Franklin Bank, NA v. Bowling

• Decision Date: 23 June 2003
• Docket Number: No. 02SC524.,02SC524.
• Citation: 74 P.3d 308
• Parties: FRANKLIN BANK, N. A., a national bank association, and NBD Equipment Finance Inc., Petitioners, v. Bruce T. BOWLING and Elizabeth H. Bowling, Respondents.
• Court: Colorado Supreme Court

74 P.3d 308

FRANKLIN BANK, N. A., a national bank association, and NBD Equipment Finance Inc., Petitioners, v. Bruce T. BOWLING and Elizabeth H. Bowling, Respondents.

No. 02SC524.

Supreme Court of Colorado, En Banc.

June 23, 2003.

As Modified on Denial of Rehearing August 4, 2003.

Otto, Porterfield & Post, LLC, Wendell B. Porterfield, Jr., Vail, Colorado, Attorneys for Petitioners.

Bailey & Peterson, P.C., James S. Bailey, Jr., Randall M. Livingston, Denver, Colorado, Attorneys for Respondents. Justice KOURLIS delivered the Opinion of the Court.

In this case, Bruce T. and Elizabeth H. Bowling purchased a condominium unit and parking space in Eagle County from Patrice Merritt. The Bowlings obtained a title insurance commitment, which did not refer to any judgment liens encumbering the property. Several months after that transaction, Franklin Bank, N.A. and NBD Equipment Finance, Inc. (Creditors), sought to execute against the property, based upon judgment liens filed prior to the sale against "Grady Merritt," husband of Patrice Merritt, and a signatory on the deed of trust encumbering the property. The Bowlings brought this action to enjoin the execution sale and for a declaratory judgment that the judgment liens were not valid against their property. The trial court granted summary judgment in favor of the Bowlings, finding that the Bowlings' property was not subject to the judgment creditors' lien, because the name on the property was "T. Grady Merritt" and the name on the liens was "Grady Merritt." Creditors appealed to the court of appeals, which upheld the trial court's order. Bowling v. Franklin Bank, N.A, No. 01CA1346, 2002 WL 31053324 (Colo.App. May 30, 2002) (not selected for official publication).¹

We accepted certiorari on two issues² relating to the effect of the judgment liens. The operative question is whether recorded transcripts of judgment identifying the judgment debtor as "Grady Merritt" created liens against real property titled in the name of "T. Grady Merritt." We now hold that when an individual uses a first initial and a full middle name, there is a presumption that he may transact business under the middle name rather than the first name. Accordingly, the title examiner, was on constructive notice of judgment liens filed against "Grady Merritt" even though the examiner was searching for recordings against "T. Grady Merritt." We therefore reverse the trial court's entry of summary judgment and injunction, and remand with directions to the trial court for proceedings consistent with this opinion.

I. Facts

In March of 1996, T. Grady Merritt and Patrice Merritt purchased a condominium unit and associated parking space in Eagle County from David M. Zinn and Marilyn Zinn, evidenced by a general warranty deed. The Merritts executed a deed of trust encumbering the property to a third party.³

Creditors each obtained a judgment⁴ against "Grady Merritt" in Michigan, filed their judgment in Colorado pursuant to the proper procedures, and recorded it with the clerk and recorder of Eagle County on March 12, 1999. It is uncontested that "T. Grady Merritt" and "Grady Merritt" are the same person. As a part of the process, Creditors notified Merritt of the filing of the judgment in Colorado.

On May 13, 1999, T. Grady Merritt conveyed his share of the property to his wife Patrice for nominal consideration, by executing a quitclaim deed. Thereafter, Patrice Merritt sold the property to the Bowlings by general warranty deed dated December 3, 1999, which deed was duly recorded. As a part of the contract for sale, Patrice caused a commitment for title insurance for the property to be furnished to the Bowlings.

Land Title Guarantee Company issued a commitment for insurance of title prior to closing, on November 1, 1999. Land Title required the release of the deed of trust in the names of both "T. Grady Merritt" and "Patrice Merritt," but did not make any reference to the transcripts of judgment as liens against the property. Land Title later insured the title without excepting the judgment liens.

