Wallace v. Frontier Bank, NA

• Decision Date: 17 December 2004
• Citation: 903 So.2d 792
• Parties: J. Steve WALLACE and Lucy S. Wallace v. FRONTIER BANK, N.A., et al.
• Court: Alabama Supreme Court

903 So.2d 792

J. Steve WALLACE and Lucy S. Wallace v. FRONTIER BANK, N.A., et al.

1030814.

Supreme Court of Alabama.

December 17, 2004.

Douglas Corretti of Corretti, Newsom & Hawkins, Birmingham; and Donna Richardson Shirley, Birmingham, for appellants.

Robert R. Maddox and Cathleen C. Moore of Burr & Forman, LLP, Birmingham, for appellees.

HARWOOD, Justice.

J. Steve Wallace and Lucy S. Wallace sued Robert P. Sholund, Inc. ("RPS"); Robert P. Sholund and Patricia H. Sholund; Frontier Bank, N.A. ("Frontier"); and Nicholas Lee and Tammy Lee in the Jefferson Circuit Court seeking to have set aside as a fraudulent conveyance a deed from RPS to the Sholunds and to declare a subsequent deed from the Sholunds to the Lees, and the Lees' mortgage to Frontier on the property conveyed by the deed, to be subject to the voiding of the earlier deed on the basis that the Lees and Frontier had actual and constructive notice of the fraudulent nature of the deed. The Lees filed an answer and counterclaim, asserting that they were "bona fide purchasers for value without notice ... [who had] paid a value for consideration" for the property, using a $164,900 loan from Frontier secured by a mortgage on the property to purchase the property and to construct a house on it, and counterclaiming for money damages as a result of a notice of lis pendens the Wallaces had recorded at the time they filed their action. Frontier separately answered and counterclaimed, asserting its status as "a bona fide mortgagee, having given sufficient consideration without notice of any competing claims or interest of plaintiffs," and contending that the Wallaces' claims were "barred by Alabama's recording laws." Frontier sought a judgment declaring the Frontier mortgage valid and superior to the Wallaces' claims and directing satisfaction and removal of record of the notice of lis pendens. After discovery was completed, Frontier and the Lees jointly moved for a summary judgment. The trial judge granted their motion on January 26, 2004, entering a summary judgment in their favor and, with their agreement, dismissing their respective counterclaims against the Wallaces. The Sholunds were dismissed as defendants, without prejudice, because they had filed a petition in bankruptcy and received a discharge in the bankruptcy proceeding and because "no relief [was] sought against them in this case." Noting that RPS remained as the sole defendant, the trial court certified its summary judgment for the Lees and Frontier as final pursuant to Rule 54(b), Ala. R. Civ. P. The Wallaces timely appealed. We affirm.

The following chronology of pertinent events is undisputed:

On November 15, 2002, the Wallaces recovered a $60,000 judgment against RPS. Over the course of December 11-13, 2002, four deeds were recorded in the Jefferson County probate office; those deeds conveyed from RPS to the Sholunds a total of five lots in Sherman Oaks, a subdivision. The lot at issue in this case, lot 30 of the survey of Sherman Oaks Subdivision ("lot 30"), was dated December 12 and recorded December 13.

On December 17, 2002, the Wallaces recorded in the Jefferson County probate office a certificate of judgment for the $60,000 judgment against RPS.

On January 8, 2003, the Sholunds executed a warranty deed conveying lot 30 to the Lees for a purchase price of $130,000. On January 10, 2003, the Lees signed a mortgage "conveying" legal title in lot 30 to Frontier, as mortgagee, to secure a $164,900 line of credit, of which $109,705.56 was stated to already have been advanced to the Lees. The "closing" of the Lees' purchase of the property did not take place until January 13, 2003, at which time a total of $187,404.94 was accounted for, including $109,705.56 devoted to paying off a prior mortgage encumbering lot 30. Among the closing costs paid by the Lees was $732 to Magic City Title, Inc., for title insurance. Magic City was the authorized agent for Lawyers Title Insurance Corporation ("Lawyers Title"), which on January 24 issued both an "owner's policy," insuring title to the property in the Lees, and a "loan policy," insuring Frontier's interest as mortgagee. The terms of each policy stated the policy was "a contract of indemnity against actual monetary loss or damage" arising from defects in the title, and both policies excluded coverage as to any

"defects, liens, encumbrances, adverse claims, or other matters ... not known to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by the insured claimant prior to the date the insured claimant became an insured under this policy."

The deed to the Lees and the mortgage to Frontier were both recorded on January 24.

