In re Rice
| Decision Date | 21 November 1991 |
| Docket Number | Bankruptcy No. 89-14047S,Adv. No. 91-0350S. |
| Citation | 133 BR 722 |
| Parties | In re Sharon Iris RICE a/k/a Sharon I. Rice, Debtor. Lawrence PHELAN, United States Trustee, Plaintiff, v. FLEET CONSUMER DISCOUNT CO., Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Berneter Mallory, Philadelphia, Pa., for debtor.
Lawrence T. Phelan, Philadelphia, Pa., Trustee.
David B. Comroe, Lipman, Freiberg, Comroe & Hing, Philadelphia, Pa., for defendant.
Frederic Baker, Asst. U.S. Trustee, Philadelphia, Pa.
SUPPLEMENTAL OPINION
The instant proceeding requires us to decide the issue of whether a debtor-mortgagor, standing in the shoes of a bankruptcy trustee, pursuant to 11 U.S.C. §§ 522(h), 522(g)(1), and 544(a), may avoid a duly-recorded mortgage, which is not defective on its face, when the mortgage has not been acknowledged before an officer authorized to make such an acknowledgment. We hold that, under applicable Pennsylvania law, the total failure to obtain an acknowledgment before an authorized officer is not cured by a recording, despite the latency of the defect, and nor by a curative statute which renders any "informality or defect" in an acknowledgment immaterial as to bona fide purchasers. Therefore, we are compelled to enter a judgment avoiding the mortgage in issue.
On April 19, 1991, we filed an Opinion, now reported at 126 B.R. 189 ("Rice I"), in which we denied, on the ground that the Debtor had improperly invoked 11 U.S.C. § 522(f)(1), the Debtor's "Motion to Reconsider Issue of Discharge for Avoidance of Lien and Injunctive Relief" ("the Motion"), filed on February 6, 1991, in reference to the same mortgage of Defendant FLEET CONSUMER DISCOUNT CO. ("Fleet") which is in issue in this proceeding. We have designated this as a Supplemental Opinion to our Opinion in Rice I. We direct the reader to Rice I for a history of the underlying Chapter 7 case and the disposition of the Motion, and a summary of the facts adduced at a hearing of March 28, 1991, conducted by this court in reference to the Motion, id. at 190-91, which were incorporated into the instant record. We will here take up the history of relevant proceedings from April 19, 1991, forward, and will reiterate what was already said there only where necessary to make the instant decision intelligible.
On April 25, 1991, in light of our disposition in Rice I, the Clerk promptly (as it turned out, too promptly) closed this case on April 25, 1991. On May 14, 1991, SHARON IRIS RICE ("the Debtor") filed the instant adversary proceeding. Named as the sole plaintiff was LAWRENCE PHELAN, the interim Trustee in the case ("the Trustee") (incorrectly identified as "United States Trustee" in the caption). This filing was in response to our observation, in Rice I, 126 B.R. at 192-93, that the Motion must be denied because the Debtor could not successfully attack the defect in a consensual lien pursuant to 11 U.S.C. § 522(f)(1), or under any other Code provisions, in her own capacity, but that she conceivably could make such an attack if she invoked §§ 522(h), 522(g)(1), and 544(a) in furtherance of her right to attack Fleet's mortgage, standing in the shoes of the Trustee.
The Debtor appears to have slightly misunderstood the nature of §§ 522(h) and 522(g)(1). These Code sections permit her to avoid certain transfers if the Trustee does not attempt to do so. However, she has named only the Trustee, who has already expressed that he has no interest in the transaction, id. at 191, as the plaintiff in this proceeding rather than herself. This potential procedural defect could have presented an issue under Bankruptcy Rule 7017 and Federal Rule of Civil Procedure ("F.R.Civ.P") 17(a). However, Fleet's failure to assert F.R.Civ.P. 17(a) as a defense appears to effect a waiver of its invocation. See 3A J. MOORE, FEDERAL PRACTICE, ¶ 17.15-1, at 17-140 to 17-141 (2d ed. 1991).
Observing the closure of the case on April 25, 1991, we entered an Order of June 4, 1991, requiring the Debtor to file a motion to reopen her case by June 17, 1991, if she wished to pursue this proceeding. A motion to reopen the case was accordingly filed on June 11, 1991, and was granted on July 9, 1991.
