Rolette Cnty. Bank of St. John v. Hanlyn

• Court: United States State Supreme Court of North Dakota
• Writing for the Court: BIRDZELL
• Citation: 48 N.D. 72,183 N.W. 260
• Parties: ROLETTE COUNTY BANK OF ST. JOHN et al. v. HANLYN et al.
• Decision Date: 18 May 1921

48 N.D. 72
183 N.W. 260

ROLETTE COUNTY BANK OF ST. JOHN et al.
v.
HANLYN et al.

Supreme Court of North Dakota.

May 18, 1921.

Syllabus by the Court.

C., the owner of certain land, contracted to sell it to Mrs. H., the latter giving notes for the purchase price. The contract was recorded. C. transferred one of the notes to the plaintiff, and subsequently deeded the land to the H. bank. The H. bank obtained a quitclaim deed from Mrs. H., and subsequently sold the land to A. who paid full value for it. It is held:

Following Shelly v. Mikkelson, 5 N. D. 22, 63 N. W. 210,Henniges v. Paschke, 9 N. D. 489, 84 N. W. 350, 81 Am. St. Rep. 588, and Simonson v. Wenzel, 27 N. D. 638, 147 N. W. 804, L. R. A. 1918C, 780, the recording acts in this state apply to executory contracts for the sale of land, to mortgages, and to assignments of mortgages.

A purchaser of a note secured by a mortgage upon an equitable interest in land acquires an equitable interest in the mortgage; but, following Henniges v. Paschke, supra, upon failure to take and record an assignment of the security, his claim is inferior to that of a subsequent purchaser of the land in good faith and for value without notice.

One purchasing real property may rely upon the public records to determine the existence of mortgage liens, and where such a lien is discharged of record by the person or persons having prima facie authority to discharge it a subsequent purchaser of the property is not bound to inquire as to whether negotiable, secured notes are outstanding in the hands of assignees where there is no record of such assignments.

Appeal from District Court, Rolette County; Buttz, Judge.

Action by the Rolette County Bank of St. John and another against Josephine Hanlyn, William H. Allen, and others. From an order sustaining a separate demurrer of defendant Allen, plaintiffs appeal. Affirmed.

Grace, J., dissenting.

[183 N.W. 260]

Fred E, Harris, of Rolla, for appellants.

Cuthbert, Smythe & Wheeler, of Devils Lake, for respondents.

BIRDZELL, J.

This is an appeal from an order sustaining the separate demurrer of the defendant, William H. Allen, to the complaint upon the ground that the complaint did not state facts sufficient to constitute a cause of action against him. The action is one brought primarily to charge land purchased by Allen with a lien in favor of the plaintiff, securing a note purchased by the latter from Thomas J. Clifford, the former owner of the land. The facts pleaded in the complaint, so far as material to the legal question presented upon this appeal, are as follows:

On October 5, 1916, Thomas Clifford was the owner of certain lands in Rolette county. On that date he entered into a contract with one Josephine Howe, later Josephine Hanlyn, for the sale of the land to her. The terms of payment were $300 upon delivery of the contract, $1,200 March 1, 1917, $11,555 according to the terms of 11 promissory notes for $1,000 each, due one each year beginning November 1, 1917, and one note for $555, due November 1, 1928. Josephine Howe paid $2,500 under the contract, which included all payments due to November 1, 1917. The contract was recorded August 8, 1918. Prior to July 22, 1918, Clifford transferred to the plaintiff bank the $1,000 note which would fall due November 1, 1919, the bank taking the note as a holder in due course. On December 26, 1918, Clifford sold the land covered by the contract to the Farmers' National Bank of Hendricks, Minn., conveying title by warranty deed. The bank assumed and agreed to carry out the contract with Josephine Howe. Subsequently the grantee bank, through its cashier, G. L. Peterson, procured a quitclaim deed from Josephine Howe Hanlyn, quitclaiming to him all her interest in and to the land, Peterson agreeing, as part of the consideration therefor, “to pay the balance of the purchase price upon said land, then owing by the said Josephine Howe Hanlyn, including the plaintiff's note herein, and the whole of said amount remaining due on account of said contract.” (This is the allegation in the complaint. The obligation is not alleged to be contained in the quitclaim deed.)

