In re Granada, Inc., Civ. No. 87PC-0812
| Decision Date | 28 October 1988 |
| Docket Number | Bankruptcy No. 87C-00693.,Civ. No. 87PC-0812 |
| Citation | 92 BR 501 |
| Parties | In re GRANADA, INC., Debtor. Peter W. BILLINGS, Jr., Trustee, Plaintiff, v. CINNAMON RIDGE, LTD., a Utah Limited Partnership, Defendant. |
| Court | U.S. Bankruptcy Court — District of Utah |
Peter W. Billings, Jr., pro se.
Gary E. Jubber, Fabian & Clendenin, Salt Lake City, Utah, for plaintiff.
N. George Daines, Daines & Kane, Logan, Utah, for defendant.
David E. Leta, Hansen & Anderson, Salt Lake City, Utah, for Unsecured Creditors' Committee.
Vernon L. Hopkinson, Watkiss & Campbell, Salt Lake City, Utah, for intervenor.
This civil proceeding comes before the court on the trustee's Motion for Summary Judgment. Oral arguments on the motion were heard by the court on June 2, 1988. At the hearing, Peter W. Billings, Jr., and Gary E. Jubber, of Fabian & Clendenin, Salt Lake City, Utah, appeared on behalf of the trustee; N. George Daines, of Daines & Kane, Logan, Utah, represented the defendant, Cinnamon Ridge, Ltd.; and David E. Leta, of Hansen & Anderson, Salt Lake City, Utah, appeared on behalf of the Unsecured Creditors' Committee. At the hearing, the court granted a motion by the John E. Keiter Defined Benefit Plan & Trust ("Keiter") to intervene herein as a party defendant; and Vernon L. Hopkinson, of Watkiss & Campbell, Salt Lake City, Utah, entered an appearance on its behalf. At the conclusion of the hearing, the court took the trustee's motion under advisement and allowed the parties five days to file supplemental affidavits. Subsequent to the hearing, the parties informed the court that they had agreed among themselves that they would conduct four depositions and submit the transcripts to the court in lieu of the supplemental affidavits which the court had requested. The court, having now received those depositions and having considered the respective arguments of counsel, as well as the pleadings and memoranda on file, issues the following Memorandum Opinion. For the reasons set forth herein, the trustee's Motion for Summary Judgment is granted.
This action concerns title to a mobile home park, commonly known as the Cinnamon Ridge Mobile Home Park, as well as ten acres of adjacent unimproved real property, located in Cache County, Utah. Defendant, Cinnamon Ridge, Ltd. (the "Partnership"), is a Utah limited partnership which was organized in November 1984. Granada, Inc., the debtor in this Chapter 11 case, was one of defendant Partnership's general partners and its sole general partner as of the commencement of this bankruptcy case.
Prior to the organization of the Partnership, Granada purchased the real property for the mobile home park from Gary E. and Dorothy W. Bodrero and executed a trust deed in their favor. The mobile home park was platted under the name "Cinnamon Ridge Mobile Home Park." Subsequent to the organization of the Partnership, Granada applied for and was given consent to use the name Cinnamon Ridge, Ltd., as an assumed name. The Certificate and Agreement of Limited Partnership was filed with the Salt Lake County and Cache County Clerk's Offices but was never filed with the Cache County Recorder's Office.
On or about July 23, 1985, "Granada, as trustor," executed a trust deed in favor of Scherer & Horn, M.D. Defined Benefit Plan Trust ("Scherer & Horn"), as beneficiary, which pledged the mobile home park as security. On or about August 15, 1985, "Cinnamon Ridge, Ltd., by its general partner Granada, Inc., as Trustor," executed a trust deed in favor of Keiter, also pledging the mobile home park as security.
