M. C. Gehl Co. v. Brahm

187 N.W. 1011, 177 Wis. 222, 1922 Wisc. LEXIS 252

Opinion

Doerfler, J.

The principal question raised by defendant’s counsel, and the one upon which all the questions of law and of fact depend, is involved in the consideration of whether the findings are contrary to the evidence. A determination of this issue involves an analysis and consideration of all of the facts and circumstances detailed in the evidence, the existing physical facts, the relationship of Gehl and the defendant to each other, and the mutual relationship between each of them and the plaintiff. The main inquiry, therefore, revolves about the subject of intent. If it can be shown, after consideration of all of the matters above referred to, that it was the intention of the parties at the time the alleged transfer of the property was made that such transfer should operate not only as a conveyance absolute in form but also in fact, then the lower court in its findings committed error and the judgment must be reversed; however, if under the legal proof required in cases of this kind it is shown that such transfer was made to the defendant absolute in form but in reality as a security, in order to secure him for the money advanced by him on the purchase of the property, then the judgment of the trial court must be affirmed.

“Any conveyance of land absolute on its face, without anything in its terms to indicate that it is otherwise .than an absolute conveyance, and without any accompanying written defeasance, contract of repurchase, or other agreement, may, in equity, by means of extrinsic and parol evidence, be shown to be in reality a mortgage. . . . The principle which underlies this doctrine is the fruitful source of many other equitable rules: that it would be a virtual fr^ud for the grantee to insist upon the deed as an absolute conveyance of the title, which had been intentionally given to him, and which he had knowingly accepted, merely as a security, and therefore in reality as a mortgage.” 3 Pomeroy, Eq.. Jur. (4th ed.) § 1196.

This doctrine so clearly laid down by the author quoted has been in substance approved not only by the courts of last resort in nearly all of the jurisdictions in this country, but has been repeatedly declared and approved by this court. See Polly v. Gumney, 157 Wis. 362, 147 N. W. 356; Smith v. Pfluger, 126 Wis. 253, 105 N. W. 476; Schneider v. Reed, 123 Wis. 488, 101 N. W. 682; Beebe v. Wis. M. L. Co. 117 Wis. 328, 93 N. W. 1103.

In a case of this kind, however, where a conveyance is absolute in form, a presumption exists that it is absolute in fact, and such presumption can only be overcome by evidence which is clear, unequivocal, and convincing. 3 Pome-roy, Eq. Jur. (4th ed.) § 1196, and cases there cited.

With this presumption in mind, and with the rule as to the degree of evidence requisite to overcome this presumption, we will now briefly consider the material facts and circumstances of the case as shown by the evidence, with the view of determining the correctness of the findings.

In August, 1904, Gehl held an option on this property, and before the time provided in the option expired, pursuant to a conference between Gehl and the defendant, it was understood and agreed that the property in question, by reason of its location and its railroad trackage facilities, might afford a valuable site for the company’s business. Gehl thereupon surrendered his option, and the contract set forth in the preceding statement of facts was thereupon executed. By virtue of such contract the company acquired an equitable interest in the property, exclusive of any individual interest of either Gehl or the defendant. The purchase of the property constituted a good risk, and for speculative purposes was not only valuable by reason of its location with the ultimate view of profit on a sale, but was particularly valuable to the corporation for business purposes. That the judgment of the moving parties was wise is established by the evidence beyond controversy, for from the very date when the company acquired its interest inquiries and offers for a sale were submitted, upon varying terms, all involving a handsome return.

From the time that the equitable interest became vested in the plaintiff, both Gehl and the defendant were in duty bound in law to so discharge their duties towards the corporation, with respect to this property, as not to result in an individual benefit and to the detriment of the corporation. Each occupied a relationship to the corporation which required the exercise of góod faith and which precluded any desire to prostitute their fiduciary obligations in order to acquire individual gain. As to each, his primary duty was towards the corporation. Neither one could consistently serve two masters.

While Gehl surrendered his individual interest for the benefit of the corporation, there is nothing in the evidence shown anywhere by which it can rightfully be charged or even suspicioned that he intended to secure individual profit at the expense of the corporation which he represented as an officer and a director; on the contrary, every effort to secure this property for the benefit of the corporation was exerted by him. This constitutes a monumental fact in this case, not only showing fidelity to his trust while acting in an official capacity, but impressing his testimony with an air of credibility which, we regret to say, does not exist with respect to the defendant.

Ordinarily in a transaction of this kind the security is in the form of a mortgage. When the plaintiff acquired its interest in the property the relations of the defendant and Gehl were harmonious and congenial in the highest degree, and the evidence shows conclusively that at.that time neither of said parties was actuated by ulterior motives, and that they had implicit confidence in each other. It is only where the highest degree of friendship and business relationship exists, where men consider an obligation as binding and as strong as a written bond, that they will permit such relationship to rest upon oral promise's.

