Estate of Brewer by First Nat. Bank of Oregon v. Iota Delta Chapter, Tau Kappa Epsilon Fraternity, Inc., 80-0890-NJ-2

• Decision Date: 16 October 1984
• Docket Number: No. 80-0890-NJ-2,80-0890-NJ-2
• Citation: 686 P.2d 393,69 Or.App. 82
• Parties: The ESTATE of Gail S. BREWER, Sr., by FIRST NATIONAL BANK OF OREGON, a National Banking Association, Personal Representative, Respondent, v. IOTA DELTA CHAPTER, TAU KAPPA EPSILON FRATERNITY, INC., an Oregon non-profit corporation, Defendant, TKE House Fund, Inc., an Indiana non-profit corporation, Defendant-Third-Party Plaintiff-Appellant, Archie W. Krebs and Hazel R. Krebs, husband and wife, and David W. Lenchner and Michael Crowley, Third-Party Defendants-Respondents, General Credit Service, Inc., an Oregon corporation, Third-Party Defendant. ; CA A27722.
• Court: Oregon Court of Appeals

Page 393

686 P.2d 393

69 Or.App. 82

The ESTATE of Gail S. BREWER, Sr., by FIRST NATIONAL BANK OF OREGON, a National Banking Association, Personal Representative, Respondent, v. IOTA DELTA CHAPTER, TAU KAPPA EPSILON FRATERNITY, INC., an Oregon non-profit corporation, Defendant TKE House Fund, Inc., an Indiana non-profit corporation Defendant-Third-Party Plaintiff-Appellant Archie W. Krebs and Hazel R. Krebs, husband and wife, and David W. Lenchner and Michael Crowley, Third-Party Defendants-Respondents General Credit Service, Inc., an Oregon corporation, Third-Party Defendant.

No. 80-0890-NJ-2; CA A27722.

Court of Appeals of Oregon.

Argued and Submitted Nov. 14, 1983.

Decided July 11, 1984.

Reconsideration Denied Sept. 28, 1984.

Review Allowed Oct. 16, 1984.

Karen C. Allan, Medford, argued the cause for appellant. With her on the brief was Foster & Purdy, Medford.

Thomas C. Howser, Ashland, argued the cause for respondents. With him on the brief was Cottle & Howser, Ashland.

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

BUTTLER, Presiding Judge.

Plaintiff brought this action to quiet title to real property consisting of a house and lot which plaintiff's decedent previously had sold on a land sale contract to defendant Iota Delta Chapter, Tau Kappa Epsilon Fraternity, Inc. (Chapter). Defendant TKE House Fund, Inc. (House Fund) counterclaimed, contending that, as the holder of an equitable mortgage on the vendee's interest in the property, it is entitled either to judicial foreclosure of that lien or to specific performance of the land sale contract between plaintiff's decedent and Chapter. ¹ The trial court granted plaintiff's motion for summary judgment and denied defendant House Fund's similar motion. House Fund appeals from the resulting final judgment quieting title in plaintiff.

The essential facts are not in dispute. On April 28, 1965, Gail and Mildred Brewer, husband and wife, sold the property in question by land sale contract to Eleanor Johnson and Lydia Nissen. After acquiring Johnson's interest, Nissen assigned her vendee's interest to defendant Chapter on June 5, 1972, at which time the unpaid contract balance was $12,196.55. To make the down payment, the Chapter obtained a loan of $9,200 from House Fund. A condition of the loan was that House Fund be given a mortgage on the vendee's interest in the contract. On July 11, 1972, House Fund recorded in the deed records of Jackson County an installment promissory note, dated May 15, 1972, in the amount of $9,200 with interest at 6 percent per annum, to which was attached a legal description of the property. The parties agree that House Fund acquired an equitable mortgage on the vendee's interest by virtue of that documentation and recording.

In April, 1973, Gail Brewer (Mildred Brewer had died earlier) and defendant Chapter entered into an agreement amending their contract to provide that Brewer would loan $3,000 to the Chapter, thereby increasing the unpaid contract balance to $15,563.05. That agreement expressly recognized the interest of House Fund by providing that $2,000 of the loan proceeds would be paid to House Fund "in partial payment of a second mortgage loan on the property * * *." ²

During 1974, the Chapter was unable to pay its debts, including the contract payments, and in August or September of that year its advisor, Terry Adams, delivered the keys to Brewer and stated that the Chapter would be unable to continue purchasing the property. At that time, Adams gave Brewer the name, address, and telephone number of the person at House Fund with whom Brewer should speak regarding the House Fund's interest in the premises. Brewer took possession of the property and, without contacting House Fund, resold the premises to third-party defendants Krebs on October 1, 1974. On February 19, 1976, Krebs sold the property to third-party defendant Lenchner, who assigned his interest in the contract to third-party defendant Crowley on October 8, 1979.

