Stone v. Jetmar Properties LLC

733 N.W.2d 480 (2007)

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Nature of the Case

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Facts

Hammond (D) drafted and signed articles of organization for Jetmar Properties, LLC, (D) in November 2002, but he did not file the articles with the secretary of state. Hammond (D), acting as president of Jetmar (D), offered to buy commercial property from Selwin Ortega (D). They signed a purchase agreement, but the sale did not close because Hammond (D) did not have the money. Ortega (D) gave Hammond (D) a three-day, unsecured $200,000 loan, which Hammond (D) failed to repay. Hammond (D) met Dale Stone (P), a retiree, and convinced him to invest in several of Jetmar's(D) 'real estate ventures.' P gave Hammond (D) more than $ 50,000 in cashiers' checks for Jetmar's (D) various projects. Hammond (D) asked Stone to quitclaim a duplex to Jetmar (D) to improve Jetmar's (D) balance sheet, which would allow it to secure financing for a large condominium development. Hammond (D) promised P an interest in the development. Hammond (D) promised to deed the property back to P 'free and clear' in sixty days, and that Stone could continue to collect rent. P quitclaimed the property to Jetmar (D). Hammond (D) purported to accept the deed as Jetmar's (D) president and recorded it the same day. Hammond (D) mortgaged the duplex to Ortega (D) in exchange for an extension on the $200,000 loan. Ortega (D) recorded the mortgage. Hammond (D) did not repay the loan nor deed the property back to P. Ortega (D) began foreclosure proceedings. P confronted Hammond (D) about the mortgage, but he was told that there would be time to redeem and regain title to the property. P did not alert Ortega (D) of his claimed interest. Ortega (D) conducted a sale and purchased the property in exchange for the surrender of his $200,000 claim against Jetmar (D). Hammond (D) filed Jetmar's (D) articles of organization on March 11, 2004, and received a certificate of organization. P sued DS alleging fraud. Ortega (D) filed an answer, but Hammond (D) and Jetmar (D) failed to respond. The district court concluded that the LLC did not exist at the time of delivery, it was therefore incapable of taking title to land, and the quitclaim deed was void. Thus, it held the mortgage, and the foreclosure were also void. The district court also concluded that Ortega (D) was not a good-faith purchaser for value under Minn. Stat. § 507.34 (2006). Ortega (D) appealed.