. The acts of the parties at the time the plaintiff acquired its interest, and immediately thereafter, are of strong probative weight in determining where the truth lies in this" controversy. Up to the time when the agent, Habhegger, produced a purchaser for this property for the sum of $9,000 all prospective sales were the subject of mutual conferences between the two parties who represented the entire interests of the corporation. When Riemer called at the plaintiff’s place of business the defendant called in Gehl, and in the discussion that ensued Gehl was the real spokesman. Before Ewens,& Sons accepted $250 on an option a like conference ensued, and in fact numerous conferences of a similar nature were had, all strongly indicative not of individual ownership but of corporate ownership. When Ewens & Sons rendered their statement, which was approved by both Gehl and the defendant, the corporation issued its check for $4.50 to pay the notarial fee in making out the deed and the extension of the abstract, and it was established beyond dispute that the obligation of the company to pay the taxes for 1904 was met, with the knowledge of the defendant, by the issuance to Ewens of a check of the company in payment of the taxes for that year.

In the month of December, 1905, being about one year after the deed had been executed to the defendant and at a time when the company made out its annual inventory, the defendant presented his bill for moneys due him amounting to $46.38, and it is undisputed that at that time Gehl credited the defendant with $246.38, which, as Gehl claims, included $200 for interest due to the defendant on his mortgage. This item of $200 was subsequently included in a judgment note to the defendant and was paid. Giving full credit to defendant’s claim, which is rather hazy and not adequately explained, that said $200 represented a loan, nevertheless the fact that such credit is given at the very time when the annual interest became due, particularly in view of the other facts and circumstances in the case, is powerfully significant and indicative of the correctness of Gehl’s claim that such credit was given for interest.

When Habhegger, the agent with whom the defendant had secretly placed the property for sale at a greatly enhanced price, informed Gehl of such fact, and when the defendant upon his return to the city was confronted with his act, and when Gehl asserted title in the company, the defendant, according to his own evidence, made the following reply: “I carried all the expenses on it, and I don’t know anything of it, because I paid the taxes.”

The declarations of a party, made at a crucial time, when the important issue apparently for the first time is raised, are always of great aid to the court in arriving at a proper solution. No surprise is made manifest by the defendant’s declaration. Gehl’s attention was not directed to any specific agreement under and pursuant to which it was claimed by the defendant that the title became absolutely vested in him. Such declaration amounted to a mere denial and an excuse by way of justification for his attitude, based upon his claim that he had paid the expenses and the taxes on the property, which declaration, at most, was only partially true. True in so far as he had advanced the purchase money; untrue as to his claim that he had paid the ordinary expenses of the sale and the taxes; for under the uncontra-dicted evidence the taxes for 1904 had been paid by the company, and the incidental expenses on the sale had likewise been paid by the company. Such a declaration's not persuasive of defendant’s claim that the title was absolutely vested in him. Even before the agreement of October 31, 1904, w:as executed, the defendant, according to his own testimony, stated that he was willing to loan the money for the purchase and the company to take a deed and to execute to him a mortgage to secure him for the purchase price. When the October agreement was about tO' expire and before the defendant took his trip to the North, according to his own testimony, he expressed a willingness to Gehl that he would either use the money which he held in trust for his niece or would raise money by the sale of some of his securities, and would loan the money to the company upon a mortgage on the property. By virtue of this evidence, coming from the defendant himself, and considering the same in connection with all the other strong outstanding facts and circumstances heretofore detailed, the conviction firmly fastens itself upon one’s mind that the plaintiff’s contention in this case is correct.

Gehl, in behalf of the company, offered to reimburse the defendant for his loan and expenses, which offer was met by a refusal and an assertion of title-in himself. This created a situation which avoided the necessity on plaintiff’s part of making any further specific offers.

The real estate was listed by the company in, statements made to banks and commercial agencies for the purpose of securing credit. This constitutes an assertion of title on the part of the corporation, and the mere fact that the property was not carried upon the books of the company as an asset, or that the company failed to charge itself with the amount of the indebtedness as a liability, is of little significance in view of the fact which has been made manifest that Gehl was not an expert bookkeeper.

It must be admitted that the company failed to pay the taxes accruing subsequent to the year 1904. Had the company paid such taxes, the issue involved in this case would be proven in plaintiff’s favor beyond any controversy whatever. However, in dealing with parties to a litigation we cannot lose sight of the fact that they are not infallible but are human. The vitally important factor, however, remains, upon consideration of the testimony as a whole, of the outstanding facts and circumstances, of the physical facts, of the relationship of Gehl and the defendant toward the corporation, that this property was not only purchased by the corporation but that it was the original intention, as expressed by the defendant himself, that he would loan the purchase money to the company and take a mortgage as security.

