Opinion
14495.
APRIL 13, 1943. REHEARING DENIED MAY 8, 1943.
Equitable petition. Before Judge Almand. Fulton superior court. December 4, 1942.
Pierce Matthews and A. E. Wilson, for plaintiff.
H. A. Etheridge, A. A. Meyer, Robert L. Avary Jr., and William H. Mewbourne, for defendants.
1. The evidence as a whole demanded a finding that the deed in question, though absolute in form, was made to secure a debt of the grantor, who remained in possession of the land.
2. Where the owner of land executes a deed absolute in form but in fact as security for a debt, and remains in possession of the land, and the grantee conveys the land to another who has no actual notice of the undisclosed agreement that the deed should operate as a security for debt, and who has made no inquiry of the occupant, the latter may pay or tender the amount of the debt to the first grantee and maintain an equitable action against the first grantee and the remote grantee for cancellation of both deeds as clouds upon his title, and to have the title decreed to be in him. The above principle is also applicable if the debt has been fully paid.
No. 14495. APRIL 13, 1943. REHEARING DENIED MAY 8, 1943.
This is the second appearance of this case in the Supreme Court. In Simpson v. Ray, 180 Ga. 395, a petition filed by Benjamin Ray, seeking to cancel as clouds upon his title the several deeds specified and the judgment declaring a special lien upon the land, was held to allege a cause of action, and the judgment overruling the defendant's demurrer was affirmed.
On the trial before the judge without a jury, by consent of the parties, the evidence showed that Benjamin Ray bought an unimproved lot from H. A. Etheridge on January 23, 1914, paying a small amount in cash and giving for the balance purchase-money notes aggregating $615. The notes were all paid, and on December 29, 1914, Etheridge executed a warranty deed conveying the lot to Ray. On May 25, 1915, the parties entered into a written contract whereby Etheridge was to build a house on the lot for Ray for $1700, the latter paying $200 in cash and giving 120 promissory notes, payable monthly, for the balance of the cost of the house. Each of the notes contained the statements that Ray had "given 120 notes . . aggregating $1500 . . for the deferred payments for a certain parcel of land, as shown by bond for title of this date," and that the amount of each note was "part of purchase-money for house." The record does not disclose that such bond for title was executed. However, about a month after the contract to build the house was entered into, on July 8, 1915, while the house was under construction, Ray executed to Etheridge a deed absolute in form.
Ray died before the case came on for trial, and Etheridge, the only witness as to the above transactions, testified: "He [Ray] paid me in full on or before maturity of the notes. . . None of them were in default at any time. He was ahead. There were one hundred and twenty of those notes. . . The warranty deed from Ray to me was given me to enable me to borrow money with which to build him a house. As to whether it was given to secure the contract, . . I don't think I would put it that way. Regarding whether the object was to secure the payment of these notes — I would not say that. I would say that I might be the apparent owner of the property in order that I could borrow money on it to build his house. . . As to whether it had anything to do with the notes and the contract dated May 25, 1915, it would not relate to them at all except in that indirect way, to enable me to build the house, so the notes would then be a transaction between us. . . I told him [Ray] I did not have the money with which to build the house, and it would have to be borrowed on the property and borrowed in my name. Therefore I asked him to sign the deed. I told him he was executing a warranty deed. . . At the time the deed was made by Ray to me the house had been started probably two weeks, and was finished about two months after that. . . I had fire insurance placed on that property . . in the name of Ben Ray. . . I have never returned this property for taxation since I sold it in 1914. . . Ray lived there since he built the house up to the time of his death. Nobody else ever lived in the house but Ray." There was also uncontradicted evidence that Ray paid the premiums on the insurance mentioned above, and that he returned the house and lot in his own name and paid taxes thereon from 1914 to his death in 1934. Also that he and his wife lived in the house and had actual possession from the time it was built in 1915 until the present suit was filed.
On July 13, 1915, Etheridge borrowed $1000 from J. E. Park, and gave his promissory note due in five years, together with a security deed conveying the house and lot in question. When this loan matured in July, 1920, it was not paid by Etheridge, but Park allowed him to renew the same by executing a second security deed and note dated July 13, 1921, which would mature in another five years. The original security deed and note to Park were marked satisfied, which was entered of record on September 29, 1921.
