Taines v. Munson

• Decision Date: 27 August 1969
• Docket Number: Docket No. 5107,No. 1,1
• Citation: 19 Mich.App. 29,172 N.W.2d 217
• Parties: Gerald TAINES, Michael Z. Taines and Alger Homes, Inc., a corporation, Plaintiffs-Appellants, v. Jack MUNSON and Evelyn Munson, his wife, Defendants-Appellees
• Court: Court of Appeal of Michigan — District of US

Page 217

172 N.W.2d 217

19 Mich.App. 29

Gerald TAINES, Michael Z. Taines and Alger Homes, Inc., a corporation, Plaintiffs-Appellants, v. Jack MUNSON and Evelyn Munson, his wife, Defendants-Appellees.

Docket No. 5107.

Court of Appeals of Michigan, Division No. 1.

Aug. 27, 1969.

Released for Publication Dec. 1, 1969.

D. Michael Kratchman, Kratchman & Kratchman, Detroit, for appellants.

Dykema, Wheat, Spencer, Goodnow & Trigg, Detroit, for appellees.

Before LESINSKI, C.J., and J. W. FITZGERALD and V. J. BRENNAN, JJ.

LESINSKI, Chief Judge.

Plaintiffs sued defendants for an accounting on a claimed equitable mortgage. The trial court found that the 1959 'sale' of an interest in land was in fact an equitable mortgage, but that plaintiffs had lost their right to claim an interest in the land because of laches, waiver and abandonment. Plaintiffs appeal.

Alger Homes, Inc., was in 1959 a building and development corporation wholly owned by Michael Taines (although Michael's brother, Gerald Taines, had only recently sold his one-half interest in the company to Michael, and continued to take an active part in the affairs of Michael and of Alter Homes). On January 2, 1958, Michael Taines conveyed to Alger Homes his land contract vendee's interest in a 76-acre parcel of land in Livonia. On September 17, 1958, Alger Homes sold an undivided one-half interest in the 76-acre parcel to defendant Jack Munson, as trustee for others. Neither of these transactions is now in dispute, but they illustrate the history of the land and something of the relationship between the parties.

Jack Munson's wholly-owned company, Shapiro-Munson, Inc., had frequently done plumbing work on Alger Homes housing projects, and in 1959 it was working on an Alger Homes project on property in Warren, Michigan. During the year 1959, Alger Homes was unable to pay its bills as they matured. Tho company's only assets at the time were the remaining one-half interest in the Livonia parcel and the project in Warren, which was heavily mortgaged. By September of 1959, Alger Homes owed Shapiro-Munson $17,000 for plumbing work and Munson stopped work on the Warren project until he was paid. Taines could not raise the cash, and he could not proceed with other work on the project until the plumbing was completed. He begged Munson to continue the work so that the whole project would not be lost. Munson replied that he would return to work if he was given security for the $17,000 plus $8,000 'in front' for the work remaining to be done. Taines offered his house as security, but Munson would not accept that. He then offered the only other asset available, the one-half interest in the Livonia property. Munson agreed to accept that as security for the $25,000 plus $10,000 which he would loan to Alger Homes to pay other workmen on the Warren project, as requested by Taines.

Thus for the loan of $35,000, Munson was to get property worth at least $131,000, ¹ as found by the trial judge, which was sold four years later for $182,500.

Having reached agreement between themselves, the two men went to Munson's attorney to formalize the transaction. Taines did not have his own counsel. The testimony is conflicting as to exactly what meetings occurred at this stage and who prepared which documents. However, it is clear that the attorney advised Munson that he would not have security which would stand up against Alger Homes' other creditors unless the transaction were made to look like an absolute sale. Accordingly, on December 21, 1959, Taines signed an assignment of Alger Homes' undivided one-half vendee's interest in the 76 acres as well as a quitclaim deed of it; an option for repurchase running to Taines was prepared but retained by the attorney.

Immediately after the meeting in the attorney's office, Taines and Munson drove to Munson's bank. On the way, Taines told Munson that he would have the money to repay him within 30 days and Munson said he would give back all 'the papers that (the attorney) made out as an outright sale' as soon as he got his money. At the bank, Munson delivered his personal check for $35,000 and Taines immediately returned a check to Shapiro-Munson, Inc. for $25,000.

In testifying as to his impression of the transaction, Jack Munson stated as follows:

'Well, after I bought the land and (the lawyer) told me he had made out the papers like it was a sale, I still didn't want that land. I wanted my money.'

