In Re Bisbee
754 P.2d 1135, 157 Ariz. 31 (1988)
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Rule of Law:
Under Arizona law, a deed of trust is not rendered invalid by the failure to designate a trustee in the instrument. If properly recorded, such an instrument provides constructive notice of the lien to subsequent purchasers and lien creditors.
Facts:
- On December 7, 1982, Charles Martin Bisbee executed a deed of trust on approximately 100 acres of Maricopa County land to secure a $600,000 debt with Security National Bank and Trust Company.
- This deed of trust instrument failed to designate a trustee.
- On March 28, 1983, Bisbee executed a second deed of trust on the same property to secure an additional $218,000 loan from the same bank.
- This second instrument also failed to name a trustee.
- Both deeds of trust were recorded in Maricopa County, Arizona.
Procedural Posture:
- Charles and Wanta Rhea Bisbee filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court.
- Acting as debtors in possession, the Bisbees filed an adversary complaint in the bankruptcy proceeding against Security National Bank, seeking to invalidate the bank's security interests.
- The Federal Deposit Insurance Corporation (FDIC), as the bank's successor, moved for summary judgment of dismissal.
- The U.S. District Court for the District of Arizona, on behalf of the Bankruptcy Court, certified the state law question to the Supreme Court of Arizona for resolution.
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Issue:
Does the failure to designate a trustee in a deed of trust instrument render the deed of trust invalid under the Arizona Trust Deeds Act?
Opinions:
Majority - Moeller, Justice
No, the failure to designate a trustee does not render a deed of trust invalid under Arizona law. The Arizona Deeds of Trust Act, when viewed as a whole, contemplates situations where a trustee may be absent and provides for remedies without invalidating the underlying lien. The court reasoned that A.R.S. § 33-804(D), which prevents invalidation when a named trustee fails to qualify or resigns, creates no logical distinction from a situation where no trustee is named at all. Drawing an analogy to traditional trust law, a trust does not fail for want of a trustee. Furthermore, the court held that the role of a trustee in a deed of trust is limited, essentially a common agent with bare legal title, whose primary duties arise only upon default. Because the instruments were properly recorded and indexed, identifying the trustor, beneficiary, and property, they provided constructive notice to any subsequent bona fide purchaser or lien creditor of the bank's security interest, despite the omission of the trustee's name.
Analysis:
This decision solidifies the legal status of deeds of trust in Arizona by prioritizing the parties' intent and the function of public notice over strict technical compliance. It prevents a potentially common clerical error—the omission of a trustee's name—from voiding an entire security instrument. This provides greater certainty for lenders, assuring them that their liens will be upheld if properly recorded, even with such a defect. The ruling aligns the treatment of statutory deeds of trust with the long-standing common law principle that a trust will not fail for lack of a trustee, thereby promoting stability in real estate financing transactions.