On April 1, 1926, Etheridge executed a security deed to R. A. Simpson. Concerning the above transactions Etheridge testified: "I obtained $1000 from J. E. Park. . . I don't know whether the house was completed at the time Park made the loan on the property. I think it was. His money paid for what was against it. I think his money was used to take up all outstanding bills against the house. . . That money was not paid back for ten years. When the loan came due I got it carried another five years. They had me execute new papers. When . . the second loan deed to Park, dated July 13, 1921, came due, I borrowed the money through Mr. Robert Lee Avary with which to pay Park, and paid the money to Tilson and McKinney [Park's agents.] Regarding how I went about negotiating the loan . . I took it up with Mr. Avary and showed him the property. When the ten years had expired I did not have the money to pay the loan off with. I got it through Mr. Avary from Mr. Simpson, and executed another deed to Simpson. I took his money and paid it to Tilson and McKinney to satisfy J. E. Park. . . I told Mr. Avary if he would make this loan it would not be necessary for him to examine the title, because Tilson and McKinney had examined . . [it] and I would bring the uncanceled paper and put it in his hands to be held until he got his money back. Therefore it was not necessary . . to examine the title, because he would be in the shoes of the other man and hold the unsatisfied paper off the record. . . I was to bring him the paper when it was paid off and let him hold it uncanceled. . . [Simpson's] $1000 paid off Park, and the paper uncanceled was brought and handed to Mr. Avary, the agent of Simpson. When I went to inspect the property with Mr. Avary we found nobody at home. I don't think we went in the back yard, because there was a big bulldog there that was not very inviting to me. We did not carefully inspect the premises. Mr. Avary said he could tell from the front view all right. We did not go in the house. We knocked on the door, and nobody was at home. I received $1000 from Simpson and executed these papers, this loan deed, and this note dated April 1, 1926. . . Simpson had no interest in the property until he put his money in it. . . He had no rights to protect that I know of. I did not tell him that Ben Ray was returning the property for taxation. . . I told him the title was in me, and I had borrowed the money and was not able to pay it back. . . I did not mention insurance. . . I told him how I built the house for him [Ray] and borrowed the money with which to build it, and was unable to pay it back, and I wanted him to put up the money to pay Park. . . At the time I gave the loan deed to Simpson, Ray did not owe me anything at all. . . Regarding whether I have no claim to it [the house and lot] and have not had since 1914 and 1916, I am sorry to say I owe this $1000, and have been unable to pay it. I feel very bad about it." The testimony of Robert Lee Avary Sr., in reference to the loan from Simpson, was substantially the same as that delivered by Etheridge.
The court found that the deed executed by Ray to Etheridge was for the purpose of enabling Etheridge to borrow money on the lot, to be used in the construction of the house contracted for. Under that authority the loan deed to Park was executed, and the money used in the payment of costs incident to the construction of the house. The authority in Etheridge to borrow the money did not terminate, so far as Ray was concerned, by a renewal of the first loan or by the subsequent transaction with Simpson who holds uncanceled Park's deed taken in renewal of the original loan. Ray's motion for a new trial on the general grounds was overruled, and he excepted.
1. The first question for decision is whether the deed absolute in from Ray to Etheridge, executed on July 8, 1915, while the house was under construction, was in fact a security deed. The deed was signed at the request of Etheridge when he informed Ray that it would be impossible to complete the house Etheridge had contracted to build. At the time the deed was executed, Ray, in addition to having previously paid for the vacant lot, and having also paid $200 in cash, still owed Etheridge approximately $1500 on the contract to build the house. Each of the notes Ray gave Etheridge referred to a bond for title that so far as the evidence discloses was never executed. Notwithstanding Etheridge's statement that he would not call it a security deed, the fact remains he would have been amply protected in the event Ray failed to meet his notes as they matured. While the deed from Ray to Etheridge stated a consideration of $1000, no consideration appears to have been paid, but according to the testimony of Etheridge he wanted the deed so he could borrow money in order to carry out his contract. The evidence as a whole, set forth in the statement of facts, demanded a finding that the deed reconveying the lot from Ray, who remained in possession, to Etheridge, though absolute in form, was in fact a security deed. To hold that the deed, regardless of what it was denominated, was not in fact given to secure a debt, would necessarily mean that Ray after having purchased the lot and giving notes for the building of a house thereon, intended to present the house and lot back to Etheridge as a gift.
