In re Cox
| Decision Date | 07 January 1987 |
| Docket Number | Bankruptcy No. 684-08496-W7(o). |
| Parties | In re Stephen D. COX, dba Games Emporium, Debtor. |
| Court | U.S. Bankruptcy Court — District of Oregon |
Richard A. Carlson, Eugene, Or., for plaintiff.
Christine Van Eck, Portland, Or., for defendant.
G. Jefferson Campbell, Jr., Medford, Or., for Trustee.
Craig K. Edwards, Portland, Or., for creditors.
This matter came on for hearing on August 29, 1986, upon a motion for relief from the automatic stay or in the alternative for adequate protection payments filed by the United States National Bank and United States Credit Corporation (Movants). Paul Lansdowne, Inc., Trustee in the above-captioned bankruptcy proceeding (Trustee) opposed relief on the basis that Movants do not have a properly perfected interest in the claimed property capable of defeating a trustee in bankruptcy. The parties requested and were given additional time to prepare and serve post hearing memoranda.
The facts as stipulated to by the parties are as follows:
1. On December 15, 1978, Donald Bergen and Leroy Gaston, vendors, entered into a land sale contract with Ted and Donna Wolfe, vendees. A memorandum of this land sale contract was recorded on December 15, 1978, in Vol. 269, p. 177 of the Deschutes County Deed Records.
2. On January 15, 1979, Ted and Donna Wolfe borrowed $15,000.00 from U.S. National Bank, securing repayment by giving the bank a mortgage containing the legal description of the land covered by the land sale contract. This mortgage was recorded in Volume 261, page 574 of the Deschutes County Mortgage Records on January 22, 1979.
3. On February 21, 1979, Leroy Gaston quitclaimed his interest as vendor in the land sale contract to Ronald Bergen, his co-vendor. This quitclaim deed was recorded in Volume 294, page 180 of the Deschutes County Deed Records.
4. On February 2, 1981, Ted and Donna Wolfe borrowed $45,000.00 from United States Creditcorp, securing repayment by giving Creditcorp a deed of trust containing the legal description of the land covered by the land sale contract. This deed of trust covered the same parcel of land as that covered by the U.S. National Bank mortgage, as well as a five foot strip of land excluded from the U.S. National Bank's mortgage. This five foot strip of land adjoins and runs adjacent to a portion of the larger parcel of land. It was not subject to the original land sale contract entered into between Bergen, Gasten, and Ted and Donna Wolfe. It was owned in fee by the Wolfes. Thus while the U.S. National Bank's mortgage was secured only by the Wolfes' interest in the Bergen-Gasten land sale contract, the U.S. Creditcorp's trust deed covered both the Wolfes' interest in the Bergen-Gasten land sale contract, as well as the Wolfes' fee ownership interest in the five foot strip. On February 3, 1981, the trust deed was recorded in Volume 307, page 334 of the Deschutes County Mortgage Records.
5. On December 8, 1982, Ted and Donna Wolfe executed three documents with Stephen D. Cox, debtor in the above-captioned proceeding (Debtor). The first of these was a land sale "subcontract" conveying the Wolfes' interest in both the property covered by the original land sale contract and the five foot strip of land to the Debtor. This "subcontract" provided that the Debtor would assume the mortgage to U.S. National Bank and the trust deed to U.S. Creditcorp. This land sale "subcontract" was not recorded.
The second document executed by the parties was an assignment of contract in which Ted and Donna Wolfe assigned all of their "right, title and interest" in the original land sale contract to the Debtor. This assignment of contract was recorded in Volume 366, page 182 of the Deschutes County Deed Records on December 23, 1982. This assignment made no mention of U.S. National Bank's mortgage or of U.S. Creditcorp's trust deed.
The third document executed by the parties was a warranty deed signed by Ted and Donna Wolfe conveying to the Debtor a parcel described as the East 5 feet of the West 25 feet of Lot 2, Block 160 in Second Addition to Bend Park, City of Bend, Deschutes County, Oregon (the 5 foot strip) which was filed in Volume 366, page 183 of the Deschutes County Deed Records on December 23, 1982. As of May 20, 1985, the Deschutes County Deed Records showed that the debtor owned this five foot strip in fee simple.
6. On December 13, 1982, Donna Wolfe quitclaimed her vendee's interest in the land sale contract to Ted Wolfe. This quitclaim deed was recorded on December 23, 1982, in Volume 366, page 181 of the Deschutes County Deed Records.
