Case Title: Marple v. Wyoming Production Credit Ass'n

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 1988-02-29T00:00:00Z

Document:
Marple v. Wyoming Production Credit Ass'n1988 WY 22750 P.2d 1315Case Number: 87-170Decided: 02/29/1988Supreme Court of Wyoming
GEORGE D. MARPLE AND 
ESTHER M. MARPLE, APPELLANTS (PLAINTIFFS),

v.

WYOMING PRODUCTION CREDIT 
ASSOCIATION; AND TO ALL OTHER PERSONS UNKNOWN CLAIMING ANY LEGAL EQUITABLE 
RIGHT, TITLE, ESTATE, LIEN OR INTEREST IN THE REAL PROPERTY DESCRIBED IN THE 
COMPLAINT ADVERSE TO PLAINTIFFS' TITLE OR ANY CLOUD ON PLAINTIFFS' TITLE 
THERETO, NAMED AS DOES I TO XX, INCLUSIVE, APPELLEES 
(DEFENDANTS),

JAMES E. PYER AND BETTY 
J. PYER, (DEFENDANTS).

Appeal from the 
DistrictCourtofWashakieCounty, Gary P. Hartman, 
J.

H. Richard 
Hopkinson, Worland, for 
Marple.

William R. 
Shelledy, Jr., Worland, for Wyoming Production Credit 
Ass'n.

Before BROWN, C.J., and THOMAS, CARDINE, URBIGKIT 
and MACY, JJ.

URBIGKIT, 
Justice.

[¶1.]     This documentarily 
misconstructed and mispleaded real estate sales transaction case is presented on 
appeal from summary judgment granted against the property seller in favor of the 
chronologically subsequent lender to whom the buyer mortgaged the property. In 
application of recorded instruments and record demonstration of the lender's 
knowledge of the retained vendor security interest and unpaid purchase price, we 
reverse and remand, and do not address other academically interesting but 
legally unpersuasive inquiries involving vendor's liens or merger as being 
inapplicable to the facts of this case. Tri-State National Bank v. Saffren, Wyo., 726 P.2d 1081 
(1986).

[¶2.]     In July 1978, George 
and Esther Marple, as sellers (appellants), entered into a real estate sales 
arrangement for the sale of their 15-acre home and subdivision tract to James 
and Betty Pyer for a purchase price of $145,000. The unusual nature of the 
litigation was begun by the curious arrangement initiated by the sales 
transaction which has been considered by litigants and the trial court to be an 
installment sales transaction. We do not concur with that exception since title 
was not retained in seller. E. George Rudolph, The Wyoming Law of Real 
Mortgages at 147 (1969). See Baldwin v. McDonald, 24 Wyo. 108, 156 P. 27, 37 
(1916):

"`* * * Whether any 
particular transaction does thus amount to a mortgage or to a sale with a 
contract of repurchase must, to a large extent, depend upon its own special 
circumstances; for the question finally turns, in all cases, upon the real 
intention of the parties as shown upon the face of the writings, or as disclosed 
by intrinsic evidence.'" Quoting from Pomeroy's Equity Jurisprudence § 1195 (3d 
ed.).

Cf. Angus Hunt 
Ranch v. REB, Inc., Wyo., 577 P.2d 645 
(1978).

[¶3.]     The agreement provided 
for conveyance of the property to buyer, and was arranged by two separate deeds, 
since apparently a portion of the real estate was not warrantable in title. 
Provision was then made in sales agreement for an escrow to be established in 
which a "default" quitclaim deed would be escrowed to reconvey upon buyer 
default. A self-standing promissory note was also executed, evidencing the 
purchase price balance as computed from a sales price of $145,000, an earnest 
money deposit of $1,000, and a "down payment" of $49,500 which was realized by 
the apparently expected action of the buyer borrowing the down payment by means 
of a loan on the property following conveyance. The remaining balance of 
$94,500, as documented in the promissory note and defined in the agreement, was 
payable on an amortized schedule of 20 annual installments. Consequently, the 
transaction invoked a sale with no significant down payment, in which the buyers 
borrowed the down payment based upon the security of the purchased property. All 
this occurred, most surprisingly, with apparent "assistance" of legal advice.1

[¶4.]     One other step occurred 
in the process as apparently part of the organized plan and arrangement, which 
involved the recording of the agreement in order to make a record of the 
retained security interest in the property held by seller. Why the normal, 
usual, and customary arrangements of subordination agreement, reconveyance, or 
even the execution of a normal form mortgage were not used is not demonstrated 
in the record, but it is indicated that sellers' attorney thought that 
conveyance could provide opportunity for foreclosure of the real estate lien 
without the necessity of formal foreclosure proceeding by the use of an escrowed 
reconveyance quitclaim default deed as apparently provided in order to bypass 
debtor right of redemption.

