Missionary Baptist Foundation of America, Inc., Matter of
| Decision Date | 20 June 1986 |
| Docket Number | No. 85-1422,85-1422 |
| Citation | 792 F.2d 502 |
| Parties | In the Matter of MISSIONARY BAPTIST FOUNDATION OF AMERICA INC., etc., et al., Debtor, Robert B. WILSON, Trustee, Plaintiff-Appellee, v. UNITED SAVINGS OF TEXAS, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Thomas J. Griffith, Ralph H. Brock, Lubbock, Tex., for defendant-appellant.
Richard Hubbert, Sims, Kidd, Hubbert & Wilson, Lubbock, Tex., for plaintiff-appellee.
Appeal from the United States District Court for the Northern District of Texas.
Before WILLIAMS, GARWOOD, and JONES, Circuit Judges.
United Savings of Texas ("United Savings") appeals the judgment of the district court, which in turn affirmed the bankruptcy court's award to the Trustee of a substantial portion of the funds in four escrow accounts. The accounts were originally created to satisfy certain obligations of a prior borrower in connection with the financing, by United Savings' predecessor, of the purchase of two nursing homes. Two principal issues are raised on appeal: whether the escrow funds were property of the debtor's estate pursuant to 11 U.S.C. Sec. 541, at the date of bankruptcy, and whether, when the Trustee sold the nursing homes covered by the original debt and was released from any obligation on the debt, the Trustee retained his rights in the escrow funds. Based on the facts of this case, we answer both questions in the affirmative and therefore AFFIRM the judgment of the district court.
The escrow agreements at issue originated in 1976, when the predecessor of United Savings, Parker Square Savings and Loan Association of Wichita Falls, Texas, issued its loan commitment to Truco Properties Inc. for two loans to finance Truco's purchase of the nursing homes. Two paragraphs in the commitment letter constitute the only written agreement concerning the establishment of the escrow accounts.
Truco opened the required reserve accounts and contributed the appropriate amount to each account with its monthly payments of principal and interest on each loan. In 1977, Truco sold the two nursing homes to Parkway Health Care, Inc., and on January 18, 1979, the homes were purchased by Associated Memorial Homes, a division of Missionary Baptist Foundation of America, Inc., the debtor in this case. The escrow accounts were transferred successively from Truco to Parkway and then to the debtor. From time to time, amounts were disbursed from the reserve and replacement escrow funds to reimburse the then-owner of the nursing homes for various capital expenditures. Each year, deposits in the tax and insurance escrow funds were disbursed to cover those expenses.
At each successive transfer of the property prior to the sale in question, the preceding borrowers and guarantors agreed to remain liable on the debt. Each successive transfer was styled as an assumption of the underlying indebtedness. United Savings' predecessor expressly consented to each successive transfer.
In October 1980, Missionary Baptist and its subsidiaries filed a petition for relief under Chapter 11 of Title 11, United States Code. Robert B. Wilson was immediately thereafter appointed Trustee. The debtor, through the Trustee, continued to operate the two nursing homes until April 30, 1982, when each of them was conveyed by the Trustee to Jewell Enterprises, a general partnership.
Jewell Enterprises assumed all loan obligations with United Savings, and the debtor was released from all loan obligations. 1 United Savings consented to the transfer of the properties, and in the agreement expressing its consent, language that would have effected a transfer of the escrow funds was crossed out by the parties. The conveyance by Missionary Baptist to Jewell, with the express reservation of the debtor's rights to the escrow funds, was duly noticed to the creditors of Missionary Baptist and approved by the bankruptcy court.
At the date of Jewell's purchase, the four escrow accounts totalled nearly $90,000, including approximately $46,000 in the tax and insurance accounts and $43,000 in the replacement and repair accounts. The Trustee continued to fund the escrow accounts during the bankruptcy, and no amounts were withdrawn for capital improvements. The Trustee brought this action in bankruptcy court seeking to have United Savings turn over the unexpended balance of the accounts. The bankruptcy court found that the funds were the property of the debtor's estate, a finding affirmed by the district court.
The Trustee's claim to the escrow accounts depends upon their status as property of the debtor's estate pursuant to 11 U.S.C. Sec. 541(a)(1). Property of the estate comprises "all legal or equitable interests of the debtor in property as of the commencement of the case," and is generally interpreted broadly in accordance with the statutory language. In re Goff, 706 F.2d 574, 578 (5th Cir.1983). The nature and extent of the debtor's interest in property is analyzed by reference to the applicable state law, here, that of Texas. Id.
