62 Cal.App.5th 704
Cal. Ct. App.2021Background
- In 2014 Celestine sued to quiet title and obtained a default quiet-title judgment (recorded 2015) that purported to extinguish a 2007 CIT deed of trust; the complaint named CIT Group though recorded assignments showed the loan had been assigned in 2012 and 2014 to other holders.
- The 2015 quiet-title judgment and a 2016 expungement order were later set aside and expunged in 2017 after Caliber (CIT Group’s successor) successfully moved to vacate the default for lack of service.
- Tsasu loaned Celestine money and recorded a deed of trust in September 2016 (after the 2015 judgment was recorded but before it was set aside); Tsasu relied on a title company preliminary report that reflected both the 2015 quiet-title judgment and the earlier assignments.
- Tsasu sued U.S. Bank (holder of the earlier CIT deed of trust) seeking a declaration that Tsasu’s lien had priority and that the orders setting aside/expunging the 2015 judgment were ineffective as to Tsasu.
- The trial court granted summary judgment for U.S. Bank; Tsasu appealed. The controlling legal question was whether section 764.060’s protection for purchasers/encumbrancers “without knowledge of any defects or irregularities” requires absence of both actual and constructive knowledge.
Issues
| Issue | Plaintiff's Argument (Tsasu) | Defendant's Argument (U.S. Bank) | Held |
|---|---|---|---|
| Meaning of “knowledge” in §764.060 (actual vs. constructive) | “Knowledge” means only actual knowledge; Tsasu had no actual awareness of defects. | “Knowledge” includes both actual and constructive knowledge; statute borrows bona fide purchaser concept. | Court: “knowledge” includes actual and constructive knowledge. |
| Did recorded chain of title put Tsasu on constructive notice of a defect in the 2015 judgment? | The 2015 quiet-title judgment is entitled to presumptions of regularity; conflicts with recorded assignments do not automatically create constructive notice. | Recorded 2012/2014 assignments plus the 2015 judgment showing CIT Group as defendant displayed an apparent defect; recording imputes constructive knowledge. | Court: The record contained an ostensible conflict that gave constructive notice; Tsasu had constructive notice. |
| Was title insurer’s knowledge imputed to Tsasu (agency/inquiry notice)? | Title company’s knowledge is not automatically imputed to the insured; Tsasu did not personally know of defect. | Tsasu’s CEO relied on the title company’s report; the title agent acted as Tsasu’s agent, so its knowledge is imputed. | Court: Tsasu treated the title company as its agent in acquiring knowledge about title; agent’s knowledge imputed to Tsasu. |
| Can equitable doctrines (estoppel, Civ. Code §3543, laches) save Tsasu’s priority? | U.S. Bank delayed informing Tsasu of motions to set aside/expunge; equity should favor Tsasu as less negligent. | Section 764.060 is the statutory balance; Tsasu had constructive notice and equitable doctrines do not override statute; also no duty existed and laches was not pleaded. | Court: Equity does not alter §764.060 here; Tsasu fails on duty/causation and laches was not pled. |
Key Cases Cited
- Aguilar v. Atlantic Richfield Co., 25 Cal.4th 826 (2001) (summary judgment burden-shifting standard)
- Ham v. Grapeland Irrigation Dist., 172 Cal. 611 (1916) (definition that “knowledge” includes constructive knowledge)
- Scheas v. Robertson, 38 Cal.2d 119 (1951) (use of "knowledge" to include constructive knowledge)
- Melendrez v. D & I Investment, Inc., 127 Cal.App.4th 1238 (2005) (bona fide purchaser lacks actual and constructive knowledge)
- Deutsche Bank Nat. Tr. Co. v. Pyle, 13 Cal.App.5th 513 (2017) (discussion of quiet title Act’s requirements and buyer protection)
- First Bank v. East West Bank, 199 Cal.App.4th 1309 (2011) (recorded documents give constructive notice)
- OC Interior Servs., LLC v. Nationstar Mortgage, LLC, 7 Cal.App.5th 1318 (2017) (tension between later reliance interests and attacks on earlier void judgments)
- Triple A Mgmt. Co. v. Frisone, 69 Cal.App.4th 520 (1999) (duty to heed reasonable warning signs in title)
- WFG Nat. Title Ins. Co. v. Wells Fargo Bank, N.A., 51 Cal.App.5th 881 (2020) (limitations on imposing a duty to monitor public records)