United States v. Shelby Iron Co., 273 U.S. 571 (1927)

United States v. Shelby Iron Company

No. 123

Argued January 13, 1927
Decided April 11, 1927
273 U.S. 571

APPEAL FROM THE CIRCUIT COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Syllabus

1. A contract by which land on which improvements have been erected with money advanced by one party to the other is to be deeded to the lender absolutely, and the borrower, as his lessee, in consideration of "rentals" amounting to the aggregate debt is to have possession and, upon full payment, is to receive a reconveyance of the land and improvements, but, in case of default, may have his rights forfeited by reentry of the lender, is an equitable mortgage for security of the money unpaid. P. 578.

2. In such case, where the lender, having taken over the premises on the borrower’s default, finds that the deed he received is defective, his proper remedy is not to reform it, but to seek a sale under the mortgage and distribution of the proceeds to those entitled. P. 578.

3. A contract made by the United States for erection and operation of an acetic acid and wood alcohol plant on land to be deeded to it recited that the wood required in the operation of the plant would be obtained by the other party under another contract between that party and a stranger to the first mentioned contract. Held that this did not constructively notify the United States of the stranger’s rights in the land, as revealed by the contract so referred to, since the matter mentioned in the recital was not such as to arouse any inquiry concerning that title. P. 580.

4. Where a landowner, as part of a contract, agrees to convey land to the other party for use in performance of the contract, but to be reconveyed thereafter free and clear of liens, and the contract permits the grantee to mortgage and relies only on his responsibility to clear the title before reconveyance, an equitable mortgage made by the grantee in pursuance of the purposes for which the contract was made, and remaining unpaid because of his insolvency, takes priority over the equity of the grantor in the land. So held where the attempted conveyance of the land was inoperative because of a mistake, so that the legal title remained in the grantor. P. 581.

4 F.2d 829 reversed.

Appeal from a decree of the circuit court of appeals which affirmed a decree of the district court adverse to the United States is a suit in which it sought to quiet title to a piece of land in Alabama as against the corporation above named, of New Jersey, and another called the Shelby Iron Company of Alabama. The decree denied the relief and declared the title and right of possession, as between and the Shelby Iron Company of New Jersey, to be in the latter, but it gave the plaintiff six months in which to remove from the land buildings and equipment constituting a plant erected thereon by the Shelby Chemical Company under a contract with the plaintiff.