Case Name: Fred E. DUVALL, et ux v. LAWS, SWAIN & MURDOCH, P.A., Ike Allen Laws, Jr., and Revere Corporation
Court: Arkansas Court of Appeals
Jurisdiction: Arkansas
Decision Date: 1990-10-24
Citations: 32 Ark. App. 99
Docket Number: CA 89-484
Parties: Fred E. DUVALL, et ux v. LAWS, SWAIN & MURDOCH, P.A., Ike Allen Laws, Jr., and Revere Corporation
Judges: Wright, Acting C.J., and Mayfield J., dissent.
Reporter: Arkansas Appellate Reports
Volume: 32
Pages: 99–111

Head Matter:
Fred E. DUVALL, et ux v. LAWS, SWAIN & MURDOCH, P.A., Ike Allen Laws, Jr., and Revere Corporation
CA 89-484
797 S.W.2d 474
Court of Appeals of Arkansas En Banc
Opinion delivered October 24, 1990
Peel and Eddy, by: James S. Dunham, for appellant.
Wright, Lindsey & Jennings, for appellees.

Opinion:
John E. Jennings, Judge.
In 1982, appellant Fred Duvall was charged with theft in connection with the buying and selling of oil and gas leases. He asked Ike Allen Laws, Jr., the appellee, a Russellville lawyer, to represent him. The two had known each other since grade school.
Laws quoted Duvall a fee of $5,000.00. Duvall paid $2,498.00 but then he was unable to raise the balance. He and Laws entered into an agreement, which later became the subject matter of this lawsuit. Duvall and his wife executed a deed which purported to convey outright the mineral rights to 160 acres of land in Pope County. The deed was dated September 27, 1982 and recited a consideration of $5,000.00. Revenue stamps were purchased reflecting that amount. Also on September 27 Laws sent Duvall the following letter:
This will acknowledge that you have on this date transferred to our firm certain minerals by mineral deed, representing our attorney's fee of Five Thousand Dollars ($5,000.00) to defend Fred E. Duvall in the State of Arkansas.v. Fred E. Duvall.
This letter will serve as evidence of our agreement that you may repurchase these minerals at any time within one (1) year from the date of this letter upon payment in full of my said fee.
It is undisputed that the letter was received by Duvall. On October 5, 1982, the law firm sent Duvall an invoice showing a balance of $2,502.00. This was the last bill sent to Duvall.
During the summer of 1983, Duvall located a prospective purchaser for the mineral rights who was apparently willing to pay more than $30,000.00 for them. The transaction did not go through due to title problems. At trial, the testimony was conflicting as to whether Laws cooperated in the attempt to sell the mineral rights to the third party.
In 1987 Laws leased the mineral rights for $12,740.00. On June 28, 1988, Duvall sued Laws, alleging that their 1982 transaction ought to be construed as an equitable mortgage. The chancellor held that the transaction was a deed with an option to purchase and not an equitable mortgage. He nevertheless awarded Duvall judgment for $2,498.00. Duvall appeals the first holding; Laws cross appeals the second. We affirm on direct appeal and reverse on cross appeal.
On direct appeal, Duvall argues that the chancellor applied the wrong burden of proof and that his refusal to hold that the transaction was an equitable mortgage was clearly erroneous. The case is governed by two distinct sets of rules. In equity, a grantor may show that a deed, absolute on its face, was intended only to be security for the payment of a debt and thus was in actuality a mortgage. Ruth v. Lites, 267 Ark. 752, 590 S.W.2d 322 (1979); Hill v. Day, 231 Ark. 550, 331 S.W.2d 38 (1960). The burden of proving that the transaction was truly a mortgage rests upon the grantor because there is a presumption that the instrument is what it purports to be. See Newport v. Chandler, 206 Ark. 974, 178 S.W.2d 240 (1944); Clerk-McWilliams Coal Co. v. Ward, 185 Ark. 237, 47 S.W.2d 18 (1932); Wensel v. Flatte, 27 Ark. App. 5, 764 S.W.2d 616 (1989). The burden may be met only by clear and convincing evidence. Newport, supra; Clark-McWilliams Coal Co., supra; Nelson v. Nelson, 267 Ark. 353, 590 S.W.2d 293 (1979). When a vendor, at the time of a sale, is indebted to a purchaser, and continues to be indebted after the sale, with the right to call for a reconveyance upon payment of the debt, a deed absolute on its face will be considered in a court of equity as a mortgage. Ehrlich v. Castleberry, 227 Ark. 426, 299 S.W.2d 38 (1957); Matthews v. Stevens, 163 Ark. 157, 259 S.W. 736 (1924). On the other hand the parties may enter into a contract for the purchase