Schultz v. Schultz, Docket No. 56478

• Citation: 117 Mich.App. 454,324 N.W.2d 48
• Decision Date: 22 September 1982
• Docket Number: Docket No. 56478
• Parties: Hubert G. SCHULTZ and Marjorie C. Schultz, Plaintiffs-Appellees, v. Lawrence J. SCHULTZ and Catherine L. Schultz, Defendants-Appellants.
• Court: Court of Appeal of Michigan (US)

Page 48

324 N.W.2d 48

117 Mich.App. 454

Hubert G. SCHULTZ and Marjorie C. Schultz, Plaintiffs-Appellees, v. Lawrence J. SCHULTZ and Catherine L. Schultz, Defendants-Appellants.

Docket No. 56478.

Court of Appeals of Michigan.

Submitted April 12, 1982.

Decided June 23, 1982.

Rehearing Denied Aug. 4, 1982.

Released for Publication Sept. 22, 1982.

Cubitt, Cubitt & Trowhill, Bad Axe, for plaintiffs-appellees.

Robert John Bugge, P.C., Reed City, for defendants-appellants.

Before DANHOF, C.J., and R.B. BURNS and WAHLS, JJ.

PER CURIAM.

Plaintiffs initiated suit for return of a 53-acre parcel of land which they had transferred to defendants by warranty deed, allegedly pursuant to an oral mortgage agreement. Prior to the trial, motions for summary judgment under GCR 1963, 117.2(1) and 117.2(3), based on the statute of frauds, were denied. Following a bench trial, defendants were ordered to transfer the property back to plaintiffs in return for plaintiffs repaying an alleged related loan. Defendants appeal.

Plaintiff Hubert G. Schultz and defendant Lawrence J. Schultz are brothers. Their father died in February, 1973, leaving a 119-acre farm. Their father's will provided for six acres to pass directly to Lawrence and the residue of the estate to be divided among the father's four children, Lawrence, Hubert, Mary, and Francis. Hubert bought the remaining 113 acres of the farm from the estate for $33,000.

Lawrence and his family, however, had been living on the farm with his father when his father died. Lawrence expressed concern to Hubert about where Lawrence and his family would live because Hubert was buying the farm. In addition, Hubert testified that he was worried about Lawrence's drinking problem and that he might squander away the $9,000 which he was about to receive from their father's estate. Lawrence and Hubert went to the office of a local attorney and Hubert executed a warranty deed transferring 53 acres of the farm to Lawrence "forever" and "without exception". In exchange, Lawrence transferred $9,000 to Hubert.

Testimony at the trial differed on whether the arrangement was a two-year loan with the deed serving merely as collateral or whether Hubert merely had first right of refusal in the event Lawrence ever wished to sell the property.

Plaintiffs' own expert witness testified that the value of the land at the time of the transaction was between $10,600 and $13,000.

Defendants attempt to defend this action on the basis of the statute of frauds. The relevant portions of the statute provide:

"No estate or interest in lands, other than leases for a term not exceeding 1 year, nor any trust or power over or concerning lands, or in any manner relating thereto, shall hereafter be created, granted, assigned, surrendered or declared, unless by act or operation of law, or by a deed or conveyance in writing, subscribed by the party creating, granting, assigning, surrendering or declaring the same, or by some person thereunto by him lawfully authorized by writing." M.C.L. Sec. 566.106; M.S.A. Sec. 26.906.

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"Every contract for the leasing for a longer period than 1 year, or for the sale of any lands, or any interest in lands, shall be void, unless the contract, or some note or memorandum thereof be in writing, and signed by the party by whom the lease or sale is to be made, or by some person thereunto by him lawfully authorized in writing * * *." M.C.L. Sec. 566.108; M.S.A. Sec. 26.908.

A mortgage is an interest in land within the meaning of the statute of frauds. Aetna Mortgage Co. v. Dembs, 13 Mich.App. 686, 164 N.W.2d 771 (1968).

Notwithstanding the direct language of the statute, a court may declare a deed absolute on its face to be an equitable mortgage. Grant v. Van Reken, 71 Mich.App. 121, 246 N.W.2d 348 (1976). Appellate review of such a determination is de novo, but a trial court will not be reversed unless its decision is clearly erroneous. Grant, supra, 125, 246 N.W.2d 348.

The trial court found that plaintiffs had shown by a preponderance of the evidence the existence of an oral agreement and that an equitable mortgage should be declared. The court found the basis for the equitable mortgage to be that "Hubert had a brotherly concern for the welfare of Lawrence and his family, and the two brothers saw, through this arrangement, a solution to both of their problems". Although the trial court applied a "preponderance" test, the party who asserts that an absolute conveyance is a mortgage bears a "higher degree of proof than this" and must make it "very clear" to the fact finder that the parties did not contemplate an absolute sale. Grant, supra, 125-126, 246 N.W.2d 348.

The demand for writing in the statute of frauds "was intended for persons dealing with each other at arm's length and on an equal footing". Emerson v. Atwater, 7 Mich. 12, 23 (1859). Thus, a review of Michigan case law reveals two instances in which it is proper to declare an equitable mortgage in order to circumvent the requirement for a writing. One such instance occurs when the deed is between parties where one party stands in a relationship of trust or guidance to the other party, such as attorney to client, guardian to ward, or parent to child, and the relationship has been abused. See Emerson, supra, 23-24, Fred L. Alpert Industries, Inc. v. Oakland Metal Stamping Co., 379 Mich. 272, 150 N.W.2d 765 (1967). In that situation, a court may declare a deed to be subject to an equitable mortgage where the deed would have been held to be unencumbered had the parties not been so related. Emerson, supra, 24, Alpert Industries, supra, 278, 150 N.W.2d 765.

The other instance in which equitable mortgages may properly be declared occurs when a creditor abuses the "power of coercion" which he may have, by...