In re Gunning
| Decision Date | 19 June 1941 |
| Docket Number | No. B-8075.,B-8075. |
| Citation | 38 F. Supp. 500 |
| Parties | In re GUNNING et ux. |
| Court | U.S. District Court — District of Washington |
Lawrence H. Brown, of Spokane, Wash., for farm debtors.
John T. Raftis, of Colville, Wash., and Robertson & Smith, of Spokane, Wash., for petitioning creditor.
Subsequent Opinion June 19, 1941. See 39 F.Supp. 706.
Petitioner asks that an order be entered expunging from the record as an asset of debtors' estate certain real property situated in Township 32 North, Range 40, E. W. M. in Stevens County, Washington, together with all of the personal property listed in the debtors' inventory. This personal property consists of farm machinery, equipment and certain livestock.
On September 29, 1938, the petitioner entered into an agreement of sale with the debtors by which he agreed to sell the property involved in this petition to the debtors for $42,000 of which $5,677.45 was paid in cash and $3,750 was taken in trade on certain property in Lincoln County, the balance to be paid by the purchasers assuming and agreeing to pay certain Farm Credit Administration mortgages in the amount of $17,932.15 and the balance of $14,590.34 which purchasers agreed to pay as follows: $2,500 from the proceeds of the sale of the 1938 crops; $1,000 from the proceeds of the sale of the 1939 crops; $1,500 on November 1, 1939; $1,500 on November 1, 1940; $3,000 on November 1, 1941; $3,045.17 on November 1, 1942; $3,045.17 on November 1, 1943.
The purchasers agreed to keep the buildings insured. The contract gave to the purchasers the right to sell any of the livestock or machinery provided that they would substitute other livestock or machinery of equal value. The contract provided that title to the crops should remain in the vendor during the life of the contract to the amount due vendor in each year under the terms of the contract. The contract and the deed and the bill of sale were placed in escrow with the Spokane and Eastern Trust Company and the contract was neither recorded nor filed in the office of the County Auditor of Stevens County.
The forfeiture clause in the contract reads as follows:
As of July 24, 1940, balance due on the contract was $14,590.34. The vendees did not pay the $2,500 from the 1938 crops nor the $1,000 from the net proceeds of the 1939 crops nor the $1,500 payable on November 1, 1939. They did not pay the taxes for the year 1939 nor did they make the payments due under the two mortgages which they assumed.
Consequently, on July 24, 1940, the petitioner herein served upon the debtors a notice which was entitled "Notice of Intention to Declare a Forfeiture of and Cancel Sale Agreement." The notifying portion of the notice reads as follows: "You are hereby notified that unless the payments now in default under the terms of the sale agreement and the contract hereinafter referred to be made on or before August 24, 1940, the undersigned legal owner of the real property described in said contract will elect to declare a forfeiture and cancel the said contract and that upon such election being made all of your rights under said contract will cease and determine and that all payments heretofore made thereunder will be retained by the undersigned in liquidation of damages sustained by reason of your default and you will forthwith be required to surrender possession of the premises in said contract described."
The notice then proceeded to recite that the contract referred to was executed by the petitioner as vendor providing for the sale to the debtors herein of real estate. There is then set forth in the notice a description of the real property. The notice does not contain any demand for possession of any personal property. The only mention of the personal property in the notice is in the last paragraph thereof. In that paragraph notice is given to the debtors that they are not to sell, encumber, remove or otherwise dispose of any of the personal property.
On August 13, 1940, the debtors herein started an action in the State Court against the petitioner by which they attempted to rescind the contract on the ground of fraud. The petitioner herein filed an answer and cross-complaint in which he attempted to effect the forfeiture of the contract. The Trial Judge rendered an oral opinion finding in favor of the petitioner herein but the entry of the judgment was postponed for thirty days in order to give the debtors herein an opportunity to sell their equity in the property. At the end of the thirty-day period it was again continued until November 25, 1940. Before that time had arrived, however, the debtors' petition under Section 75 of the Bankruptcy Act, 11 U.S.C.A. § 203, was filed and further proceedings in the Superior Court were stayed.