Granada filed its Chapter 11 petition on February 13, 1987. Peter W. Billings, Jr., was appointed trustee of the Granada estate on June 22, 1987. On the date of petition, the records of the Cache County Recorder's Office showed Granada as the fee owner of the mobile home park; the Partnership did not have any recorded interest in the property as of that date. Moreover, it is undisputed that, as of the petition date, the following facts and circumstances were indicated:
When Granada filed bankruptcy, it listed the property at issue herein in its statement of affairs as "property held for another person."
The trustee filed the present action pursuant to § 544(a)(3) of the Bankruptcy Code to quiet title to the mobile home park and the adjacent unimproved property. The Partnership asserts that the property was Partnership property and that Granada held only "bare legal title," which was held in its name to facilitate development of the property. Since the equitable title to the property assertedly resided in the Partnership, the Partnership argues that the property never became property of the estate pursuant to § 541(d) and, therefore, the trustee cannot set aside the Partnership's unrecorded interest under § 544(a)(3). Moreover, the Partnership argues that the trustee cannot become a bona fide purchaser under § 544 because at the time of the filing of the petition the Partnership was in actual, open, and unambiguous possession of the mobile home park, which would put a purchaser on inquiry notice of the Partnership's interest in the property.
Section 544(a)(3) of the Bankruptcy Code provides:
By virtue of this so-called strong-arm power, the trustee is given, by force of law, the rights and powers of a perfected bona fide purchaser of real property as of the bankruptcy petition date.
In this case, the critical inquiry under § 544(a)(3) concerns the rights of the parties under Utah law had the debtor transferred the mobile home park and the unimproved real property to a bona fide purchaser on the petition date, and had the transfer been perfected on that date. It is clear that under Utah law (aside from principles of inquiry notice and partnership law which shall be discussed below), a bona fide purchaser would obtain title to the property free and clear of any unrecorded equitable interest which the Partnership may have had in the property. Utah Code Ann. § 57-3-3 provides:
Every conveyance of real estate hereafter made, which shall not be recorded as provided in this title, shall be void as against any subsequent purchaser in good faith and for a valuable consideration of the same real estate, or any portion thereof, where his own conveyance shall be first duly recorded.
As indicated in § 57-3-3, the rights of a bona fide purchaser may be cut off through the proper imparting of constructive notice by the recording of a competing interest "as provided in this title." Those requirements are set forth in Utah Code Ann. § 57-3-2(1):
Every conveyance, or instrument in writing affecting real estate, executed, acknowledged, or proved, and certified, in the manner prescribed by this title ... shall, from the time of filing the same with the county recorder for record, impart notice to all persons of their contents. Subsequent purchasers, mortgagees, and lien holders are deemed to purchase and take with notice.
(emphasis added).
By virtue of these statutes, a bona fide purchaser who perfects his interest takes free of any prior unrecorded interest in the real property. It is undisputed in this case that as of the petition date, there was nothing recorded with the Cache County Recorder which would have given constructive notice of the Partnership's claim to an equitable interest in the property. Granada was the record fee title owner of the property on the petition date. No representative or fiduciary capacity was there indicated.
The defendants mount several challenges to the application of this straight-forward analysis, contending that (1) the filing of the Certificate and Agreement of Limited Partnership imparted constructive notice of the Partnership's interest; (2) there could be no transfer of property of the debtor to a bona fide purchaser, since Granada, as general partner, held the property in trust for the Partnership, and Granada never had an equitable interest in the property; (3) a bona fide purchaser could not prevail under Utah law because the Partnership was in possession of the property, and any potential purchaser would be on inquiry notice of the Partnership's equitable or beneficial interest; (4) Granada could not have transferred the property because of its fiduciary duties as a general partner under Utah partnership law and would have been liable for criminal sanctions had it done so; (5) the trustee's avoiding powers under § 544 are restricted by trust principles, duties and obligations, incorporated into the Bankruptcy Code by § 541(d); and (6) it would be inequitable to allow the trustee to avoid the Partnership's interest and create a beneficial interest in Granada which never existed and which Granada did not...
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