Appeal from the United States District Court for the Central District of Illinois, Peoria Division. No. 83 C 1075 -- Michael M. Mihm, Judge.
Cummings, Chief Judge, Eschbach, Circuit Judge, and Fairchild, Senior Circuit Judge.
The issue in this case is whether a co-tenant of real property is entitled to subrogation under Section 509(a) of the Bankruptcy Code for payments he made to creditors on behalf of another co-tenant who subsequently petitioned for bankruptcy, where the co-tenants are parent and child and had not entered into a written agreement for repayment. The district court denied subrogation on the rationale that the pre-petition payments to creditors constituted a gift from father to son. This Court holds that those payments by the father were necessitated by his legal obligation to avoid forfeiture of the property he held as a tenant in common, and that this obligation predominates over any donative motivation to benefit the son. We therefore reverse that aspect of the district court's order denying subrogation for the pre-petition payments.
In March 1974 plaintiff James Bugos and his son David agreed to purchase a 185.9-acre farm in Henry County, Illinois, from Elizabeth and LaVerne Plunkett. The agreement for sale of that real estate lists James and David Bugos as co-vendees, provides a payment schedule, and gives the Plunketts the right to re-enter and take possession in the event of a forfeiture. One month later the Bugoses assigned an undivided one-half interest in the farm to a Mr. and Mrs. Langenfeld, with each pair to pay one-half of the purchase price. In 1980 a dispute arose between the Bugoses and Langenfelds prompting the Bugoses to cancel the March 1974 agreement with the Plunketts and the Bugoses' partial assignment to the Langenfelds. The Bugoses and Langenfelds then entered into separate contracts with Elizabeth Plunkett, the Bugos contract again naming James and David as co-vendees, this time for 70 acres of the farm. The purchase price in this contract is $17,375, the balance due after purchase payments since 1974. Prior to 1980 James and David had shared equally all contract payments and other farm expenses except for two contract payments to the Plunketts totalling $5,000. The two payments were the initial down payment to LaVerne Plunkett in March 1974 for $3,000 (the Langenfelds remitting to the Bugoses one-half the amount or $1,500) and a contract payment to LaVerne Plunkett's estate in August 1975 for $3,500. Plaintiff's Br., pp. 7-8.
In 1980 David began experiencing financial difficulty, necessitating James to bear the full expense of the following:
1/16/81 Land clearing, tiling, etc. $8,238.37
5/28/82 Interest on contract 1,399.15
7/20/82 Real estate taxes 438.16
9/3/82 Appraisal of 70 acres ...