[¶5.]     Buyers did obtain the 
down payment by executing a mortgage on the purchased property in favor of the 
First National Bank of Worland (First National Bank) in an amount undefined in 
the record, but apparently of about $49,500, and sequentially, pursuant to 
recording dates and in accord with the indicated intent of the parties, from 
available documents, the arrangement was completed by the First National Bank, 
providing a first lien and arranging to retain for sellers a security interest 
subordinate thereto in the amount of the unpaid purchase price of $94,500, by 
recording the sales agreement. Since no initial reconveyance of the property was 
included in the transactional scheme, title in fee was vested in the buyer, 
subject to First National Bank's first lien, and secondary lien rights for 
seller. Contrary to the concept of litigants and the trial court, we do not find 
presented an installment sales contract since legal title to the property is 
vested in buyer and all that remained in seller was a right to payment and 
reserved security interest. Baldwin v. 
McDonald, supra. Concurrently executed sales transaction documents should be 
considered together. Hensley v. Williams, Wyo., 
726 P.2d 90 (1986); DeLoney v. Dillard, 183 Ark. 1053, 40 S.W.2d 772 (1931); Ashbrook v. Briner, 137 
Neb. 104, 288 N.W. 374 (1939). See Rush v. Anestos, 104 Idaho 630, 661 P.2d 1229 (1983). Although the 
court gives effect to the intention of the parties as defined by the text of 
written agreements made, a security interest arrangement, in case of doubt, 
should be defined as a mortgage in order to protect all parties by denial of 
forfeiture and affording statutory rights of redemption. Martino v. Frumkin, 11 
Ariz. App. 
160, 462 P.2d 853 (1970). The status of executory sales agreement is foreclosed 
by actual conveyance of fee title. Rush v. Anestos, supra.

[¶6.]     Thereafter, as 
expectably occurred in the nature of events, Pyers commenced business financing 
for a greenhouse operation about three years later by executing real estate 
mortgages as encumbrances on the property to the Wyoming Production Credit 
Association (PCA), first in the amount of $22,500, and then in the amount of an 
additional $100,000. After financial troubles developed (or continued), Pyers 
filed bankruptcy. With the recognized first lien position of the First National 
Bank, this litigation ensued as a Marple quiet-title action to contest priority 
security rights for themselves, as sellers, against the PCA, who by counterclaim 
sought an order of foreclosure and a declaration of priority. Never to keep the 
case simplified, sellers had earlier extracted the quitclaim deed from the 
escrow file upon default of payments on the promissory note and recorded, 
followed by a notice to quit served on Pyers. The litigation included as 
defendants both Pyers, as buyers, and the PCA, as holder of the two mortgages, 
and was immediately delayed by automatic stay under 11 U.S.C. § 362(a) (1982) 
derived from Pyers' bankruptcy.

[¶7.]     After vacation of 
bankruptcy stay, the case matured to present status by a motion for summary 
judgment filed by Marples which contended in trial brief that justification 
existed for judgment as a matter of law by a priority equitable mortgage arising 
from the sales transaction. PCA reciprocated with a summary judgment motion, 
conversely contending for a priority interest by recorded mortgages as adverse 
to the retained interest of vendors, with the resulting court decision being to 
favor the lender over the vendors.2 Disposition of the case occurred in 
summary-judgment order, wherein a decision on the litigated issues between Pyers 
and Marples was not made, but:

"* * * [T]he motion for 
summary judgment filed by the Plaintiffs [Marples] is hereby denied and * * * 
the motion for summary judgment of the defendant is hereby granted and the Court 
further states that the subject land of said lawsuit is subject to a mortgage in 
favor of the FIRST NATIONAL BANK and is subject to a mortgage in second position 
to the Defendant, WYOMING PRODUCTION CREDIT ASSOCIATION."

