Johnson v. Cherry

Brief Fact Summary.

Defend sued to evict Plaintiff after Plaintiff failed to make lease payments as agreed. Plaintiff then sued, claiming their transaction was a loan disguised as a sale. A real estate appraiser testified that the property was worth $320,000 and that a lease was worth no more than $4,500 a year. The jury found that the deed was a mortgage and that title rested in Plaintiff. The appellate court reversed, holding that there was a sale. Plaintiff appealed.

Synopsis of Rule of Law.

An instrument that is written as a deed may in fact be a mortgage depending on the intent of the parties, which must be discerned from the document itself, the attending circumstances, or both.

Facts.

Johnson (Plaintiff) bought his wife’s share of the property in question by a promissory note for $38,000 when they divorced. Plaintiff and Cherry (Defendant) executed a deed from Plaintiff to Defendant, for which Defendant gave Plaintiff $120,000 and assumed Plaintiff’s debt to his ex-wife; a one-year lease on the property in question from Defendant to Plaintiff for $25,000; and an option for Plaintiff to repurchase the property in question for $132,000. Plaintiff failed to pay the lease. 

Issue.

Whether an instrument that is written as a deed in fact may be a mortgage depending on the intent of the parties.

Held.

Yes. The trial court’s ruling that the deed in question created a mortgage and did not effectuate a sale is affirmed and the case is remanded for a determination of the amount that Plaintiff owes Defendant to repay the loan. An instrument that is written as a deed may in fact be a mortgage depending on the intent of the parties, which must be discerned from the document itself, the attending circumstances, or both.

Discussion.

The issue is a question of fact, and where the fact finder has made a determination, that determination will be upheld as long as it is supported by some evidence.Even if the instrument is absolute on its face as a deed, parol evidence is admissible to show that the parties actually intended the instrument to be a mortgage to secure a loan. The jury’s finding that the transaction was a loan was supported by the real estate appraiser’s testimony that the home was worth substantially more than the price at which it was purportedly conveyed to Defendant and at which Plaintiff could repurchase it.The jury reasonably concluded that the repurchase price was in reality a repayment of the loan amount plus ten percent interest and that the high lease payment also factored in interest for the loan.