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In re Sandy Ridge Oil Co.

decided: August 25, 1987.

IN RE SANDY RIDGE OIL CO., INC., DEBTOR. SANDY RIDGE OIL CO., INC., PLAINTIFF-APPELLEE,
v.
CENTERRE BANK NATIONAL ASSOCIATION, ET AL., DEFENDANTS, AND HALLIBURTON SERVICES, A DIVISION OF HALLIBURTON COMPANY, DEFENDANT-APPELLANT, AND OFFICIAL UNSECURED CREDITORS COMMITTEE, INTERVENOR-APPELLEE



Appeal from the United States District Court for the Southern District of Indiana, Evansville Division. No. EV 83 104 C -- Gene E. Brooks, Judge.

Bauer, Chief Judge, and Flaum and Easterbrook, Circuit Judges.

Author: Per Curiam

Per Curiam.

Sandy Ridge Oil Company ("Sandy Ridge"), a Chapter 11 debtor-in-possession, seeks to avoid a mortgage on several of its oil wells under § 544(a)(3) of the Bankruptcy Code. Halliburton Services ("Halliburton"), the holder of the mortgage, argues that Sandy Ridge cannot avoid the mortgage, because Sandy Ridge had both actual and constructive notice of the encumbrance. In a previous opinion, In re Sandy Ridge Oil Co., 807 F.2d 1332 (7th Cir. 1986), we rejected Halliburton's actual notice argument, but certified the question of constructive notice of the Indiana Supreme Court. That court's decision, attached as an appendix to our opinion, requires the bankruptcy court to enter judgment in favor of Halliburton.

Section 544(a)(3) of the Bankruptcy Code, 11 U.S.C. § 544(a)(3) (1984), permits a trustee to avoid any transfer of the debtor's property if the transfer would be voidable by a bona fide purchaser of the property. The mortgage at issue in this case was defectively recorded under Indiana law, because the name of the preparer of the instrument was not indicated at the end of the document, as required by Ind. Code § 36-2-11-15(d) (1982). Sandy Ridge argues that because the mortgage was defectively recorded, it provides no constructive notice to a bona fide purchaser, and therefore Sandy Ridge may avoid the transfer under § 544(a)(3). See In re Sandy Ridge, 807 F.2d at 1336. The question of whether a mortgage recorded in violation of Ind. Code § 36-2-11-15(b) gives constructive notice to a bona fide purchaser determined the outcome of this appeal, and there was no clear controlling Indiana Supreme Court precedent. We therefore certified the following question to the Indiana Supreme Court under Rule 15(O) of the Indiana Rules of Appellate Procedure:

Does a recorded instrument conveying, creating, encumbering, assigning, or otherwise disposing of an interest in or lien on property that does not disclose the name of the preparer as required by Ind. Code § 36-2-11-15(b) nevertheless impart constructive notice to a bona fide purchaser?

In re Sandy Ridge, 807 F.2d at 1338.

The Indiana Supreme Court has answered our question in the affirmative. Accordingly, we hold that Sandy Ridge may not avoid the mortgage under § 544(a)(3). The judgment of the district court is reversed and the case remanded to the bankruptcy court with instructions to grant judgment to Halliburton.

APPENDIX

IN THE SUPREME COURT OF INDIANA

No. 94S00-8612-CQ-1030

IN RE: SANDY RIDGE OIL CO., INC., Debtor, SANDY RIDGE OIL CO., INC., Plaintiff-Appellee, v. CENTERRE BANK NATIONAL ASSOCIATION, et al., Defendant-Appellant, and HALLIBURTON SERVICES, a Division of Halliburton Company, Defendant-Appellant, and OFFICIAL UNSECURED CREDITORS COMMITTEE, Intervenor-Appellee

CERTIFIED QUESTION FROM THE UNITED STATES COURT OF APPEALS, SEVENTH CIRCUIT The Honorable Gene Brooks, Judge Cause Number EV 83-104-C

DICKSON, J.

This cause comes to us as a certified question from the United States Court of Appeals for the Seventh Circuit pursuant to Appellate Rule 15(O) which allows certification of a question of Indiana law to this Court when the question is determinative of the case and there is no clear controlling Indiana Supreme Court precedent. Finding such an issue to exist for the resolution of this cause, the Seventh Circuit certifies the following question to this Court:

Does a recorded instrument conveying, creating, encumbering, assigning, or otherwise disposing of an interest in or lien on property that does not disclose the name of the preparer as required by Ind. Code § 36-2-11-15(b) nevertheless impart constructive notice to a bona fide purchaser?

The facts, as set out by the Seventh Circuit, are:

Sandy Ridge Oil Company, Inc. ("Sandy Ridge") purchased oil well services from Halliburton Services ("Halliburton") for a number of years, but fell slowly into debt. On October 10, 1981, Sandy Ridge executed a promissory note in favor of Halliburton in the amount of $244,686.31 (excluding interest). To secure this note, Sandy Ridge mortgaged its oil and gas leases on six oil wells: four wells in Gibson County, Indiana, one well in Vanderburgh County, Indiana, and one well in Wabash County, Illinois. The executed mortgage was delivered in three identical counterparts and recorded with ...


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