7. The parties have stipulated that as of August 29, 1986, the total due under all possible encumbrances on the land, including the five foot strip, was $117,399.68. The encumbrances on the property are as follows:
a. $35,931.62 remains owing to Ronald Bergen on the original land sale contract. This figure includes principal plus interest calculated through August 29, 1986.
b. $5,819.10 remains owing to U.S. National Bank on its mortgage.
c. $59,928.86 remains owing to U.S. Creditcorp on its trust deed.
d. Property taxes on the parcels are reflected in three accounts for three tax lots as follows:
$6,223.46 principal, $1,464.16 interest;
$6,210.58 principal, $1,457.70 interest;
$21.45 principal, $3.15 interest.
8. Movants' appraiser values all of the property, including the five foot strip, at $135,000.00.
9. The tax assessed value of all of the property is $158,000.00.
10. The Trustee has listed all of the property for sale at $156,000.00.
11. The Trustee has been renting all of the subject property, on which sits a multi-family complex, under an order authorizing the Trustee to operate the Debtor's real property management business pending orderly liquidation.
12. After the hearing on August 29, 1986, this court entered an order dated September 2, 1986, which order provided that the Trustee immediately tender to Ronald Bergen adequate protection payments of the amount of prospectively accruing interest due him under the terms of the land sale contract. The order further provided that in the event Mr. Bergen refused such tender, the Trustee should commence putting aside in a separate interest bearing account funds sufficient to pay the accruing interest on the obligation to Ronald Bergen.
This case presents the court with the necessity of addressing whether the trustee in bankruptcy, with powers granted it under 11 U.S.C. § 544(a), can cut off the movants' interests arising under a mortgage and a trust deed, respectively, of a vendee's interest in a land sale contract?
To appropriately address this question the court has analyzed the following difficult legal issues it raises in the order listed.
1. What is the nature at common law and under Oregon case law of the movants' interests in the vendee's interest in the Bergen land sale contract?
2. At common law and under Oregon case law what priority do the movants' interests have over subsequent judicial lien creditors and bona fide purchasers?
3. Does recording under the provisions of recently passed and amended Oregon statutes provide the movants protection against the interests of subsequent judicial lien creditors and bona fide purchasers?
4. Under bankruptcy law what role does notice play to defeat the trustee's position under § 544(a)?
For purposes of the following analysis this court will refer to the movants as the "mortgagees" although one creditor has used a deed of trust as a security device. This is because the court believes the movants are in an identical position under the analysis and the form of their security device is irrelevant.
Before the court addresses the nature of the movants' interests in the vendees' interest in the land sale contract it needs to clarify an issue it is not addressing and why it has chosen not to. The movants' memoranda in support of their position indicate their desire the court first identify the nature of the vendees' interest in the Bergen land sale contract. That is because an application of the doctrine of equitable conversion to the vendee's interest is a crucial foundation for the layers of legal argument the movants espouse.
Through the years the Oregon Supreme Court on numerous occasions has analyzed the nature of both a vendor's and a vendee's interest in a contract of sale for real estate. A review of those cases indicates the court has not been consistent in its treatment of the nature of those interests. Close study reveals the confusion surrounding this subject has arisen because at the heart of any analysis in this area of the law necessarily lies the elusive doctrine of equitable conversion. The doctrine is, as its name indicates, one which arose in equity. As is the nature of the equity court, it may apply the doctrine as it believes the facts before it require to bring about justice and fairness to the parties. "Equitable conversion is not a condition of property for all purposes, but is only a name given to a situation resulting from the application of equitable doctrines to special states of facts." Pound, The Progress of the Law, 33 Harv.L.Rev. 813, 831 (1920) cited with approval in Heider v. Deitz, 234 Or. 105, 114, 380 P.2d 619, 624 (1963). If justice and fairness are the court's primary goals its holdings probably will not reveal doctrinal consistency.
A definition of the doctrine is useful as a starting point in understanding the state courts' case law. I believe an accurate definition is as follows:
Upon execution of a valid, enforceable contract for the sale of realty the purchaser obtains the equitable, beneficial interest in the realty. The seller retains bare legal title to the property and the right to receive payments under the contract. The seller\'s legal title secures his right to the payments under the contract and is treated as a mortgage.1
This definition seems clear until one...
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