Life Sav. and Loan Ass'n of America v. Bryant

• Decision Date: 17 May 1984
• Docket Number: No. 83-1145,83-1145
• Citation: 467 N.E.2d 277,81 Ill.Dec. 577,125 Ill.App.3d 1012
• Parties: , 81 Ill.Dec. 577 LIFE SAVINGS AND LOAN ASSOCIATION OF AMERICA, Plaintiff-Appellee, v. Adam BRYANT and Ruth Bryant, Defendants-Appellants.
• Court: United States Appellate Court of Illinois

Page 277

467 N.E.2d 277

125 Ill.App.3d 1012, 81 Ill.Dec. 577

LIFE SAVINGS AND LOAN ASSOCIATION OF AMERICA, Plaintiff-Appellee, v. Adam BRYANT and Ruth Bryant, Defendants-Appellants.

No. 83-1145.

Appellate Court of Illinois First District, Fourth Division.

May 17, 1984.

Rehearing Denied July 12, 1984.

[81 Ill.Dec. 579] Sidney Margolis, Steven J. Goldberg, Winston & Strawn, Chicago, for defendants-appellants

William R. Yowell, Chicago, for plaintiff-appellee.

LINN, Presiding Judge.

Defendants, Adam and Ruth Bryant, entered into a contract with Katrina, Inc. for the purchase of property in Cook County, Illinois. Defendants paid an earnest money deposit and began making payments to Katrina, which did not hold legal title at the time the contract was entered into. Katrina subsequently executed a mortgage on the property in favor of plaintiff, Life Savings and Loan Association of America, and obtained legal title from the trustee.

Katrina was dissolved, and defendants continued to make mortgage payments to be credited against the balance of their contract price. Upon paying off the contract, defendants ceased making mortgage payments, and plaintiff brought foreclosure proceedings. Defendants counterclaimed to quiet title, asserting priority over the mortgage.

The trial court dismissed the counterclaim, finding that the mortgage was superior. Defendants now appeal.

We reverse the decision of the trial court.

FACTS

On or about December 20, 1965, Adam and Ruth Bryant (Bryants or Vendees) entered into a real estate sale contract with Katrina, Inc. (Katrina or Vendor) to purchase property in Cook County, Illinois. The contract called for a $1,000 earnest money deposit on a total purchase price of $15,500 but contained no payment schedule for the balance owing. The contract did, however, contain the following provisions:

"This contract is subject to Katrina Inc. [sic] ability to purchase the above above mention [sic] property and also obtain a mortgage in the amount of $13,500.00 * * * in the event said mortgage cannot be obtain [sic] with in [sic] 45 days from date of contract then this contract becomes null and void and earnest money returned to purchaser."

* * *

* * * "In case of default of Martgage [sic] payment by Katrina, Inc. to mortgage Co. purchaser may make said mortgage payment out of contract payment and recieve [sic] credit for same on contract payment."

Katrina did not hold legal title at the time the contract was entered into and obtained neither title nor a mortgage within the 45 day period. With knowledge of these facts, the Bryants began making payments under the contract and entered into possession of the property on January 29, 1966. The Bryants continued in open and notorious possession of the property up to and through January 30, 1967, at which time Katrina executed a mortgage with Life Savings and Loan Association of America (Life or Mortgagee) in the amount of $12,000 and, with the proceeds thereof, obtained legal title by deed from Oak Park Savings Bank, as trustee. The Bryants never expressly assumed the mortgage, nor did they join in its making. Life had notice of the Bryants interest in and possession of the subject property at the time it obtained the mortgage from Katrina.

On December 11, 1968, Katrina was dissolved. The Bryants, who had been making mortgage payments on Katrina's behalf prior to the date of dissolution, continued to make payments through October 22, 1981 whereupon, alleging to have paid all amounts due under the purchase contract, the Bryants ceased making mortgage payments, leaving an outstanding balance on the mortgage of $1,254.68. Finding Katrina in default, Life elected to accelerate all sums due under the mortgage and instituted a foreclosure action, naming, among others, the Bryants as defendants.

The Bryants filed an Answer with affirmative defenses and a counterclaim to quiet title. In response, Life filed a motion to dismiss, which the trial court granted. In its order of March 9, 1983, the lower court found that the purchase contract contemplated obtaining the mortgage and that the Bryants had therefore subordinated their interest in the subject property to the mortgage. The court ordered that the counterclaim, to the extent that is asserted priority over the mortgage, be dismissed along with the affirmative defenses. That part of the counterclaim seeking to quiet title was let stand. The Bryants filed a motion to vacate the March 9, 1983 order and in denying that motion, the trial court found that there was no just reason for delaying enforcement or appeal thereof. This appeal followed.

