In re Airport-81 Nursing Care, Inc.

• Decision Date: 28 March 1983
• Docket Number: Adv. No. 3-82-0909.,Bankruptcy No. 3-82-00690
• Parties: In re AIRPORT-81 NURSING CARE, INC., Debtor. DAVID LEONARD ASSOCIATES, P.C., Plaintiff, v. AIRPORT-81 NURSING CARE, INC.; First National Bank of Sullivan County and John H. McConnell, Trustee; Vulcan Materials; Loyce Franklin and wife, Patsy Franklin, and Cline Franklin, Substitute Trustee; Robert B. Carter, Trustee in Bankruptcy, Defendants. FIRST AMERICAN BANK—EASTERN, N.A. (formerly First National Bank of Sullivan County); Loyce Franklin; Robert B. Carter, Trustee in Bankruptcy, Counterclaimants, v. DAVID LEONARD ASSOCIATES, P.C., Counterdefendant. Robert B. CARTER, Trustee in Bankruptcy, Third-Party Plaintiff and Cross-Claimant, v. Thomas H. LOWE, Trustee; Lynn M. Lauderback, Trustee; Phil Carter d/b/a Carter & Associates, Third-Party Defendants, First National Bank of Sullivan County and John H. McConnell, Trustee; Vulcan Materials; Loyce Franklin and wife, Patsy Franklin, Cross-Defendants. FIRST AMERICAN BANK—EASTERN, N.A. (formerly First National Bank of Sullivan County), Cross-Claimant, v. AIRPORT-81 NURSING CARE, INC.; Vulcan Materials; Loyce Franklin and wife, Patsy Franklin; Robert B. Carter, Trustee in Bankruptcy, Cross-Defendants. Loyce FRANKLIN, Cross-Claimant, v. FIRST AMERICAN BANK—EASTERN, N.A.; Vulcan Materials; Robert B. Carter, 502*502 Trustee in Bankruptcy, Cross-Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee

29 B.R. 501 (1983)

In re AIRPORT-81 NURSING CARE, INC., Debtor.

DAVID LEONARD ASSOCIATES, P.C., Plaintiff, v. AIRPORT-81 NURSING CARE, INC.; First National Bank of Sullivan County and John H. McConnell, Trustee; Vulcan Materials; Loyce Franklin and wife, Patsy Franklin, and Cline Franklin, Substitute Trustee; Robert B. Carter, Trustee in Bankruptcy, Defendants.

FIRST AMERICAN BANK—EASTERN, N.A. (formerly First National Bank of Sullivan County); Loyce Franklin; Robert B. Carter, Trustee in Bankruptcy, Counterclaimants, v. DAVID LEONARD ASSOCIATES, P.C., Counterdefendant.

Robert B. CARTER, Trustee in Bankruptcy, Third-Party Plaintiff and Cross-Claimant, v. Thomas H. LOWE, Trustee; Lynn M. Lauderback, Trustee; Phil Carter d/b/a Carter & Associates, Third-Party Defendants, First National Bank of Sullivan County and John H. McConnell, Trustee; Vulcan Materials; Loyce Franklin and wife, Patsy Franklin, Cross-Defendants.

FIRST AMERICAN BANK—EASTERN, N.A. (formerly First National Bank of Sullivan County), Cross-Claimant, v. AIRPORT-81 NURSING CARE, INC.; Vulcan Materials; Loyce Franklin and wife, Patsy Franklin; Robert B. Carter, Trustee in Bankruptcy, Cross-Defendants.

Loyce FRANKLIN, Cross-Claimant, v. FIRST AMERICAN BANK—EASTERN, N.A.; Vulcan Materials; Robert B. Carter, Trustee in Bankruptcy, Cross-Defendants.

Bankruptcy No. 3-82-00690, Adv. No. 3-82-0909.

United States Bankruptcy Court, E.D. Tennessee.

March 28, 1983.

Jackson C. Raulston, Kingsport, Tenn., for plaintiff.