And again he testified:

'Although this was a sale, I still didn't want the land. In spite of that, it was a sale. We know it was a sale; I was protected; this was it. As far as (my lawyer), we had a sale. This is what (he) drew up there. But I still didn't want that land. I just wanted my money.'

In accordance with instructions from Munson's attorney, Taines had the transaction marked down as a sale on the books of Alger Homes. Thereafter, Alger Homes' financial situation got steadily worse, the Warren project was conveyed to the mortgagee to avoid foreclosure, and the company became totally insolvent. Michael Taines paid some of Alger Homes' creditors from other funds (either those of his other corporations or of his brother Gerald or both), and the company ceased to function in May, 1960. No further annual reports were filed.

Taines was not able to repay the money to Munson, nor did he make any further payments on the underlying land contract for the Livonia property. The next payment on that contract was due in April, 1960, and Munson urgently tried to get Taines to make that payment as well as repay the $35,000. Munson testified that he called Taines 40 or 50 times between January and April and went to his office four or five times. He insisted that he wanted his money, not the land. Taines replied that Munson had security and that was the best he could do. Munson finally made the April payment and all others until the land was paid off.

Munson testified that Taines told him not to worry because he, Munson, owned the land; Munson also testified that Taines told other persons that he no longer owned the land. But Munson continued to press Taines to pay the money and take back the land. During 1960, Taines lost all his money through an 'unfortunate association' with a swindler. Around the end of the year he moved to Florida with his family. He had no further communication with Munson except when he forwarded a tax bill on the Livonia property which had come to him in March, 1962.

On September 2, 1960, Gerald Taines and the accountant for Alger Homes met Munson in his attorney's office. Munson there agreed to give Gerald an option until January 2, 1961, to buy the land back for $87,000, but the option (which would have clearly been a fraud on Alger Homes' creditors) was never exercised. Munson claims that after January 2, 1961, he treated the land as his own. Gerald Taines, on the other hand, claims that Munson repeatedly assured him that the Taines interest in the land would be protected; that when Gerald sent a friend to bid on the land, Munson told him, 'It's Gerry's land'; and that when Gerald called Munson after learning that the land had been sold in 1963, Munson told him, 'I haven't collected the money yet. When I get mine, you'll get yours'.

Munson received full and final payment for the Livonia property in 1965. He denied that anything was due to the Taineses. They began this suit in June, 1965.

There is no question in Michigan that a court of equity can declare a deed absolute on its face to be a mortgage, Ferd L. Alpert Industries, Inc. v. Oakland Metal Stamping Co. (1967), 379 Mich. 251, 150 N.W.2d 765, Emerson v. Atwater (1859), 7 Mich. 12, given clear and convincing proof, Ellis v. Wayne Real Estate Company (1959), 357 Mich. 115, 97 N.W.2d 758. 'In such cases the pecuniary embarrassment of the grantor, his indebtedness to the grantee, and inadequacy of consideration are circumstances the court looks to in determining the true character of the instrument. * * * And of the three, inadequacy of consideration is the most important.' Emerson v. Atwater (1864), 12 Mich. 314, 317. All of these factors are abundantly present in the instant case. Taines, and Alger Homes with him, was in financial trouble, and Munson had not only a debt against him but the leverage of his work stoppage on Alger Homes' only going project. Defendant tries to minimize the disparity between the value given and the worth of the land. However, even accepting defendant's assertion that the property was worth only $131,000 (there are a number of higher expert estimates in the record) and that a balance of $55,000 remained on the underlying land contract, the fact remains that plaintiff had an equity of at least $76,000, for which Munson gave $35,000, or less than half the value.

Defendant argues that the conveyance was absolute because no obligation remained for Taines to repay the money and because Taines had an option to repurchase which was unilateral, citing Swetland v. Swetland (1855), 3 Mich. 482, Porritt v. Stone (1954), 340 Mich. 645, 66 N.W.2d 244, and other cases. Such contentions do not accord with the facts as presented by defendant himself. Defendant's behavior in asking plaintiff for repayment clearly evidences their understanding that repayment was due, as does Taines' statement on the way to the bank that he would have the money in 30 days. In addition, defendant is asking this Court, in the event an accounting is ordered, to award him interest at 10% On the $10,000 'loan' included in the $35,000 package. He cannot have it both ways. The obligation to repay would naturally not be stated in writing, since that would defeat defendant's purpose of making it Look like a sale. As for the so-called 'option', that document was never signed by Munson or delivered to Taines or recorded. It cannot control our characterization of the transaction in the face of abundant evidence in the record that the parties intended the transaction as a...