OPINION

The single issue before this reviewing court is whether the trial court's finding that the Bryants' interest is subordinate to the mortgage was correct. Two questions are involved in making this determination, namely, (1) what is the nature of the Bryants' interest in the subject property, and (2) does that interest take priority over the mortgage subsequently executed in favor of Life. The answer to these questions lies within the doctrine of equitable conversion and the applicable recording law in Illinois.

We must first determine the relative legal status of the Vendees and the Mortgagee in relation to the subject property. The Bryants claim that under the doctrine of equitable conversion, they became the equitable owners of the property upon execution of the purchase contract with Katrina on December 20, 1965. Life, Mortgagee, refutes this claim on the ground that Katrina did not have title at the time the contract was executed and that obtaining title was one of the conditions precedent to the Bryants becoming equitable owners. This specific issue was addressed and resolved by our supreme court over two decades ago in the case Shay v. Penrose (1962), 25 Ill.2d 447, 185 N.E.2d 218. In Shay, the court defined the doctrine of equitable conversion as follows,

"Equitable conversion is the treating of land as personalty and personalty as land under certain circumstances. Hence, as between the parties and those claiming through them, when the owner of land enters into a valid and enforceable contract for its sale he continues to hold the legal title, but in trust for the buyer; and the buyer becomes the equitable owner and holds the purchase money in trust for the seller. The conversion takes place at the time of entering into the contract. It stems from the basic equitable principle that equity regards as done that which ought to be done. The doctrine of equitable conversion has been recognized in Illinois, as it has in practically every other jurisdiction, since earliest times." [Citations omitted].

25 Ill.2d 447, 449, 185 N.E.2d 218.

In Shay, as here, one party contended that equitable conversion did not apply to a long term contract for the sale of real estate prior to the time both parties fulfilled any conditions precedent to the contract. The court dismissed this contention, holding that the correct view is that equitable conversion takes place at the instant a valid and enforceable contract is entered into and that the buyer at the time acquires an equitable title. (Shay v. Penrose (1962), 25 Ill.2d 447, 185 N.E.2d 218.) Between vendor and vendee, equity regards the vendee as the owner of the land upon execution of the purchase contract. Rosewood Corp. v. Fisher (1970), 46 Ill.2d 249, 263 N.E.2d 833.

Applying the doctrine of equitable conversion to the facts of the instant case, we note that the Bryants, as Vendees, became the equitable owners of the property on December 20, 1965, the date on which they executed the purchase contract with Katrina.

Life next asserts that Katrina's ability to obtain both legal title and a mortgage were conditions precedent to the contract. Life stresses that Katrina did not have legal title at the time it entered into the sale contract with the Bryants and that, because title was obtained only after Katrina executed a mortgage in favor of Life, this first condition precedent was not satisfied. The doctrine of after- acquired title, codified as Illinois Revised Statutes chapter 30, section 6 (Ill.Rev.Stat. 1983, ch. 30, par. 6), does not support Life's view. Section 6 reads as follows,

"If any person shall sell and convey to another, by deed or conveyance, purporting to convey an estate in fee simple absolute, in any tract of land or real estate, lying and being in this state, not then being possessed of the legal estate of interest therein at the time of the sale and conveyance, but after such sale and conveyance the vendor shall become possessed of and confirmed in the legal estate to the land or real estate so sold and conveyed, it shall be taken and held to be in trust and for the use of the grantee or vendee; and the conveyance aforesaid shall be held and taken, and shall be as valid as if the grantor or vendor had the legal estate or interest, at the time of said sale or conveyance."

Under this doctrine, the prior conveyance results in the acquisition of equitable title by the vendee such that after-acquired title does not inure to the benefit of a subsequent mortgagee who cannot, by the taking of a mortgage, enlarge the bare legal interest given to him by the mortgagor. Cooper v. Robinson (1922), 302 Ill. 181, 134 N.E. 119.

In the present case, Katrina acquired title subsequent to the conveyance to the vendees. The validity of the sales contract was not impaired by Katrina's not having title at the time the contract was executed. (Madigan v. Buehr (1970), 125 Ill.App.2d 8, 260 N.E.2d 431.) Under the doctrine of after-acquired title, the condition...