This is a case where the facts speak louder than words. What the witness Etheridge construed, or understood the effect of this transaction to be, could not overbalance the facts as demonstrated by the evidence. Six weeks before the execution of this deed, Ray had executed 120 notes amounting to $1500, each of them containing a reference to a bond for title that had been or would be executed. At the time of the execution of this deed Ray in fact owed Etheridge this $1500. After the execution of the deed Etheridge himself procured fire insurance on this property in the name of Ray as the sole owner, for which Ray himself paid. Ray returned this property for ad valorem taxation to the city and county after the execution of this deed for fifteen or twenty years. Etheridge at no time returned the property for ad valorem taxation. Ray and his wife remained in possession after the execution of this deed until the time of his death, a period of approximately nineteen years. These facts are more potent than the interpretation placed by Etheridge upon this transaction, and showed definitely that this deed was executed for the purpose of securing a debt.
2. The uncontradicted evidence shows that on April 1, 1926, while Ray and his wife were in actual possession and occupying the house, Etheridge executed to Simpson a security deed purporting to convey the house and lot as security for a loan; that Simpson made no inquiry of Ray concerning his actual possession; that Ray had fully paid Etheridge, and the latter had no interest whatever in the house and lot on the above date. When this case was before the Supreme Court on the exception to the order overruling Simpson's demurrer, it was held, in effect: Where the owner of land [Ray] executes a deed absolute in form but in fact as security for a debt, and remains in possession of the land, and the grantee [Etheridge] conveys the land to another [Simpson] who has no actual notice of the undisclosed agreement that the deed should operate as a security for debt, and who has made no inquiry of the occupant [Ray], the latter may pay or tender the amount of the debt to the first grantee [Etheridge] and maintain an equitable action against the first grantee and the remote grantee [Simpson] for cancellation of both deeds as clouds upon his title, and to have the title decreed to be in him. The principle is also applicable if the debt has been fully paid. Simpson v. Ray, 180 Ga. 395 (3) ( 178 S.E. 726). See Chandler v. Georgia Chemical Works, 182 Ga. 419 ( 185 S.E. 787); Georgia Chemical Works v. Malcolm, 186 Ga. 275 (5) ( 197 S.E. 763); Peppers v. Peppers, 194 Ga. 10 ( 20 S.E.2d 409). Stepp v. Stepp, 195 Ga. 595 ( 25 S.E.2d 6) was not a case, as here, where the maker remaining in possession had given a deed absolute on its face, but in reality only a deed to secure debt. In that case the insistence was that through inadvertence more land was given in the deed than the grantor intended; and the facts in that case showed that after the making of the deed which the grantor sought to disaffirm, he attorned as tenant to the grantee therein.
Independently of these considerations, and whether on principle this case squares with, or is in conflict with, Malette v. Wright, 120 Ga. 735 ( 48 S.E. 229), which was discussed in Stepp v. Stepp, supra, the former ruling in Simpson v. Ray, supra, established the law of this case.
Counsel for the defendant in error insist that Simpson was subrogated to the rights of Park, citing Wilkins v. Gibson, 113 Ga. 31 ( 38 S.E. 374, 84 Am. St. R. 204), where it was held: "One who advances money to pay off an encumbrance upon realty at the instance either of the owner of the property or the holder of the encumbrance, either upon the express understanding, or under circumstances from which an understanding will be implied, that the advance made is to be secured by a first lien on the property, is not a mere volunteer; and in the event the new security is for any reason not a first lien on the property, the holder of such security, if not chargeable with culpable and inexcusable neglect, will be subrogated to the rights of the prior encumbrancer under the security held by him, unless the superior or equal equities of others would be prejudiced thereby; and to this end equity will set aside a cancellation of such security and revive the same for his benefit." While the court said in the opinion that subrogation might arise where the money was advanced "under an agreement, express or implied, made either with the debtor or creditor," the facts of that case, as indicated in the headnote, and the facts in other cases cited by counsel for the defendant in error, show that the "debtor" and "owner" were one and the same person, whereas in the case under consideration the debtor (Etheridge) had no interest in the house and lot, at the time he purported to agree with Simpson for the latter to be subrogated to the rights of Park. As the debtor in this case had no right or interest in the house and lot, he could not make a contract that would affect Simpson's right to subrogation as against the true owner. Since the evidence fails to show that Simpson was entitled to subrogation, it is not necessary to decide whether Park could have recovered as against Ray.
Applying the rulings announced in Simpson v. Ray, supra, the evidence demanded a finding in favor of the plaintiff, and the court erred in overruling his motion for a new trial.
Judgment reversed. All the Justices concur.