Breeding v. NJH Enterprises, LLC.

• Decision Date: 13 May 1997
• Docket Number: No. 85155,85155
• Citation: 940 P.2d 502
• Parties: Freeda M. BREEDING, Appellant, v. NJH ENTERPRISES, LLC., and Marvin O. Breeding and Sharon Breeding, husband and wife, Appellees.
• Court: Oklahoma Supreme Court

Page 502

940 P.2d 502

1997 OK 65

Freeda M. BREEDING, Appellant, v. NJH ENTERPRISES, LLC., and Marvin O. Breeding and Sharon Breeding, husband and wife, Appellees.

No. 85155.

Supreme Court of Oklahoma.

May 13, 1997.

Steven S. Mansell, Oklahoma City, for Appellant.

Michael A. Bickford, Fuller, Tubb and Pomeroy, Oklahoma City, for Marvin O. Breeding and Sharon Breeding.

Charles C. Green and Stacy Cole McDaniel, McKinney, Stringer and Webster, P.C. Oklahoma City, for NJH.

WATT, Justice.

FACTS

¶1 Freeda M. Breeding and Marvin O. Breeding were divorced in Oklahoma County in 1984. The trial court in the divorce action awarded Mr. Breeding the parties' Oklahoma City homestead, in which the parties agreed they had equity of $323,000.00. Mrs. Breeding appealed, and on May 6, 1986 this Court modified the trial court's property award by granting Mrs. Breeding an additional $100,000.00 cash in lieu of property, secured by a lien on the Breedings' former homestead.

¶2 Mr. Breeding executed a $500,000.00 mortgage to Lakeshore Bank on the former homestead on July 31, 1985, while the divorce case appeal was pending. The Lakeshore Bank mortgage covered not only the former homestead, but an additional twenty-four acres in Oklahoma County. Mrs. Breeding did not sign the mortgage, although according to the records of the Oklahoma County Clerk title to the homestead was still in Mr. and Mrs. Breeding as joint tenants. Mrs. Breeding had not filed a lis pendens notice in accordance with the then effective statute, 12 O.S.1981 § 180.1. The applicable portion of § 180.1 stated:

Upon the filing of a petition, the action is pending so as to charge third persons with notice of its pendency. While an action is pending, no third person shall acquire an interest in the subject matter of the suit as against the plaintiff's title; except that:

. . . . .

No action pending in either state or federal court shall constitute notice with respect to any real property until a notice of pendency of the action, identifying the case and the court in which it is pending and giving the legal description of the land affected by the action, is filed of record in the office of the county clerk where the land is situated.

¶3 The substance of the foregoing language remains in the current version of the lis pendens statute, 12 O.S.1991 § 2004.2.

¶4 On April 15, 1986, while the divorce case appeal was pending, Mr. Breeding obtained a $600,000.00 line of credit from Capitol National Bank. Under the terms of the Credit Agreement Mr. Breeding made with Capitol National, Mr. Breeding agreed to give Capitol National security agreements and mortgages on all his property, including stock in the Oklahoma City Golf & Country Club, a Beechcraft Baron aircraft, and the Breedings' former homestead. Lakeshore Bank assigned its mortgage to Capitol National Bank. The Credit Agreement recited that the appeal of the Breedings' divorce case was pending in this Court.

¶5 Capitol National Bank assigned the Lakeshore Bank mortgage to Appellee NJH's predecessor in interest, Nona Jean Hulsey, on December 11, 1987. Mrs. Breeding filed an affidavit of judgment in the Oklahoma County Clerk's office on August 27, 1990.

PROCEDURAL HISTORY

¶6 Mr. Breeding defaulted on his obligation to pay Mrs. Breeding the additional $100,000.00 awarded by this Court in the divorce case, and Mrs. Breeding brought the suit from which this appeal arises on August 2, 1991. In her suit Mrs. Breeding sought to have her lien on the former homestead declared superior to NJH's lien, and to foreclose her lien.

¶7 The trial court held that the lien of the Lakeshore Bank mortgage to the former homestead was senior to Mrs. Breeding's lien. The Court of Civil Appeals affirmed the trial court on the ground that actual knowledge of pending litigation does not waive the filing requirements of the lis pendens statute.

ISSUE

¶8 Is actual knowledge of the pendency of an action involving real property a substitute for the notice required by the lis pendens statute, 12 O.S.1991 § 2004.2 (formerly 12 O.S.1981 § 180.1)? We hold that where there was actual notice of the pendency of such an action the failure to file the lis pendens notice provided for by statute is immaterial.

