Court Opinion

ID: 9548833
Source: CourtListenerOpinion
Date Created: 2023-08-07 18:09:26.455461+00
Date Added: 2024-06-11T15:19:28.334369
License: Public Domain

*346UDALL, Vice Chief Justice
(dissenting).
I do not agree with the decision reached by the majority of the court on rehearing of this case. In reaching their decision they have omitted from consideration some of the important facts affecting the conclusions reached by the trial court.
At the outset it should be noted that the contract between the parties is clear and free from ambiguity. The intention of the parties can best be determined by reading that document and not the one here substituted for the parties by the court.
The record shows that the parties reached a tentative agreement on or about August 1st of 1954 whereby Pendleton would loan Merryweather $180,000 and take a pledge of the stock as security. About November 1st of 1954, however, Merryweather told Pendleton he needed $200,000, and later the same year he said he needed $220,000 to redeem the stock from Haggard. To further .complicate Merryweather’s problems, before the end of 1954 he was sued for $32,000 and a writ of garnishment was served on his creditors. Merryweather admits that the serving of this writ caused Pendleton concern (T.R. 558) as well it might since the record shows that from June of 1953, when Merryweather borrowed $160,000 from Pendleton to pay Haggard, until the end of 1954, Merryweather’s obligations increased from $160,000 to $220,000.
Moreover, from the time he originally purchased the stock until January of 1955 Merryweather had never reduced his indebtedness for which he pledged the stock, and had never made a payment on the same except by borrowing a greater sum to pay off the previous creditor. In light of his rapidly declining credit standing Merryweather had little if any reason to believe that his contract with Pendleton was anything but one of sale.
The majority opinion also ignores the fact that when Pendleton borrowed the $200,000 from the bank (to purchase the stock from Merryweather) he was required to pledge 2,797 shares of his own Baca Float Ranch stock, as well as the 5,997 shares purchased from Merryweather, as security. The trial court valued the Merryweather block of 5,997 shares at $394,000 or nearly $65.70 per share. On this basis Pendleton was required to pledge an additional $183,763 of his own capital to obtain the $200,000 loan from the bank. It is at best improbable that Pendleton could have been induced to put up that much collateral for no more than the privilege of borrowing $200,000 with which to make a loan to Merryweather, especially when he (Pendleton) would not receive so much as one dollar as consideration. For if it was a loan, as claimed by Merryweather, the 5% interest goes to the bank and no consideration is given to Pendleton.
*347Furthermore, the bank was not satisfied with even this total pledge of 8,794 shares of stock by Pendleton. Far from it. The bank also required Thomas F. Griffin to sign a “take-out” letter agreeing to buy at $42 per share 5000 of the pledged Pendleton shares in the event Pendleton retained ownership of the 5,997 (Merry-weather) block for at least 14 months. Evidently the bank did not share in the rosy outlook for Baca Float Ranch stock which counsel for Merryweather argued at trial and here on appeal. Moreover, it is unrealistic to believe that the bank would require such a “take-out” letter if it knew that the transaction was not a hona fide sale of the stock.
I am not prepared to acknowledge that the parties intended to enter into the type of contract which the majority now substitutes for them in place of their plain unambiguous contract of sale with option to repurchase. Nor can I believe that the vice president of the bank would accept, incident to the bank’s loan to Pendleton, a document that was not what it purported to be on its face. To have engaged in such a practice would have been violative of the banking laws of the state and would seriously undermine the quality of the securities which the bank is required to have in protection of its depositors.
But we need not surmise as to what the bank’s representatives thought of the transaction. For Patton, the Valley Bank’s vice president, testified that he understood the agreement to be a bona fide sale, and that neither T. T. Pendleton nor Merryweather, nor anyone else, ever told him' or in any manner indicated that the agreement was not what it purported to be.
The trial court also had before it the fact that Merryweather authorized that the stock be transferred on the books of the corporation to Pendleton and that the money was pledged to the bank by Pendleton in Merry weather’s presence and with his approval.
Finally, the majority of the justices of this court now state that the trial judge properly instructed the advisory jury that plaintiff had the onus of proving “ * * * by clear and convincing evidence that the transaction was a pledge or mortgage rather than a sale * * At the same time, however, they assert that the trial judge erroneously imposed a greater burden on plaintiff respecting proof of the debt requirement. In other words the trial judge correctly instructed the advisory jury on the law but was mistaken when he applied the law himself. I cannot attribute such inconsistencies to the trial judge.
The majority opinion seizes upon the words “beyond question” as indicative of the trial judge’s “clearly erroneous” view *348respecting the burden of proof of one attempting to show that an instrument ostensibly one of sale with option to repurchase is in fact an equitable mortgage or pledge. With this interpretation I cannot agree. Omitted from the quotation of the trial judge’s reasons for granting defendant’s motion for judgment is the following passage:
“ * * * [I]t goes without saying that to construe an instrument as a mortgage, which on its face is clear and unambiguous, evidence which is clear and convincing must be established to show that it was in fact a mortgage rather than a sale as it purports to be on its face * * 1
It is clear to me that the trial judge was not mistaken as to what he was requiring of the plaintiff.
As is admitted in the majority opinion the “ * * * testimony of the parties diverges” as to whether a sale or loan was intended. For the reasons set forth herein and in my original opinion in this case I remain convinced that the trial judge correctly applied the clear and convincing standard and resolved the acknowledged conflict in the evidence in favor of defendant.

. The language contained in the trial judge’s memorandum decision is set out in the original opinion in this ease at 90 Ariz. 219, 222-23, 367 P.2d 251, 252-53. Interestingly, the majority opinion’s careful consideration of the trial judge’s memorandum opinion is in direct conflict with, the oft repeated rule of this court that the memorandum opinion of the trial judge cannot form the basis of an assignment of error. E. g., Schwartz v. Schwerin, 85 Ariz. 242, 336 P.2d 144 (1959).