SMS Fin., LLC v. CBC Fin. Corp.

• Decision Date: 27 December 2017
• Docket Number: No. 20150916,20150916
• Citation: 417 P.3d 70
• Parties: SMS FINANCIAL, LLC, Appellant, v. CBC FINANCIAL CORPORATION and Barton Maybie, Defendants, and Call Center Building, LLC, Appellee.
• Court: Utah Supreme Court

417 P.3d 70

SMS FINANCIAL, LLC, Appellant,

v.CBC FINANCIAL CORPORATION and Barton Maybie, Defendants,andCall Center Building, LLC,^† Appellee.

No. 20150916

Supreme Court of Utah.

Filed December 27, 2017

Zachary E. Peterson, Salt Lake City, for appellant

David M. Bennion, Salt Lake City, for appellee

Justice Himonas authored the opinion of the Court, in which Chief Justice Durrant, Associate Chief Justice Lee, Justice Pearce, and Judge Hyde joined.

Having recused herself, Justice Durham did not participate herein; District Court Judge Noel Hyde sat.

On Direct Appeal

Justice Himonas, opinion of the Court:

INTRODUCTION

¶1 Does the doctrine of equitable conversion operate to protect a buyer of real property’s interests in the land from a seller’s creditors from the time the buyer’s contract is capable of specific enforcement? In a well-reasoned decision, the district court determined that the Real Estate Purchase Contract (REPC) at issue was an executory real estate contract and, as such, it was "subject to the equitable conversion doctrine." Thus, the district court concluded that the seller’s creditor was unable to attach a judgment lien to land that the seller had already entered into a REPC to sell. SMS Financial, LLC appeals this judgment, arguing that equitable conversion doesn’t apply to noninstallment land sales contracts, or, alternatively, that unfulfilled conditions in the REPC prevented it from being specifically enforceable at the time SMS recorded its judgment.

¶2 SMS’s arguments are unpersuasive. We agree with the district court’s analysis, hold that the doctrine of equitable conversion operates to protect a buyer’s interest in the land from the time a land sales contract is capable of being specifically enforced by the buyer and, therefore, affirm the district court’s decision.

BACKGROUND

¶3 In October 2012, SMS Financial obtained a judgment against CBC Financial Corporation in a Nevada state court. At that time, CBC owned a piece of real property located in Salt Lake County. SMS domesticated its judgment in Utah’s Third District Court on January 16, 2013, but it didn’t record an abstract of judgment with the Salt Lake County Recorder’s Office, as required by Utah Code section 78B-5-202, until March 4, 2013.

¶4 Meanwhile, between the time SMS domesticated its judgment and recorded it, CBC entered into a REPC on February 15, 2013, to sell the Salt Lake County property to Kevin Gates or assigns for $1,500,000. Mr. Gates put down $10,000 in earnest money on February 19, 2013. Mr. Gates subsequently assigned his rights under the REPC to Call Center Buildings, LLC on March 19, 2013.

¶5 On March 21 and 26, 2013, Gates or Call Center received title commitments for the property that identified SMS’s judgment lien on the property. Despite this, the sale under the REPC successfully closed, and CBC conveyed the property to Call Center by a special warranty deed on March 27, 2013. It wasn’t until May 12, 2015 that SMS filed for a writ of execution on its lien against the property. Call Center intervened in the action to protect its right to the property. The district court denied SMS’s writ of execution, concluding that the doctrine of equitable conversion applied and that CBC didn’t have a property interest at the time SMS recorded its abstract of judgment, preventing the lien from attaching to the property. SMS appeals this determination. We have jurisdiction pursuant to Utah Code section 78A-3-102(3)(j).

STANDARD OF REVIEW

¶6 "We review a grant of equitable relief for an abuse of discretion." Mack v. Utah State Dep’t of Commerce, Div. of Sec. , 2009 UT 47, ¶ 22, 221 P.3d 194. But "[w]e review the underlying legal questions ... for correctness." Id.

ANALYSIS

¶7 This court has long applied the doctrine of equitable conversion to executory contracts for the sale of land. See, e.g. , Allred v. Allred , 15 Utah 2d 396, 393 P.2d 791, 792 (1964) ("As a general rule an enforceable executory contract of sale has the effect of converting the interest of the vendor of real property to personalty."). Our prior cases have only applied the doctrine of equitable conversion to seller-financed installment contracts for the sale of land. See, e.g. , Cannefax v. Clement , 818 P.2d 546, 546–47 (Utah 1991) ; Estate of Willson v. State Tax Comm’n , 28 Utah 2d 197, 499 P.2d 1298, 1299 (1972) ; Allred , 393 P.2d at 792. And SMS urges us to limit the application of equitable conversion to installment contracts. Alternatively, SMS argues that the REPC wasn’t specifically enforceable when it recorded its judgment against CBC, precluding the application of equitable conversion in this case. However, the only conditions that hadn’t been satisfied wouldn’t preclude the buyer from seeking specific performance. In opposition, Call Center argues that the principles behind equitable conversion warrant its application when a land sale contract becomes capable of specific enforcement.