The quitclaim deed and all Peterson's transactions concerning the land were taken and had for the benefit of the Farmers' National Bank and with its full knowledge, consent, and authority. Thereafter, on November 6, 1919, the Farmers' National Bank sold and conveyed the premises by warranty deed to the defendant Allen for a consideration of $18,000, and Allen is now the record owner. The plaintiff asks that as to it the conveyance of the property by Clifford to the Farmers' National Bank and by the bank to the defendant Allen be adjudged null and void; that the plaintiff be adjudged to be the equitable owner of the land by virtue of its ownership of the $1,000 note; and that it be adjudged

[183 N.W. 261]

to have a lien upon the land for the payment of this note, protest fees, interest, costs, and disbursements, such lien to be prior and superior to the rights of the defendants.

From the facts pleaded as stated above certain legal conclusions follow as a matter of course, none of which are open to serious controversy. They are: Upon the sale of the land under the executory contract an equitable conversion was effected, so that in equity the land was regarded as belonging to Josephine Howe and the purchase price to Clifford. The legal title was retained by Clifford as security for the payment of the purchase price. In a sense the equitable owner, Josephine Howe, mortgaged to Clifford her ownership to secure the purchase price notes. When Clifford transferred one of these notes to the Rolette County Bank, the security which was incident to the debt was likewise transferred in equity. So that as against Josephine Howe the Rolette County Bank could avail itself of the security to the same extent that Clifford could, had the notes remained in his hands. When Clifford transferred the legal title to the land to the Farmers' National Bank of Hendricks, Minn., he effected an assignment of his rights under the sale contract, and when Josephine Hanlyn quitclaimed to Peterson, who was acting for the bank, she released the obligation of Clifford and the Hendricks bank to hold either the title or her equitable interest as security for the payment of the notes, and upon payment to convey to her the legal title. The bank, through Peterson, had assumed the payment of the notes as a principal obligation. In short, by the quitclaim deed Mrs. Howe-Hanlyn released her rights under the contract. The simple question presented on these facts, considered in the light of these indisputable, legal conclusions, is this: May Allen, the subsequent purchaser from the bank, safely rely upon the record, which shows the chain of legal title running to his grantor and a satisfaction of all equitable claims or liens incident to the land contract by the person in whose favor these equitable claims or liens prima facie exist, or is the purchaser, taking the legal title with record notice of the existence of the contract, charged with notice of the disposition of all the negotiable notes for which the land is security?

We have found this question to be more difficult of solution than might appear from the simple statement of it. Its various phases have undergone extended discussion in the various authorities that have had occasion to consider it, and the conclusions arrived at have not been harmonious; nor have the conclusions reached even by individual authorities, at various times when the question has been under consideration, reflected either permanency or consistency. The question has sometimes turned upon doctrines of priority as between successive assignees of equitable interests, where one had drawn to himself the legal title or had acquired a superior right to call for it. The solution in these circumstances has been held to depend upon the application of the maxim that, where the equities are equal, the legal title will prevail. Under similar facts it has sometimes been thought more appropriate in determining priorities between the assignee of an interest under a mortgage, no assignment being of record, and a subsequent purchaser or incumbrancer, to apply the equitable maxim that, as between equal equities, the one prior in point of time should prevail. In the more recent cases, however, where the question has arisen, it has generally turned upon the construction and application of the recording statutes with relation to assignments of mortgages. It will be seen upon examination of modern recording statutes that they are generally so framed as to embrace assignments of mortgages, both legal and equitable, as well as other instruments affecting legal title or equitable interests in real property. The tendency to thus enlarge the scope of the registry acts is indicated in the seventh edition of Jones on Mortgages, § 476, as follows:

“Equitable mortgages are generally held to be within the recording acts as much as are legal mortgages. At first a different interpretation was put upon the acts, and a mortgage of an equity or of an equitable estate was not constructive notice when registered. But at an early day in this country it was established, either judicially or by statute, that all rights, incumbrances, or conveyances touching or in any way concerning land, should appear upon the public records, and that conveyances of equitable interests as well as legal were within the registry acts. * * *

Generally the record of an agreement constituting an equitable mortgage is notice to a subsequent purchaser of the legal estate from the same grantor.”

See, also, section 479.

[1] In this state the recording statutes have uniformly been construed in the liberal manner prevalent elsewhere. It is held that a bond for deed may be recorded (Shelly v. Mikkelson, 5 N. D. 22, 63 N. W. 210); also that a purchaser under an executory contract has a mortgageable interest, and that a mortgage...