Rushville Production Credit Ass'n v. Mohr
| Decision Date | 19 September 1984 |
| Docket Number | Adv. No. 83-582.,Civ. No. IP 83-1786-C,Bankruptcy No. IP 81-2476-RA (V) |
| Citation | 42 BR 1000 |
| Parties | RUSHVILLE PRODUCTION CREDIT ASSOCIATION, Appellant, v. Gordon A. MOHR, Joyce Mohr, Appellees, Gordon A. Mohr, Joyce Mohr, Debtors. RUSHVILLE PRODUCTION CREDIT ASSOCIATION, Plaintiff, v. Gordon A. MOHR, Joyce Mohr, Defendants. |
| Court | U.S. District Court — Southern District of Indiana |
Daniel E. Johnson, Baker & Daniels, Indianapolis, Ind., for plaintiff.
James A. Knauer, Kroger, Gardis & Regas, Indianapolis, Ind., for defendants.
This case comes before the Court on appeal from the decision of the Bankruptcy Court of this district which held that the judgment lien of the appellant, Rushville Production Credit Association, did not attach to real estate in which the appellees, Gordon and Joyce Mohr, held an equitable interest as purchasers under a conditional sales contract. For the following reasons, the decision of the Bankruptcy Court is reversed and the case is remanded to that court for further proceedings consistent with this opinion.
The facts of this case are stipulated. The Mohrs purchased a 269.97 acre farm from Charles DeMott in November, 1979, pursuant to a conditional sales contract (or land contract). The land contract was duly recorded in the Recorder's Office of Shelby County, the county in which the land was located.
On March 2, 1981, the appellant, Rushville Production Credit Association (RPCA), obtained a judgment against the Mohrs in the amount of $112,800.70 plus costs. The judgment was promptly indexed in the Shelby County judgment docket in the names of Gordon A. and Joyce Mohr. RPCA did not obtain a writ of execution or institute proceedings supplemental to execution.
The Mohrs filed for bankruptcy on June 4, 1981. During the bankruptcy proceedings the 269.97 acre tract of real estate was resold to the vendor under the land contract, Charles DeMott, with the net proceeds to be made available to the Mohrs' creditors. The proceeds of this sale, $88,775.77, are being held in escrow pending final disposition of the present adversary proceeding. The parties agree that if RPCA's judgment lien was valid against the Mohrs' equitable title in the real estate prior to its resale to DeMott, then the lien would attach to the net proceeds of the resale now held in escrow.
The Bankruptcy Court found that because the Mohrs held equitable title and not legal title to the real estate under the land contract, the judgment lien did not attach to their interest in the land. Therefore, the court concluded that RPCA's claim under the judgment lien was not entitled to priority with respect to the proceeds of the resale of the land although RPCA was entitled to assert its claim as a general creditor against the Mohrs' bankruptcy estate.
RPCA appeals the decision of the Bankruptcy Court asserting that under current law and consistent with current legislative posture, the equitable interest held by a purchaser under a land contract may be attached by a judgment lien under the judgment lien statute, Ind. Code § 34-1-45-1.
The "clearly erroneous" standard of review applies to this Court's consideration of the Bankruptcy Court's factual determinations but it does not apply to appellate review of questions of law or mixed questions of fact and law. In re Maitlen, 658 F.2d 466 (7th Cir.1981) (Appendix A); Minnick v. Lafayette Loan & Trust Co., 392 F.2d 973 (7th Cir.), cert. denied, 393 U.S. 875, 89 S.Ct. 170, 21 L.Ed.2d 146 (1968); In re Illinois Valley Acceptance Corp., 531 F.Supp. 737 (C.D.Ill.1982). In the present case, the parties stipulated to the facts before the Bankruptcy Court and have raised only questions of law before this court. This court is in as good a position as the Bankruptcy Court to interpret Indiana law as it relates to the issues raised in this case. Therefore, this Court is not bound by the Bankruptcy Court's conclusions of law if they are found to be erroneous. See also In re Hardwick & Magee Co., 355 F.Supp. 58 (E.D.Pa.1973).