DISCUSSION

¶9 NJH claims that the record does not support Mrs. Breeding's claim that Lakeshore Bank was aware of the divorce decree sufficient to put it on inquiry. We disagree. Lakeshore Bank's mortgage referred to Mr. Breeding as a single man, and the former homestead as his separate property despite the fact that record title was in Mr. and Mrs. Breeding as joint tenants. Lakeshore Bank's successor in interest, Capitol National Bank, recited the fact of the pending appeal of the divorce case in its Credit Agreement with Mr. Breeding. NJH does not claim that Lakeshore Bank did not know of the pendency of the divorce case appeal. Nona Jean Hulsey, and Capitol National Bank were represented by the law firm that represents NJH here. Given these facts we have no hesitancy to hold that Lakeshore Bank was on notice to make a reasonable inquiry concerning Mrs. Breeding's claims to the property. Lakeshore Bank's successors, Capitol National Bank, Nona June Hulsey, and NJH, took the mortgage to the property subject to the further rulings of this court in the divorce case appeal. Hart v. Pharaoh, 359 P.2d 1074, 1078 (Okla.1961). Lakeshore Bank and its successors, therefore, took their mortgage subject to the possibility that this Court might reduce Mr. Breeding's interest in the mortgaged property.

¶10 We turn now to the first impression question, whether Lakeshore Bank's actual knowledge of the pendency of the divorce case appeal made immaterial Mrs. Breeding's failure to comply with the lis pendens statute's filing provisions. In White v. Wensauer, 702 P.2d 15, 49 A.L.R.4th 233 (Okla.1985) we noted that lis pendens is an equitable doctrine, and the lis pendens statute a codification of that doctrine. NJH would have us hold that the lis pendens statute prohibits application of the lis pendens doctrine even against one with actual notice if the statute's filing provisions have not been observed. This we decline to do.

¶11 The teaching of White is that "Because the doctrine of lis pendens is derived from the notions of common-law and equity jurisprudence, rather than from statute, it is subject to equitable principles." 702 P.2d at 18. It would be inequitable to allow NJH, who, along with its predecessors in title, had actual knowledge of the divorce case appeal, to avoid lis pendens here. In White we held that lis pendens would not be applied when applying the doctrine would be "harsh or arbitrary." 702 P.2d at 18. Today we hold that lis pendens will be applied here because failure to apply the doctrine in the circumstances of this appeal would be inequitable. It would make no sense to use White as the basis for refusing to apply lis pendens when refusing to do so would be inequitable.

¶12 NJH has cited no reported decision, and we have found none, in which one with actual notice of litigation that might effect property in which one claims an interest was allowed to avoid the constraints of lis pendens. We have found one opinion, from the Supreme Court of Alabama, reaching the result we reach here today. In First Alabama Bank of Tuscaloosa, N.A. v. Brooker, 418 So.2d 851 (Ala.1982), the court held that lis pendens applied to the mortgagee of a mortgage to the divorced couple's jointly held property given by the ex-husband alone, although no lis pendens notice had been given. The pending action was a divorce action in which property division was an issue. The Alabama lis pendens statute excepted those with actual notice from the filing requirements What then of actual notice, where there was no compliance with the lis pendens statute ...? If, therefore there was actual notice, it is immaterial whether the statutory notice was given.

of the act, unlike the Oklahoma lis pendens act, which is silent on the subject. Nevertheless, we find the reasoning of the Alabama Court persuasive:

418 So.2d at 853, quoting with approval Lee v. Macon County Bank, 233 Ala. 522, 172 So. 662 (1937). See also Oldewurtel v. Redding, 421 N.W.2d 722, 728 (Minn.1988) (held that had a property division order in a divorce case that affected property previously mortgaged to one with knowledge of pendency of divorce action been modified on appeal, the mortgagee would have lost its security (dicta).)

¶13 NJH argues that Mrs. Breeding's failure to supersede the trial court's property award prohibits her from claiming the benefits of lis pendens. We disagree. A supersedeas bond "stay[s] the enforcement of a judgment." 12 O.S.1993 Supp. § 990.4. A supersedeas bond merely prevent the prevailing party in litigation from seizing and selling his opponent's property to satisfy the judgment while an appeal of the judgment pends, but Lis pendens applies to persons not parties to the action. Its purpose is to preserve the power of the court to change the relationship of the parties as to property at issue in the case without the intervention of third party rights created during the pendency of the litigation. The supersedeas bond statute is inapplicable to rights and obligations arising under lis pendens.

¶14 The lis pendens statute says that its filing requirements apply to a "third person." NJH would have us interpret the term "third person" to include even those who have actual knowledge of the pending litigation. We have previously construed a statute that uses the term "third persons." Title 16 O.S.1991 § 15 provides that deeds and mortgages "shall be valid as against third persons unless acknowledged and recorded." We held in Whitehead v. Garrett, 199 Okla. 278, 280, 185 P.2d 686, 688 (1947), "The 'third persons' defined by § 15, supra, refer to innocent purchasers for value."

¶15 Lakeshore Bank was not "innocent" when it took its mortgage from Mr. Breeding as a single...