After closing, Creditors attempted to execute on and sell their interest in the property. The Bowlings filed a complaint and a motion for preliminary injunction to enjoin the sale, claiming that the judgment did not attach to their property because they had no notice of the judgment lien recorded against "Grady Merritt." The Bowlings subsequently filed a motion for summary judgment, noting that neither party disputed the operative facts. Creditors opposed Bowlings motion, but filed a cross-motion for summary judgment. Essentially, both parties agreed that the dispositive question of law was "whether recording a transcript of judgment with the judgment debtor named `Grady Merritt' provides constructive notice of the judgment to purchasers of property that was once owned in the name of `T. Grady Merritt.' "

The trial court observed that both parties had made mistakes—Creditors by failing to ascertain all correct legal names of the debtor/grantor, and the Bowlings, through Land Title, by failing to search the index for the name "Grady Merritt." The court determined that the title company had no duty to search the index for the grantor's middle name.

Creditors appealed and the court of appeals affirmed, holding that the Bowlings had no notice of Creditors' judgments because "T. Grady Merritt" is a materially different name than "Grady Merritt" and any judgments recorded against "Grady Merritt" were consequently outside the chain of title. Further, the court found that no irregularity occurred in the chain of title that would persuade it to charge the Bowlings with inquiry notice, rejecting Creditors' argument that the presence of a quitclaim deed and the absence of consideration raised a duty to inquire. Creditors sought, and we accepted, certiorari.

To summarize, then, the current parties to this action are the Bowlings, who had no actual knowledge of the judgment liens, and who obtained title insurance on the property that represented the title to be free and clear of any such liens.⁵ On the other side are the Creditors, who have a valid judgment against Grady Merritt, which would presumably have been paid at closing out of the proceeds of the sale if the title insurance company had located it. So, simply stated, does the law impose upon the purchasers, through Land Title, the burden of locating Creditors' judgment liens despite the difference between the name "T. Grady Merritt," which appeared in the chain of title to the real property, and "Grady Merritt?"⁶

To answer that question, we must determine whether Creditors' filings in the Eagle County records gave notice to the Bowlings' title examiner of the existence of the liens.

II. Standard of Review

Both parties in this case moved for summary judgment. The trial court granted the Bowlings motion, and entered an injunction against the enforcement of the liens against the Bowlings property. We review an order granting summary judgment de novo. Vail/Arrowhead, Inc. v. Dist. Ct., 954 P.2d 608, 611 (Colo.1998); see also Joe Dickerson Assocs. v. Dittmar, 34 P.3d 995, 1003 (Colo.2001)

(holding that an appellate court reviews a trial court's granting of a summary judgment motion de novo because it is a question of law). Summary judgment is appropriate when the pleadings and supporting documents demonstrate that no genuine issue as to any material fact exists and that the moving party is entitled to summary judgment as a matter of law. Martini v. Smith, 42 P.3d 629, 632 (Colo.2002).

III. Judgment Liens

The conveyancing and recording statutes, sections 38-35-101 to 126, 10 C.R.S. (2002), provide that documents encumbering or affecting title to real property may be recorded in the office of the clerk and recorder of the county where the property is located. Once filed, such recorded documents operate as record notice of the interest or encumbrance described. The purpose of the statute, quite clearly, is to provide notice to prospective purchasers of encumbrances on title, and to protect certainty and marketability of title to real property, such that only recorded instruments will be honored.⁷ "[T]he prime purpose of the recording acts is to give subsequent purchasers information regarding the title of the property that they propose to acquire." 14 Richard R. Powell, Powell on Real Property § 82.03[2][b][ii] (Michael Allan Wolf ed., 2003).

When a creditor obtains a money judgment against a debtor in a court of law, the clerk of the court enters it on the register of actions. C.R.C.P. 58. The judgment creditor may then serve written interrogatories upon the debtor seeking information about all property owned by the debtor, and if the debtor does not answer, may even subpoena the debtor to court to answer the questions before the court. C.R.C.P. 69.

The creditor may take a transcript of the docket entry of any judgment and record it in the clerk and recorder's office of a county where real property owned by the debtor is located. § 38-35-109(1).⁸ The transcript will not contain a legal description of real property owned by the debtor, but will rather contain only the names of the creditor, debtor and the amount of the judgment. Creditors who obtain judgments against debtors have a time-honored right to enforce those judgments against the real and personal property of the debtor. When a judgment is filed and recorded, a lien attaches immediately to the real estate of the judgment debtor. Gottlieb v. Thatcher, 151 U.S. 271, 14 S.Ct. 319, 38 L.Ed. 157 (1894); Sky Harbor, Inc. v. Jenner, 164 Colo. 470, 435 P.2d 894 (Colo.1968). In Colorado, the General Assembly has provided that when a creditor records a judgment against a judgment debtor, the judgment becomes a lien "upon all the real estate, not exempt from execution in the county where such transcript of judgment is recorded, owned by such judgment debtor or which such judgment debtor may afterwards...