Perry v. O'Donnell

• Citation: 749 F.2d 1346
• Decision Date: 08 February 1985
• Docket Number: 83-6301,No. 1,Nos. 83-6277,1,s. 83-6277
• Parties: Wallace PERRY, Trustee, et al., Plaintiff-Appellee, v. Boyd James O'DONNELL, et al., Defendants, K.D. Realty Fund, et al., Defendants-Appellants. Wallace PERRY, as Trustee of the Estates of Boyd James O'Donnell and Joan O'Donnell, Bankrupts, Plaintiff/Appellant, v. Boyd James O'DONNELL, et ux., et al., Defendants/Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1346

749 F.2d 1346

Wallace PERRY, Trustee, et al., Plaintiff-Appellee, v. Boyd James O'DONNELL, et al., Defendants, K.D. Realty Fund No. 1, et al., Defendants-Appellants.

Wallace PERRY, as Trustee of the Estates of Boyd James

O'Donnell and Joan O'Donnell, Bankrupts, Plaintiff/Appellant, v. Boyd James O'DONNELL, et ux., et al., Defendants/Appellees.

Nos. 83-6277, 83-6301.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 10, 1984.

Decided Dec. 21, 1984.

As Amended Feb. 8, 1985.

Howard D. Gest, Los Angeles, Cal., for defendants-appellants.

Russell Piccoli, Phoenix, Ariz., for plaintiff-appellee.

Appeal from the United States District Court for the Central District of California.

Before CHAMBERS, TANG and BOOCHEVER, Circuit Judges.

BOOCHEVER, Circuit Judge:

This appeal is from a summary judgment extinguishing any claims that may be asserted by K.D. Realty Fund No. 1 ("K.D.") or David and Nettie M. Shambeau ("the Shambeaus") to certain real property known as the Mediterranean Apartments, located in Los Angeles County. The district court granted the summary judgment based on its conclusion that California law does not give a purchaser under a land sale contract bona fide purchaser status until he or she pays the full purchase price and obtains legal title. On appeal, we review a trial court's conclusions of state law under the same de novo standard we use to review a trial court's conclusions of federal law. In re McLinn, 739 F.2d 1395 (9th Cir.1984) (en banc). In conducting that independent review, we find we cannot agree with the district court's interpretation of California law and therefore reverse the summary judgment.

GENERAL BACKGROUND

Wallace Perry, as trustee in bankruptcy of the estates of Boyd and Joan O'Donnell, brought this action to quiet title in himself in the Mediterranean Apartments. His purported interest in the property arises from a 1972 Arizona Bankruptcy Court's denial of a voluntary discharge in bankruptcy for Boyd and Joan O'Donnell, who he claims made fraudulent transfers of the property.

The property, however, has since changed hands a number of times. Presently, both K.D. and the Shambeaus claim an interest in it. K.D. entered into an installment land contract, recorded on July 21, 1978, for purchase of the apartments from Temora Trading Company, Ltd. The Shambeaus and their partner, Raymond Uptmor, in turn executed an installment land contract, recorded October 8, 1980, for purchase of the property from K.D.

At the time the trustee initiated this action, the Shambeaus and Uptmor, pursuant to their contract, were making installment payments of $5,565.00 a month to K.D., their vendor. Of this amount, K.D. paid $1,399.90 to Brentwood Savings and Loan Association, the holder of the first deed of trust on the apartments, and $2,806.55 to Temora, K.D.'s vendor under a similar land sale contract, or to Pablo Investment Ltd., Temora's assignee.

The trustee moved for summary judgment against K.D. and the Shambeaus on three grounds. First, he argued that one of the instruments in the chain of title, a deed from James Gleason to Temora Trading Company, was a forgery because Gleason never existed. He concluded that any subsequent purchaser could not claim title to the property. Second, he argued that, as a matter of law, K.D. and the Shambeaus cannot be bona fide purchasers because The district court found that there were unresolved issues of material fact regarding the existence of Gleason and notice of a prior claim. Nevertheless, the court granted summary judgment in favor of the trustee on the ground that pursuant to California law a purchaser under a land sale contract cannot be a bona fide purchaser until he or she pays the full purchase price and obtains legal title to the property. K.D. and the Shambeaus appealed, and the trustee cross-appealed the district court's refusal to grant summary judgment on the basis of his evidence that James Gleason never existed. As stated above, we disagree with the district court's interpretation of California law. We agree, however, that genuine issues of material fact are unresolved regarding the existence of Gleason and notice of a prior claim. We, therefore, affirm in part, reverse in part, and remand the case to the district court for factual determinations.

their purchase under land sale contracts gave them only equitable rather than full legal title to the property. Third, he argued that at the time each of the defendants entered into their contracts to purchase the Mediterranean Apartments, each had notice of the trustee's prior claim to the property.