Wilson, Worley, Gamble & Ward, P.C., O. Taylor Pickard, Jr., Kingsport, Tenn., for First American Bank—Eastern, N.A. (formerly First National Bank of Sullivan County) and John H. McConnell, Trustee.

Frank D. Gibson, Kingsport, Tenn., for Vulcan Materials, Inc.

Don F. Mason, Jr., Kingsport, Tenn., for Loyce Franklin and wife, Patsy Franklin.

Robert B. Carter, pro se.

Carl W. Eilers, Kingsport, Tenn., for third-party defendant Phil Carter d/b/a Carter & Associates.

Lynn M. Lauderback, pro se.

MEMORANDUM

CLIVE W. BARE, Bankruptcy Judge.

At issue is the validity of the certificates of acknowledgment in two deeds of trust, securing the same obligation, executed by the debtor in favor of the former First National Bank of Sullivan County, now known as First American Bank—Eastern, N.A. (Bank).¹ Plaintiff David Leonard Associates, P.C., an architectural firm, contends that it is entitled to a lien against the six-acre tract particularly described in both of the Bank's deeds of trust and that its lien is superior to any interest of the Bank because the deeds of trust held by the Bank are improperly acknowledged. The trustee in bankruptcy, Robert B. Carter, also contends the Bank's deeds of trust against the six-acre tract are defectively acknowledged. The Bank denies the acknowledgments are defective, insisting that they substantially comply with the statutory requirements of Tenn.Code Ann. § 66-22-108 (Supp.1982). The Bank also maintains it holds a valid deed of trust against a 0.52-acre tract contiguous to the six-acre tract and that the combined market value of the two tracts is less than the amount of the debtor's obligation to it. Therefore, the Bank requests the court to determine its deeds of trust are valid and enforceable, to order the trustee to abandon both tracts as burdensome to the debtor's estate, and to lift the automatic stay of 11 U.S.C.A. § 362 (1979) to permit foreclosure.

I

Plaintiff David Leonard Associates, P.C., (Leonard) filed an involuntary chapter 7 petition against debtor Airport-81 Nursing Care, Inc., on May 17, 1982. The allegations of the involuntary petition were controverted. After trial of the issues, this court sustained the involuntary petition and entered an order for relief under chapter 7 on July 12, 1982.²

Previous to the filing of the involuntary petition, plaintiff and the debtor entered into an agreement for plaintiff's architectural services in connection with debtor's proposed construction of a nursing home facility on a 6.52-acre site in Sullivan County. The agreement, dated April 30, 1981, provided plaintiff would receive $86,200.00 for its basic services. This compensation was to be paid in phases. The projected nursing home facility was never constructed. Plaintiff Leonard filed a complaint against the debtor in Sullivan County Chancery Court to recover the amount of $64,650.00 allegedly due under the April 30, 1981, agreement. In conjunction with the filing of its complaint, plaintiff filed its notice of lien lis pendens on February 17, 1982. The notice includes a description of six acres of the 6.52-acre site where debtor's nursing home was to have been constructed. Although admitting the effective date of the amendment of Tenn.Code Ann. § 66-11-102 (Lien for work and materials) (Supp.1982) creating a lien for architectural or engineering services is April 1, 1982, plaintiff nonetheless insists it is entitled to a lien against the six-acre tract described in its notice of lien lis pendens dating from the filing of said notice.³

On October 23, 1978, two and one-half years prior to the formation of the contract between plaintiff and debtor, a deed of trust (Exh. 6) against the six-acre tract described in plaintiff's notice of lien lis pendens was executed in favor of Thomas H. Lowe, trustee for the Bank. This deed of trust was given to secure the payment of debtor's $100,000.00 promissory note (Exh. 10), payable in full on April 23, 1979. Signed by "Loyce B. Franklin, Pres." and "Charles M. McNeil, Act'g Sec'y," this deed of trust was recorded on October 25, 1978. The certificate of acknowledgment thereto recites:

