Opinion ID: 416544
Heading Depth: 2
Heading Rank: 1

Heading: Nature of the Land Sale Contracts.

Text: 17 The legal nature of the contractual relations between the members of the Baldrian class and Cochise on the date of the bankruptcy filing is of crucial importance in this case. If the contract between Cochise and a lot purchaser upon which payments were made was a fully executed contract on that date, then all payments on that note vested in the trustee. See infra Part II(A). If the contract was executory, however, other consequences follow. See infra Part II(B). Whether the land sale contracts were executed or executory also affects the liability of the trustee for misconduct. See infra Part III. 18 Without considering whether any of the land sale contracts were executory on June 5, 1972, the bankruptcy court entered summary judgment for defendant, even though the answers to interrogatories and facts sworn to in affidavits before the court tend to establish that some if not all of the contracts were executory. This being error, we reverse. 19 Seeking to sustain the grant of summary judgment, Perry argues that all of the contracts upon which payments were made were, as a matter of law, fully executed, not executory on June 5, 1972. We disagree. 20 Perry first contends that in each case the contract upon which payments were made comprised only the promissory note signed by the Baldrian class member, pursuant to which the class member promised to pay specified sums at times certain. Perry argues that any obligations of Cochise to convey a deed to the lot or to construct roads for and to provide utility connections to the purchased lot were commitments by Cochise that were not part of that promissory note contract. We reject that argument. 21 A promissory note is itself merely a promise or engagement, in writing, to pay a specified sum at a time therein limited ... to a person therein named, or to his order, or bearer. Black's Law Dictionary 1093 (rev. 5th ed. 1979). A contract, by contrast, is an agreement between two persons which creates an obligation to do or not to do a particular thing and comprises promises by both parties to perform certain obligations. Id. at 291-92; see Shattuck v. Precision-Toyota, Inc., 115 Ariz. 586, 588-89, 566 P.2d 1332, 1334-35 (1977) (valid contract requires mutual irrevocable promises by both parties). A promissory note, standing alone, is not a contract at all, because, simply put, it embodies only one of the mutual promises necessary to create a contract. It evidences only one side of the bargain. 22 The existence of a promissory note on any given date, therefore, is not in and of itself proof that the payments on the note are in performance of an executed contract. Since payments on a promissory note are merely the performance of one side of the bargain, the note must be examined in conjunction with the other undertakings that, together with the promissory note, constitute the relevant contract of which the promissory note is but a part to determine what commitments remain to be performed by the parties. See, e.g., Smith v. Latourrette-Fical Co., 37 Ariz. 265, 270, 293 P. 973, 976 (1930) (contract to sell farm unit in subdivision determined to include not only note and mortgage but also covenant to furnish water to subdivision). Each land sale contract did not, and by definition could not, consist solely of the promissory note. 3 23 Perry also argues that even if the contracts here between the members of the Baldrian class and Cochise encompassed both the promissory notes and various obligations of Cochise, in any event, the contracts with the purchasers were not executory contracts under the terms of the Act. We reject that argument. 24 An executory contract under the Act is one: 25 under which the obligations of both the bankrupt and the other party to the contract are so far unperformed [at the moment of filing] that the failure of either to complete performance would constitute a material breach excusing the performance of the other. 26