No order of 
foreclosure, for which the prayer had been made and to which PCA was clearly 
entitled, was included with the litigated issue being one of lien priority only. 
Financial statements furnished by Pyers to PCA predating the first recorded PCA 
mortgage referred to the 15-acre tract "Mortgage to Marple" with balance due in 
1981 of $89,361 as a listed long-term liability, and showed the property with a 
stated value of $178,292 as borrowers' principal asset. The total of all asset 
equity of $77,643 was derived after the $89,361 long-term mortgage indebtedness 
of Marples was deducted. The record also contains evidence that some portion of 
the advances from PCA loan proceeds was knowingly provided to make payments on 
the Marple and First National Bank indebtednesses. The PCA debt was first shown 
on the financial statement records for the 1982 statement in the amount of 
$73,592 as then increased by the 1985 statement to total $143,726.3

[¶8.]     Wyoming's 
classification as a mortgage lien state has long since been established, 
Robinson Mercantile Co. v. Davis, 26 Wyo. 484, 187 P. 931 (1920), and 
consequently our initial inquiry is directed to analysis of the documentation to 
determine whether a lien document in recorded form as sufficient to protect the 
promissory note security claim against the property was created in the 
transactional arrangement.

[¶9.]     On that question, we 
would apply § 34-1-127, W.S. 1977.4 The documentation clearly reveals 
that the conveyances to the buyers were not intended to be absolute, but rather 
that a retained security interest was to exist which was authenticated by the 
recorded sales document. That document, referencing the unpaid balance and the 
method of payment, is sufficient to constitute the desired real estate mortgage 
security lien instrument5 when considered in conjunction with 
the promissory note for which it served as a real estate security document. The 
parties are named; the property is identified by legal description; the purchase 
price and security indebtedness provided; and provision for conveyance to the 
buyer made with detail of retained security for payment defined. We determine 
this character of information, when included in an acknowledged instrument 
signed by both parties and subsequently recorded, is sufficient to constitute a 
legal mortgage, no matter if not specifically labeled as a mortgage by heading. 
George E. Osborne, Mortgages, Ch. 2, § 23 at 33 (2d ed. 1970). This 
is especially true as here accompanied by promissory note and accommodated by 
concurrent conveyance of the real estate in fee to the buyer as an executed 
transaction. Substance-over-form criteria of modern conveyancing is 
appropriately evidenced. Compare Frank v. Hick, 4 Wyo. 502, 35 P. 475 
(1893), where the document lacked a subscribing witness and was only signed by 
the president, and consequently was unrecordable and only "effective between the 
parties as an equitable mortgage." Id. 35 P.  at 477. Practical conveyancing 
standards have improved since the early date when formalism predominated in 
conveyancing requirements.

[¶10.]  Inept as the handling of the transaction 
documents are demonstrated to have been, no lack of clear, defined, and definite 
notice to the successor lender existed. Consequently, we hold that summary 
judgment was erroneous in granting to PCA a priority mortgage lien as superior 
to any claim of appellants.

[¶11.]  The question remaining is further 
disposition of the case. As an affirmative defense, PCA had contended that the 
transaction by escrow release and recording of the quitclaim deed from Pyers to 
Marples should not permit foreclosure in a fashion which denied junior 
lienholder rights of redemption. We agree. The invalidity of an attempted 
foreclosure by an escrowed quitclaim deed in contravention of foreclosure 
statutes and right of redemption needs no particular discussion beyond the 
recognition of the fundamental principle. Recording of the quitclaim deed could 
terminate neither the rights of redemption of the mortgagor nor security 
interests and rights of redemption of the holders of recorded junior liens. 
Section 1-18-103, W.S. 1977 (redemption by mortgagor); § 1-18-104, W.S. 1977 
(redemption by judgment creditors and junior lienholders); Brown v. Hermance, 
233 Iowa 510, 
10 N.W.2d 66 (1943); Rudolph, supra at 74; Osborne on Mortgages, supra, 
"clogging," § 96 at 144; Robert Kratovil and Raymond J. Werner, Modern Mortgage 
Law and Practice Second Edition, § 1.3(c) at 31 (1981).

[¶12.]  What is determined is that, after the 
initial sale transaction was signed and executed by conveyances and recording of 
the sales agreement document to evidence the retained security interest, those 
documents served to define a reserved, recorded security interest sufficient to 
afford a priority superior to the subsequent PCA real estate 
mortgage.

[¶13.]  Section 34-1-102, W.S. 1977 
provides:

"The term `conveyance' as 
used in this act, shall be construed to embrace every instrument in writing by 
which any estate or interest in real estate is created, alienated, mortgaged or 
assigned, or by which the title to any real estate may be affected in law or in 
equity, except wills, leases for a term not exceeding three (3) years, executory 
contracts for the sale or purchase of lands, and certificates which show that 
the purchaser has paid the consideration and is entitled to a deed for the 
lands, and contain a promise or agreement to furnish said deed at some future 
time."

