evans v. Negley, 13 Serge. & Rawle 218; Miller v. Bates, 35 Ala. 580.
See also Moorer v. Tensaw Land & Timber Co., 246 Ala. 223; 20 So. 2d 105; (Ala. 1944) (in which, in an action for ejectment, defendant successfully asserted equitable mortgage in preventing its eviction from property. Observations made by the Alabama Supreme Court in connection therewith were (bold text is my emphasis; text broken up for ease of reading):
- It is well settled that two writings connected by reference one to the other, or simultaneously made, with respect to the same subject matter and proved to be parts of an entire transaction constitute but a single contract as if embodied in one instrument. Sewall v. Henry, 9 Ala. 24; Byrne v. Marshall, 44 Ala. 355; Collins v. Whigham, 58 Ala. 438; Drennen v. Satterfield, 119 Ala. 84, 24 So. 723; Weeden v. Asbury, 223 Ala. 687, 138 So. 267; Frasch v. City of Prichard, 224 Ala. 410, 140 So. 394; Albert v. Nixon, 229 Ala. 273, 156 So. 775.
- When such situation exists, it does not require equity to declare that to be the result, but the one contract consisting of the two writings is so treated at law as well as in equity.
- A mortgage is sometimes said to be a conveyance by a debtor to a creditor of real or personal property, with a defeasance clause whereby the conveyance will be void and the debtor entitled to repossess the property if the debt is discharged by a day named. Mervine v. White, 50 Ala. 388; Sewall v. Henry, 9 Ala. 24.
- It is wholly immaterial between the parties whether the defeasance clause is incorporated in the same instrument or in a separate instrument contemporaneously executed. 41 Corpus Juris 318, note 93; 41 Corpus Juris 610, section 578.
- The defeasance clause may be in the form of an agreement for a reconveyance of the property to the grantor or for the revesting of title in him on paying the debt. 41 Corpus Juris 317.
- A written instrument may be an equitable mortgage, either when there are no words of conveyance passing the legal title in praesenti ( O'Neal v. Seixas, 85 Ala. 80, 4 So. 745), or when it makes a present conveyance without the mortgage features expressed in it, but only in a parol agreement. Cases heretofore cited.