BFP v. Resolution Trust Corp. 511 U.S. 531, 114 S. Ct. 1757, 128 L. Ed. 2d 556 (1994)
Barton and the Petersons
formed BFP to speculate on real estate. They bought a house using a loan
from Imperial Bank (who later sold the loan to Resolution).
BFP defaulted on the loan and
the bank foreclosed. Imperial then sold the house for $433k.
The assessed market value of
the house was $725k.
After the sale, but before
Imperial could transfer the deed to the buyer, BFP declared bankruptcy.
BFP sued for an injunction to block the sale.
BFP argued that Federal
bankruptcy law (11 U.S.C. §548(a)(2)(A)) guarantees that debtors receive reasonably equivalent value
for a foreclosed property.
BFP argued that the reasonably
equivalent value was equal to the market
value of the property in question.
The Trial Court found for
Imperial. BFP appealed.
The Appellate Court affirmed.
The US Supreme Court affirmed.
The US Supreme Court looked
to the plain meaning of the word reasonable in the Statute and found that that the value
received for a property at a foreclosure sale can be reasonable even if it is different from the fair
The Court reasoned that a house
in foreclosure will sell for a lower price than a house that isn't.
The Court found that the
price at which the property is sold is reasonable so long as "all
the requirements of the State's foreclosure law have been complied
Basically, the Statue is
there to stop fraud, and there was no accusation of fraud in this case.
The sale price in this case does not 'shock the conscious'.
There was no Statutory definition
of fair market value.
Because Congress used
different terms (fair market value
and reasonably equivalent value) in the Statute, the Court found that they must have meant that
there was a difference.
The meaningful variation
In a dissent it was argued
that the Court could have come up with a definition of reasonably
equivalent value. It's a pretty clear
term, so the Court should be able to find a definition for it.
In addition, the dissent
argued that the legislative history
shows that Congress meant for the Statute to deal with things like this.
In this case, by using the meaningful
variation doctrine, the majority
refused to define the term reasonable equivalent value and therefore basically ignore the clear purpose of the Statute.