The commitment agreement, while tailored to meet the contemporary economic needs of the parties, nonetheless has its roots in the common law device, escrow. Accordingly, we review briefly the relevant elements of escrow law, developed by the Texas courts, for guidance in determining the nature of the debtor's interest in the property at the time of bankruptcy. Texas courts hold that when a grantor executes an escrow agreement and deposits the subject matter into escrow, he retains legal title to the subject matter, with equitable title passing to the ultimate grantee. See Cowden v. Broderick & Calvert, 131 Tex. 434, 114 S.W.2d 1166 (Tex.1938); Hudgins v. Krawetz, 558 S.W.2d 131, 134 (Tex.Civ.App.--San Antonio 1977, no writ). The depositary in escrow, as agent of all the parties, has the absolute duty to carry out the terms of the agreement, including delivering the subject matter when the terms of the escrow have been fulfilled. Albright v. Lay, 474 S.W.2d 287, 291 (Tex.Civ.App.--Corpus Christi 1971, no writ). The ultimate disposition of the subject matter to the grantor or grantee is determined by the terms of the agreement, upon fulfillment of the necessary conditions. Kell v. Gross, 171 F.2d 715, 718 (5th Cir.), cert. denied, 338 U.S. 815, 70 S.Ct. 55, 94 L.Ed. 493 (1949); Gambrell v. Tatum, 228 S.W. 287, 289 (Tex.Civ.App.--Amarillo 1921, no writ).
In Texas, then, an escrow agreement is treated as a contract between the parties. Cowden, 114 S.W.2d at 1169; La Roe v. Davis, 333 S.W.2d 222 (Tex.Civ.App.--Amarillo 1960, no writ); Campbell v. Barber 72 S.W.2d 750 (Tex.Civ.App.--Fort Worth 1954, writ ref'd n.r.e.). To ascertain the intention of the parties, a court will examine not only the nature and terms of the agreement, but also the circumstances attending the execution of the contract and the conduct of the parties themselves. Kell, 171 F.2d at 717; Albright, 474 S.W.2d at 291.
The escrow agreement here, sparse in its terms, required borrower to make payment each month into a savings account at Parker Square for the purposes stated in the escrow, in accounts in the name of the borrower:
Borrower throughout the life of the loan will pay into escrow at Parker Square an amount equal to 1/12th of the amount reasonably estimated by Parker Square to be the then current annual ad valorem taxes as well as for any other special assessments for the subject real and personal property. Such escrow shall not accrue interest.
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Borrower shall pay, in addition to the monthly ad valorem tax and fire and extended coverage insurance escrow, each month together with the principal and interest payments on the note for the life of the loan an amount into escrow for reserve for replacement and repair for items of a capital nature to the nursing home. Such amounts shall be deposited in a regular savings account at Parker Square (to accrue interest for Borrower ...) ... subject to the joint (but not several) control of Parker Square and Borrower.... Such reserve fund shall be used as the need arises for replacement of worn out furniture, fixtures and equipment and any other major items of repair not covered by insurance ... (emphasis added).
United Savings does not deny that Missionary Baptist held a contingent interest in the funds pursuant to state law at the date of bankruptcy. Instead, United Savings contends that the contingency, "life of the loan," prevents Missionary Baptist from claiming any right to the funds, other than to any excess which may remain in the funds after the term of the original loan. The Trustee contends that the phrase refers solely to the duration of Missionary Baptist's loan obligation to United Savings. We agree with the Trustee. The phrase appears twice in the escrow language. In its first appearance, "life of the loan" modifies the obligation of the borrower to make payments on the loan, but it does not control the borrower's rights upon the expiration of his obligations under the loan. The second appearance of the phrase, however, links the payment of principal and interest on the loan with escrow funding obligations, indicating the coterminous nature of those obligations. From this language, we conclude that when the borrower ceased to make monthly payments, his duty to maintain an escrow account also ceased. The purpose of the escrow fund was coextensive with Missionary Baptist's obligation on the debt.
The conduct of the parties reinforces the Trustee's position. With each transfer of the property prior to the purchase by Missionary Baptist, the escrow accounts were assigned to the next owner who undertook, under the terms of the contract, making payments to each account while he made payments on the loan. After Missionary Baptist purchased the nursing homes, Parker Square looked solely to Missionary Baptist for payment into the funds, and not to any...
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