It is petitioner's contention that all right, title and interest of the debtors in and to the property involved was terminated by the notice of July 24, 1940, and that, therefore, this Court acquired no jurisdiction over such property by the filing of the debtors' petition under Section 75 of the Bankruptcy Act.
I think I must treat the personal property separately from the real property. This, despite the fact that much that I will say concerning the real property also applies to the personal property. The notice of July 24, 1940, clearly did not constitute even an attempt to declare an intention of forfeiture so far as the personal property was concerned. In the first paragraph of the notice, petitioner described himself as "the undersigned legal owner of the real property described in said contract." In paragraph 2 the petitioner stated: "The contract herein referred to was executed in writing * * * providing for the sale * * * of the following described real property situated in Stevens County, State of Washington, to-wit:" and then follows a description of the real property only with no effort to describe the personal property. It is true that in the last paragraph of the notice debtors were notified to refrain from selling, encumbering, removing or otherwise disposing of any of the personal property during the pendency of the notice of forfeiture. That, however, cannot be construed to be the notice of the intention to forfeit. As was pointed out by Chief Justice Rudkin in Douglas v. Hanbury, 56 Wash. 63, 104 P. 1110, 134 Am.St.Rep. 1096, the notice of intention must be "definite" and "specific." Further in point on this question is the statement in Wadham v. McVicar, 115 Wash. 503, 197 P. 616, 617, to the effect that: "Forfeitures are not favored in the law, and courts will promptly seize upon any circumstances arising out of the contract or the actions or relations of the parties in order to avoid a forfeiture."
It is true that in the case of Harris v. Seattle Land & Improvement Co., 122 Wash. 323, 211 P. 282, 214 P. 1066, it was stated no special form of notice is necessary but even in that case it was held the vendee must be fairly apprised of the intention to claim a forfeiture. On this point reference is further made to Walker v. McMurchie, 61 Wash. 489, 112 P. 500; McGuire v. Morford, 113 Wash. 540, 194 P. 783; Bodin v. Wilcox, 129 Wash. 208, 224 P. 558.
The conclusion that there was no attempt to declare forfeiture of personal property is further buttressed by the fact that in the State Court proceedings petitioner not only did not pray for possession of the personal property for himself but asked for the appointment of a receiver in order that the property might be sold to get money with which to make payments on the real estate mortgages.
Debtors' counsel has raised two other questions concerning the personal property. They are:
1. That the failure to file the memorandum of conditional sale vested title absolute in so far as subsequent creditors were concerned.
2. That the provision in the contract permitting the sale and exchange of the personalty vested title in the purchaser as to such substituted property.
I will not pass upon either of those questions now, this for the reason that both counsel have informed me of their desire for a speedy decision upon this petition. Furthermore, they involve mixed questions of fact and law. I would suggest, however, that when the Conciliation Commissioner passes upon the inventory and appraisal that he take such testimony and make such findings as will enable me to pass upon these two questions with full knowledge as to the actual facts.
That brings us to the real property involved in this estate. At the outset, petitioner cites cases holding that an executory contract of sale of realty creates no interest in the land in the vendee and no legal or equitable title thereto until the contract has been fully performed. That such is the rule in Washington cannot be doubted. Schaefer v. E. F. Gregory Co., 112 Wash. 408, 192 P. 968; Ashford v. Reese, 132 Wash. 649, 233 P. 29; Brown v. Northwestern Mutual Fire Association, 176 Wash. 693, 30 P.2d 640; First National Bank of Seattle v. Mapson, ...
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In re Gunning
...this Court and in the Circuit Court of Appeals against the petition of one J. W. Neely. Neely v. Gunning, 9 Cir., 124 F.2d 7; In re Gunning, D.C., 38 F.Supp. 500. Neely sought the declaration that the rights of the bankrupts in and to certain real and personal property covered by a conditio......
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In re Gunning
...counsel have requested that I write an opinion concerning the first of these points which I stated in my previous opinion as follows 38 F.Supp. 500, 503: "That the failure to file the memorandum of conditional sale vested title absolute in so far as subsequent creditors were Upon that quest......