Citizens Bank of Clovis v. Hodges
| Decision Date | 07 January 1988 |
| Docket Number | No. 9169,9169 |
| Citation | 757 P.2d 799,1988 NMCA 1,107 N.M. 329 |
| Parties | The CITIZENS BANK OF CLOVIS, a corporation, Plaintiff-Appellee, v. Robert C. HODGES, Mary L. Hodges, Western Bank, a Texas corporation, Mutual Savings Association of El Paso, a Texas corporation, and Charles Rutledge, Defendants-Appellants. |
| Court | Court of Appeals of New Mexico |
Citizens Bank of Clovis (Citizens Bank) sued to foreclose a judgment lien against real estate in Dona Ana County. It named as defendants Robert C. and Mary L. Hodges (the Hodges), purchasers of the property under an unrecorded executory contract; Charles Rutledge (Rutledge), record owner of the property at the time Citizens Bank filed its transcript of judgment and the vendor who sold the property to the Hodges; and Western Bank and Mutual Savings Association of El Paso (Mutual Savings), holders of mortgage liens against the property. The Hodges and Western Bank appeal from an order granting Citizens Bank's cross-motion for summary judgment, foreclosing the judgment lien and ordering the sale of the property. Neither Rutledge nor Mutual Savings is a party to this appeal.
This appeal presents the question of whether a lien on real estate resulting from a recorded transcript of judgment has priority over the interest of the purchasers under an earlier executed but unrecorded contract. The Hodges and Western Bank argue that it does not, under the facts presented, for two reasons. First, under the doctrine of equitable conversion, they claim the interest of Rutledge, the judgment debtor, became personalty as a result of the contract of sale and, therefore, his interest was not subject to a lien, since a transcript of judgment attaches only to real estate; and, second, even if a lien did attach, Citizens Bank had constructive notice of the Hodges' interest because they were in actual possession of the property at the time of filing of the transcript of judgment.
This court submitted the case to an advisory committee of lawyers pursuant to an experimental plan. See Patterson v. Environmental Improvement Div., 105 N.M. 320, 731 P.2d 1364 (Ct.App.1986). The committee rendered a unanimous opinion recommending affirmance of the district court. All parties to this appeal filed responses to the committee's recommended opinion. We reverse the district court. Because Citizens Bank had constructive notice of the Hodges' interest through the Hodges' actual possession of the property, their judgment lien cannot attach to the property. Having so concluded, we need not decide whether the doctrine of equitable conversion applies.
The relevant facts are not in dispute. In January 1979, Rutledge, the record owner of the real estate, executed a mortgage in favor of Mutual Savings that was recorded. All parties recognize the priority of Mutual Savings' mortgage. On June 23, 1979, Rutledge entered into an executory contract to sell the property to the Hodges. The contract was not recorded. Pursuant to that contract, a warranty deed conveying the property from Rutledge to the Hodges was placed in escrow with Western Bank, the escrow agent named in the contract. Under the terms of the contract, the Hodges assumed the first mortgage in favor of Mutual Savings, as well as a promissory note on the swimming pool, and also agreed to pay Rutledge the balance of the purchase price with interest in five years.
After executing their contract with Rutledge in 1979, the Hodges took possession of the property and have continuously occupied it as their residence. They have made improvements to the property in excess of $25,000.
On July 11, 1983, Citizens Bank obtained a judgment for $52,130.33 against Rutledge in the district court of Curry County and subsequently recorded a transcript of that judgment with the county clerk of Dona Ana County on August 29, 1983. At that time, although Rutledge had contracted to sell the property to the Hodges and a warranty deed was being held in escrow, nothing of record evidenced that sale. According to the county records, Rutledge owned the property.
On February 18, 1985, escrow was closed and the warranty deed was delivered to the Hodges and recorded on that date. At the same time, the Hodges executed a mortgage in favor of Western Bank to secure a loan for $34,000. Western Bank's mortgage was also recorded on February 18, 1985.