By letter of September 29, 1975, after Brewer's sale to Krebs, Brewer's attorney, Lombard, notified House Fund of the Chapter's default and asserted that House Fund had no further interest in the property. He also informed House Fund that he was filing a suit for strict foreclosure and requested that House Fund execute a bargain and sale deed relinquishing its interest. That suit was filed in September, 1975; however, it was dismissed without prejudice in December, 1976.

The attorney for House Fund, Leagre, responded to Lombard's letter on November 14, 1975, stating that he was reviewing the law regarding the bargain and sale deed. On January 7, 1976, Leagre asserted the validity of House Fund's equitable lien, and Lombard agreed to provide authority to the contrary. More than a year later, on August 25, 1977, Lombard sent Leagre a legal memorandum outlining Brewer's position, with a letter stating that he was filing a new action to quiet title, which he did on that date. Leagre, in turn, submitted a memorandum to Lombard in October, 1977, and proposed a settlement whereby House Fund would relinquish its interest in the property for $9,200, an amount less than that owing under House Fund's loan to Chapter. That offer was rejected the next month, at which time Lombard requested that House Fund obtain local counsel and appear in the pending quiet title action. House Fund did retain local counsel, who obtained an extension of time within which to appear while the parties negotiated. In February and April, 1978, House Fund made other settlement offers of $9,500 and $9,650 and stated that it would seek specific performance of the Chapter's contract if no settlement was reached. On December 27, 1978, the court dismissed without prejudice the quiet title proceeding for want of prosecution. The present action was filed in March, 1980.

Although the trial court concluded that a vendee, by voluntary relinquishment of its interest to the vendor, may not terminate a mortgagee's interest when the vendor has knowledge of that interest, it found that defendant House Fund had neglected, for an unreasonable and unexplained length of time, to assert its claim of an equitable lien, which resulted in prejudice to plaintiff. The court thus held that House Fund's claim was barred by laches. Plaintiff concedes that the trial court erred in raising and deciding that issue, which was not raised or affirmatively pled by either party as required by ORCP 19 B. See also County of Lincoln v. Fischer et. al, 216 Or. 421, 448, 339 P.2d 1084 (1959); Baillie v. Columbia Gold Min. Co., 86 Or. 1, 38, 166 P. 965, 167 P. 1167 (1917) (defense of laches is waived unless asserted by litigant entitled to assert it). Given that concession of error, the question remains whether plaintiff was entitled to judgment as a matter of law.

The underlying issue is whether the rights of a holder of an equitable lien on the vendee's interest in real property are extinguished when, without more, the vendee has abandoned its interest in the property and the vendor has actual knowledge of the lienholder's interest. As we noted in Braunstein v. Trottier, 54 Or.App. 687, 689, 635 P.2d 1379 (1981), rev. den. 292 Or. 568, 644 P.2d 1129 (1982), because the rights, duties and interests of parties to a land sale contract are, for the most part, creations of the courts, they have evolved piecemeal and not always harmoniously. The same may be said of cases in which the rights, duties and interests of an equitable lienholder have been discussed. However, to the extent that House Fund claims that it is entitled to judicial foreclosure of its equitable mortgage against the property, that claim may be disposed of summarily. If anything is clear from the cases, it is that the holder of an equitable mortgage on a vendee's interest under a land sale contract has no lien on the property. Sanders v. Ulrich, 250 Or. 414, 443 P.2d 231 (1968); State Hwy. Comm. v. Demarest, 263 Or. 590, 503 P.2d 682 (1972). As a matter of law, plaintiff is entitled to prevail on that claim.

There remains, however, the question whether House Fund is entitled to assert any claims under the land sale contract even though the vendee, its assignor, may not, because the vendee abandoned the property and its contract rights. There are no Oregon cases in point, and the cases dealing with equitable mortgages contain language that appears to create cross-currents. Although all of the cases recognize that an assignment of a vendee's interest given to secure a debt creates an equitable mortgage or lien on the interest assigned in favor of the assignee, it is not clear whether that lien survives after the vendee unilaterally has extinguished its interest. There is no doubt that a vendee's abandonment of the property extinguishes its interest in it, Hull v. Clemens et al., 200 Or. 533, 267 P.2d 225 (1954), or that a vendee who abandons the property is not entitled to notice of default and a defined opportunity to cure before a forfeiture may be effected. Morgan v. Baunach, 68 Or.App. 496, 684 P.2d 589 (June 6, 1984).

It is also clear that, as a general proposition, the holder of an equitable mortgage acquires no greater interest than that of the vendee-mortgagor. Young v. Clay, 139 Or. 427, 10 P.2d 602 (1932). In that case, the court stated that it subscribed to the doctrine set forth in 41 C.J. 478, which it quoted:

" 'A mortgage given by one holding land under an executory contract for the purchase covers his interest, whatever it may be, at the date of the mortgage, giving the mortgagee the right to complete the purchase if his mortgagor refuses to do so; and the mortgagee cannot be ousted of his rights by a rescission of the contract of sale by the original parties to it. But the mortgagee will take no other or greater rights than the vendee had, that is, he will acquire simply a right to purchase the property for the consideration stipulated in the contract of purchase, or to...