Court Opinion

ID: 9853111
Source: CourtListenerOpinion
Date Created: 2023-09-24 05:42:45.818698+00
Date Added: 2024-06-11T09:22:41.098708
License: Public Domain

Collins, J.,
concuring in part; dissenting in part:
I concur in the majority opinion of the court except reversal of summary judgment in favor of Hebard, and from that order, I dissent.
*173This issue involves Hebard’s personal liability for the deficiency in the amount due under the promissory note given for the balance on the purchase price. The property was sold under the deed of trust resulting in an alleged deficiency of $177,461.10. Paso asks judgment against Hebard personally for that amount. It contends he was a party to the contract creating joint and several obligations of the buyers (Hebard or his nominee). The contract provided the escrow holder was to vest title to the property in Hebard or his nominee and could accept a promissory note from Hebard or his nominee. Escrow holder accepted and delivered to Paso a promissory note and deed of trust from H & H Investment Company, Hebard’s nominee. It was under this deed of trust the sale was had, resulting in the alleged deficiency of $177,461.10. Paso was estopped in claiming further personal liability of Hebard under the note where it accepted without objection the note and deed of trust from H & H Investment Company, and, without objection, executed and delivered its deed to H & H Investment Company.
“The word nominee ordinarily indicates one designated to act for another as his representative in a rather limited sense. It is used sometimes to signify an agent or trustee. It has no connotation, however, other than that of acting for another, in representation of another, or as the grantee of another.” Schuh Trading Co. v. Commissioner of Internal Revenue, 95 F.2d 404 (7 Cir. 1938).
The use of a nominee, dummy or strawman in real estate sales transactions has a well accepted meaning. It was stated by Judge Swan in In re Childs Co., 163 F.2d 379 (C.C.A.N.Y. 1947), “It is familiar practice in real estate transactions, and particularly when a purchase money mortgage is to be given, for the real purchaser to take title in the name of a nominee or ‘dummy’ who will execute the mortgage; thereby the real purchaser avoids personal liability for any deficiency judgment in case the mortgage is foreclosed. [Citations omitted.] In such cases the vendor usually demands a down payment believed to be large enough to insure against the mortgagor’s default, and where the mortgagee knows he is dealing with a ‘dummy,’ he is actually contracting for the land as his sole security. See 43 Yale L.J. 140, 141.” Harvey on Real Estate Law & Title Closing, 3d Ed. § 362, p. 364. All those conditions are met in this case. There was a substantial down payment (29 percent of the purchase price), the contract of sale permitted title to vest in the nominee with the nominee to give *174back the promissory note and deed of trust. Clearly appellant-seller was not dealing with an undisclosed principal, but was content to look only to the land for the balance of its purchase price.
Appellant-seller urges that use in the contract of sale of the words “Buyers” (plural) and that Sellers and Buyers were jointly and severally liable creates an ambiguity in the contract requiring factual evidence to resolve, thus precluding summary judgment in favor of Hebard. However, at the time the contract was executed there was but one buyer, who was Hebard. Nothing is said in the contract who the nominee of the buyer might even be. Obviously Hebard used a corporate nominee, H & H Investment Company, for the express purpose of limiting his personal liability for the balance of the purchase price. Paso agreed to this in the contract and carried out the agreement by conveying title to the nominee and accepting back its promissory note and deed of trust. To say Hebard is now personally liable on the note because of the joint and several obligation clause in the contract is to frustrate the parties’ contract permitting use of a nominee by the buyer. It is said in Lee v. Ravanis, 212 N.E.2d 480 (Mass. 1965), “Except for some special circumstance we can see no purpose in any reference to a nominee if the buyer is obliged to incur liability on the mortgage and mortgage note.” Neither can I. Nowhere in all the facts outside the pleadings is such “special circumstance” shown. See also Strawmen in Realty Transactions, 25 Wash. U.L.Q. 232 (1940).
Moreover, courts generally do not favor deficiency judgments against other than the buyer. Here appellant-seller seeks to fix personal liability on Hebard of some $177,461.10. A New York court refused to set aside a transfer of assets from a nominee to a nominator corporation precluding satisfaction of a deficiency judgment. The court refused to recognize a trust relationship between the two corporations or to set aside the conveyance as being without consideration and a fraud upon creditors. Fraw Realty Co. v. Natanson, 185 N.E. 679 (N.Y. 1933). In a note on the case it is said in 43 Yale L.J. 140, at 141, “Where the mortgagee knows he is dealing with a ‘dummy,’ he is actually contracting for the land as his sole security. * * * Hence, the court might, consistent with established doctrine, have sustained a legally justifiable method of avoiding deficiency judgments.”
I respectfully dissent.