Flack v. McClure
565 N.E.2d 131, 151 Ill. Dec. 860, 206 Ill.App.3d 976 (1990)
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Rule of Law:
A deed that is absolute on its face will be considered an equitable mortgage if clear and convincing evidence demonstrates that the parties intended the deed to serve only as security for a debt.
Facts:
- On September 11, 1984, plaintiff contracted to sell her building to defendants John and Loretta McClure for $80,000.
- On the same day, the plaintiff received $9,000 from the McClures, which she needed for her son's tuition, and in exchange gave them a quitclaim deed to the property.
- The McClures were subsequently unable to secure the necessary financing to complete the $80,000 purchase.
- The property was later foreclosed upon by the holder of the first mortgage and sold at a sheriff's sale.
- To prevent the sheriff's sale from being finalized, the McClures recorded the quitclaim deed and redeemed the property by paying $36,757.64.
- Plaintiff remained in possession of the property for approximately one year after giving the McClures the quitclaim deed.
Procedural Posture:
- Plaintiff sued defendants in the trial court on July 3, 1985, seeking specific performance on a real estate sales contract.
- The trial court granted plaintiff's motion to amend her complaint to add a claim for an equitable mortgage.
- Subsequently, a pretrial judge granted the defendants' motion to strike the equitable mortgage claim from the complaint.
- During the trial before a different judge, the court permitted the plaintiff to amend her complaint again to re-allege the equitable mortgage claim to conform to the evidence presented.
- Following a bench trial, the trial court found in favor of the plaintiff, ordering the defendant to reconvey the property and imposing an equitable mortgage in defendant's favor.
- Defendant Loretta McClure, as the surviving defendant, appealed the trial court's judgment to the intermediate appellate court.
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Issue:
Does a quitclaim deed, absolute on its face, constitute an equitable mortgage when evidence indicates the parties intended it to be security for a debt rather than an absolute conveyance?
Opinions:
Majority - Presiding Justice LaPorta
Yes. A deed, though an absolute conveyance in its terms, shall be considered a mortgage if it was intended only as security for a debt. The court found clear and convincing evidence that the parties intended the quitclaim deed to be security for the $9,000 loan, not an absolute conveyance of the property. The court's reasoning relied on a multi-factor test, emphasizing several key points. First, the existence of a debt is the essential element, which was clearly established by the $9,000 transaction and John McClure's deposition testimony that he would have returned the deed upon repayment. Second, the consideration of $9,000 was grossly inadequate for a property the parties had simultaneously valued at $80,000 in a sales contract. Third, the grantor (plaintiff) remained in possession of the property after the conveyance, which is characteristic of a mortgagor-mortgagee relationship, not a seller-buyer relationship. The court also noted the disparity in legal representation, as the defendants had counsel while the plaintiff did not during this transaction. Based on the totality of these circumstances, the evidence sufficiently supported the imposition of an equitable mortgage.
Analysis:
This case provides a classic application of the doctrine of equitable mortgage, demonstrating that courts will look to the substance of a transaction over its form to prevent an inequitable result. The decision reinforces a well-established, multi-factor test for determining the true intent of the parties when a deed is alleged to be a security instrument. It solidifies the principle that factors such as the existence of a debt, grossly inadequate consideration, and the grantor's continued possession are powerful indicators of a mortgage relationship. This precedent serves as a caution that an absolute deed is not immune from being re-characterized if extrinsic evidence overwhelmingly points to a security arrangement, particularly where one party is in financial distress or unsophisticated.