STATE OF TENNESSEE - - - | > s.s COUNTY OF SULLIVAN | Personally appeared before me Vickie R. Sanders a notary public for said County and State, Locye B. Franklin and Charles McNeil, President and Assistant Secretary respectively of Airport-81 Nursing Care, Inc. the within named bargainors , with whom I am personally acquainted, and who acknowledged that they executed the within instrument for the purposes therein contained. Witness my hand and official seal, at office in, Kingsport, Sullivan County. Tennessee this 23rd day of Oct. 1978 . My commission expires: /s/ Vickie R. Sanders 12-4-78

This form of acknowledgment certificate is essentially identical to the form recited in Tenn.Code Ann. § 66-22-107(a) (1982). The debtor, however, is a corporation. The form of authentication of corporate instruments effective when the 1978 deed of trust was executed is enacted as Tenn.Code Ann. § 66-22-108(a) (Supp.1982).⁴

A second deed of trust (Exh. 7), dated May 1, 1980, encumbering the identical property previously mortgaged in October 23, 1978, was executed in favor of the Bank's trustee, John H. McConnell, to secure debtor's contemporaneous renewal note (Exh. 11), due and payable on October 27, 1980. (The terms of both deeds of trust include this provision: "It is further agreed that this deed shall secure this debt or any renewal thereof. . . .") The signature block of this second deed of trust is as follows:

AIRPORT-81 NURSING CARE, INC. By /s/ LB Franklin President /s/ Charles M. McNeil Vice-President

This second deed of trust was initially recorded on May 19, 1980. The acknowledgment certificate recites:

STATE OF TENNESSEE ) COUNTY OF SULLIVAN ) Personally appeared before me, Melanie B. Lindsay , a Notary Public for the aforesaid State and County, L.B. FRANKLIN and CHARLES M. McNEIL, who acknowledge themselves to be the President and Vice-President respectively of Airport 81 Nursing Care, Incorporated, and that as President and Vice-President they are duly authorized to execute this instrument for the purposes therein contained. WITNESS MY HAND AND OFFICIAL SEAL, at office in said State and County this 13th day of May, 1980. /s/ Melanie B. Lindsay Notary Public My Commission Expires July 28, 1980

Apparently believing the acknowledgment certificate of the May 1, 1980, deed of trust might be defective because it does not include an affirmation by the notary that she was "personally acquainted" with the signatories, an acknowledgment complying with the requirements of Tenn.Code Ann. § 66-22-108 (Supp.1982) was substituted, and the May 1, 1980, deed of trust was recorded on April 23, 1982.⁵

The indebtedness of the debtor to the Bank is further secured by a deed of trust (Exh. 9), dated February 6, 1981, against a 0.52-acre trust contiguous to the six-acre tract in question. The validity of the certificate of acknowledgment of the February 6, 1981, deed of trust, duly recorded on February 13, 1981, is not at issue.

Loyce Franklin and Patsy Franklin, husband and wife, also assert a deed of trust interest against the six-acre tract in question. Their assertion is based on a deed of trust dated August 22, 1978, but not recorded until February 17, 1982. The validity of the certificate of acknowledgment of the Franklins' deed of trust is unchallenged. However, the trustee in bankruptcy contends the property description therein is insufficient and that the delay in recordation by the Franklins rendered the transfer preferential under 11 U.S.C.A. § 547(b) (1979). This issue will not be treated in the present Memorandum.⁶

The plaintiff's complaint requesting determination of the priority of the various claims against the debtor's six-acre tract was filed on October 4, 1982. Pleadings have been filed on behalf of all parties with the exception of Thomas H. Lowe, trustee, Cline Franklin, substitute trustee, and the debtor.⁷

II

Tenn.Code Ann. § 66-5-106 (1982) enacts in material part:

No deed of conveyance for lands, in what manner or form soever drawn shall be good and available in law, as to strangers, unless the same be acknowledged by the vendor, or proved by two (2) witnesses upon oath, in the manner prescribed in chapters 22 and 23 of this title, and registered by the register of the county where the land lies. . . .

Registration based upon a defective...