DISCUSSION

1. Land Sale Contracts

There is no question that both K.D. and the Shambeaus made monthly payments pursuant to their land sale contracts for the Mediterranean Apartments and in no way breached their contracts. The only question is whether, as a matter of law, an uncompleted land sale contract precludes the purchaser from enjoying the status of a bona fide purchaser for value. The trustee contends that it does, because the purchaser merely holds an equitable interest, leaving legal title in the vendor. He relies principally upon an old California case, Taylor v. Weston, 77 Cal. 534, 20 P. 62 (1888), and a federal district court case, United States v. Certain Parcels of Land, 85 F.Supp. 986 (S.D.Cal.1949).

Both cases support the trustee's argument. In Taylor, the California Supreme Court held that a certificate of purchase is a mere equitable interest and, as such, is not entitled to the protection of the rule regarding bona fide purchasers for value. Taylor, 20 P. at 65. The federal district court, relying upon Taylor, held that under California law, the assignee of a certificate of purchase has only an equitable interest and, therefore, is not entitled to the protection of a bona fide purchaser. Certain Parcels of Land, 85 F.Supp. at 1010. Although both Taylor and Certain Parcels of Land involved the special situation of a certificate of purchase, there can be no doubt that the Taylor court specifically recognized that a contract of sale is not entitled to the protection of the bona fide purchaser rule. Taylor, 20 P. at 64-65. Moreover, the United States Supreme Court in a pre-Taylor case held that under California law the rule regarding bona fide purchasers for value "has no application where the rights of the vendee lie in an executory contract." Villa v. Rodriguez, 79 U.S. (12 Wall.) 323, 338, 20 L.Ed. 406 (1870).

Although California law in 1888 clearly required a purchaser to have full legal title before enjoying the status of bona fide purchaser for value, more recent California cases have shown a gradual erosion of the rigid distinction between legal and equitable title. See generally, 3 B. Witkin, Summary of California Law, "Security Transactions in Real Property," Sec. 21, p. 1510 (9th ed. 1973); 1 Ogden, Revised California Real Property Law, Sec. 10.7 (1974). Moreover, the only recent California case that directly addresses the issue of contracts of sale recognized that a purchaser holding equitable title to the property comes within the bona fide purchaser rule. Utley v. Smith, 134 Cal.App.2d 448, 285 P.2d 986 (1955).

In Utley, an owner of property executed an option contract with one party and later entered into an agreement for sale of the same property with a third party. The optionee recorded his option agreement after the second purchaser entered into the contract of sale. Although the court recognized that the second purchaser was a mere equitable owner, and that the seller retained the legal title to the property pending completion of the contract, id. 285 P.2d at 987, it held that because the second purchaser had no notice of the prior option contract he was "entitled, upon performance of [the] agreement, to receive the legal title ...." Id. at 988.

We are mindful that Utley involved two equitable interests (an option contract and a contract of sale) rather than a prior legal interest and subsequent equitable interest. Utley did not decide whether an equitable owner may enjoy bona fide purchaser status as against a prior legal interest of which he has no notice. That factual distinction, however, does not detract from the importance of Utley to show a court of appeal's movement away from the rigid preclusion of equitable owners from bona fide purchaser status. In addition, we note that after Utley another California Court of Appeal indicated that the distinction between legal and equitable ownership alone is not determinative of a quiet title action. See Chalmers v. Raras, 200 Cal.App.2d 682, 19 Cal.Rptr. 531 (1962) (holding that one who acquires legal title with notice of a prior equitable interest in the property is not a bona fide purchaser).

Utley provides direct authority for the defendants' argument that the equitable nature of their interest does not automatically preclude them from bona fide purchaser status. We realize of course that Utley was decided by a court of appeal with no citation to Taylor, a California Supreme Court case, Certain Parcels of Land, a federal district court case interpreting California law, or Villa v. Rodriguez, a United States Supreme Court case applying California law. If these were the only cases interpreting the nature of California land sale contracts, we might find the older California Supreme Court case controlling instead of the later court of appeal decision. These cases, however, do not stand alone. Without explicitly overruling Taylor, the California Supreme Court clearly has retreated from its rigid earlier view of contracts of sale.

In MacFadden v. Walker, 5 Cal.3d 809, 816, 97 Cal.Rptr. 537, 541, 488 P.2d 1353, 1357 (1971), for example, the California Supreme Court allowed a defaulting contract purchaser to avoid forfeiture and obtain specific performance by curing the default, notwithstanding that up to that point this remedy has been reserved exclusively for holders of...