We therefore conclude that under the rule as above laid down the evidence is sufficient to sustain the findings.

Defendant’s counsel contend that at the time of the execution of the deed the plaintiff had no mortgageable interest in the land. It had a valid outstanding land contract, which contract was enforceable by specific performance on the part of the vendee (Cheney v. Cook, 7 Wis. 413; Doctor v. Hellberg, 65 Wis. 415, 27 N. W. 176; Heins v. Thompson & Flieth L. Co. 165 Wis. 563, 163 N. W. 173), and which was also enforceable on the part of the vendors. Heins v. Thompson & Flieth L. Co., supra; Douglas v. Vorpahl, 167 Wis. 244, 166 N. W. 833.

The plaintiff had an equitable interest in the land by virtue of its contract, and this interest has never been expressly surrendered. It is true that the transfer was made directly by the owners to the defendant, but such transfer was made with the understanding and pursuant to the agreement that the defendant would take title as security. This being so, the defendant is in equity estopped from claiming title as against the plaintiff and is estopped from denying title in it. The apparent legal title was placed in defendant at his own solicitation and request, with the understanding that he was to hold the same as security. This is an express recognition of plaintiff’s title; and while of record the title rested in the defendant, the legal title at all times was in the plaintiff, and the lower court by its judgment so adjudged. To vest title under these circumstances in the defendant would permit him to take advantage of a situation brought about in a large measure through his own efforts and would operate as a fraud upon the plaintiff. This a court of equity cannot and will not tolerate. The equitable doctrines involved in this case are intended to prevent fraud and not to perpetrate fraud.

It is "further contended by defendant’s counsel that the existence of a debt from plaintiff to defendant was not established, and that if the relation is one of mortgagor and mortgagee such relation must be predicated upon a debt. Prior to the execution of the deed the plaintiff, by virtue of its contract, had an equitable interest in the real estate. It has heretofore been shown that the defendant agreed to advance to plaintiff the necessary money with which to pay for this property in full, and that as security for the repayment of the money so advanced he would take a mortgage. It also appears that instead of giving the defendant, as was originally contemplated, a mortgage, it was agreed that the defendant would take an absolute transfer as security, with the condition attached that he was to convey such property to the plaintiff upon the payment of the indebtedness. This indebtedness was to be discharged at any time when the plaintiff was ready to pay the money, when it saw fit to sell the property or to build thereon, and in any event during a period not to exceed three or four years. True, the indebtedness was created by an oral agreement, as was also the obligation on the part of the defendant to convey the title to the plaintiff when such indebtedness was paid. Pursuant to this oral agreement, and not otherwise, the defendant received the title to this property as security. That being established, it amounted to a recognition on his part of plaintiff’s indebtedness. As has heretofore been shown, the agreement that the conveyance was made as security and the promise to reconvey upon the payment of the indebtedness may rest in parol, and the indebtedness itself may likewise be established by oral testimony.

What is said in 27 Cyc. on page 979, under the subject “Advance of purchase money for vendee’s benefit,” is strictly applicable here:

“If a person who has contracted for the purchase of land procures another to loan him the money necessary to make the payments, or to advance it to him, and has the deed made to the latter, with an agreement that he will convey the title to the former on repayment of the amount advanced, the transaction will amount to an equitable mortgage if it was the understanding and intention of the parties that the one should become debtor to the other for the money advanced, and that the land should be held merely as security for this-debt. If this was their contract, the form in which they may have cast the agreement is immaterial. It is not necessary that the agreement to reconvey should be under seal, or even that it should be in writing; a- mere oral agreement will be sufficient in equity.”

Defendant’s counsel further malee the claim that plaintiff’s claim is stale in equity; that it has slept upon its rights; and that therefore equity ought not to afford it any relief. The evidence clearly establishes the fact that the plaintiff immediately asserted its title to the property upon the very first occasion when Gehl learned that the defendant claimed title in himself. This was followed by litigation in which the plaintiff, as in the instant case, asserted its title, and shortly after the dismissal of defendant’s action, in accordance with the decision in Brahm v. M. C. Gehl Co. 146 Wis. 238, 131 N. W. 1135, the present action was begun, which. aften the lapse of many years, ripened into a judgment in plaintiff’s favor in the circuit court, and is now before this court on appeal. It would appear that the present action ought to have been disposed of long before this, but we cannot say, from a review of the record, that the fault, if any, lies with the plaintiff; on the contrary, the record affirmatively discloses that considerable delay, covering a long period of time, was occasioned by the defendant. The outstanding fact pertinent to the subject under consideration is the prompt assertion of title and the pursuit on plaintiff’s part of its remedies from that time on until the present, in accordance with advice of counsel.

We therefore hold that the judgment of the circuit court must be affirmed.

By the Court. — It is so ordered.