Matter of Rose, Bankruptcy No. 80-01252-HB

• Decision Date: 07 January 1981
• Docket Number: Bankruptcy No. 80-01252-HB,Adv. No. 80-0578-HB.
• Citation: 7 BR 911
• Parties: In the Matter of Langley ROSE and Ann Rose, Debtors. NPC REALTY CO., Plaintiff, v. Langley ROSE and Ann Rose, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of Texas

7 B.R. 911 (1981)

In the Matter of Langley ROSE and Ann Rose, Debtors NPC REALTY CO., Plaintiff, v. Langley ROSE and Ann Rose, Defendants.

Bankruptcy No. 80-01252-HB, Adv. No. 80-0578-HB.

United States Bankruptcy Court, S.D. Texas, Houston Division.

January 7, 1981.

Wendy Thomas Kendall, Houston, Tex., for plaintiff.

Michael Pledger, Houston, Tex., for defendants.

MEMORANDUM OPINION

JOHN R. BLINN, Bankruptcy Judge:

Langley and Ann Rose entered into a Sale Agreement with NPC Realty Co. on February 21, 1980 for purchase of a residence. The Agreement provided for the payment of a principal sum of $62,950 over 30 years with interest only for the first three years. If the Roses fully complied with the Agreement, NPC would deliver a warranty deed to the residence. The Agreement called for monthly payments of $718.00 for the first year commencing April 1, 1980. The debtors made timely payments for April, May and June but failed to make the July payment and on August 4 the debtors filed a petition under Chapter 13 of the Bankruptcy Code. They did not make the August, September or October payments and a post-petition payment which they intended to be for November was unilaterally applied by NPC to the September payment.

The debtors' first amended plan provided that the house was "for sale", a point on which the original plan was silent. The second amended plan specified the contract was to be assumed and the defaulted payments cured over time. The Trustee projects the 36 monthly payments of $350 contemplated by the plan will yield secured creditors 100% and unsecured creditors 28%.

NPC filed a complaint seeking various relief and although neither the complaint nor the response directly framed the issues, it is clear that two points are presented and on which the ultimate ruling of the Court will turn. Those points are first, whether the Agreement which is generally of a form known as a contract for deed gives rise to such an interest in property as to be property of the estate under § 541 of the Bankruptcy Code. Second, assuming that it is such property, does the plan comply with the stated requirements of § 365 of the Bankruptcy Code to allow the assumption of the contract.

As to the first point, NPC argues that because the Agreement provides the debtors will not receive legal or equitable title to the property until (and if) all payments under the Agreement have been made, such an interest is not the type of interest to fall within § 541, "property of the estate." Even assuming arguendo that the Agreement creates no legal or equitable title in the debtors until they have fully performed, § 541(a)(1) defines property of the estate as comprised of all legal or equitable interests of the debtor in property as of commencement of the case.

NPC urges that the outcome of the present case should be determined by the holding of In re Spanish Language Television of Arizona, 456 F.2d 159 (9th Cir. 1972) that conditional sales contracts do not vest in the debtor sufficient interests to justify assertion of bankruptcy court jurisdiction. But the contract in Spanish Language Television was made in 1967 and governed by the Uniform Conditional Sales Act (U.S.C.A.) which was repealed in 1968 on adoption of the Uniform Commercial Code by the Arizona Legislature. In fact, Judge Ely noted in his opinion that the result would have been different had the agreement been governed by the U.C.C.U.C.C. Art. 9-202 states "each provision of Article 9 with regards to rights, obligations and remedies applies whether title to collateral is in the secured party or the debtor." This language was interpreted by Judge Kaufman in Yale Express Systems, Inc., 370 F.2d 433 (2d Cir. 1966) as follows:

Since the U.C.C. has abolished the technical distinction between the various security devices, the federal bankruptcy courts should no longer feel compelled to engage in the purely theoretical exercise of locating "title;" nor should the consideration of where "title lies" influence the courts in the exercise of their equitable discretion. Rather, the bankruptcy courts should assume their proper equitable function of scrutinizing the particular circumstances surrounding each petition for reclamation, in order to arrive at a just determination. Equitable considerations and the substance of the transaction should govern, regardless of the form of the security agreement. (Emphasis in original) 370 F.2d 433, 437-438.

Although the U.C.C. does not govern sales of realty (see U.C.C. Art. 9-104(j) and comments to U.C.C. Art. 9-102), Yale Express applies by analogy. Thus rather than abide by a rule of where "title lies", we should scrutinize the particular circumstances...