Peay v. B & N Inc.

HENRIOD, Justice. Appeal from a judgment holding that Prudential had a superior first mortgage •on property subject of this litigation, and foreclosable as such. The judgment is affirmed, with costs to respondents. Under familiar rules of appellate review favoring the facts substantially supporting the judgment, such facts which are pertinent fairly may be abstracted as follows: On June 29, 1962, Peays conveyed the subject property to their son Robert and his wife, by warranty deed.1 The property apparently was to be used to develop a bowling alley facility. This deed effectively divested the plaintiffs Peay of any title whatever. Twelve days later, on July 10, 1962, Robert and his wife likewise divested themselves of any title thereto, by executing and delivering to the B & N Corporation a warranty deed.2 The next day, July 11, 1962, the then title owner, B & N, mortgaged the property to a bank to secure a loan, obtained for the purpose of erecting a bowling alley building. At that time, the bank had a first mortgage lien on the property. B & N Corp. had record title thereto, and the plaintiffs Peay had nothing in the way of title or other recorded interest in the property. Nonetheless, later on the same day a uniform real estate contract was executed describing the same property, and signed by the plaintiffs Peay, purportedly as Sellers, and B & N purportedly as Buyer, reciting a consideration of $50,000, payable in installments. This contract was recorded on December 15, 1965, some 3J4 years after its execution.3 On October 31, 1966, B & N, desiring to retire the balance due [88] on the existing mortgage, and to pay off the balance of an obligation to the Peays under the uniform real estate contract mentioned, executed an application for a loan from Prudential for $150,000. In a box in the application under “Purpose of Loan” was a notation: “Refinancing Present Mortg. with: Elias Peay, First Sec. State.” The Peays made much of this notation in urging its priority over Prudential, who made the loan. The bank holding the first mortgage was paid off. Prudential was advised that the Peays would be paid by applicant out of a reserve fund independent of the requested loan. This circumstance, plus the fact that the Peays did not have the subject property to sell to B & N or anyone else, having theretofore conveyed it away by warranty deed, plus the fact that at the time application for a loan from Prudential was executed there had been no attempt whatever to elect or treat the uniform real estate contract as a mortgage under Paragraph 16(C), certainly would justify an abstract examiner, a title company or Prudential, to give no serious consideration to such contract, which was not changed by the fact of recordation. Prudential issued the loan: on November 8, 1966, and to secure it, took a first mortgage. In September, 1967, Peays, by letter to' B & N, notified the latter of its default in payment, and if it failed to pay up, Peays would sue for the balance due under Paragraph 16 of the contract.4 In October, 1967, they again wrote B & N, this-time to say that if the latter didn’t pay up, the contract would, be treated as a mortgage.5 On November 14, 1967, Peays instituted this action to foreclose the uniform real estate contract as a mortgage, with priority over the Prudential mortgage executed and recorded a year before. Peays urge two points on appeal: 1) That the trial court erred in refusing to find the contract between Peay and B & N a mortgage, and 2) That it erred in not finding that recording the contract “intended by the parties” to be a mortgage gave Peays a valid claim thereof.6 As to 1): A simple answer to this point is that as between Peay and B & N, at [89] ■'the time of recording, Peays did not have title to the property described in the contract, and the agreement to sell such “something” that the Peays did not have, in no sense encumbered the property. There was no magic in the recordation of a contract purporting to sell something in which the purported seller had no inter•est. The contract mortgaged nothing since Peays had nothing to mortgage. At best the recording of the nugatory paper could have been a monument to possible evidence of indebtedness. The promissory portion ■ of the contract, without a description of the property, well may have been recorded instead of the contract, in which event Peays’ argument would be just as tenable. To say that years after the contract, Prudential intended to subordinate its first lien to an illusory one based upon the “intentions” of Peays and B & N as to non-existing property recited in the contract, because on an application for loan the Peays were listed in a box designating mortgagees, is ridiculous, particularly since any such application or its terms would be resolved by the subsequent note and mortgage, in neither of which was even the remotest suggestion that Prudential subordinated itself to any first mortgage held by anyone. In truth, at the time of the Prudential mortgage, there possibly could not have been a mortgage in favor of Peays, since any attempt to make such a claim came about a year after the Prudential mortgage, when Peays attempted to convert the contract into a mortgage. Even then the attempts to effect such a result by letters, were abortive,7 and there was no real election until at least when the complaint was filed,' — and even at that time, the Peays had no interest in the property they described in the equally abortive purported contract. Peterson v. Carter,8 decided by this court, is somewhat akin to the instant case, although involving a so-called Vendor’s lien situation.9 As to 2) : Peays’ contention that all the parties “intended” the contract to be a mortgage: The record fairly reflects that Mr. Slaven, a purported co-buyer with B & N under the contract, took the position that he did not so consider the document. This would leave his co-buyer, an inanimate corporation, as the only one on the [90] buyer’s end of the contract that might have “intended” the contract to be a mortgage. CALLISTER and TUCKETT, JJ., concur. Footnotes [1] Recorded July 9, 1962. [2] Recorded July 11, 1962. [3] This contract was a filled-in, printed and commonly used form. In Par. 16 thereof, the Seller has an option (A) to be released from its obligations on default, and take possession, (B) to reduce delinquent payment to judgment, etc., or (C) “The Seller shall have the right, at his option, and upon written notice to the Buyer, to declare the entire unpaid balance hereunder at once due and payable, and may elect to treat this contract as a note and mortgage, and pass title to the Buyer sub88 feet thereto, and proceed immediately to foreclose the same in accordance with the laws of the State of TJtah * * [4] This letter apparently had to do with option (B), not (0) treating the contract as a mortgage. [5] It is noted that in neither of the letters was an election made to treat the contract as a mortgage, since they conceded that no such election would be made if the delinquencies were resolved. [6] The second point is not too clearly put, but we assume that it means that Peay, by recording the contract, not only claimed it to be a first mortgage but that it was notice to all of the nature and extent of such document and any unrecorded “intention of the parties,” at least so far as Prudential was concerned. [7] Under -the very terms of the contract under Paragraph 10(0), the Seller is required 1) to give written notice that 2) the entire unpaid balance is declared due and payable, 3) that the seller elects to treat the contract as a mortgage, and 4) to pass title to the buyer, before proceeding to foreclose, in order to convert the contract to sell into a mortgage. None ■of these conditions was complied with, and in fact coull not have boon complied with since tlio sellers bad nothing to which they could have passed title. [8] 11 Utah 2d 381, 359 P.2d 1055 (1961). [9] See also Pollei v. Burger, 23 Utah 2d 381, 464 P.2d 377, 1970 and cases therein cited, particularly Petrofesa v. Denver & R. G. W. R. Co., 110 Utah 109, 169 P.2d 808 (1946).