## Facts

- Richard W. Johnson bought 348 acres in Shelby County, Texas, improved the property, and claimed 200 acres as his homestead.
- After a 1981 divorce, Johnson acquired his former wife’s community interest and gave her a $38,000 note.
- Johnson later faced severe financial distress, including arrearages and an impending foreclosure by the original seller holding a vendor’s lien.
- Because the property was a homestead, Johnson could not obtain conventional financing and turned to F.G. Cherry, a Texas State Bank of Tatum director.
- In October 1981, Johnson executed (1) a general warranty deed conveying the acreage to Cherry and the Bank, (2) a one-year lease back to Johnson, and (3) an option allowing Johnson to repurchase.
- Johnson received $120,000, and Cherry assumed Johnson’s $38,000 note; the lease required two semiannual payments of $12,510; the option price was $132,000 plus reassumption of the $38,000 note.
- After Johnson failed to make lease payments, Cherry sued to evict; Johnson sued to cancel the deed, alleging the transaction was a loan disguised as a sale and therefore an impermissible mortgage on his homestead.
- Evidence at trial included appraisal testimony valuing the land at about $320,000 and estimating fair rent at no more than $4,500 per year, far below the lease payments.

## Issues

1. Whether an instrument absolute in form as a deed may be treated as a mortgage when the evidence shows the parties intended it to secure a debt.
2. Whether the mortgage-versus-sale characterization is a fact question for the jury subject to deferential review when supported by some evidence.

## Decision

- The jury found the transaction was a mortgage (a loan secured by the property), not an outright sale; the trial court entered judgment for Johnson canceling the deed and awarding damages.
- The court of appeals reversed, treating the transaction as a sale.
- The Supreme Court of Texas reversed the court of appeals and remanded.
- The Court held there was some evidence supporting the jury’s finding that the parties intended a secured loan, including the disparity between market value and consideration, the high “rent” relative to fair rental value, and repurchase terms resembling repayment of principal plus interest.
- On remand, the trial court was to determine the amount Johnson owed Cherry consistent with the transaction being a mortgage.

## Legal Principles

- A deed absolute on its face may be shown to be a mortgage if the parties intended the transaction to secure a debt.
- Intent may be determined from the instruments, the surrounding circumstances, or both.
- Parol evidence is admissible to show an absolute deed was intended as security for a loan.
- Whether a deed is actually a mortgage is generally a fact question; a jury’s finding must be upheld if supported by some evidence.

## Conclusion

The Texas Supreme Court reinstated the jury’s determination that a deed, leaseback, and repurchase option can constitute a mortgage when the evidence indicates a secured loan, and it required deference to the fact-finder where some evidence supports the parties’ intent to create security rather than transfer ownership.


Johnson v. Cherry, 726 S.W.2d 4 (Tex. 1987)