Case Name: Raymond P.L. CANNEFAX and Debra Cannefax, Plaintiffs and Appellants, v. Donald W. CLEMENT and Ruth L. Clement, Defendants and Respondents
Court: Utah Court of Appeals
Jurisdiction: Utah
Decision Date: 1990-02-02
Citations: 786 P.2d 1377
Docket Number: No. 890292-CA
Parties: Raymond P.L. CANNEFAX and Debra Cannefax, Plaintiffs and Appellants, v. Donald W. CLEMENT and Ruth L. Clement, Defendants and Respondents.
Judges: Before BILLINGS, JACKSON and BULLOCK , JJ.
Reporter: Pacific Reporter 2d
Volume: 786
Pages: 1377–1391

Head Matter:
Raymond P.L. CANNEFAX and Debra Cannefax, Plaintiffs and Appellants, v. Donald W. CLEMENT and Ruth L. Clement, Defendants and Respondents.
No. 890292-CA.
Court of Appeals of Utah.
Feb. 2, 1990.
Rodney M. Pipella (argued), Salt Lake City, for plaintiffs and appellants.
Steven H. Lybbert (argued), Salt Lake City, for defendants and respondents.
Before BILLINGS, JACKSON and BULLOCK , JJ.
. J. Robert Bullock, Senior District Judge, sitting by special appointment pursuant to Utah Code Ann. § 78-3-24(10) (1989).

Opinion:
OPINION
BILLINGS, Judge:
Raymond and Debra Cannefax ("Canne-faxes") appeal a summary judgment entered against them in their quiet title action and in favor of Donald and Ruth Clement ("Clements"). In granting summary judgment, the court held that a seller's retained legal title to real property under an exec-utory land sale contract was "real property" and, therefore, that a judgment docketed by the Clements, the seller's creditors, was a lien against the property pursuant to Utah Code Ann. § 78-22-1 (1987). We reverse.
George W. Barker, Jr. and Lila M. Barker ("Barkers") were fee simple owners of the Lockhart Road Property at issue in this quiet title action. In 1981, the Barkers entered into a uniform real estate contract to sell their property to Diane Hodge ("Ms. Hodge") for $160,000. Ms. Hodge paid $40,000 to the Barkers at the time of the sale and she was to pay the balance over the contract term. On August 31, 1981, Ms. Hodge recorded a notice of her uniform real estate contract.
Four years later, the Clements obtained a judgment against the Barkers for $70,526 which was docketed in August 1985. The stipulated facts show no attempt by the Clements to execute against the Barkers' retained interest in the Lockhart Road Property nor any attempt to garnish the proceeds Ms. Hodge paid to the Barkers during the executory period of the uniform real estate contract.
On September 25, 1985, Ms. Hodge paid the remaining amount due under her uniform real estate contract with the Barkers, satisfied prior obligations on the Lockhart Road Property, and the Barkers deeded the property to her. At the same meeting, Ms. Hodge sold the property to the Cannefaxes and gave them a warranty deed to the Lockhart Road Property. After the dual closings were completed, Surety Title conducted a title search which disclosed the Clements' judgment docketed against the Barkers. This is the first mention in the stipulated facts of any actual knowledge of the Clements' judgment.
Subsequently, the Clements obtained a writ of execution against the Lockhart Road Property then owned in fee simple by the Cannefaxes. In response, the Canne-faxes brought this quiet title action.
The trial court granted summary judgment in favor of the Clements, holding their judgment was a lien on the Lockhart Road Property to the extent of $54,464.94, the amount which remained unpaid on the uniform real estate contract between their judgment debtors, the Barkers, and Ms. Hodge on September 25, 1985, the date the Barkers deeded Ms. Hodge the property.
We find the trial court's ruling contrary to the doctrine of equitable conversion which is the law in Utah. Under the doctrine of equitable conversion, once parties have entered into a binding and enforceable land sale contract, the buyer's interest in the contract is said to be real property and the seller's retained interest is characterized as personal property. R. Cunningham, W. Stoebuck, & D. Whitman, The Law of Property § 10.13, at 698 (1984). The rights of the parties are evaluated as if the conveyance had been made. H. McClin-tock, McClintock on Equity § 106, at 284 (1948) [hereinafter "McClintock on Equity"]-
The Utah Supreme Court first adopted the doctrine of equitable conversion in Allred v. Allred, 15 Utah 2d 396, 393 P.2d 791 (1964). The court characterized the seller's interest under a land sale contract as personalty, stating, "[a]s a general rule an enforceable executory contract of sale has the effect of converting the interest of the vendor of real property to personalty." 393 P.2d at 792. Again in In re Estate of Willson, 28 Utah 2d 197, 499 P.2d 1298 (1972), the court clearly held that the interest of a seller under a land sale contract was personal property, not real property, for inheritance tax purposes. 499 P.2d at 1300-01.
