U.S. Supreme Court
Cadman v. Peter, 118 U.S. 73 (1886)
Cadman v. Peter
Argued April 13-14, 1886
Decided April 26, 1886
118 U.S. 73
If a deed of land is in fee, with a covenant of warranty, and there is no defeasance either in the conveyance or in a collateral paper, parol evidence that it was intended to secure a debt and to operate only as a mortgage must be clear, unequivocal and convincing, or the presumption that the instrument is what it purports to be must prevail.
On the 25th of October, 1875, by a warranty deed, dated and acknowledged on that day, Charles C. Cadman and his wife, of Detroit, Michigan, conveyed to William Peter, of Toledo, Ohio, in fee, land in Newaygo County, Michigan, amounting to 8 7/16 sections, or 5,400 acres, the consideration named in the deed being $20,000. On the same day, by a mortgage dated and acknowledged on that day, Peter mortgaged the same land to Cadman, to secure the payment to Cadman of $10,000 in four months, and $10,000 in six months, from that date, with interest at eight percent, according to four promissory notes of $5,000 each, of that date, executed by Peter to Cadman. The deed and the mortgage were both of them recorded in October, 1875.
On the first of April, 1881, Cadman filed a bill in equity against Peter, in the Circuit Court of the United States for the Western District of Michigan, and an amended bill on the 23d of April, 1881. The latter contains the following allegations:
About the year 1874 or 1875, Cadman became indebted to Peter in $10,000 for money borrowed, Peter making his two notes for $5,000 each, with interest at seven percent per annum, payable to Cadman, to be by him endorsed, and used to obtain money for Cadman's benefit, which was done. The notes were renewed from time to time, Cadman paying up the accrued interest at each renewal, until October 25, 1875. On that day Cadman owned the 5,400 acres of land above mentioned, covered chanroblesvirtualawlibrary
with pine timber and valued at upwards of $40,000, and was anxious to procure money, and applied to Peter to furnish him with $20,000 more, and the negotiations with Peter culminated in the following agreement: Peter agreed to loan to Cadman $20,000 more, by making two notes of $10,000 each. Cadman was to execute to Peter a deed of the land, as security for the entire $30,000 . Peter was to hold the land until such time as it might be sold at a profit or for a greater sum than could be then realized, and when such time should come, was to sell the land in the most advantageous manner possible, and out of the proceeds was to pay himself the $30,000, and interest thereon at the rate of seven percent per annum, and the taxes which he should have paid on the land, and should divide the surplus, if any, paying over to Cadman one-half, and retaining the other half to recompense himself for his labor, trouble, and expense in selling the land. Cadman received and used the notes for $20,000, and the transaction was intended to operate as a security from Cadman to Peter for the repayment of the $30,000, and interest, and was so considered by both of the parties. At the time of the agreement and conveyance, the financial affairs of the country were greatly depressed, and land valuable chiefly for its standing pine timber was not in great demand, and both parties knew that an adequate price therefor could not then be obtained, but also knew that within a short time such land would greatly appreciate in value, and that by continuing to hold the land until it should rise in value, they would be able to dispose of it at a price much beyond $30,000. Cadman had estimates of the timber standing on the land, and alleges that there was upwards of 40,000,000 feet at the time, worth not less than $60,000, and now worth, if none had been cut, from $80,000 to $120,000. During two years last past, the property has become valuable, and it could at any time during the past 18 months, have been readily sold for a sum sufficient to pay all of Cadman's indebtedness to Peter, and all moneys Peter may have expended for taxes. Cadman, on the ___ day of _______, 1878, applied, by letter from San Francisco, California, to Peter, for an accounting of his doings in the matter, and received chanroblesvirtualawlibrary
a reply that the land had not yet been sold, and consequently no account could be rendered. On the 4th of February, 1881, he again applied to Peter to settle the matter in some way, and Peter then ignored and repudiated the entire transaction, and stated to Cadman that he knew of no unsettled transaction between them, except an indebtedness of $10,000 from Cadman to Peter. Cadman thereafter offered to pay Peter $30,000 and interest, and any sums paid by Peter for taxes or other proper expenses, and requested Peter to release the security, and deed the land back to Cadman. Cadman offers to pay any sum that may be found due from him to Peter. The bill waives an answer on oath. It prays for an accounting as to what is due from Cadman to Peter, and for a decree that the deed was an equitable mortgage, intended by the parties as a security for money loaned and expenses to be incurred about the land, and that Cadman be permitted to redeem the land on paying to Peter the money which shall be found equitably due to him, and that then Peter may be directed to convey the land to Cadman. There is also a prayer for general relief.
The answer contains the following averments:
Peter made the two notes for $5,000 each, to the order of Cadman, to enable him to obtain money for his individual benefit, but at an earlier date than that stated in the bill. The land conveyed was not at the time valued at $40,000. There were no negotiations between Cadman and Peter which culminated in the agreement set forth in the bill, and Peter never made any such agreement. The deed was not received as security for money. At the time Peter received it, the affairs of the country were greatly depressed, and the land was valuable chiefly for the pine timber standing on it and was not in great demand, and an adequate price for it was difficult to be obtained, and this fact was known to both parties, and it was expected by both of them that it would appreciate in value, but that was a matter which should not affect Cadman, as he was in no way to have any interest in the land after the sale and the deed to Peter were made. The property has become valuable since Peter purchased it from Cadman, but he does not hold it to secure chanroblesvirtualawlibrary
any indebtedness from Cadman to him. Cadman did not at any time in 1878 apply to Peter by letter for an accounting of his doings in the matter, and did not receive a reply that the land had not been sold, and consequently no account could be rendered. On the 25th of October, 1875, Peter purchased the land from Cadman for $20,000, the price agreed on between them, and which was a fair price therefor at the time, and the sum has long since been paid. After the purchase, Cadman never claimed to have any interest in the land until a short time before the bill was filed.
The answer also contains a demurrer to the bill, as not stating a cause of action warranting the relief prayed.
Issue being joined, proofs were taken, and, on a hearing, the bill was dismissed in June, 1882. chanroblesvirtualawlibrary