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DAVIS v. STONE

December 7, 1964

John F. DAVIS and Alberta A. Jackson Davis, also known as Alberta A. Jackson, individually and as trustee, Plaintiffs,
v.
M. X. STONE, Defendant



The opinion of the court was delivered by: KEECH

This is an action in equity by John F. Davis and Alberta A. Jackson Davis, his wife, to have certain deeds conveying realty to defendant, M. X. Stone, declared equitable mortgages, and for an accounting.

On June 26, 1953, and July 9, 1953, respectively, plaintiffs purchased two properties, 5017 -- 5th Street, N.W., in the name of Mrs. Davis, and 4310 -- 4th Street, N.W., in the name of Mr. Davis. The 5th Street property was subject to a first trust securing a note for $ 9,052.47, and the 4th Street property was subject to a first trust of $ 9,000.00. To make the purchase, plaintiffs also gave the seller a second trust note for $ 5,450.00 on each property. These second trust notes were subsequently sold by the seller to the defendant, Stone.

 By March, 1959, plaintiffs were in default on the first and second trust payments on both properties, and were in arrears on taxes. In lieu of foreclosure, however, defendant Stone and plaintiffs Mr. and Mrs. Davis, on March 20, 1959, entered into an agreement:

 '* * * whereby the parties of the first part (plaintiffs) do convey in fee simple real properties known as * * * 4310 -- 4th St., N.W.; * * * 5017 -- 5th St., N.W. to the party of the second part to be held by the party of the second part, his heirs or assigns, until all monies advanced by the party of the second part for delinquent payment on first trust, second trust on above described properties and taxes has been reimbursed, the same to be paid within one year or less at tye rate of one hundred dollars per week.

 'It is agreed that any one payment in default voids this agreement and all payments forfeited. It is further agreed that upon final payment of this obligation the party of the second part will reconvey the above described properties in fee simple to the parties of the first part, their heirs or assigns.

 'It is further agreed that first and second trust and taxes shall be kept current from the payments mentioned at the rate of $ 67.50 on each first and $ 41.00 on each second trust and taxes.'

 Accordingly, deeds to these properties were executed by the proper parties, dated March 19, and notarized March 20, 1959. Defendant Stone thereafter made the payments on the first trust, although tardily, and made certain payments on account of the taxes. Plaintiff John F. Davis continued to collect rents from the properties, and made certain payments in accordance with the agreement, until December 10, 1959, after which he again defaulted. Amounts paid by defendant on the first trust and on the tax accounts were added to the balance due on the second trust notes, and payments which plaintiff made were credited on these notes and marked in the second trust payment books.

 Beginning in August, 1959, Stone filed a series of landlord and tenant actions in the Municipal Court for the District of Columbia against plaintiff John F. Davis, for rent due and possession of the two properties. In February, 1960, Stone filed an action for $ 614.00 rent due. Since February, 1960, plaintiffs have been out of possession of both properties. This action was filed June 6, 1963.

 It has been pointed out by no less authority than Chief Justice Marshall that neither the policy nor the letter of the law prohibits the sale of property with the right to repurchase reserved to the vendor. Conway's Executors and Devisees v. Alexander, 7 Cranch 218, 237, 11 U.S. 218, 237, 3 L. Ed. 321 (1812). That a mortgagor may convey his equity of redemption to the mortgagee in satisfaction of a debt is also well established. See Coster v. Arrow Building & Loan Association, Inc., 184 Md. 342, 41 A.2d 83 (1945). But courts of equity will carefully scrutinize such a transaction between mortgagor and mortgagee, to determine what was really intended. The policy of the law will not permit the conversion of a mortgage into a sale, and, because of the debtor's relative position, doubtful cases will be construed as mortgages. Peugh v. Davis, 96 U.S. 332, 337, 24 L. Ed. 775 (1877); Conway's Executors and Devisees v. Alexander, supra, 7 Cranch at page 237, 11 U.S. at page 237, 3 L. Ed. 321.

 In these cases in which the mortgagor transfers to the mortgagee with a condition of defeasance reserved to the mortgagor, all the authorities agree that the test by which to determine whether the transaction is intended as a mortgage or as a sale is whether or not a personal debt is created or continues to exist. Dollar v. Land, 87 U.S.App.D.C. 214, 223, 184 F.2d 245, 253, cert. denied 340 U.S. 884, 71 S. Ct. 198, 95 L. Ed. 641 (1950); Thomas v. Klemm, 185 Md. 136, 43 A.2d 193, 196 (1945); 1 Jones Mortgages §§ 317, 318 (8th ed., 1928); 9 Thompson, Real Property 4738 (perm. ed. rev. repl. 1958). This test applies even where the conveyance is in lieu of foreclosure. No consideration of law or public policy prevents a transfer of mortgaged property to the mortgagee in satisfaction of the debt, but the debt must be cancelled thereby. 9 Thompson, op. cit. supra, § 4738.

 The presumption is that a deed is what it purports to be on its face, and one who seeks to establish the contrary has the burden of doing so by clear and convincing evidence. But the condition of defeasance and creation or subsistence of a debt need not be on the face of the deed, but may be established by contemporaneous agreement. 9 Thompson, op. cit. supra, § 4735.

 In the instant case, the court finds that there was no cancellation of the debt, but that the Davises continued to be indebted to Stone after delivery of the deeds.

 Where evidence of the debt is retained by the grantee, the continued existence of the debt is presumed. 1 Jones, op. cit. supra, § 320. But there is no need here to resort to presumptions. Not only did the grantee retain the notes evidencing the grantors' obligations, but he continued to record Davis's payments on the second trust note itself as well as in the payment book incident to this note. See Kidwell v. White, 44 App.D.C. 600 (1916). There was no notation on either the notes or the payment books of any cancellation or reduction of the debt on account of the transfer of the property. The only consideration on the face of the deed was ten dollars. Moreover, the intent to secure rather than cancel the existing debt, or to create a new one, is evident from the face of the agreement signed contemporaneously with the delivery of the deeds. The transfer is there limited, i.e., it is made only '* * * until all monies advanced by the party of the second part for delinquent payment on first trust, second trust on above described properties and taxes has been reimbursed, * * *. * * * It is further agreed that upon final payment of this obligation the party of the second part will reconvey the above described properties in fee simple * * *.' In conformance with this intent, plaintiffs remained in possession of the properties until they defaulted, almost a year after the transfer.

 Ingersoll v. Tyler, 47 App.D.C. 328, 331 (1918), suggests that the keeping alive of the debt is not conclusive, but only a strong indication of an intended mortgage. This court, however, believes that it is controlling in view of the language in Dollar v. Land, supra, and practically unanimous authority elsewhere. This is especially true where there is no other sufficient consideration. In any event, the continuation or ...


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