Lovlie v. Plumb

• Decision Date: 16 February 1977
• Docket Number: No. 2--57196,2--57196
• Citation: 250 N.W.2d 56
• Parties: Jan LOVLIE and Elsa M. Lovlie, Appellants, v. Charles R. PLUMB and Bettie L. Plumb, Appellees, v. Michael HANRAHAN and Alan Kline, Cross-Petitioner Defendants-Appellees.
• Court: Iowa Supreme Court

Page 56

250 N.W.2d 56

Jan LOVLIE and Elsa M. Lovlie, Appellants, v. Charles R. PLUMB and Bettie L. Plumb, Appellees, v. Michael HANRAHAN and Alan Kline, Cross-Petitioner Defendants-Appellees.

No. 2--57196.

Supreme Court of Iowa.

Feb. 16, 1977.

Crawford & Clarke, by Thomas J. Clarke, Des Moines, for appellants.

Hegland, Newbrough, Johnston & Brewer, by James A. Brewer, Ames, for appellees.

Jerry L. Jones, Ames, for cross-petitioner, defendants-appellees.

Heard by MOORE, C.J., and RAWLINGS, LeGRAND, REYNOLDSON and HARRIS, JJ.

RAWLINGS, Justice.

By equity action commenced November 24, 1972, plaintiffs Jan and Elsa M. Lovlie (Lovlies), seek accounting by defendants Charles and Bettie Plumb (Plumbs), regarding real estate to which plaintiffs claim legal title contrary to defendants' asserted ownership. By counterclaim defendants pray title be quieted in them subject to mortgagee rights of Ames Building and Loan Association (Ames) and a contract for sale of the property to cross-defendants Michael Hanrahan and Alan Kline (Hanrahan and Kline). Trial court entered decree adverse to plaintiffs and they appeal. We affirm.

The involved property is described as:

'Lot Ten (10) in Teagarden's Second Subdivision in the Southwst Quarter (SW 1/4) of the Northeast Quarter (NE 1/4) of Section Twenty-three (23), Township Eighty-three (83) North, Range Twenty-four (24), West of the 5th P.M., Story County, Iowa, and locally known as: 3816 Emerald Drive, Ames, Iowa.'

In 1958, defendants (Plumbs) obtained title to the above described premises by warranty deed. In 1962, they sold same on contract to Russ and Dixie Mahan, who in turn assigned their interest, in 1965, to plaintiffs (Lovlies).

In 1966, defendants borrowed an amount equal to their equity in the property from Ames for which a mortgage was given. Plaintiffs made this transaction possible by subordinating their interest in the purchase contract to the mortgage.

The interest rate, monthly payments and unpaid balance on defendants' mortgage-related note were the same as on plaintiffs' purchase contract. Defendants directed plaintiffs to make their contract payments to Ames in order that they be applied directly on the mortgage debt.

In 1967, plaintiffs' attorney recommended the contract be consummated by obtaining a deed from defendants with plaintiffs to attendantly assume the mortgage balance. Defendants' attorney recommended a quitclaim deed be employed for the purpose because of the existing Ames' encumbrance. Due to the fact defendants would remain liable on the outstanding mortgage, it was suggested a reversionary right be incorporated in the deed for benefit of defendants in event plaintiffs failed to fulfill the mortgage obligations. As trial court noted, 'There is no showing (the parties) were in disagreement as to the method to be utilized in consummating the contract.'

The quitclaim deed from defendants to plaintiffs provided, in relevant part:

'This deed is executed and delivered upon the condition that the said grantees, Jan Lovlie and Elsa M. Lovlie, will assume and pay the unpaid balance of a mortgage due Ames Building and Loan Association * * *, And in the event the said grantees fail to so perform, then title to the above described real estate shall revert to the said grantors.' (emphasis supplied).

After delivery of said quitclaim deed plaintiffs discussed same with their attorney. They were thereby advised it was incumbent upon them to make the mortgage payments in order to retain their interest in the property. No objection was voiced by plaintiffs as to the above quoted reversionary clause.

In 1968, plaintiffs experienced substantial financial problems. In July of that year the Lovlies vacated the premises, leaving behind their furniture and some personal belongings. Defendants soon learned plaintiffs were in substantial default on the Ames' mortgage. Thereafter, defendants unsuccessfully attempted to locate plaintiffs.

August 16, 1968, defendants physically re-entered the property and at the same time posted notice thereof on the front and rear doors of the house. They also filed an affidavit of re-entry in the Story County Recorder's office.

August 20, 1968, defendants satisfied the delinquent mortgage payments, overdue insurance premiums and real estate taxes owing. They subsequently paid all mortgage obligations, insurance premiums and taxes. Defendants also assumed responsibility for maintenance, repair and management of the premises.