¶8 While the court of appeals has previously held that equitable conversion applies to noninstallment land sale contracts, Lach v. Deseret Bank , 746 P.2d 802, 804, 806 (Utah Ct. App. 1987), we’ve yet to decide that issue. We take this opportunity to express our general agreement with the court of appeals on this issue and to hold that the doctrine of equitable conversion operates to protect a buyer’s interests in land when a land sale contract becomes capable of specific enforcement by the buyer, including where buyer-friendly conditions have yet to be satisfied.

I. THE DOCTRINE OF EQUITABLE CONVERSION OPERATES TO PROTECT A BUYER’S INTERESTS IN THE LAND FROM A SELLER’S CREDITORS WHEN AN EXECUTORY CONTRACT FOR THE SALE OF LAND BECOMES CAPABLE OF SPECIFIC ENFORCEMENT BY THE BUYER

¶9 The doctrine of equitable conversion "emanates from the maxim that equity treats that as being done which should be done." Noor v. Centreville Bank , 193 Md.App. 160, 996 A.2d 928, 932 (2010) (citation omitted) (internal quotation marks omitted). "[T]he doctrine of equitable conversion applies to transform a [seller’s] interest in a land sale contract from a real property interest into a personal property interest." Cannefax v. Clement , 818 P.2d 546, 548 (Utah 1991). Similarly, "[t]he [buyer] is said to convert the monetary interest that he has in the property to an interest in real estate so that he may invoke the powers of an equity court to compel specific performance of the real estate contract." Butler v. Wilkinson , 740 P.2d 1244, 1255 n.5 (Utah 1987).

¶10 However, this isn’t to say that it would be appropriate to apply the doctrine of equitable conversion in every case. The doctrine should be applied when it "serves to carry out the apparent intent" of the parties. Allred v. Allred , 15 Utah 2d 396, 393 P.2d 791, 792 (1964) ; see also Cannefax , 818 P.2d at 549 n.1 ("The parties clearly intended to convey unencumbered title to the land. They certainly did not intend that after they entered into the contract and after payments were made, the vendor’s judgment creditors could obtain and execute on the vendee’s property to the extent the contract was executory.") Conversely, it would be inappropriate to apply the doctrine to "alter [a] contract," Cannefax , 818 P.2d at 548 (citing Reynolds v. Van Wagoner , 592 P.2d 593, 594 (Utah 1979) ), to thwart the express contractual desire of the parties to reserve equitable title in the seller until the deed was delivered or where a contract explicitly excludes specific performance as a remedy. See Noor , 996 A.2d at 935–36 (refusing to apply equitable conversion where the contract "reserv[ed] equitable title in [the seller] until delivery of the deed"); Benedict v. United States , 881 F.Supp. 1532, 1548–49 (D. Utah 1995) ("Whatever the partnerships had, it was not an equitably converted property interest ... as the purchase agreement limited their remedies to exclude specific performance.").

¶11 Thus, we disavow today any language in our case law that could be read to require the application of the doctrine "at the moment the contract is created" in circumstances where the contract wouldn’t be immediately specifically enforceable. Lach v. Deseret Bank , 746 P.2d 802, 805 (Utah Ct. App. 1987). Instead, we conclude that the doctrine operates to protect a buyer’s interests from a seller’s creditors as soon as the contract becomes capable of specific enforcement by the buyer—in other words, at the time the buyer could sue the seller for specific enforcement of the contract if the seller fails to perform. See Estate of Willson v. State Tax Comm’n , 28 Utah 2d 197, 499 P.2d 1298, 1300 (1972) (noting that "the real estate is, as to the vendor, regarded as converted into personalty from the time of the execution of the contract" in a case where the vendor could have sued for specific performance from the moment of signing).

¶12 This specific enforcement limitation is supported by both case law on equitable conversion and the intent of the parties. Our cases have long tied, albeit indirectly, the application of equitable conversion to the availability of specific performance. See, e.g. , Cannefax, 818 P.2d at 549 ("[A] vendor who breaches a land sale contract in an attempt to retain the property will be subject to either damages or a decree for specific performance."); Butler v. Wilkinson , 740 P.2d 1244, 1255 (Utah 1987) ("The doctrine [of equitable conversion] gives a vendee the right to obtain a decree of specific performance from a court of equity."); Estate of Willson , 499 P.2d at 1300 (noting that the sellers "could have sued for specific performance in the event the buyers refused to perform their part of the contract"); Allred , 393 P.2d at 792 (noting that "there appears no good reason why the doctrine of ‘equitable conversion’ should not be applied" where the vendors "could have sued for specific performance in the event the vendees ... refused to perform their part of the agreement"); Lach , 746 P.2d at 805 (Equitable conversion applies to "an...