The court applied the doctrine of equitable conversion in a condemnation context in Jelco v. Third Judicial Dist. Court, 29 Utah 2d 472, 511 P.2d 739 (1973). In Jelco, both the buyer and the seller under an executory land sale contract claimed a right to the increase in value of the land which had been condemned. The court held the buyer was the owner of the land, and thus he was entitled to the condemnation proceeds. 511 P.2d at 741. In describing the status of the vendor under the contract the court stated, "the vendor . has only legal title. In regard to the purchase price, what he is entitled to is to have it paid in accordance with the terms of the contract." Id. See also Bill Nay & Sons Excavating v. Neeley Constr. Co., 677 P.2d 1120, 1121 (Utah 1984) ("The interest of a purchaser under a real estate contract is an interest in real property....").
Contrary to the claims made by the dissent, the Utah Supreme Court has consistently applied the doctrine of equitable conversion characterizing the seller's interest under an executory land sale contract as personal property and the buyer's interest as real property.
The Utah Supreme Court recently applied the doctrine of equitable conversion in determining the rights of judgment creditors under an executory land sale contract in Butler v. Wilkinson, 740 P.2d 1244 (Utah 1987). In Butler, the court squarely held that the buyer's interest under the executory land sale contract was an interest in real property to which judgment liens could attach. Justice Stewart stated: "The doctrine of equitable conversion characterizes the seller's interest as an interest in personalty and not as one in realty, where as the vendee's interest under the exec-utory contract is deemed an interest in realty." Id. at 1255. Further clarifying the doctrine of equitable conversion as it affects judgment creditors, he continued:
Under the doctrine of equitable conversion, a vendee under a uniform real estate contract obtains an equitable interest in the land itself, even though the vendor retains the legal title. The vendee 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. By a parity of reasoning, the vendor under such a contract is deemed to have converted his interest in the land that is the subject of the contract to a monetary or legal interest
Id. at n. 5 (emphasis added). The court further detailed the nature of the interest retained by the seller under a land sale contract, stating:
Under an installment land sale contract, the vendor retains legal title as security for the purchase price of the property. Oaks v. Kendall, 23 Cal.App.2d 715, 73 P.2d 1255 (1937); Marks v. City of Tucumcari, 93 N.M. 4, 595 P.2d 1199 (1979). Nevertheless, as a general proposition, the vendee is treated as the owner of the land....
The vendor's interest is similar to the security interest of a purchase money mortgagee.
Id. at 1254-55 (emphasis added).
The supreme court in Butler concluded the buyer under a binding executory land sale contract has an interest in real property to which judgment liens may attach as to any other real property interest but subject to the seller's prior lien. "By a parity of reasoning," the court concluded that the seller's interest under the contract is merely the right to receive the proceeds under the contract secured by his retained legal title similar to the "security interest of a purchase money mortgagee." Id. at 1255.
In Butler, Justice Stewart relied upon Marks v. City of Tucumcari, 93 N.M. 4, 595 P.2d 1199 (1979). In Marks, the New Mexico court applied the doctrine of equitable conversion and held that the interest retained by the vendor under a land sale contract is personalty and not real estate, and thus that a judgment docketed by a creditor of the seller during the exec-utory period of the contract had no effect on the interest of a subsequent purchaser of the property. 595 P.2d 1201-02.
The dissent claims Butler supports its holding that a judgment lien docketed against the seller's interest under a uniform real estate contract survives as a lien against the land even though all proceeds have previously been paid to the judgment debtor-seller under the contract and the property has been deeded to a subsequent purchaser for value. We disagree. The dissent relies on the following language from Butler: "[the seller has] a contract right to . take back the vendee's interests if the vendee defaults. The vendor also has an interest . measured by the amount the vendee owes under the contract." Butler, 740 P.2d at 1255 (citation omitted). This language is consistent with our view of the nature of the seller's retained interest, not the dissent's. • The seller has retained legal title as security to insure that he or she receives the payments due under the contract; if the buyer should default, the seller's title will not be released to the buyer. This is the extent of the seller's retained interest — which, under the doctrine of equitable conversion, is not in the nature of real property such that liens can attach under section 78-22-1.
