Hall v. Perry (In re Cochise College Park, Inc.)

Cochise College Park, Inc. (Cochise) (debtor) entered into installment contracts to sell residential lots to purchasers including Emma Hall and Christine Baldrian. Each purchaser signed a promissory note and a land-sale contract with Cochise. Cochise promised to convey title to the lots by warranty deed after all payments were made. Cochise also promised to improve the lots by building streets and providing utilities. On June 5, 1972, an involuntary bankruptcy proceeding was commenced against Cochise, and Cochise subsequently filed a voluntary Chapter X bankruptcy petition. Wallace Perry (defendant) was appointed bankruptcy trustee. Perry threatened Baldrian and other purchasers (collectively, the Baldrian class) (plaintiffs) with foreclosure if they did not keep making payments on their promissory notes. Subsequently, without notice to the Baldrian class, Perry obtained an order from the bankruptcy court permitting Perry to use the Baldrian class’s payments to pay the bankruptcy estate’s administrative expenses, including Perry’s trustee fee. On June 7, 1973, the bankruptcy court adjudicated Cochise to be bankrupt. The Baldrian class subsequently sued Perry in the bankruptcy proceeding, asserting that (1) Perry did not have title to the payments they had made on their promissory notes and (2) Perry should be held personally liable for fraud, negligence, and conversion for collecting the note payments. The bankruptcy court granted summary judgment in Perry’s favor after finding that title to the funds had vested in Perry as the bankruptcy trustee. The district court affirmed, and the Baldrian class appealed.