Court Opinion

ID: 9482148
Source: CourtListenerOpinion
Date Created: 2023-08-05 08:42:01.470838+00
Date Added: 2024-06-11T17:48:48.080892
License: Public Domain

WIDENER, Circuit Judge,
dissenting:
The analysis of the majority, in my opinion, is misdirected in several fundamental respects. Simply put, the majority opinion mistakes the source of Old Stone’s lien on the “proceeds of sale”; it overlooks the most authoritative interpretation of the meaning of this term in the context of this case; it relies on the Uniform Commercial Code; and it does not take account of Virginia real estate law. For these reasons, and as set forth more fully below, I respectfully dissent.
The majority correctly notes that the foreclosure sale of the real property in question was stayed by virtue of the automatic stay in bankruptcy. The bankruptcy court then authorized Tycon to sell the property free of all liens, with the lien of Old Stone’s deed of trust “to attach to the proceeds of sale.” If the deed of trust lien attaches to the security deposit in question, it is therefore by virtue of the language of this order of the bankruptcy court. The majority, however, very nearly ignores the order of the bankruptcy court and dwells exclusively on the language of the deed of trust, which does not even mention proceeds of sale.1 I believe that this approach is incorrect because the earnest money deposit was not incident to a sale under the deed of trust, but rather to the sale under the order of the bankruptcy court.
In its effort to construe the meaning of the term “proceeds of sale,” the opinion of the majority draws analogies to the treatment of goods under the Uniform Commercial Code2 and invokes its broad understanding of “the deed as a whole in the context of the commercial realities present in this case.” However, the most important indicator of the meaning of “proceeds of sale” as used in the bankruptcy court’s order lies much nearer at hand. We have before us the opinion of the bankruptcy court in which that court has interpreted *277its own order, including the scope of the term “proceeds of sale.” This opinion plainly states that “the deposit is not proceeds subject to Old Stone’s security interest.”
I believe that this interpretation is entitled to deference in view of our long-standing recognition of “the inherent deference due a district court when it construes its own order.” Anderson v. Stephens, 875 F.2d 76, 80 n. 8 (4th Cir.1989); Simmons v. South Carolina State Ports Authority, 694 F.2d 63, 66 (4th Cir.1982) (stating that “the action of the district court in construing its own order ... deserves deference.”) Such deference seems particularly appropriate in this case. The record indicates that when the bankruptcy court drafted its order approving the sale and stating that the liens would attach to the “proceeds of sale,” it had before it the Agreement of Purchase and Sale in which the $100,000 deposit was termed “liquidated damages.” That the bankruptcy court was aware of the contents of the Agreement is shown by the fact that the Agreement is mentioned in this same order in which the court directed that the liens would attach to the proceeds of sale without making any reference to the deposit. In the bankruptcy court’s subsequent opinion, it twice referred to the fact that the contract provided that the deposit would be liquidated damages.
Moreover, the record reflects that Old Stone itself approved the sale of the property under the Agreement identifying the deposit as liquidated damages. I suggest the majority’s stated preference for substance over form is not more than a slender reed upon which to base a reversal and that Old Stone should not be permitted to escape the consequences flowing from the use of a term which it has itself approved. The provision in the Agreement identifying the deposit as liquidated damages specifically contemplated the very event that came to pass, namely, the failure of the purchaser to close the sale. It seems to me disingenuous for Old Stone to insist that it intended for the deposit to be treated as proceeds when it consented to a contract that plainly stated otherwise.
As a subordinate matter, I must also note my disagreement with the majority’s statement that its decision is buttressed by the language in the deed of trust concerning “all rents, issues, and profits arising from said real property.” Indeed, to the extent that Old Stone relies upon this language to establish a security interest in the earnest money deposit, its position is untenable as a matter of Virginia law in view of the fact that Tycon was a debtor-in-possession at the time its right to the deposit accrued. The Virginia Supreme Court has stated that a debtor-in-possession is “entitled to receive and apply to his own use, the income and profits of the mortgaged estate. And this is true although the mortgage by its terms covers the rents and profits.... ” Gibert v. Washington City, Virginia Midland and Great Southern R.R., 74 Va. 645, 648 (1881); see Frayser’s Adm’r v. Richmond and Allegheny R.R., 81 Va. 388, 391 (1886); 13A Michie’s Jurisprudence, Mortgages and Deeds of Trust, §§ 54, 55 (“A mortgagor left in possession of the mortgaged premises is entitled to the rents, issues, and profits of them, without rendering an account of them to the mortgagee, who can never recover them from him.”). Although I do not read the majority’s decision as relying primarily upon the deed of trust’s provision concerning rents, profits and issues, in the face of Virginia authority to the contrary, I disagree with even the suggestion that such language provided Old Stone with a lien on the deposit in question.
Finally, paragraph 7.3 of the Agreement specifically agreed to by Old Stone Bank provides in pertinent part as follows:
“If, at or prior to Closing, the Purchaser defaults ... the Seller shall have the right to retain the [earnest money] Deposit as full and complete liquidated damages .... ”
I suggest that the majority simply declines to enforce the provisions of this very plainly worded contract.
In conclusion, I am of opinion that the district court did not err in affirming the bankruptcy court’s decision to award the *278deposit to the debtor’s estate. I would affirm.3

. The majority states that the absence of express language in the deed of trust concerning proceeds of sale is not important because "the well established commercial practice is that a security interest in collateral extends to the proceeds of collateral even if they are not mentioned in the governing security agreement.” While the opinion indicates that security interests in real property come under this general rule, it cites as authority no cases involving real property, but relies on authority involving only personal property under the Virginia codification of the Uniform Commercial Code.
In the context of judgment liens, the Virginia Supreme Court has stated that "the lien ... attaches to the debtor’s land but not to the proceeds of sale thereof.” Orphanoudakis v. Orphanoudakis, 199 Va. 142, 150, 98 S.E.2d 676 (1957). The Court recognized that "the rights of a ... beneficiary in a deed of trust, whereby specific real estate is conveyed as security for payment of obligations due or to become due, are somewhat analogous to the rights of a judgment lien creditor," but declined to express an opinion on the question. Jones v. Hall, 177 Va. 658, 667, 15 S.E.2d 108 (1941). How the majority can discern a “well established" rule in this plain reservation of opinion is unexplained.

. The Uniform Commercial Code, indeed, does not apply to this real estate transaction. Va. Code § 8.9 — 104(j).

. Neither of the majority’s principal authorities, Aldersgate, 878 F.2d 1326 (11th Cir.1989) or Vandevender, 87 B.R. 59 (Bankr. S.D.Ill.1988), have any real bearing on this case. Neither of them involved a contract at all, much less a contract such as the one here which plainly states that the earnest money is liquidated damages. In addition to Aldersgate being decided under Florida law and Vandevender under Illinois law, Aldersgate depended on the Florida Uniform Commercial Code which has no bearing here. Additionally Vandevender followed Bank of Silvis v. Boultinghouse Auction Co., 71 Ill.App.3d 98, 27 Ill.Dec. 455, 389 N.E.2d 267 (1979) which had been followed in Aldersgate.