[¶14.]  The delivered deed concluded the 
executory nature of an installment sales arrangement and resulted in a defined 
mortgage lien with the effect provided by § 34-1-121, W.S. 1977. By this 
determination, we accord to the recorded instrument the rights of a security 
document, namely a real estate mortgage, which is subject to foreclosure by 
Marples with proper pleading, and would accord to successors who may hold junior 
liens, such as PCA, rights as a junior lienholder for redemption pursuant to 
§1-18-104, W.S. 1977.

[¶15.]  Reversed and remanded in accord with this 
opinion.

FOOTNOTES

1 Present counsel for 
Marple is not the attorney who drafted the sales 
documents.

2 The convolutions of the 
initial documentation is not diminished by missing clarity and appropriateness 
of pleading. Marples' quiet-title complaint alleged the equitable mortgage 
against Pyers, claimed what is in the nature of foreclosure rights by virtue of 
filing a quitclaim deed, and prayed for a decree of quiet title, including the 
most curious paragraph:

"Declaring that 
defendants, James E. Pyer and Betty J. Pyer, and Defendant, Wyoming Production 
Credit Association, and all persons claiming under them have no estate, right, 
title, lien or interest in or to said property or any part 
thereof."

It seems clear 
on the face of the complaint that it failed to state a claim upon which relief 
could be granted. First, if there was an equitable mortgage, quiet title was not 
the remedy as compared to foreclosure, Baldwin v. McDonald, supra; Albright v. 
Henry, 285 Minn. 452, 174 N.W.2d 106 (1970), and secondly, since clearly PCA had 
a mortgage interest, the question was only whether it was junior or senior to 
the mortgage interest of seller. Additionally, as a fact of purity in pleading, 
plaintiff was apparently not in possession when instituting the quiet-title 
action. See Form 16, Appendix of Forms, W.R.C.P., as compared to the complaint, 
"are entitled to possession." See also, § 1-32-201, W.S. 1977 defining the basis 
for a quiet-title proceeding.

Pyers answered with 
affirmative defenses in a five-page response and then ultimately disappeared 
from the litigation by counsel advice as a notification to the court prior to 
hearing that the Pyers had no interest in the matter for hearing and would not 
appear. There was no judgment or final-order disposition of rights between 
Marples and Pyers. PCA responded to the litigation by answer and counterclaim, 
contending for a priority right and invalidity of lien claim of the seller, and 
praying:

"1. That the Court find 
and determine that here is due and owing Plaintiff on said notes Exhibit `A', 
Exhibit `B' and Exhibit `C' and said mortgages, Exhibit `D' and Exhibit `E', the 
sum of $113,384.27 plus interest in the sum of $20,908.40 to May 27, 1986 and 
accruing at the rate of $4.50 daily, together with interest from and after May 
27, 1986, and any advances that might be made during the pendency of this 
action.

"2. For an Order to 
foreclose the subject property and the status of all claims 
thereon."

3 Understandably, in the 
nature of summary-judgment disposition, but otherwise not clearly explicable in 
reasoned preparation and presentation, documents normally to be included in the 
record but not presented include: (a) promissory note from Pyers to Marples; (b) 
escrow instructions; (c) PCA's loan file documentation relating to credit 
analysis, applications and approvals; and (d) First National Bank's note and 
security documents.

4"When a deed or mortgage 
purports to be an absolute conveyance in terms, but is made or intended to be 
made defeasible by force of defeasance, or other instrument for that purpose, 
the original conveyance shall not be thereby defeated or affected as against any 
person other than the maker of the defeasance, or his heirs or devisees, or 
persons having actual notice thereof, unless the instrument of defeasance shall 
have been recorded in the office of the register of deeds [county clerk] of the 
county where the lands lie." Section 34-1-127, W.S. 1977.

5 Considerable examination 
and review have been pursued by the parties on the topic of equitable mortgage. 
Characterizations and classifications seem to afford little benefit, except the 
normal definition of an equitable mortgage is to be an instrument that was not 
properly prepared or executed to constitute a legal mortgage. Coast Bank v. 
Minderhout, 61 Cal. 2d 311, 38 Cal. Rptr. 505, 392 P.2d 265 (1964), overruled on 
other grounds sub nom. Wellenkamp v. Bank of America, 21 Cal. 3d 943, 148 Cal. Rptr. 379, 582 P.2d 970 (1978); Rex v. Warner, 183 Kan. 763, 332 P.2d 572 
(1958); George E. Osborne, Mortgages, Ch. 2 at 32, (2d ed. 
1970).