Baart v. Martin , 99 Minn. 197 ( 1906 )

ELLIOTT, J.

(after stating the facts as above.)

The appellant Deane makes numerous assignments of. error, and four of them are also assigned on behalf of the appellants Carl. The intervenor questions the correctness of the conclusions of law, and especially of the findings of fact: (1) That Carl had notice of the rights of Baart before the summons in the foreclosure.suit was served upon him; (2) that Baart had no notice of the registration proceedings; (3) that the Title Insurance & Trust Company and the intervenor, Deane, had notice of the fraud by which the registration of the title was .secured; and (4) that Deane was not a bona fide purchaser for value. We do not find it necessary to discuss these issues of fact, as we are convinced that there is ample evidence to support the findings.

1. The fact that Baart claimed a mortgage lien upon the land in question was known to Carl before he obtained title insurance, and before he filed the application for registration. It was therefore necessary that Baart’s name should appear in the summons. State v. Westfall, 85 Minn. 437, 443, 89 N. W. 175, 89 Am. St. 571; Ware v. Easton, 46 Minn. 180, 48 N. W. 775. In order that the examiner may be able to know and report to the court who are necessary parties, the law contemplates and requires that the applicant shall in good faith give the information in his application which is required by section 3375, R. L. 1905. When the name of a claimant is known to an applicant, either from the report of the examiner, as in Dewey v. Kimball, 89 Minn. 454, 95 N. W. 317, 895, 96 N. W. 704, or from other sources, the summons cannot be served on such claimant by publication unless his name appears in the summons. As he is not an “unknown party” the concealment of his claim is a fraud on the court, and the decree therein entered is as to him of no force and ■effect.

2. It is contended by respondent that Carl could not obtain an indefeasible title under the Torrens law, because his claim rested upon a- forged instrument which conferred no rights whatever upon him. This contention rests upon the theory that a person is entitled to register a title which he already has, and that registration alone cannot create a title. We think the purpose of the statute was to create an indefeasible title in the person adjudged to be the owner, and who thus becomes the original' registered proprietor. In the absence of fraud, the decree is final, unless reversed or modified as authorized by the statute. The instruments produced at the hearing to establish the applicant’s title are evidence upon which the court is required to act, and its conclusion, as embodied in the decree, is conclusive. A subsequent registration obtained through the instrumentality of a forged deed would be governed by different considerations. As is well known, the Torrens system, originated in South Australia, and has for years been in force in the states of the Australian confederation and in New Zealand. With various modifications, it has been adopted in Massachusetts, Illinois, California, Oregon, Minnesota, Colorado, Hawaii, the Phillipine Islands, Ontario, and Manitoba. These statutes differ somewhat in their details, but the primary purpose of all is the creation of an indefeasible title in the registered owner, and the simplification of the transfer of land.

There has been a difference of opinion as to the nature of the title which is subject to registration under these statutes. It was inferred from the case' of Gibbs v. Messer (1891) App. Cas. 248, and held by numerous decisions, that the system is intended to confer an indefeasible title upon one only who deals with a person actually registered, and deals with him on the faith of the register. The full force of the argument in favor of this view appears in the following language quoted from Mere Roihi v. Assets (1902) 21 N. Z. 691, 715. This was a case where the land had been registered by mistake. The court said: “It is unconscientious and unjust that any person not being a purchaser for value and in good faith should retain an estate without right or title merely because he happened to be entered upon the register as owner of such estate. * * * The statute was not passed for the purpose of enabling such persons unjustly and unconscientiously to retain the estates of others, but for the purpose of simplifying the title to and the dealing with estates in land.” But other courts accepted a broader view, and held that the system contemplates conferring a good title for all purposes on a person who, but for his certificate, would have no title at all. This view, which, of course, does not include cases of fraud, is now established in the states and colonies subject to the appellate jurisdiction of the Privy Council. It was recently held in Assets v. Mere Roihi (1905) App. Cas. 177, that the merely erroneous registration and certification of an invalid title affords no ground for impeaching the statutory title of an original proprietor. A title may thus be created by the decree and certificate of registration. In this case no distinction is made between an original proprietor and one who has been placed on the register, in succession to another registered proprietor. This may be correct, possibly, where the subsequent change in the register is the result of a mere mistake; but a registered proprietor can never be deprived of his title through the instrumentality of forged instruments. Gibbs v. Messer, supra.

3. But the important and controlling question in this case is: Can a decree of registration under the Minnesota Torrens law be attacked on the ground that it was obtained by fraud? The appellants rest their case squarely upon the words of the statute, and earnestly contend that the legislature intended to enact a law which, after the expiration of sixty days from the entry of the decree, would vest in the registered owner an absolutely indefeasible title, even though the registration was secured by the fraudulent practices of the person in whose name the land was registered. The Minnesota statute contains no express exception in favor of the owner of land which has been fraudulently registered in the name of some other person. The argument is that the importance of making the title absolutely indefeasible after the expiration of the period of limitation induced the legislature to depart from the ordinary rule, and permit a party who has been guilty of fraud to retain the benefits thereof, saving only for the defrauded landowner his right of action against the party guilty of the fraud, and a claim against the insurance fund provided for by the statute. The present case well illustrates the utter inadequacy of such remedy. The legislature. never consciously provided a method by which such an unconscionable scheme might be successfully consummated.

