Robertson v. Peters (In re Weisman)
5 F.3d 417, 93 Daily Journal DAR 11966, 29 Collier Bankr. Cas. 2d 1045 (1993)
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Rule of Law:
Under California law, when one co-tenant of record (an ex-husband) exclusively possesses a property with his new spouse, this creates circumstances sufficiently inconsistent with the record title co-owned by his ex-wife to put a bona fide purchaser on inquiry notice of a potential unrecorded transfer of the ex-wife's interest.
Facts:
- In 1963, Sheila Weisman (formerly Peters) and Marc Peters married and in 1967 bought a residence in Campbell, California.
- The couple divorced in 1985, and their property settlement gave Marc Peters the right to purchase Sheila's interest in the residence.
- Sheila married Marc Weisman in November 1985.
- Marc Peters refinanced the residence to buy out Sheila's interest, but the lender required Sheila to remain on the title.
- On June 23, 1986, the title was officially recorded as held by "Marc Peters and Sheila Weisman (a married woman), as tenants in common."
- On June 25, 1986, Sheila Weisman executed a quitclaim deed transferring her interest to Marc Peters, which was delivered but not recorded at that time.
- In August 1986, Marc Peters married Nianne Neergaard, and the couple has lived in the Campbell residence since.
- In August 1988, Sheila and Marc Weisman filed for bankruptcy, at which time the quitclaim deed to Marc Peters had still not been recorded.
Procedural Posture:
- Sheila and Marc Weisman filed a voluntary Chapter 7 bankruptcy petition, and Jerome Robertson was appointed trustee.
- The trustee filed a complaint in bankruptcy court against Marc Peters, seeking authorization to sell the property interest held of record by Sheila Weisman.
- The bankruptcy court found in favor of the defendant, Marc Peters.
- The trustee appealed to the U.S. District Court, which reversed the bankruptcy court's decision and entered judgment for the trustee.
- Marc Peters (as appellant) appealed the district court's judgment to the U.S. Court of Appeals for the Ninth Circuit, and the trustee (as appellee) cross-appealed.
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Issue:
Does the exclusive possession of a residence by one co-tenant of record and his new spouse constitute circumstances sufficient to put a bona fide purchaser on inquiry notice of an unrecorded transfer of the other co-tenant's interest, when the other co-tenant of record is his ex-spouse?
Opinions:
Majority - Reinhardt, Circuit Judge
Yes. The possession of the residence by Marc Peters and his new wife was sufficiently inconsistent with the record title to create a duty for a bona fide purchaser to inquire into the true state of ownership. A bankruptcy trustee's 'strong arm' powers as a hypothetical bona fide purchaser are subject to state law on constructive and inquiry notice. Under California Civil Code § 19, a purchaser is on inquiry notice when they know of circumstances that would cause a prudent person to investigate. While possession that is consistent with record title does not trigger a duty to inquire, the court found the circumstances here to be inconsistent. A prudent purchaser would know from the public record that Sheila Weisman was Marc Peters' ex-wife and had remarried, and would observe that Peters was living in the house with a new wife. The court, taking a 'practical' and 'common-sense' approach, reasoned that it is highly unlikely in modern times for a remarried ex-wife to permit her former husband to have exclusive use of her co-owned property with his new spouse. These suspicious circumstances create a duty to inquire, and a reasonable inquiry would have revealed the unrecorded quitclaim deed. Therefore, the trustee is charged with constructive knowledge of the deed and cannot use his strong-arm powers to avoid the transfer.
Analysis:
This decision modernizes the application of inquiry notice in California property law, particularly in contexts involving divorced co-tenants. The court pivots from a rigid, historical presumption that a co-tenant's possession is always consistent with record title, as established in cases like Schumacher. Instead, it adopts a practical, fact-sensitive approach that considers modern social and financial realities, recognizing that the relationships of the occupants can create inconsistencies with title. This ruling heightens the due diligence burden on bona fide purchasers and bankruptcy trustees, requiring them to look beyond the face of a deed and investigate suspicious living arrangements before claiming rights based on record title.
