Braunstein v. Trottier

• Decision Date: 16 November 1981
• Docket Number: No. 40-465,40-465
• Citation: 54 Or.App. 687,635 P.2d 1379
• Parties: Martin BRAUNSTEIN and Eleanor Braunstein, Respondents-Cross-Appellants, v. John A. TROTTIER and Valtrauta Edita Trottier, Appellants-Cross-Respondents, Dale Miller and Loretta Miller; Douglas Thompson, Trustee; and Western Savings and Loan Company, a corporation, Defendants. ; CA 18266.
• Court: Oregon Court of Appeals

Page 1379

635 P.2d 1379

54 Or.App. 687

Martin BRAUNSTEIN and Eleanor Braunstein, Respondents-Cross-Appellants, v. John A. TROTTIER and Valtrauta Edita Trottier Appellants-Cross-Respondents Dale Miller and Loretta Miller; Douglas Thompson, Trustee and Western Savings and Loan Company, a corporation, Defendants.

No. 40-465; CA 18266.

Court of Appeals of Oregon.

Argued and Submitted Jan. 30, 1981.

Decided Nov. 16, 1981.

Henry Kane, Beaverton, argued the cause and filed the briefs for appellants-cross-respondents.

Margaret H. Leek Leiberan, Portland, argued the cause for respondents-cross-appellants. With her on the briefs was Lang, Klein, Wolf, Smith, Griffith & Hallmark, Portland.

Before BUTTLER, P. J., and WARDEN and WARREN, JJ.

BUTTLER, Presiding Judge.

This ejection action requires that we attempt to determine whether the Supreme Court has been engaged in something akin to a fan dance, or whether it really intends to tango. The issue is whether the vendor under a land sale contract, which permits, among other remedies, a declaration of forfeiture upon the vendee's default, may effectively terminate the vendee's interest in the real property and to the purchase money theretofore paid by giving reasonable notice of intention to do so, followed by a declaration of such forfeiture and by the filing of an action in ejectment to regain possession of the property. The trial court held that the plaintiff vendors could do so and entered judgment accordingly. Defendants who are vendees appeal. ¹

Although the issue appears to be narrow, the problem of which it is a part is not. The rights, duties and interests of the parties to a land sale contract are, for the most part, creations of the courts. They have evolved piecemeal and, perhaps for that reason, not necessarily harmoniously, particularly when viewed in the overall context of security devices available to vendors of real property-mortgages, trust deeds and land sale contracts. The first two of those security devices are controlled largely by statute; the third is not. Each has its place in a vendor-financed transaction with differing rights and interests; the extent to which those differences exist, or ought to be extended, is the problem.

Usually, but not always, the vendor determines the security device for assuring payment of the purchase price. There are many reasons why a vendor would choose a land sale contract: historically, because of the variety of remedies which the contract may provide (e. g., forfeiture, strict foreclosure and specific performance), it may be more appealing; until recently, there was no requirement that the contract be recorded, so if the vendee abandoned the premises, no judicial proceeding was necessary to clear the title (but see ORS 93.635 ²); statutory redemption rights did not apply to strict foreclosures, the vendee's only right to redeem being a matter of equity fashioned by the court in the decree; through specific performance, rather than strict foreclosure, the vendor could be entitled to a deficiency judgment.

That flexibility is not available with a mortgage or deed of trust. However, a purchaser who makes a substantial down payment might successfully demand that the balance be secured by a purchase money mortgage, which may be enforced only by foreclosure and cannot result in a deficiency judgment (ORS 88.070 ³), and the debtor would have the statutory right to redeem for one year. ORS 23.560(1). ⁴ If a deed of trust is used, the seller, as beneficiary, may proceed expeditiously by exercising the right of sale, but must deal with the buyer's right to cure the default up to five days prior to the sale, and would be limited in that event to the statutory amount of attorney fees and trustee's fees. Further, if there are questions regarding priority, he would be required to foreclose the deed of trust as a mortgage.

Because it is not this court's function to survey the entire field of law in which the problem presented falls, we will not attempt to do so here. However, as we noted at the outset, we detect some ambivalence in the Supreme Court opinions dealing with the question of non-judicial forfeiture as a contract vendor's summary remedy. As Justice Holman said in his dissent in Elsasser v. Wilcox, 286 Or. 775, 596 P.2d 974 (1979):

"The true issue is whether the court, regardless of contractual provisions, is going to allow the remedy of immediate forfeiture. This issue has been and still is being dodged by this court under the guise of a rule that has no logical sustenance. * * * " 286 Or. at 786, 596 P.2d 974.

