In Re Teerlink Ranch Ltd., a California Limited Partnership, Debtor. Heber N. Teerlink Erma D. Teerlink v. Alan G. Lambert, and Teerlink Ranch Ltd.

This case consolidating two appeals arising from a dispute between a developer and a seller of real estate involves the relationship between a bankruptcy court and a district court and the rules and principles governing bankruptcy. We hold that the powers conferred on a trustee or debtor in possession by 11 U.S.C. § 544 are not so extraordinary that a Chapter 11 debtor can load its debts on its neighbor. We affirm the district court.

FACTS

Heber and Erma Teerlink (Teerlink) sold 58 acres of land in the hills above the city of Saratoga, Santa Clara county, California. The purchaser was Gerard & Lambert Inc., a company owned by Alan Gerard Lambert. The rights of this company were acquired by the defendant Teerlink Ranch, Ltd. (TRL). TRL had a number of limited partners, with Gerard & Lambert, Inc. as its sole general partner. After the partnership was formed, TRL gave a promissory note of $100,000 to the limited partners, securing the note with a deed of trust on all of the lots.

As part of the purchase price Teerlink was given a promissory note for approximately $1.5 million, secured by a deed of trust on the property. Teerlink was also given the right to a number of lots into…