Opinion
No. 34265
Decided July 20, 1955.
Real property — Contract for sale — Legal title in vendor before conveyance — Vendor's rights and interests in contract assignable — Rights of assignee — Superior to those of subsequent judgment creditor of vendor.
The vendor in a contract for the sale of real estate, before conveyance, retains legal title and has an interest in the real estate to the extent of the unpaid purchase price; the vendor may assign and transfer such contract and all his rights and interests therein to a third person; and, where such transaction is for a valuable consideration and otherwise bona fide, the rights of such assignee are superior to and take precedence over the rights of a subsequent judgment creditor of the vendor.
APPEAL from the Court of Appeals for Stark County.
The present action had its inception in the Court of Common Pleas of Stark County where Ruth Butcher, the assignee through the vendee in a contract for the sale of real estate, filed her petition therein against the Ohio Mortgage Company, an Ohio corporation, appellee herein, and others, asking that such company be ordered to convey to her by warranty deed, upon payment of the purchase price, lot No. 86, situated in the East Orchard Allotment, Canton Township, Stark County, Ohio, free from all liens and encumbrances.
Separate answers and cross-petitions were filed by the Ohio Mortgage Company and the Bartlett Lumber Company (later the DeVille Lumber Company), appellant herein. In its pleading, the mortgage company asserts that it is the owner, by assignment from the vendor, of the contract for the sale of the real estate described in the petition, and that, upon payment to it of the purchase price of the property, plaintiff is entitled to a deed for the premises.
In its pleading, the lumber company claims to be the holder of judgment liens against the described real estate, which are first and best liens. It prays that the property be sold, and thet the proceeds of sale be applied to the payment of such liens.
In its reply to the cross-petition of the mortgage company, the lumber company specifically denies that the mortgage company has any right, title or interest in the described premises, superior to the liens of the lumber company.
The cause was presented to the trial court on the pleadings, a small amount of evidence and a stipulation of facts entered into by the interested parties.
Epitomized, the salient facts are as follows:
On February 2, 1945, Donald H. Reed was the owner in fee simple of the real estate described above. On that date, he and Ruth E. Reed, then his wife, entered into a written contract with LaVonne McAdow whereby Reed agreed to sell such property and McAdow agreed to purchase the same for the sum of $2,550, with interest, payable at the rate of $35 per month. A cognovit promissory note for such amount was executed by the vendee and his wife as a part of the transaction.
Immediately upon the execution of the contract, the vendee took possession of the property and occupied the same as a homestead, as did all subsequent assignees, including Ruth Butcher.
On February 2, 1945, Donald H. Reed and Ruth E. Reed, for a valuable consideration, sold all their right, title and interest in such contract and note to the Ohio Mortgage Company, evidenced by the written assignment of the contract and the endorsement of the note, with delivery of the same.
Neither the land contract nor the assignment of the vendor's interest therein to the Ohio Mortgage Company was recorded.
After the assignment of the land contract and the endorsement of the note, the Bartlett Lumber Company obtained judgments against Donald E. Reed in the Canton Municipal Court. Certificates of the judgments secured by the Bartlett Lumber Company were filed in the office of the Clerk of the Court of Common Pleas of Stark County and were placed in the judgment lien docket. Executions were issued and were returned unsatisfied.
Plaintiff removed herself from the case when she stated through her attorney in open court that she was in default in her payments under the contract, was unable to pay the purchase price of the property, and had no claim for damages.
By agreement of the parties, the real estate in controversy was sold at sheriff's sale, and the net proceeds of the sale are now being held by the clerk of courts pending the final outcome of this case.
The dispute is now entirely between the Ohio Mortgage Company and the Bartlett Lumber Company (DeVille Lumber Company), each claiming the proceeds from the sale of the property.
The Court of Common Pleas rendered judgment for the Ohio Mortgage Company, and such judgment was affirmed by the Court of Appeals on an appeal on questions of law. Allowance of the motion to require the Court of Appeals to certify its record places the controversy before this court for final determination.
Mr. Paul M. Perkins and Mr. John R. Milligan, Jr., for appellant.
Mr. M.W. Wendling and Mr. C.S. Weintraub, for appellee.
It is now generally recognized that the vendor in a contract for the sale of real estate, after such contract is entered into, may assign and transfer his rights and interests therein to a third person, who may enforce the same. 55 American Jurisprudence, 827, Section 407; 66 Corpus Juris, 1065, Vendor and Purchaser, Section 835.
