189 A.D. 782 | N.Y. App. Div. | 1919
Lead Opinion
The question presented on this appeal is whether a purchaser or mortgagee of real property for a valuable consideration is chargeable with constructive notice of the recitals of an unrecorded deed in the chain of his title. Defendants Dennison had a purchase-money mortgage prior in point of time to that of the plaintiff; but plaintiff’s mortgage was first recorded. By virtue of the Recording Act (Real Prop. Law, § 291) plaintiff’s mortgage is a prior lien provided that plaintiff is a mortgagee in good faith. If plaintiff had notice, actual or constructive, of the prior unrecorded mortgage, it amounted to a fraud to attempt to supplant it, In the language of some
Not only was the purchase-money mortgage to defendant Dennison unrecorded, but the conveyance to plaintiff’s mortgagor was also unrecorded. The conveyance contained a recital that it was subject to a purchase-money mortgage. If the conveyance had been recorded, plaintiff would, therefore, have had constructive notice of the recital and consequently that it was subject to a purchase-money mortgage for $1,000. This notice would have placed on plaintiff the duty of investigating and would have led to defendant Dennison’s mortgage. Plaintiff then could not have proceeded in good faith to take his mortgage to the detriment of defendant Dennison and the Recording Act would have afforded it no protection.
But the conveyance was not on record and the learned court has decided that plaintiff was not an incumbrancer in good faith because it did not search the record and call for the production of the unrecorded deeds, the reason necessarily being that good faith required it to search the record, and that when it was disclosed by the search that there was no record title in the mortgagor, good faith required it to go further and call for the physical production of the title deeds, and that the failure so to do charged it with constructive notice of the recital in the unrecorded deed. I think this is a strange and dangerous doctrine as conveyancing is carried on in this State, and that it rests on no sufficient authority.
It is suggested that certain decisions in England to the effect that a failure on the part of a purchaser or mortgagee to call for the title deeds is evidence that the purchase or mortgage is not in good faith; lend support to this doctrine. (See Worthington v. Morgan, 16 Simon, 547; Whitbread v. Jordan, 1 Younge & Co. [Exch.] 303; Le Neve v. Le Neve, 2 Wh. & Tud. Lead. Cas. 27, 48, n; Finch v. Shaw, 19 Beav. 500; Jones v. Williams, 24 id. 47; Hewitt v. Loosemore, 9 Hare, 449.) These cases hold that a purchaser who does not call for the title deeds is chargeable with notice of an equi
The text writers state that the doctrine of equitable mortgage by deposit of title deeds is not usually accepted in the United States. Among the States that reject the doctrine New York is not named, apparently on account of Rockwell v. Hobby 2 Sandf. Ch. 10). That case cannot be held to be authority that the doctrine is adopted in this State. The case was considered in Bowers v. Johnson (49 N. Y. 432), and, it seems to me, disapproved. In Stoddard v. Hart (23 N. Y. 556) Comstock, Ch. J., said: “ In this State the doctrine is almost unknown, because we have no practice of creating liens in this manner.” I think it may be said with accuracy that the doctrine is entirely unknown in this State. Every day titles are passed on the evidence furnished by the records, and rarely if ever are title deeds called for. The time has come, I think, definitely to state that the English doctrine that an equitable mortgage is created by merely a deposit of title deeds against advances without words passing does not obtain in this State. The English rule that a purchaser who does not call for the title deeds acts in bad faith does not obtain here because the reason for it does not exist. To avoid misunderstanding, it is well to state that the doctrine that
The rule regarding the purchase or payment of a bond and mortgage without requiring that the original be produced (Assets Realization Co. v. Clark, 205 N. Y. 105; Kellogg v. Smith, 26 id. 18) is akin to the English rule regarding the purchase of land. As in England an equitable lien may be created by a deposit of title deeds against advances, so in New York State a bond and mortgage, which is personal property, may be assigned by delivery without a written instrument. The only safeguard against such an assignment is to require the production of the bond itself. This doctrine, therefore, has no application to land, which cannot under the statutes be so conveyed.
Reference is made to a rule stated in 39 Cyc. 1715, as follows: “A purchaser is affected with notice of the recitals in the instruments forming his chain of title and material thereto, whether recorded or not.” But in the authority from this State given as sustaining this rule (Sweet v. Henry, 175 N. Y. 268) the instruments containing the recitals were recorded, and it was the instruments recited that were not recorded. It is not doubted that a purchaser has constructive knowledge of the recitals of a recorded deed, and, therefore, of the instrument so recited; but that rule has no application to the case at bar.
The fact that the unrecorded mortgage was a purchase-money mortgage does not affect the problem.' A purchase-money mortgage is as much subject to the Recording Act as any other. The case of Dusenbury v. Hulbert (59 N. Y. 541) is not to the contrary. The decision in that case was that the unrecorded purchase-money mortgage was entitled to priority over the mortgage first recorded because the mortgagee of the mortgage first recorded was not, under the Recording Act, a purchaser for a valuable consideration, as the mortgage was given to secure an antecedent debt. The discussion in the Dusenbury case regarding the status of .a purchase-money mortgage has no reference to the effect of the Recording Act, but to the question of priority of right between a purchase-
The object of this unduly long analysis of cases is only to clear the ground so that we may not be misled by false analogies. Section 291 of the Real Property Law provides: “A conveyance of real property, within the State, on being duly acknowledged by the person executing the same, or proved as required by this chapter, and such acknowledgment or proof duly certified when required by this chapter, may be recorded in the office of the clerk of the county where such real property is situated, and such county clerk shall, upon the request of any party, on tender of the lawful fees therefor, record the same in his said office. Every such conveyance not so recorded is void as against any subsequent purchaser in good faith and for a valuable consideration, from the same vendor, his heirs or devisees, of the same real property or any portion thereof, whose conveyance is first duly recorded.”