September 17, 1968, plaintiffs received from defendants' attorney a letter requesting removal of all furnishings from the house. Accompanying this letter, forwarded to plaintiff Lovlie by his brother-in-law, were copies of the quitclaim deed, a letter from mortgagee's attorney and a copy of the recorded re-entry affidavit. Over a period of four years thereafter plaintiffs took no affirmative action.

August 19, 1970, defendants sold the property on contract to cross-defendants Hanrahan and Kline. This contract is current and outstanding.

By plaintiffs' aforesaid action, commenced November 24, 1972, they allege defendants illegally assumed control of the premises and improperly directed tenants then in possession of a basement portion of the residence to pay rent directly to defendants. Plaintiffs further assert legal title to the property upon the basis of defendants' quitclaim deed, Supra.

By counterclaim defendants seek to quiet title in themselves by virtue of right acquired under the above noted reverter clause. As above noted, this title is allegedly subject only to the Ames' mortgage and Hanrahan-Kline purchase contract.

By amendment to their answer, defendants affirmatively pled the defense of waiver. Plaintiffs responded by asserting (1) defendants had no legal title to the property; (2) the quitclaim deed lacked consideration; and (3) plaintiffs were entitled to forfeiture notice under the contract.

After hearing on the merits trial court dismissed plaintiffs' petition for accounting; quieted title to the property in defendants subject to (1) the Ames Building and Loan Association mortgage, and (2) the contract purchase rights of cross-petitioners Michael Hanrahan and Alan Kline.

Plaintiffs here raise these issues for review:

(1) The reverter clause in the quitclaim deed from Plumbs to Lovlies is ambiguous and should be construed as an equitable mortgage.

(2) The reverter clause contained in the quitclaim deed between Plumbs, as grantors, and Lovlies, as grantees, is void for lack of consideration.

(3) The legal effect of the quitclaim deed with reverter clause between Plumbs as grantors and Lovlies as grantees is to restore the parties to their original legal position before the deed was given.

(4) Lovlies' claim is not barred by laches.

(5) The doctrine of waiver does not apply to this case.

I. First considered is plaintiffs' claim to the effect the quitclaim deed (reverter clause) is ambiguous and should be construed as creating an equitable mortgage. In this respect, it is contended the evidence reveals plaintiffs agreed only to indemnify defendants to the extent of their personal liability and plaintiffs did not forego their redemption rights.

It is well settled a transfer of title absolute on its face, if intended as security alone, will be deemed a mortgage. And such intent may be shown by parol. In the same vein, an equitable redemption right attaches necessarily and conclusively to any grant given as security. Also, equity forbids an irredeemable mortgage. See Koch v. Wasson, 161 N.W.2d 173, 176 (Iowa 1968). However, if a deed is to be construed as a security instrument, the supportive evidence must be clear, satisfactory and convincing. See North v. Manning Trust & Savings Bank, 169 N.W.2d 780, 784 (Iowa 1969); cf. Rendleman, 'Absolute Conveyance as a Mortgage in Iowa', 18 Drake L.Rev. 197 (1969); 'Equitable Mortgages in Iowa', 44 Iowa L.Rev. 716 (1959).

In determining intent of the parties, courts look behind the form of an instrument to ascertain the actual relationship betwen participants. Furthermore, a document will be read in light of surrounding circumstances and given such practical construction as is placed thereon by the concerned parties. See Collins v. Isaacson, 261 Iowa 1236, 1243, 158 N.W.2d 14 (1968); Fort v. Colby, 165 Iowa 95, 144 N.W. 393 (1913).

Mindful of the foregoing, we look now to the record at hand. It reveals the quitclaim deed from defendants to plaintiffs was requested by the latter in order to terminate their contractual relationship with the former. As a means by which to protect themselves in event of future personal liability on the Ames' mortgage, defendants requested insertion of the above quoted reverter clause. Plaintiffs were willing to assume said mortgage subject to terms of the deed in return for their desired immediate conveyance of title. They discussed the legal effect of the reverter clause with both their attorney and defendants.

Addressing ourselves now to specifics of the question at hand, we first note the instant transaction created no direct obligation by plaintiffs to defendants.

'On this point, we said in Hinman v. Sage, supra, 208 Iowa 982, 984, 221 N.W. 472, 473: 'A prerequisite universally recognized is the existence of a debt, or obligation to pay, on the part of the grantor.' The same thought is expressed in Shanda v. Clutier State Bank, 220 Iowa 290, 296, 260 N.W. 841. Of the necessity of establishing the debt, the court, in Clark v. Chapman, 213 Iowa 737, 743, 239 N.W. 797, 800, said:

"An important burden of proof rests upon the appellants at this point. Only clear and satisfactory evidence can be accepted to warrant the conversion of a warranty deed into a mortgage security. It was incumbent upon the defendants to prove in such manner: (1) That the consideration for the warranty deed was an existing indebtedness, together with the amount of such indebtedness; and (2) that such indebtedness was not...