In our opinion a real distinction exists between a mere vendor's lien and a written contract for the sale of real estate duly executed by the vendor and vendee, which is an assignable chose in action.
The vendee in such a contract, before conveyance, has an equitable interest in the realty equal to the amount of the purchase money paid. When full payment is made, the vendee acquires a completed equity which may entitle him to a conveyance of the legal title. Possession by the vendee is notice to everybody of those rights. Coggshall v. Marine Bank Co., 63 Ohio St. 88, 57 N.E. 1086.
Although an executory contract for the sale of real estate places the equitable ownership of the property in the vendee to the extent of the payments made, the legal title remains in the vendor as security for the payment of the unpaid installments of the purchase price. Jewett v. Black, 60 Neb. 173, 82 N.W. 375.
It is stated in 40 Ohio Jurisprudence, 922, Section 14, that the Ohio statutes do not require or even provide for the recording of executory contracts for the sale of real estate or of the assignments of such contracts. An examination of the recording statutes verifies such statement. See Section 8543, General Code (Section 5301.25, Revised Code).
The lumber company places reliance on Section 8543-1, General Code (Section 5301.26, Revised Code), which recites:
"As between the vendor and vendee of land the vendor shall have a lien for so much of the purchase money as remains unpaid. But such lien shall not be effective as against a purchaser, mortgagee, judgment creditor, or other encumbrancer, unless there be a recital or a reservation of the lien in the deed, or in some instrument of record executed with the same formalities as are required for the execution of deeds and mortgages of land. * * *"
It is plain that such section comprehends a situation where the legal title to property is actually conveyed by the vendor to the vendee by deed or by some instrument entitled to record and executed with the same formalities required for the execution of deeds and mortgages of land. Patently, such section does not govern the instant case.
Doubtless, the enactment of the quoted statute was induced by the decision of this court in Miller v. Albright, 60 Ohio St. 48, 53 N.E. 490, wherein it was held that a vendor, who has parted with his title to his real estate without reserving in the instrument of conveyance a specific lien for the amount due him, has an equitable lien on the property for such amount, which takes precedence over the lien of a judgment obtained against the vendee of the property.
A case of some interest in connection with the present one is Culmback, Trustee, v. Stevens, 158 Wn. 675, 291 P. 705. There the vendor in a contract for the sale of land assigned to a third person the future payments due him under the contract. Later the vendor became bankrupt and the trustee in bankruptcy attacked the validity of the assignment and claimed the benefits of the contract. In rejecting such claim, the court held in substance that the assignment was good. It required neither acknowledgement nor recording to pass the interest of the vendor. It was good as between the parties and was good as against anyone else, except possibly a purchaser for value and in good faith without notice. Neither the trustee in bankruptcy nor any creditor of the vendor could defeat the assignment, except for fraud.
Here, the Ohio Mortgage Company purchased from the vendor for a valuable consideration the executory contract for the sale of the land and the accompanying promissory note. Under the Ohio statutes no recording of the transaction was required or authorized. Subsequently, the Bartlett Lumber Company secured money judgments against the vendor which were converted into judgment liens. Although the principle, "first in time, first in right," is ordinarily invoked with respect to the priority of liens, we think it may well be applied to the case at bar.
Notwithstanding that the decision in Miller v. Albright, supra, has been superseded by the statute quoted above, the reasoning in that case is persuasive here in favor of the Ohio Mortgage Company which parted with its money in the purchase of a chose in action, before the Bartlett Lumber Company reduced its claims to judgments.
Another rule prevalent in Ohio and elsewhere is that the open and observable possession of real estate is notice to those who deal therewith of such facts respecting the rights and status of the possessor, as inquiry of him would disclose. 24 Ohio Jurisprudence, 747, Section 13. This is true as to judgment creditors of the one ostensibly holding legal title to the land. Doll v. Walter, Exrx., 305 Ill. App. 188, 27 N.E.2d 231, petition for leave to appeal denied by the Supreme Court of Illinois. In the instant case, the vendee in the contract for the sale of the realty was in open possession of the same as were all the subsequent assignees. Inquiry of any of them by the Bartlett Lumber Company would have revealed the existence of the contract for the sale of the land and its assignment to the Ohio Mortgage Company.
We are of the opinion that the Ohio Mortgage Company is entitled to prevail in this action, and that the judgment of the Court of Appeals in its favor should be affirmed.
Judgment affirmed.
WEYGANDT, C.J., HART and STEWART, JJ., concur.
MATTHIAS, BELL and TAFT, JJ., dissent.