The issue before the Court in this case is whether under Indiana law a judgment lien may attach to the judgment debtor's equitable title in real estate purchased under a land contract. In Indiana, the right of a judgment creditor to assert a judgment lien against property of the judgment debtor is established by statute. Ind. Code § 34-1-45-1 provides:
Early Indiana cases construing the law in this area held that a judgment lien could attach only to the legal title to real estate held by the judgment debtor and did not attach to an equitable interest. Jeffries v. Sherburn, 21 Ind. 112 (Ind.1863); Orth v. Jennings, 8 Blackf. 420 (Ind.1847); Modisett v. Johnson, 2 Blackf. 431 (Ind.1831). In the seminal case of Modisett v. Johnson, supra, the Indiana Supreme Court relied upon the distinctions between a mortgage and a land contract to find that a purchaser under a land contract held an insufficient interest in the real estate to allow attachment. Modisett v. Johnson, supra. At the time Modisett and its progeny were decided, the interest of a purchaser under a land contract was subject to forfeiture upon the purchaser's default under the contract and the purchaser was not entitled to foreclosure nor did he have a right of redemption. See Jeffries v. Sherburn, 21 Ind. 112 (1863); Doe v. Cutshall, 1 Ind. 246 (1848); Modisett v. Johnson, supra.
Since these early cases, the law with respect to conveyances of real estate under land contracts, and the treatment of the interests of the vendors and vendees thereunder, has changed considerably. The courts and the legislature have acknowledged the similarities between a land contract and a mortgage and, in appropriate circumstances, have accorded land contract purchasers rights formerly reserved only for legal title holders. In Skendzel v. Marshall, 261 Ind. 226, 301 N.E.2d 641 (1973), cert. denied, 415 U.S. 921, 94 S.Ct. 1421, 39 L.Ed.2d 476 (1974), appeal after remand, 264 Ind. 77, 339 N.E.2d 57 (1975), the Indiana Supreme Court analogized the relationship of vendor-vendee under a land contract to that of a mortgagee-mortgagor and determined that the interest of a land contract vendee is tantamount to that of a mortgagor and should be treated as such. The court noted that traditional principles distinguishing a mortgagor from a land contract purchaser may still be applied in the case of an abandoning, absconding vendee or when a defaulting vendee has paid a minimal amount on the contract and the vendor has paid taxes, insurance, and other expenses to maintain the property. Id. at 240-241, 301 N.E.2d at 650. Generally, however, the court found that, similar to a mortgage, a land contract represents a present sale and purchase with all incidents of ownership accruing to the vendee subject only to the vendor's security interest in the real estate. Id. at 234, 301 N.E.2d 646.
The Court, in effect, views a conditional land contract as a sale with a security interest in the form of legal title reserved by the vendor. Conceptually, therefore, the retention of the title by the vendor is the same as reserving a lien or mortgage. Realistically, vendor-vendee should be viewed as mortgagee-mortgagor. To conceive of the relationship in different terms is to pay homage to form over substance.
Skendzel v. Marshall, 261 Ind. at 234, 301 N.E.2d at 646.
The court concluded that "we are holding a conditional land sales contract to be in the nature of a secured transaction, the provisions of which are subject to all proper and just remedies at law and in equity." Id. at 241, 301 N.E.2d at 650.
Applying this holding, the Skendzel court refused to allow a forfeiture of the substantial equitable interest of the land contract vendee upon his default and required the vendor to proceed under the mortgage foreclosure statute, Ind. Code § 32-8-16-1, and Ind. Trial Rule 69(c). Id. at 241, 301 N.E.2d at 650-51.
The Indiana legislature has not disagreed with the Skendzel court's analysis of the interests of the parties...
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