This court's recent decision in Lach v. Deseret Bank, 746 P.2d 802 (Utah Ct.App.1987), adopts our reading of Butler. In dicta, this court concluded that a judgment lien docketed against a seller's interest under a uniform real estate contract did not affect the rights of the buyer under that contract. Id. at 805. Our language that "no judgment lien can be created by a judgment docketed against a seller after the seller executes a binding earnest money contract," id., however, needs amplification. The docketed judgment does not become a lien under the statute because the seller's retained legal title is not real property.
We believe Utah authority supports the following analysis of this case. The Barkers entered into a uniform real estate contract to sell the Lockhart Road Property to Ms. Hodge before the Clements docketed their judgment. Under the doctrine of equitable conversion, the Barkers retained only bare legal title to the property as security to receive the payment of the proceeds due from Ms. Hodge under the contract. Thus, the Clements' docketed judgment did not create a judgment lien against the Lockhart Road Property.
The three jurisdictions relied upon by the dissent, Nebraska, Idaho and Oregon, have held that a judgment creditor of a contract seller will be given a lien in the property to the extent of the unpaid amounts due under the contract. Monroe v. Lincoln City Employees Credit Union, 203 Neb. 702, 279 N.W.2d 866, 868 (1979); First Sec. Bank v. Rogers, 91 Idaho 654, 429 P.2d 386, 389 (1967); Beider v. Dietz, 234 Or. 105, 380 P.2d 619, 624 (1963) (en banc). This rule has been qualified, however, to allow a purchaser to continue to make payments pursuant to his contract until he is given actual notice of the judgment lien. The buyer is not required to search the records before he makes his payments under the contract. Lacy, Creditors of Land Contract Vendors, 24 Case W.Res.L.Rev. 645, 647 (1973) [hereinafter "Lacy, 24 Case W.Res.L.Rev. 645"]; Simpson, Legislative Changes in the Law of Equitable Conversion by Contract, 44 Yale L.J. 559, 578 (1935) [hereinafter "Simpson, 44 Yale L.J. 559"]. Furthermore, any lien acquired by the judgment creditor is "discharged by payment of the balance of the purchase money due although less than the amount of the judgment." Id.; see also 3 Am.Law Real Property § 11.29, at 86 (A. Casner ed. 1952) [hereinafter "3 Am.Law Real Property"]-
Thus, not even the "rule" relied upon by the dissent supports its position. There are no facts in the record to support a finding that Ms. Hodge had actual notice of the Clements' judgment before she paid all proceeds due the Barkers as sellers under the contract.
Furthermore, the rule relied upon by the dissent is not the majority rule, nor the rule in Utah. The following jurisdictions have held that a judgment lien against the seller's interest is not an encumbrance on the buyer's property interest under a land sale contract: Marks v. City of Tucumcari, 93 N.M. 4, 595 P.2d 1199, 1202 (1979); Mueller v. Novelty Dye Works, 273 Wis. 501, 78 N.W.2d 881, 884 (1956); Stecker v. Snyder, 118 Colo. 153, 193 P.2d 881, 884 (1948); Snow Bros. Hardware Co. v. Ellis, 180 Ark. 238, 21 S.W.2d 162, 163 (1929); see also Simpson, 44 Yale L.J. 559, 579 nn. 132, 133 and cases cited therein.
More importantly, all of these vintage cases dealing with creditor's rights under an executory land sale .contract turned on the peculiar facts presented and do not undertake a reasoned discussion of the application of the doctrine of equitable conversion in dealing with third party creditors. Of more assistance are the commentators who have written on the topic. These commentators criticize the approach taken by the dissent and approve the one advocated herein.
Discussing the conceptual framework created by the doctrine of equitable conversion in the judgment creditor context, one author states:
The rights of creditors of the vendor or purchaser to reach the interest of their debtor in the land contracted to be sold or purchased depend in large part on the theory of equitable conversion. Since on that theory, the purchaser is regarded as owner of the land and debtor for the purchase money and the vendor as holding legal title as security for payment by the purchaser, it logically follows that creditors of the purchaser should be able to reach the land subject to the vendor's lien thereon, while creditors of the vendor should be able to reach the land only to the extent of the vendor's security interest.