I regret that I can not agree with the majority of the court in this case. In my opinion the Ohio Mortgage Company, assignee of the land contract herein, is in exactly the same position as a mortgagee in possession of an unrecorded mortgage, and, as such, its lien should not be superior to that of a subsequent judgment creditor. I realize that the decision in Miller v. Albright, 60 Ohio St. 48, 53 N.E. 490, may militate against this position but I agree with neither the reasoning nor the result of that case, and I do not believe that decision is particularly binding in view of subsequent action by the Legislature.
According to the pleading of the Ohio Mortgage Company, the vendors (the Reeds) assigned the land contract to the mortgage company "in writing, in words and figures, as follows to wit:
"`* * *
"`For value received we do hereby sell, transfer and assign all our right, title and interest in and to the within contract to the Ohio Mortgage Company, together with the note secured thereby.'"
The pleading then refers to "the endorsement of said note [given for the purchase price provided for in the land contract] and the assignment of said land contract." Nothing in that pleading refers to any other assignment or transfer of anything else from the vendors to the mortgage company. The mortgage company could have but it apparently did not even take a quitclaim deed for the real estate described in the land contract.
Conceivably, the assignment of a land contract and of the indebtedness of the vendee thereunder might be held to carry with it whatever rights the vendor had as security for that indebtedness in or against the real estate being sold under the land contract. Also, it would seem reasonable from the transaction of assignment to imply an agreement by the vendor to convey the legal title to the vendee on the request of the assignee. Certainly, there would be no reason for the vendors, after their assignment in the instant case, to retain any title or interest in the real estate covered by the land contract, since they would then have been fully paid therefor by their assignee, the Ohio Mortgage Company. Also, after this assignment, if the vendees paid the Ohio Mortgage Company in full the vendees would clearly be entitled to specific performance against the vendors. As a consequence, any interest of the vendors in the land would be subject to being divested by specific performance proceedings which might be successfully maintained by the vendees. Of course, in the instant case, the vendees are not entitled to specific performance and have abandoned any effort to secure that relief.
Furthermore, if the vendors had delivered a quitclam deed to the mortgage company but that deed had not been recorded, then that deed would have been good as against a judgment creditor although it would not have been good "so far as" it related "to a subsequent bona fide purchaser having, at the time of purchase, no knowledge of the existence of such * * * deed." See Section 8543, General Code (Section 5301.25, Revised Code).
However, the appellant, the judgment creditor of the vendors, contends in the instant case that, even if a vendor of real estate who retains legal title has an equitable lien for the unpaid purchase money, such lien can not be assigned or conveyed to another. This contention is apparently fully sustained by all the decisions of this court which have heretofore considered the problem. See 40 Ohio Jurisprudence, 1094, Section 190.
Thus in Jackman v. Hallock, 1 Ohio, 318, 13 Am. Dec., 627, it is said with regard to the equitable lien of a vendor:
"This equity arises to the vendor for his own safety, but it cannot be transferred to another."
Again, in Brush v. Kinsley, 14 Ohio, 21, 24, it was said in the opinion by Read, J.:
"* * * if this case was such that the vendor had a lien, the assignment of a note for the payment of the purchase money would not carry with it the vendor's lien. This is personal to the vendor, not capable of assignment or transfer, although it may descend or be devised, as settled in Jackman v. Hallock * * *."
Also, in Horton v. Horner, 14 Ohio, 437, 443, it was said by Hitchcock, J.:
"* * * one object of the bill is to enforce the vendor's lien. According to our views of the law, and according to the decisions of this court, this lien can not be transferred by the act of the vendor, so as to vest the right to enforce it in his assignee. It was so held in the case of Jackman v. Hallock * * * and has been so held at the present term."
Cf. Tiernan v. Beam, 2 Ohio, 383, 386, 15 Am. Dec., 557.
It would seem to follow that, when the mortgage company acquired the rights of the vendors under the land contract, it acquired only the rights of the vendors to enforce the personal liability of the vendees under the contract, and perhaps, depending upon the terms of the assignment, a right of recourse against the vendors personally in the event that the vendees did not fully pay to the mortgage company what they owed under the land contract. If the mortgage company desired to acquire any interest in the real estate at the time of the assignment of the land contract, it could have required at least the delivery to it of a quitclaim deed from the vendors. Not having required that, it is certainly not unreasonable to give the Ohio Mortgage Company only the rights for which it apparently bargained, i.e., personal rights against the vendees and perhaps against the vendors.
MATTHIAS, J., concurs in the foregoing dissenting opinion.