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Bank One of Milford, N.A. v. Bardes, 25 Ohio St.3d 296, 496 N.E.2d 475, 25 O.B.R. 346

Facts

Oliver P. Bardes owned farm property and executed a general warranty deed on May 19, 1977, transferring the property to himself as 'OLIVER P. BARDES, TRUSTEE.' This deed was recorded on September 7, 1977, but did not disclose any details about the trust. Bardes had written letters to his children outlining trust arrangements, but these were not recorded. Various judgment creditors of Bardes, acting as individuals, sought foreclosure on the property, leading to the trial court's determination that Bardes held an absolute fee simple interest.

475 Appellant Oliver P. Bardes owned certain farm property as an individual, but on May 19, 1977, he executed a general warranty deed by which he purported to transfer the property to himself as 'OLIVER P. BARDES, TRUSTEE.' That deed was recorded on September 7, 1977. Other than the designation 'TRUSTEE,' the deed did not disclose any other information about the purported trust, nor any limitations on Bardes' powers and duties as trustee.

Issue

Did the failure to record the trust instrument divest Bardes of his interest in the real estate, and does R.C. 5301.03 protect judgment creditors who have not relied on the existence of the trust in extending credit?

In two related propositions of law, appellants urge that the failure to record a trust instrument does not, by virtue of R.C. 5301.03, operate to divest a trustee of his interest in real estate, and that R.C. 5301.03 is a notice statute which does not protect judgment creditors who have not relied upon the existence and/or ownership of the subject real estate in the extension of credit.

Rule

R.C. 5301.03 is a notice statute that does not prevent the owner of an equitable interest created by an oral trust in real property from asserting a prior interest against a judgment creditor of the trustee.

In Marital Trust of Casto v. Lungaro (1986), 22 Ohio St.3d 298, 490 N.E.2d 599, syllabus, we held that 'R.C. 5301.03 does not prevent the owner of an equitable interest created by an oral trust in real property from asserting a prior interest in that property against a judgment creditor of the trustee.'

Analysis

The court applied R.C. 5301.03 to determine that the failure to record the trust instrument did not divest Bardes of his interest in the property. The court noted that the statute is designed to provide notice to bona fide purchasers and does not protect judgment creditors who did not rely on the existence of the trust. The court emphasized that the creditors could not claim they were misled regarding the trust's existence, as their judgments were based on debts in personam, not on the property itself.

The only arguable difference between Casto and the instant case is that in Casto, the purported trustee had not recorded any transfer to himself as trustee, whereas here, Bardes has recorded a deed in which he is so designated. But that factual distinction does not, in our view, cause judgment creditors to somehow come within the purview of the protections extended by R.C. 5301.03.

Conclusion

The Supreme Court reversed the judgment of the court of appeals and remanded the case for further determination of whether Bardes has an enforceable equitable interest in the real estate.

Accordingly, we reverse the judgment of the court of appeals, and remand the cause to the trial court for determination of whether Bardes does, in fact, have an enforceable equitable interest in the subject real estate and, if so, the nature and extent of that interest.

Who won?

Oliver P. Bardes prevailed in the case because the Supreme Court found that the failure to record the trust instrument did not divest him of his interest in the property, and the protections of R.C. 5301.03 did not extend to the judgment creditors.

The creditors in the present case are judgment creditors, which judgments are based on debts in personam. None of the transactions between the parties utilized the property in question as security for the obligation.

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