3 Am.Law Real Property § 11.29, at 83 (emphasis added). See also McClintock on Equity § 106, at 286.
Several commentators have explicitly endorsed the cases that refuse to allow a vendor's judgment creditors to acquire a lien as against the purchaser under an ex-ecutory land sale contract even though the purchase price is unpaid and the purchaser has actual knowledge of the judgment lien. 3 Am.Law Real Property § 11.29, at 86; Simpson, 44 Yale L.J. 559, 579; Lacy, 24 Case W.Res.L.Rev. 645, 662. "This works no injustice upon the creditors, who may proceed by garnishment to reach the purchase money or by bill for equitable execution to reach both purchase money and vendor's lien." 3 Am.Law Real Property § 11.29, at 86. Another commentator states:
[I]t is difficult to see why the purchaser's knowledge of a ju'dgment against . his vendor, should impose upon him the necessity of paying otherwise than in accordance with his contract. Some courts have held, and, it would seem with sound reason, that the vendor's judgment creditors acquire no lien as against the purchaser even though the purchase price is unpaid and the purchaser knows of the judgment. This works no injustice on the creditor, who may proceed by garnishment to reach the purchase money or by bill for equitable execution to reach both purchase money and the vendor's lien.
Simpson, 44 Yale L.J. 559, 579 (footnotes omitted).
Still another scholar concludes that even if one considers that the seller's judgment creditor's lien can attach, the creditor should not have any right to receive payments upon mere attachment of a judgment lien but only upon an execution sale. Lacy, 24 Case W.Res.L.Rev. 645, 662.
The dissent also alludes to several policy considerations which it claims support its holding. We discuss each in turn. The dissent rejects application of the doctrine of equitable conversion under a uniform real estate contract claiming that it "is hardly what most parties to a real estate sale contract have in mind. The more straightforward notion of such a contract envisions the land as changing hands only after the price is paid." However, executory land sale contracts are used by and are generally intended by the parties as long-term financing devices similar to mortgages or trust deeds. Therefore, it is not inconsistent that the effect of a judgment docketed against the seller under a uniform real estate contract should be the same as one docketed against a mortgagee or trust deed beneficiary. Furthermore, there are absolutely no facts to support the dissent's view of the parties' intentions in this case. The dissent candidly admits that the Barkers did not intend that their judgment creditors could acquire a superior position to their buyer, Ms. Hodge, under the uniform real estate contract.
The dissent further admits that "[e]na-bling creditors to have access to the seller's title to the property may lessen somewhat the predictability of real estate transactions." However, it answers this concern by chiding Professor Langdell and his disciples for espousing certainty and predictability in legal doctrines. We believe there is no better place for Professor Langdell's "legal geometry" and predictability than in the transfer of real property and its effect on innocent third parties who must rely on some bright-line rule.
The dissent concludes the problems created for contract buyers by its rule are not substantial as "a prudent buyer can still assure his title by checking the judgment docket to determine if creditors' claims exist." We believe the dissent places an unreasonable burden on the buyer, one that for practical purposes will destroy the commercial feasibility of property sales by long-term contracts. Under the dissent's view, a buyer would be required to check the judgment docket before making each monthly payment to the seller. We believe the burden is more equitably placed on the judgment creditor who can enforce his judgment under Utah R.Civ.P. 64C, 64D or 69.
Finally, we do not see how the "equities," as claimed by the dissent, are with the Clements as judgment creditors in this case. The issue is not whether the Clements should have recourse on their judgment but rather the procedural form of their remedy and the person who can be compelled to satisfy their judgment. It was the Clements who sat on their rights failing to pursue their remedies. It is not inequitable that as a result they cannot collect their judgment against a subsequent innocent purchaser.
In conclusion, we reverse the summary judgment granted to the Clements and order the trial court to enter summary judgment in favor of the Cannefaxes quieting title to the Lockhart Road Property in them.
. The dissent ignores the previous precedent, and rather relies upon its interpretation of Reynolds v. Van Wagoner, 592 P.2d 593 (Utah 1979), claiming the Utah court chose not to apply the doctrine of equitable conversion in this case because "it would have led to an inequitable result inconsistent with the contractual intent of the parties." We disagree with the dissent's reading of this case. The Utah Supreme Court in Reynolds did not utilize the doctrine of equitable conversion because the case focused on abandonment of contractual rights not equitable conversion. Id. at 594.
. There are no allegations that the Cannefaxes as buyers acted in bad faith in purchasing the property at issue. For cases where "sweetheart" contractual deals are entered into to defraud creditors, there is a remedy available under the Utah Fraudulent Transfer Act, Utah Code Ann. § 25-6-1 to -13 (1989).