Opinion ID: 402238
Heading Depth: 4
Heading Rank: 3

Heading: The Effect of the State Court Proceedings Between the Louis and Lillian Corey

Text: 79 When the Louis sued Lillian in state court for specific performance of the agreement of sale between them, one of the defenses was that Lillian did not even own the property. This defense was based on the mortgage theory discussed above. The Louis now argue that the judgment in their favor in the state trial court, now affirmed in relevant part on appeal, 11 requires this court to reject the mortgage theory on principles of collateral estoppel and stare decisis. 80 Ellis, of course, and many of the other parties to these consolidated appeals, were not named parties to the state court action. Whether they could be bound by any collateral estoppel effect of that action would depend on the extent to which they had an interest in, and exercised control over, the litigation in the state courts. Montana v. United States, 440 U.S. 147, 154, 99 S.Ct. 970, 974, 59 L.Ed.2d 210 (1979). It is not necessary, however, to undertake that analysis here because the state trial court, as we read its decision, did not hold that the March, 1971 transaction was a sale. 81 We note at the outset that Judge Lum, in the state action, made a number of findings of fact relating to the March 1971 transaction and the mortgage theory. He found that circumstances of the kind surrounding the transaction in Kawauchi, supra, did not exist here. However, he stopped short of making an explicit finding that the transaction was a sale and not a mortgage. 12 At the same time, he made findings which would support the judgment rendered even if the transaction had been a mortgage. For instance, he found that Lillian Corey was estopped to now deny ownership of the property because of her own representations before and during the litigation. He also noted that (d) efendant could have achieved a conveyance of the property free and clear from all encumbrances even if she had in fact only the interest of a mortgagee therein, because of an outstanding offer by Ellis to convey the property to the Louis under a formula by which she would have received $282,500-more than she claimed to be entitled to under the mortgage theory. In view of these observations by Judge Lum, we do not see in his opinion an unequivocal finding that the 1971 transaction was a sale rather than a mortgage. 82 Even if there were an unequivocal finding that the transaction was a sale, we would not be able to apply it as a bar under principles of collateral estoppel or stare decisis. It is hornbook law that both of these principles give effect only to matters that have formed an essential basis for the earlier decision. But the prior action here was for enforcement of a contract between the Louis and Lillian. Lillian agreed to sell the Silversword Inn to the Louis. She failed to perform her agreement by delivering possession. Ordinarily, a person is not relieved of liability for breach of a promise to sell property simply because he or she turns out not to have marketable title. Of course, specific performance of such an agreement will not be decreed if the defendant does not have and cannot obtain title. 5A Corbin on Contracts P 1170 at 255 (West 1964). But that rule does not apply where, as Judge Lum found here, there is a contract between the vendor and the true owner under which the vendor can obtain title. See id. at 256. We conclude that it was unnecessary for the court to decide whether the 1971 transaction was a sale or a mortgage, and that therefore no such decision stands as a holding of the case. 13