The Lees were not represented by counsel at the closing, and neither the "commitment" for title insurance issued by Lawyers Title in advance of the closing nor the subsequently issued policies referenced in any way the Wallaces' judgment against RPS. Mr. Lee had not known Mr. Sholund before purchasing the Sholund lot, having met him, through a realtor, on only one occasion before the closing. (No evidence was offered as to whether Mrs. Lee knew either of the Sholunds, but the Wallaces do not argue on appeal that she knew either of them.)

Sometime in March 2003 the Sholunds voluntarily filed a petition in bankruptcy under Chapter 7 and received a discharge, with the result that the Wallaces advised the trial court in their "Memorandum Brief in Opposition to Defendants' Motion for Summary Judgment" that they were "seeking no relief whatsoever against them in this proceeding."

Although in 1989 the Alabama Legislature enacted the Alabama Uniform Fraudulent Transfer Act ("the AUFTA"), applicable to transfers made after January 1, 1990 (codified as §§ 8-9A-1 through -12, Ala.Code 1975), this Court and the Alabama Court of Civil Appeals have been called upon to interpret the AUFTA on only a few occasions and never with respect to the pivotal issue presented on this appeal. The Wallaces forgo any discussion of the AUFTA in their briefs to this Court, other than as follows: At page 18 of their initial brief, in connection with their argument that RPS was "arguably" insolvent when it deeded lot 30 to the Sholunds, they make the following general reference, "See §§ 8-9A-1 through 8-9A-7, Ala.Code 1975," and at page 10 of their reply brief, they assert that § 8-9A-10 supports their position that "in order for the Lees and Frontier to prevail, they have the burden of showing they were bona fide purchasers for value without notice." Section 8-9A-10 provides that, unless displaced by other provisions of that chapter, "the principles of law and equity, including the law merchant and the law relating to ... fraud, misrepresentation, ... insolvency, or other validating or invalidating cause, supplement its provisions." Rather than otherwise discuss the AUFTA, even though it is applicable in its entirety to the transfers at issue in this case, the Wallaces rely exclusively on pre-AUFTA caselaw. Accordingly, we are not called upon to consider whether the relationship between any of the provisions of the AUFTA, as applied to the facts of this case, might warrant different conclusions than those we reach upon consideration of the specific issues and arguments the Wallaces advance on appeal.

The Wallaces argue two main propositions in this Court. First, they contend that the deed from RPS to the Sholunds was a fraudulent conveyance. Second, they contend that the trial court erred in holding that the Lees and Frontier were bona fide purchasers for value. The Wallaces persuasively marshal facts justifying the conclusion that the deed from RPS to the Sholunds represents a fraudulent conveyance, but the Lees and Frontier suggest that the discussion of that issue is "wholly irrelevant," stating that they will assume that the December 12 transfer was indeed a fraudulent conveyance in order that the focus on appeal be only on those issues they say are relevant to this appeal, i.e., whether the Lees were bona fide purchases for value without notice and, if so, whether that status affords the Lees a complete defense to the Wallaces' claims. The parties do not separately discuss Frontier's status to any real degree, implicitly accepting that if the Lees qualify as bona fide purchasers for value without notice, Frontier, as their mortgagee, likewise qualifies.

The Wallaces do not argue that the interests of the Lees and Frontier would be affected by a fraudulent transfer from RPS to the Sholunds if the Lees and Frontier are due recognition as bona fide purchasers or mortgagee for value without notice; rather, they consistently argue only, as stated in their reply brief:

"In order for the Lees and Frontier to prevail, they have the burden of showing that they were bona fide purchasers for value without notice. The Lees and Frontier have not met this burden in that they have failed to establish that they had no notice and knew no facts sufficient to put them on inquiry as to another party's equity, either at the time of the purchase, or at or before the time they paid the purchase money or otherwise parted with such value."

In that regard, the Wallaces rely heavily on the cases of First Alabama Bank of Tuscaloosa v. Brooker, 418 So.2d 851 (Ala.1982); Murphree v. Henson, 289 Ala. 340, 267 So.2d 414 (1972); and Dewyer v. Dover, 222 Ala. 543, 133 So. 581 (1931). The following passage from Brooker states the principles of law the Wallaces rely on in that regard:

"In order for the Bank to avail itself of the status of a bona fide purchaser or mortgagee for value, our authorities hold certain facts must be established clearly, distinctly, and without equivocation: (1) that it is the purchaser of the legal as distinguished from the equitable title; (2) that it purchased it in good faith; (3) that it parted with value as consideration therefor by paying money, or

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