MOORE v. LINVILLE

LOWDERMILK, Judge.

CASE SUMMARY:

Plaintiffs-appellees Maurice Fred Linville and Helen Ann Linville sued for ejectment. Defendants-appellants Charles W. Moore and Betty Moore counterclaimed that Linvilles were holders of an equitable mortgage.

Moores appeal from the trial court's judgment for Linvilles on their complaint and against Moores on their counterclaim.

We affirm.

FACTS:

Prior to May 16, 1974, Moores owned in fee simple the real estate in question, upon which they were building a house.

They had executed a mortgage to First Federal Savings and Loan Association of Franklin to secure their $20,000 note to First Federal.

The real estate was also subject to a mechanic's lien of the Johnson County Farm Bureau Cooperative Assn., Inc.

Moores had accumulated other bills for labor and materials. They were financially unable to meet all the above obligations. Moores' secured creditors had threatened to foreclose their security interests.

Charles Moore approached Maurice Linville, an acquaintance, and asked for money to pay the above obligations as well as future bills incurred in building the house.

On May 16, 1974, Moores executed a warranty deed conveying the real estate to Linvilles. Simultaneously Linvilles and Moores executed a "real estate loan and re-conveyance agreement" which referred to Linvilles as the parties of the first part and to Moores as the parties of the second part and provided in pertinent part:

At trial, Maurice Linville testified that he understood the above transaction to be a purchase of the real estate. He also testified that he considered the documents to constitute security for the funds advanced by Linvilles.

Charles Moore testified that he understood the transaction would convey fee simple title to Linvilles, subject to Moores' right to obtain a reconveyance by complying with the terms of the parties' agreement.

Following the execution of these instruments, Linvilles expended $22,000 to pay off the mortgage to First Federal and the mechanic's lien of the Co-op. They subsequently paid an additional $15,486.23 on behalf of Moores for materials, labor, interest, insurance, taxes and drainage assessments related to the real property.

In August and September, 1974, Moores made interest payments under the agreement, but paid no more interest and failed to repay the funds advanced by Linvilles by January 1, 1975. Nor did Moores secure insurance or pay taxes and other expenses as provided in the agreement.

Linvilles performed no work on the real estate. Moores did, and remained in possession thereof until after Linvilles commenced this action on January 3, 1975.

Although the house was uncompleted at the time of trial, Maurice Linville and Charles Moore each testified that the value of the real property was between $35,000 and $36,000.

The trial court's judgment entry stated, in pertinent part:

ISSUES:

1. Whether the parties created an equitable mortgage.

2. Whether the trial court erred in granting relief in ejectment to Linvilles.

DECISION:

We will consolidate discussion of both issues pursuant to Ind.Rules of Procedure, Appellate Rule 8.3(A)(7).

Moores contend that the trial court erred in holding that Linvilles were fee simple owners of the real estate and entitled to immediate possession thereof. Moores base their contention on an argument that the facts indicate that the parties created an equitable mortgage.

We adhere to the well-settled Indiana rule that a court may find an equitable mortgage where a deed, absolute on its face, is executed simultaneously with an agreement under which the grantor is entitled to a reconveyance upon performance of conditions. See Hoffman v. Foreman (1975), Ind. App., 323 N.E.2d 651, and cases cited therein.

In such cases the law "will give effect to the real and dominent intention of the parties" rather than be controlled by the form and names of the instrument. Kerfoot v. Kessner (1949), 227 Ind. 58, 79, 84 N.E.2d 190, 199. Determining the parties intent involves a case by case approach, as this court stated in McCool v. Ayres (1963), 136 Ind.App. 72, 95-96, 192 N.E.2d 636, 648, in quoting from Davis v. Stonestreet (1853), 4 Ind. 101:

Factors to which Indiana courts have looked to ascertain an intent to create an equitable mortgage include:

- Pre-transaction negotiations were aimed at protecting the property from claims of other creditors of the grantor of the deeds. Dorweiler v. Sinks (1958), 128 Ind.App. 532, 148 N.E.2d 570.

- The grantor was indebted to the grantee prior to the transaction, or became indebted as part of the transaction. Voss v. Eller (1887), 109 Ind. 260, 10 N.E. 74.

- The instruments provided that the grantor could redeem the land by performing certain conditions within a certain time. McCool v. Ayres, supra.

- The grantee gave inadequate consideration for the conveyance of the real property. Dorweiler v. Sinks, supra; Barber v. Barber (1946), 117 Ind.App. 156, 70 N.E.2d 185.

- The grantor paid interest to the grantee. McCool v. Ayres, supra.

- The grantor retained control, possession, and use of the property where no rent was fixed or paid. Barber v. Barber, supra.

- The grantor improved the real estate, which a tenant would not likely do. Id.

- The grantee did not exercise any control or ownership of the property. Id.

Although all the above factors — save for inadequacy of consideration — indicate that the parties presently before this court intended their transaction to operate as an equitable mortgage, the trial court's judgment was not in error.

In an opinion construing another absolute deed coupled with an agreement to reconvey, our Supreme Court, in Ferguson v. Boyd (1907), 169 Ind. 537, 542-543, 81 N.E. 71, 72 stated:

See also Bach v. First National Bank of Vincennes (1935), 99 Ind.App. 590, 193 N.E. 696; Watkins v. Gregory (1841), 6 Blackf. 113.

The absolute warranty deed from Moores conveyed legal title to Linvilles; the agreement, which contained no provision voiding said deed upon Moores' performance, could not have re-vested legal title in Moores even had they performed as agreed. Bach v. First National Bank of Vincennes, supra; Ferguson v. Boyd, supra; Watkins v. Gregory, supra.

Moores' interest in the real estate following the transaction was an equitable right to compel Linvilles to reconvey the real property upon Moores' performance. Bach v. First National Bank of Vincennes, supra; Ferguson v. Boyd, supra.

The trial court's relief in ejectment was therefore based on a correct holding that Linvilles were the fee simple owners of the real estate and entitled to immediate possession thereof.

Moores' counterclaim seeking to enforce their interest brought into consideration the maxims of equitable discretion, as our Supreme Court recognized in Ferguson v. Boyd, supra, at 169 Ind. 547, at 81 N.E. 74:

In Ferguson, the court noted the maxim: "He who seeks equity must do equity."

The facts of the instant case reveal that Moores did not insure the property as agreed, neglected to pay taxes and assessments on the real estate as agreed, and failed to repay Linvilles.

The trial court could have therefore based its judgment against Moores on their failure to do equity in this case.

We find no error in the trial court's holding that Linvilles were fee simple owners entitled to possession or in its denial of equitable relief to Moores.

Judgment affirmed.

ROBERTSON, C.J., and LYBROOK, J., concur.