In Re Universal Farming Industries, Debtor. George C. Spacek Ana Spacek v. Kewmars Tabatabay

George C. and Ana Spacek appeal the Bankruptcy Appellate Panel’s determination that a suit brought by Kewmars Taba-tabay, requesting the declaration of priority of his note and deed of trust over the Spaceks’ note and deed of trust, was not moot. We reverse.

FACTS AND PRIOR PROCEEDINGS

Universal Farming Industries (“UFI”), a California corporation, filed a petition under Chapter 11 of the bankruptcy code on January 11, 1983. In September 1985, Kewmars Tabatabay, the president of UFI, brought an action in bankruptcy court seeking a declaration that a second deed of trust securing a $150,000 promissory note made by UFI to California Valley Ranch (“CVR”) should be subordinated to a deed of trust securing a $220,000 promissory note made by UFI to Tabatabay. Tabata-bay alleged that in an amendment to escrow, dated March 11, 1981, CVR and UFI agreed that at the option of UFI, CVR would subordinate its note and deed of trust to that of Tabatabay, and that UFI had exercised this option. George Spacek, CVR’s president and sole shareholder, contended that the subordination agreement was unenforceable due to lack of consideration. Therefore, the Spaceks contended, the deed of trust…