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Johnson v. Cherry

Supreme Court of Texas
726 S.W.2d 4 (1987)


Johnson (plaintiff) and his wife purchased the subject property through financing from the seller, who retained a lien on the property. When they divorced, he bought his wife’s share for $38,000 by a promissory note. Johnson defaulted on payments to the seller and to his wife and was facing foreclosure when he turned to Cherry (defendant) allegedly for a loan. In total, Johnson owed about $120,000 to various creditors. Johnson and Cherry executed a deed from Johnson to Cherry, a one-year lease on the property from Cherry to Johnson for $25,000, and an option for Johnson to repurchase the property for $132,000. In exchange for the deed, Cherry gave Johnson $120,000 and assumed Johnson’s debt to his wife. When Johnson failed to pay the lease, Cherry sued to evict Johnson. Johnson sued Cherry, 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 Johnson. The appellate court reversed, holding that there was a sale. Johnson appealed.

Rule of Law


Holding and Reasoning (Spears, J.)

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