Koenig v. Van Reken - 89 Mich. App. 102, 279 N.W.2d 590 (1979)

Rule:

The court of equity protects the necessitous by looking through form to the substance of the transaction. Although no set criterion has been established, the controlling factor in determining whether a deed absolute on its face should be deemed a mortgage is the intention of the parties. Such intention may be gathered from the circumstances attending the transaction including the conduct and relative economic positions of the parties and the value of the property in relation to the price fixed in the alleged sale. Under Michigan law, it is well settled that the adverse financial condition of the grantor, coupled with the inadequacy of the purchase price for the property, is sufficient to establish a deed absolute on its face to be a mortgage. 

Facts:

Helen Koenig brought an action against Stanley R. Van Reken, Harriett E. Van Reken and Michigan National Bank seeking a judgment declaring a deed executed by her to defendants Van Reken to be an equitable mortgage, or money damages for unjust enrichment. Koenig alleged that she was delinquent in her real estate taxes and was facing foreclosure on one of the three mortgages encumbering her home. Koenig further alleged that she executed the warranty deed to the home, along with a lease-repurchase option, in the belief that Stanley Van Reken would, for a fee of 10%, "service" the mortgages and pay the delinquent taxes. In 1972, Koenig defaulted in the monthly rental payment due under the lease, and she was evicted from the home by defendants. In response to Koenig’s complaint, defendants Van Reken moved for summary judgment on the ground that Koenig had failed to state a claim upon which relief could be granted. Koenig appealed only the dismissal of the equitable mortgage count.

Issue:

Did the trial court, under GCR 1963, 117.2(1), properly dismiss the action regarding the imposition of an equitable mortgage?

Answer:

No

Conclusion:

 The court reversed, holding that the agreement impermissibly circumvented the right to redeem, which was required to protect parties such as the grantor in times of financial crisis. The court noted that Koenig, while in severe financial distress, sought help from defendants Van Reken to save her home from foreclosure, but didn't really intend for the conveyance to be final. Moreover, while financial embarrassment of Koenig and inadequacy of consideration did not provide an infallible test, they were an indication that the parties did not consider the conveyance to have been absolute.