In Rice I, 126 B.R. at 193-95, we had discussed the potential merit of a proceeding such as the instant one at some length. We pointed out that the Pennsylvania cases discussing the significance of latent defects in acknowledgments of mortgages were "somewhat equivocal." Id. at 195. Therefore, we urged both parties to consider the weaknesses of their respective positions and to negotiate a resolution, perhaps in the nature of splitting the $2,500 in issue between them. Id. When settlement was nevertheless not forthcoming and another trial appeared imminent, we directed the parties to attend a settlement conference on July 17, 1991, before the Honorable Judith H. Wizmur of the District of New Jersey, who has an outstanding record of successfully resolving some of our most complex and hotly-contested proceedings and contested matters. However, even Judge Wizmur could not bring these parties together. A trial was therefore scheduled on August 13, 1991, and, after two continuances, was heard on a must-be-tried basis on October 3, 1991.
At this trial, we incorporated the record made on March 28, 1991, in reference to the Motion. The Debtor's counsel then called another of her bankruptcy clients, Ouida Akins ("Akins"), as a witness. Akins testified that, on or about March 19, 1988, she and her husband had, like the Debtor, entered into a contract with Neptune Pool Installers, Inc., trading as Hallmark Builders ("Hallmark"), to perform improvements to the basement of their home. Akins admitted that she and her husband had signed a document designated as a "Mortgage" among the papers presented to them in their home by a Hallmark salesman. However, she claimed that she had agreed with Hallmark that security would be taken against one certain parcel of realty (not their home). However, Hallmark had in fact filled in the documents in such a manner as to obtain a mortgage against another of their properties. The Akins' mortgage, like that of the Debtor in issue, was witnessed by Alan Portnoy, Hallmark's President, and notarized by Carol Portnoy. However, Akins, like the Debtor, was certain that she had never met either of the Portnoys and therefore had not executed any papers in their presence.
At the close of the trial, we allowed counsel for the Debtor and Fleet until October 10, 1991, and October 17, 1991, respectively, to file Briefs in support of their respective positions. The Debtor requested and was granted a one week's consensual extension to make her filing. Having received no submissions as of October 25, 1991, we entered a further Order granting the parties until October 30, 1991, and November 6, 1991, to file and serve their submissions on the court in chambers and opposing counsel, warning the Debtor's counsel that making an untimely submission might result in monetary sanctions against her. Nevertheless, the Debtor's counsel did not serve any submission to us in chambers by October 30, 1991, and numerous messages to her office from the court regarding her submission were unanswered. Fleet's counsel also reported that he was not served with any submission from the Debtor's counsel, and he was therefore compelled to submit his Brief, in timely fashion on November 6, 1991, without the benefit of the Debtor's Brief. On November 13, 1991, Fleet's counsel wrote to us to advise that he had received a copy of the Debtor's Brief on November 12, 1991. Although the copy received by Fleet was time-stamped as filed on October 30, 1991, the Brief was covered by a letter dated November 6, 1991, contained in an envelope postmarked November 8, 1991. We have located no original of the Brief filed with the Clerk (despite the time-stamp on the copy), nor have we ever received a copy of it in chambers, despite our briefing Order and our law clerk's unrequited telephone calls to counsel's office. We finally received a copy from Fleet's counsel on November 19, 1991. The failure of the Debtor's counsel to serve (and possibly to file) her Brief in accordance with our Orders and her refusal to respond to the court's inquiries causes us to impose a monetary sanction of $50 upon her, as we did to other counsel under similar circumstances, in In re Frascatore, 98 B.R. 710, 714, 725 (Bankr.E.D.Pa.1989).
In Rice I, 126 B.R. at 193-95, we provided a comprehensive discussion of pertinent national and Pennsylvania authorities on the issue of the significance of latent defects in acknowledgments of mortgages, gleaned from our independent research. We would have hoped that, in the six months since Rice I was decided, the parties would have thoroughly studied and been prepared to comment on the cases cited in this discussion. The Debtor's counsel belatedly submitted an offering of less than two pages and argues primarily that Fleet's failure to record the mortgage until April 7, 1988, over 90 days after its execution on October 28, 1987, violates 21 P.S. § 444. In its Brief, Fleet relies almost exclusively on 21 P.S. § 281.1, a curative statute which we did not cite in Rice I, and which reads as follows:
§ 281.1. Defective acknowledgments prior to 1988 No grant, bargain and sale, feoffment, deed of conveyance, release, assignment, mortgage or other assurance of lands, tenements and hereditaments, whatsoever, bearing date prior to the year one thousand nine hundred eighty-eight, made, executed and delivered by husband and wife, or by any person or trustee or attorney in fact for any other person or persons, to a bona fide purchaser or purchasers for a valuable consideration, and acknowledged before any officer duly authorized by law to take such acknowledgment, shall be deemed, held or adjudged...
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