The plaintiff was a purchaser for a valuable consideration. Its mortgage was first duly recorded. The prior unrecorded purchase-money mortgage was void as to it, provided only that it was a purchaser in good faith. If it had actual or constructive notice of the prior mortgage it was not a purchaser in good faith. It had no actual notice. It had no constructive notice of a duly recorded instrument. It seems to me that the respondent’s proposition comes down to this: that one who takes a mortgage of real property acts in bad faith if he does not employ a lawyer or a title company to examine the title, and if a deed in the chain of title be missing, require its production. I do not know of any authority for that proposition or of any principle which supports it. If a
If this be a correct statement of the law, and I think it is, plaintiff had no constructive notice. There was nothing to suggest to it that there was any incumbrance on the property, so it cannot be said to have willfully forborne to make inquiry. In Acer v. Westcott (46 N. Y. 384) Judge Peckham said: “ Constructive notice may be said to be a knowledge by the purchaser of some facts which should put him upon inquiry, and require him to examine other matters that would generally unfold the true title.” And quoting from the lord chancellor in Ware v. Egmont (4 DeG., M. & G. 460, 473), he said: “ ‘ I must not part with this case without expressing my entire concurrence in what has, on many occasions of late years, fallen from judges of great eminence on the subject of constructive notice, namely, that it is highly inexpedient for courts of equity to extend the doctrine.’ ” Judge Peckham also said: “ The purchaser must be presumed to investigate the title, and to examine every deed or instrument forming a part of it, especially if recorded.” The last three words, “ especially if recorded,” limit the general statement.
I think, however, that a new trial should be directed, as the evidence indicates that there may be questions of fact which should be passed upon directly, viz., whether the deed from Augusto Gennaro to his wife, through which plaintiff takes title, was delivered, and whether the plaintiff’s agent, who acted in accepting the mortgage, had such knowledge of the unrecorded mortgage as is imputable to plaintiff.
I recommend that the judgment be reversed and a new trial granted, with costs to abide the final award of costs.
Jenks, P. J., and Jaycox, J., concurred; Putnam, J., read for affirmance, with whom Kelly, J., concurred, and with a separate memorandum.
Dissenting Opinion
This situation arises from a mortgage loan to Mrs. Gennaro (wife of a retailer of plaintiff’s beer in casks and kegs), made by the plaintiff brewing company on January 15, 1912. She had no record title. That still remained in the Dennisons. Mrs. Gennaro had no possession of the property. But at this time there was an unrecorded deed to her from her husband, contained in his desk, dated July 14, 1911, purporting to be in consideration of one dollar, which recited an incumbrance by mortgage to secure $1,000, which the party of the second part assumed and agreed to pay.
In closing these transactions Mr. Bushnell of Peekskill, now deceased, acted as attorney for the Gennaros, also for the plaintiff. The plaintiff had written to Bushnell about
The court has found: “ That plaintiff made no inquiry as to the nature and extent of the title or interest in the said premises of the said defendant, Eugenia Gennaro.”
Of course, this was the only way such a mortgage as plaintiff’s could be taken as a first lien, since inspection of the deed to Mrs. Gennaro would disclose the prior $1,000 mortgage to the Dennisons.
It is settled in New York that a junior incumbrancer who first gets on record is not protected by the Recording Act if the mortgagee had constructive notice of a prior unrecorded instrument. (Tuttle v. Jackson, 6 Wend. 213; Jackson v. Burgott, 10 Johns. 457.)
The Recording Acts protect only one who is a purchaser in good faith. Such a purchaser or mortgagee, chargeable with notice of the rights of a prior purchaser or incumbrancer, is not acting in good faith. The degree of notice required is, in the language of the authorities, such as would lead any honest man, using ordinary caution, to make further inquiries. (Moore v. Le Maire, 169 App. Div. 154, 157.)
As was said by Duer, J.: “ The principle of the doctrine of constructive notice is, that when a person is about to perform an act by which he has reason to believe that the rights of a third party, may be affected, an inquiry into the facts is a moral duty, and diligence an act of justice. Hence, he proceeds at his peril when he omits to inquire, and is then chargeable with a knowledge of all the facts that by a proper inquiry he might have ascertained. This neglect is followed by all the consequences of bad faith, and he loses the protection to which his ignorance, had it not proceeded from neglect, would have entitled him. The cases are innumerable in which this doctrine has been applied in courts of equity to purchasers and mortgagees of real estate, and there are many in which it has operated to divest the title of those whose actual good faith was unsuspected. The rule, that it is only purchasers for value and without notice, who, in certain cases, may oppose their title to that of the true owner, we have always believed
I think the finding of no inquiry as to the nature and extent of this mortgagor’s title is decisive. Obviously the brewing company took this mortgage either relying on the credit of a favored customer, the mortgagor’s husband, or else it willfully shut its eyes, and did not call for the title deed. In either view it was not a bona fide purchaser, and, therefore, not under the protection of the Recording Acts. (39 Cyc. 1715; 2 Devlin Deeds [3d ed.], § 629a.) If it be asked what any honest man, using ordinary caution, would ask for in taking a mortgage from a holder of an unrecorded deed, or what in these circumstances would be a proper inquiry, I think no real question should arise. In such case, before consummating the transaction, the deed constituting the basis of the title would be ordinarily called for and inspected.
Hence I would affirm.
Kelly, J., concurred.
Concurrence Opinion
I concur with Putnam, J., and I also think that the evidence shows that Bushnell was more than an attorney employed to draw the papers for the plaintiff. I think he represented plaintiff generally, and the proof shows that Bushnell actually prepared the purchase-money mortgage held by Dennison.
Judgment reversed and new trial granted, with costs to abide the final award of costs.