At the time Citizens Bank filed its transcript of judgment, it had no knowledge of the contract of sale between Rutledge and the Hodges. In fact, Citizens Bank did not even know that Rutledge owned property in New Mexico. The first indication Citizens Bank had of the Rutledge-Hodges contract was a telephone call from Mr. Hodges in April 1985 informing Citizens Bank that the judgment lien was interfering with a pending sale of the property. This suit followed. The Hodges and Western Bank counterclaimed for cancellation of the transcript of judgment, removal of cloud on the title and slander of title.
Where the facts are not in dispute, only their legal effect, summary judgment may be properly granted. Lovato v. Duke City Lumber Co., 97 N.M. 545, 641 P.2d 1092 (Ct.App.1982). We turn to the issue raised by the facts to determine if summary judgment was proper and, if so, in whose favor it should have been granted.
"All deeds, mortgages, United States patents and other writings affecting the title to real estate, shall be recorded in the office of the county clerk of the county or counties in which the real estate affected thereby is situated." NMSA 1978, Sec. 14-9-1. "Such records shall be notice to all the world of the existence and contents of the instruments so recorded from the time of recording." NMSA 1978, Sec. 14-9-2. "No deed, mortgage or other instrument in writing, not recorded in accordance with Section 14-9-1 NMSA 1978, shall affect the title or rights to, in any real estate, of any purchaser, mortgagee in good faith or judgment lien creditor, without knowledge of the existence of such unrecorded instruments." NMSA 1978, Sec. 14-9-3 (emphasis added).
Section 14-9-3 is considered a "notice" recording statute, Angle v. Slayton, 102 N.M. 521, 697 P.2d 940 (1985), and does not distinguish between purchasers, mortgagees in good faith and judgment lien creditors. Indeed, in F & S Co. v. Gentry, 103 N.M. 54, 702 P.2d 999 (1985), the supreme court ruled that the holder of a judgment lien was entitled to foreclose the interest of its judgment debtor in real estate notwithstanding the judgment debtor had conveyed that interest to a third party by deed prior to the filing of the transcript of judgment. The reason: the deed was not recorded until after filing of the transcript of judgment.
Pointing to the undisputed evidence that the Hodges had occupied the real estate as their residence openly since they bought the property in 1979, defendants argue that Citizens Bank had constructive notice of the Hodges' interest by reason of their actual possession. The key question then is whether the Hodges' actual possession of the property was sufficient to put Citizens Bank on notice of the Hodges' legal interest. Under New Mexico law, we hold that it was.
As early at 1914, our supreme court held that one who purchases real estate in the possession of some one other than his vendor is, in good faith, bound to inquire of such possessor what right he has in the property, and, failing to make such inquiry, equity charges him with notice of all facts that such inquiry would disclose. McBee v. O'Connell, 19 N.M. 565, 145 P. 123 (1914). In Nelms v. Miller, 56 N.M. 132, 241 P.2d 333 (1952), the supreme court held: "It is a general rule that open, notorious and exclusive possession of real estate under claim of ownership, is constructive notice to the world of whatever claim the possessor asserts, whether such claim is legal or equitable in its nature." Id. at 156, 241 P.2d at 349 (). Quoting from 8 Thompson on Real Property Section 4514, the Nelms court said:
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...party's unrecorded interest in that property is protected under New Mexico law.”). 27.See also Citizens Bank of Clovis v. Hodges, 107 N.M. 329, 331–332, 757 P.2d 799, 801–802 (Ct.App.1988) (“[O]ne who purchases real estate in the possession of someone other than his vendor is, in good faith......
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...make such inquiry, equity charges him with notice of all facts that such inquiry would disclose. Citizens Bank of Clovis v. Hodges, 107 N.M. 329, 331-332, 757 P.2d 799, 801-802 (Ct.App. 1988). The undisputed facts in this case show that Plaintiff and her former husband delivered a warranty ......
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...will be charged with constructive notice of any facts that may have been otherwise disclosed. See also Citizens Bank of Clovis v. Hodges, 107 N.M. 329, 757 P.2d 799 (N.M.Ct.App.1988) (bank was deemed to have constructive notice of Hodges' interest in the property because they were in posses......