and sale of land, with a reservation to the vendor of a right to repurchase the property at a fixed price and at a specific time. If such a transaction is security for a debt, then it is a mortgage — otherwise it is a sale. Carter v. Zachary, 243 Ark. 104, 418 S.W.2d 787 (1967); Monaghan v. Davis, 16 Ark. App. 258, 700 S.W.2d 375 (1985). The line of demarcation between the two has been said to be "shadowy." Ehrlich, supra; Newport, supra. The question whether a deed to realty, absolute on its face, when construed together with a separate agreement or option to repurchase by the grantor amounts to a mortgage or is a conditional sale, depends on the intention of the parties in the light of all attendant circumstances. Lewis v. Miller, 226 Ark. 560, 291 S.W.2d 255 (1956); Ehrlich, supra; Monaghan, supra. In reviewing the chancellor's determination on this issue, we are obliged to give great weight to his opinion. Ehrlich, supra; Buffalo Stave & Lumber Co. v. Rice, 187 Ark. 731, 62 S.W.2d 2 (1933).
While it is true that during his testimony, Laws said that Duvall never made any attempt to "pay the balance of the fee," there was also evidence from which the chancellor could have found that Duvall's failure to pay "the balance" for more than six years indicates his awareness that the transaction was an absolute conveyance. In Newport v. Chandler, 206 Ark. at 981, the court suggested that one test which may be helpful in determining whether a transaction is a mortgage or a conditional sale is to decide whether the grantee has the right to compel the grantor to pay the consideration named in the stipulation for reconveyance. In the case at bar it seems clear that Laws would not have been successful in a suit to compel the payment of "the balance" of his fee. In any event we cannot say that the chancellor's determination that the transaction was not intended as a mortgage is clearly erroneous.
In contending that the chancellor applied the "wrong burden of proof," Duvall relies upon the principle that an attorney who enters into a business transaction with a client has the burden of proving the fairness and equity of that transaction and the adequacy of the consideration therefor. Swaim v. Martin, 158 Ark. 469, 251 S.W. 26 (1923); Thweatt v. Freeman, 73 Ark. 575, 84 S.W. 720 (1905). We agree that the principle is applicable to the case at bar. Once the chancellor found that the grantor had not met his burden of proving by clear and convincing evidence that the transaction was intended as a mortgage, the burden was then upon Laws to establish that he dealt fairly and justly with Fred Duvall. Blake v. Denman, 218 Ark. 351, 236 S. W.2d 433 (1951). In contending that the trial court applied the wrong burden, appellant relies on two remarks made by the chancellor.
One of the problems in deciding this case that bothers me is the fact that the defendant is an attorney; [I] want to be very careful that he's not treated improperly one way or the other just because he's a lawyer.

If I ruled otherwise it would be simply because Mr. Laws is an attorney whom I have never met or seen before as far as I know ever in my life or had any correspondence with him. And I don't think that's right either.
When the two statements are viewed in the context of the court's other remarks, we are not persuaded that they indicate the chancellor was unaware of the burden imposed on Laws by decision such as Swaim. It is not an incorrect statement of the law to say that a decision should not be made solely on the basis that one of the parties is a lawyer. "There is no absolute incapacity for dealing between client and attorney; and although transactions between them will be carefully scrutinized, yet those which are obviously fair and just will be upheld." Blake v. Denman, supra. In the case at bar there was evidence from which the trial court could find that mineral rights conveyed from Duvall to Laws were essentially without market value at the time of the conveyance. It was therefore not improper for the chancellor to find, as he clearly did, that the transaction was fair to appellant, viewed from the time of its making.
Finally, if the chancellor was correct in holding that the transaction was an absolute conveyance, we can find no justification for upholding his award of damages to the appellant and that award must be reversed.
Affirmed on direct appeal and reversed on cross appeal.
Wright, Acting C.J., and Mayfield J., dissent.