We also sense that the nature of a land sale contract and its place in the scheme of vendor-financed real estate transactions may have been overlooked in the piecemeal adjudication of specific disputes. For those reasons, we consider it necessary to see where we are before proceeding with the disposition of this case.

To begin with, it is worth mentioning that a land sale contract is not just a contract between two parties; it affects the land to which it relates. It is primarily a security device, and after the parties have signed the contract, the vendor, although still the legal title holder of the property, holds an encumbered title charged with the equitable interest of the vendee. Panushka v. Panushka, 221 Or. 145, 349 P.2d 450 (1960). The vendee's interest may, for example, be assigned or mortgaged, and the equitable estate may be foreclosed. Young v. Clay, 139 Or. 427, 10 P.2d 602 (1932). The vendor under the contract is said to have a vendor's lien on the property. Grider v. Turnbow, 162 Or. 622, 641, 94 P.2d 285 (1939); but see Savings Co. v. Mackenzie, 33 Or. 209, 52 P. 1046 (1898).

Basically, then, the question is: What are the rights of the vendor under that lien? The specially concurring opinion of Justice Linde and the dissenting opinion of Justice Holman in Elsasser v. Wilcox, supra, seem to say that the parties could agree that, in the event of a default by the vendee, all interest of the vendee terminates forthwith without any notice or action by the vendor, and all amounts paid by the vendee are thereby forfeited and the contract terminated by its own terms without judicial intervention or supervision. That kind of provision in a land sale contract does not sound like a remedy to enforce a lien, and we know of no cases which have sanctioned that result. (But see Sievers v. Brown, 34 Or. 454, 460, 56 P. 171 (1899), where the court, in a different context, recognized a forfeiture on breach without an express agreement, notice or declaration, apparently as a matter of law.) Rather, such a provision sounds more like an option which is irrevocable so long as the optionee makes the required payments, but terminates forthwith upon his failure to do so. An option to purchase real property, however, is not the same animal as a land sale contract, and there is no reason, from either a legal or practical standpoint, to blur the differences. Each has its useful place.

To make the point more dramatically, albeit in a different context, if the owner of real property executes and delivers a deed, absolute on its face, to another to secure a debt, with the express understanding that if the grantor pays the debt the property will be reconveyed, but that if he defaults absolute title shall vest in the grantee without further action by either party, the transaction is treated as a secured transaction, and the deed is treated as a mortgage. The grantee must enforce his rights by way of judicial foreclosure, as a result of which the grantor is entitled to the statutory redemption rights. Libel v. Pierce, 147 Or. 132, 31 P.2d 1106 (1934); but see Herrmann v. Churchill, 235 Or. 327, 385 P.2d 190 (1963). If that kind of forfeiture may not be enforced by the secured party according to the express terms of the agreement, why, then, should a forfeiture under a land sale contract be so enforced?

One might answer that question by suggesting that the difference between the two transactions is that one involves a contract and the other an instrument deemed to be a mortgage. That distinction, however, is not persuasive, because neither purports to be a mortgage, both contain contractual agreements, including the right to a forfeiture on default, and both are transactions secured by real property. It is true, however, that once an instrument is considered to be a mortgage, it is controlled by statute rather than by judicial rules. For example, the court has held that a land sale contract may be specifically enforced, rather than strictly foreclosed, if the vendor desires to obtain a deficiency judgment, and that ORS 88.070, prohibiting deficiency judgments in the foreclosure of purchase money mortgages, does not apply to land sale contracts. Renard v. Allen, 237 Or. 406, 391 P.2d 777 (1964). In that context the court has attempted to draw a clear distinction between the two types of vendor-financed transactions. However, one might wonder why the legislative policy against permitting the seller, secured by a mortgage, to collect more from the buyer than the property is worth should not apply with respect to enforcement of a land sale contract in equity.

Passing that question, ought there to be a difference between a noteholder secured by mortgage suing on the note (which may be done by a purchase money mortgageee, as well as by other mortgagees) and a vendor suing on the contract, where both are suing for the unpaid debt or price rather than foreclosing? Under the court's decisions there may be substantial differences. If the noteholder brings an action on the note and obtains a judgment, the debt is merged into the judgment, and the only lien he has is a judgment lien, the priority of which is determined by the date of the judgment; the mortgage no longer secures it, and the priority of the mortgage is lost. However, a vendor under a land sale contract may do the functional equivalent of that...