Opinion ID: 2973381
Heading Depth: 3
Heading Rank: 1

Heading: Does the Ohio Statute Apply in this Case?

Text: Although it is undisputed that the Debtor has made the Contract payments to O’Brien for more than five years, the Appellants argue that Ohio Rev. Code § 5313 does not apply to the Contract. In support of this assertion, the Appellants claim that the Debtor, a limited liability company, is not a natural person and is therefore not a “vendee” under the statutory definition of the term. See Ohio Rev. Code Ann. § 5313.01(D). The Appellants further assert that the Ohio statute is inapplicable because the 82-unit apartment complex subject to the land installment contract should be viewed as commercial, rather than residential, property. See id. § 5313.01(B) (statute applies to real property located in Ohio which has been “improved by virtue of a dwelling having been erected” on it). Because the statute does not alter the executory nature of the Contract, the Panel will assume, arguendo, that the statute applies. It is unnecessary to address the Appellants’ arguments to the contrary. 2. Does Application of the Ohio Statute Change the Executory Nature of the Contract? The Debtor argues that Ohio Rev. Code § 5313.07 essentially transforms the otherwise executory Contract into a non-executory agreement. According to the Debtor, this transformation occurs because upon a potential breach of the Contract by the Debtor, O’Brien will not be entitled to regain possession of the Property via forfeiture, but will instead be forced to sell the Property at a foreclosure sale. Foreclosure would require O’Brien to transfer title of the Property, which the Debtor asserts “amounts to a statutory mandate to [O’Brien] to perform under the contract,” thus depriving the Contract of its executory nature. This contention improperly focuses on the availability of particularly remedies for breach of the Contract – rather than the parties’ unperformed obligations under the Contract – and is not supportable in light of the definition of executory contracts set forth in Terrell. In the present case, as in Terrell, there are material obligations left to be performed by both parties to the Contract. As vendor, O’Brien holds legal title to the Property, and will be required to convey that title to the Debtor only when the Debtor completes payments under the Contract. This is a significant legal obligation – precisely the same remaining obligation as the vendor in Terrell. -9- For its part, the Debtor must also continue making payments and performing its other obligations under the Contract. The Debtor’s failure to do so would constitute a material breach of the Contract. Under Ohio Rev. Code § 5313.07, although the Debtor’s breach would not give O’Brien the right to forfeiture, many other remedies remain available, the exercise of which could excuse O’Brien from conveying legal title to the Debtor. Because “the availability of the remedy of forfeiture” is “[a] key aspect of land contracts that distinguishes them from mortgages and other liens,” elimination of a vendor’s right to forfeiture under Ohio Rev. Code § 5313.07 may make land installment contracts subject to the statute appear more like security agreements and less like executory contracts. See Robert M. Curry & James Geoffrey Durham, Ohio Land Contract Law, 19 U. Dayton L. Rev. 563, 583 (1994). Indeed, prior to the Sixth Circuit’s decision in Terrell, at least one Ohio bankruptcy court decision relied on the similarities between installment land contracts under § 5313.07 and security agreements. In re Kratz, 96 B.R. 127 (Bankr. S.D. Ohio 1988). It determined that a contract subject to § 5313.07 was non-executory. Id. at 129-30 (“Given [the statute’s] procedural requirement[s], the vendee clearly acquires property rights in the contract land when twenty per cent of the total price has been paid. The nature of those property rights is analogous to those of an owner; while the vendors’ rights in the property are analogous to a security interest which is decreasing in value as the price (debt) is paid down . . . . [W]here the vendee has paid more than twenty per cent of the contract price, an installment land contract is more appropriately characterized as a financing arrangement and not an executory contract.”). However, Terrell specifically rejects the idea that the executory nature of a contract is determined by its resemblance to other types of financing arrangements. Instead, the proper focus of the inquiry is on the “unperformed obligations of the two parties or the legal effect of the failure to perform.” In re Terrell, 892 F.2d at 472. Notwithstanding Ohio Rev. Code § 5313.07, O’Brien, as vendor under the Contract, continues to hold legal title to the Property. O’Brien will be required to convey legal title to the Debtor upon full payment of the contractual purchase price. The existence of the future obligation to convey legal title, and the fact that a material breach in performance by the Debtor would excuse O’Brien from performing this obligation, render the Contract executory under Terrell. -10-