In Re Barnacle
623 A.2d 445, 1993 WL 115928 (1993)
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Rule of Law:
A recorded instrument containing a technical defect, such as a missing signature from a co-owner or an imprecise property description, still provides constructive notice to a subsequent bona fide purchaser if the instrument is in the proper chain of title and contains sufficient information to provide a clue or key that would lead a reasonably diligent title searcher to inquire further and discover the true nature of the encumbrance.
Facts:
- On December 22, 1986, Sally E. Lapides and her husband, Michael J. Barnacle, executed a promissory note to Greater Providence Deposit Corporation for a property loan.
- The corresponding mortgage document was signed and acknowledged by Barnacle, but Lapides inadvertently failed to sign it, though the notary's acknowledgment form indicated she had appeared and acknowledged the instrument.
- This partially executed mortgage was recorded in the Providence land evidence records.
- On August 2, 1988, American Investcorp and Development Company (AIDC) executed a promissory note to Rhode Island Central Credit Union (RICCU).
- As security, AIDC provided a mortgage intended to cover a specific condominium unit, No. 100.
- The recorded mortgage deed did not identify the specific unit, but instead contained a metes-and-bounds description of the entire condominium project.
- A separate "Collateral Assignment of Leases and Rents," which did identify the specific condominium unit No. 100, was recorded two minutes after the mortgage on the immediately following page of the land evidence records.
Procedural Posture:
- Michael J. Barnacle and Sally E. Lapides filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the District of Rhode Island.
- American Investcorp and Development Company (AIDC) filed a Chapter 11 bankruptcy petition in the same court.
- In both bankruptcy proceedings, the trustee (or debtor-in-possession) sought to avoid a mortgage lien by asserting the status of a bona fide purchaser without notice of the defectively executed or described mortgages.
- The United States Bankruptcy Court certified two questions of state law regarding the legal effect of the defective recordings to the Supreme Court of Rhode Island for resolution.
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Issue:
Do recorded mortgages with technical defects, such as the failure of one of two joint mortgagors to sign the document or a legal description that describes an entire condominium project instead of the specific unit intended, provide constructive notice to a subsequent bona fide purchaser?
Opinions:
Majority - Fay, Chief Justice
Yes, such recorded instruments provide constructive notice. The court rejects the majority rule that a defectively executed instrument is a nullity incapable of giving constructive notice, finding that approach to be an exaltation of form over substance. For the Barnacle mortgage, the presence of one valid signature and an acknowledgment referencing both parties provides a "definite and tangible clue" to a reasonable title searcher, placing them on inquiry notice. Allowing a purchaser to ignore such an instrument would unjustly reward a failure to search the title records. For the AIDC mortgage, the description of the entire condominium project, while overly broad, provided a "key" to the encumbrance. This key was immediately clarified by the assignment document recorded on the very next page, which identified the specific unit. A reasonable and diligent title search would have uncovered both instruments, thereby providing notice of the mortgage on the specific unit.
Analysis:
This decision adopts a minority, equitable view on the effect of defective recorded instruments, shifting the risk from mortgagees with technical errors in their documents to subsequent purchasers. It establishes that in Rhode Island, the critical question is not whether an instrument is perfectly executed, but whether it provides enough information to put a reasonable title searcher on inquiry notice. This approach diminishes the power of the 'bona fide purchaser' status under bankruptcy law and recording statutes, requiring purchasers and their title examiners to investigate irregularities in the chain of title rather than ignore them as nullities. The ruling protects lenders from losing security interests due to inadvertent, non-substantive errors.