(a) An examination of the Torrens laws of the different states and colonies discloses the fact that those of Minnesota and the Eiji Islands only contain no express exception of cases of fraud. All the original Torrens statutes carefully guard against the possibility of an owner being fraudulently deprived of his property.

That this important feature is sometimes overlooked is illustrated by a recent book on “Registering Titles to Land” by Jacques Dumas. It is there asserted that security and protection are in all cases obtained by combining two principles: (a) That registration can never be subject to rectification; and- (b) that where a mistake has been made, the person suffering the injury is entitled to compensation out of the public funds according to the fact of liability. “There is an exception to the first of these principles,” says the author (p. 94) “in all other countries than Australia, when it is proved that registration has been obtained by fraud or error. But this exception does not weaken in the least the warranty afforded by registration since it has no effect on a bona fide purchaser for value.” Elsewhere {p. 37), in speaking of certain European systems, the writer says: “Another difference from the Australian system is that * * * whenever registration has been obtained by fraud, error, or compulsion, or when one of the parties is incapacitated, rectification can be ■obtained. This is subject, however, to the rights of third parties when acquired for value and in good faith in reliance on the correctness of the register.”

As a matter of fact, all the Australian statutes provide that registration obtained by fraud is invalid, except as against bona fide purchasers for value upon the faith of the register. Under certain sections of the parent acts, a certificate of title is declared to be conclusive evidence of the proprietor’s title to the land, but other sections which are to be read as provisos introduce exceptions to this conclusiveness. Marsden v. McAlister, 8 N. S. W. 300. A certificate of title, therefore, though properly registered and authenticated, is only conclusive, until it is shown to fall within one of the recognized exceptions. Wadham v. Buttle, 13 S. A. L. R. 1; Main v. Robertson, 7 A. L. T. (V) 127; In Hogg, Australian Torrens System, 823, it is said: “Apart from any question of the special rights of the crown there seem to be three classes of cases in which the certificate of title will not be conclusive, viz.: (1) Where a certificate of title of earlier date is in existence; (2) where the land has been made the subject (wholly or partially) of a certificate of title by mistake; and (3) where the certificate of title has been - obtained by fraud.” The South Australian statute (Act No. 380, 1886, § 69) provides that: “The title of every registered proprietor shall, * * * be absolute and indefeasible, subject only to the following qualifications: (1) In case of fraud, in which case any person defrauded shall have all rights and remedies that he would have had if the land were not under the provisions of this act. Provided that nothing included in this subsection shall affect the title of a registered proprietor, who has taken bona fide for valuable consideration, dr of any person bona fide claiming through or under him.” In New Zealand (Act 1885, §§ 56, 182), it is provided that: “No action for possession or other action for the recovery of any land shall lie or be sustained against the registered proprietor under the provisions of the act for the estate or interest in respect to which he is so registered, except in any of the following cases, that is to say: * * * (3) The case of a person deprived of any land by fraud as against the person registered as proprietor of such land through fraud, or as against a person deriving otherwise than as a transferee bona fide for value from or through a person so registered through fraud.” In all other cases the register is conclusive; any rule of law or equity to the contrary notwithstanding. This provision is also found in the Tasmania statute (25 Vic. No. 16, 1862), which also provides that the holder of a registered title is entitled, except in cases of fraud, to hold the land subject to the liens excepted by the statute, and gives a right of action for damages against the party guilty of the fraud.

Practically the same provisions are found in Queensland. Act 1861, §§ 44, 123, 126; Western Australia Act 56 Vic. No. 14, 1893, §§ 68, 199, 201; New South Wales Act, No. 25, 1900, §§ 42, 43, 124, 126; Victoria Act 1890, No. 1149, §§ 74, 205, 207.

The Manitoba Real Property Act, 1 & 2 Edw. VII, c. 43, § 71 (2 R. S. Manitoba 1902, c. 148), makes the certificate conclusive evidence that the person named therein is the owner of the land, subject to the statutory exceptions and the right to show fraud wherein the registered owner, mortgagee, or incumbrancer has participated or colluded. The acts also provides that: “Nothing contained in this act shall take away or affect the jurisdiction of any competent couron the ground of actual fraud, or over contracts for the sale or other disposition of land, or over equitable interests therein.” Jones, Torrens System, 337. The Ontario Act 1885 provides that a person who fraudulently procures an entry, in the registry is guilty of a felony and “any certificate of title obtained by means of such fraud or falsehood shall be null and void for or against all persons other than a purchaser, for valuable consideration without notice.” Jones, Torrens System, 143, 144.

The Masachusetts statute (R. L. Mass. 1902, c. 128, §.37) makes the decree of registration conclusive, “subject, however, to the right of any person deprived of the land or of any estate or interest therein by a decree of registration obtained by fraud, to file a petition for review within one year after the entry of the decree, provided no innocent purchaser for value has acquired an interest.” This provision also appears in the Hawaiian statute (R. R. 1905, c. 154, § 2431), and in substance in the Phillipine Act (3 Acts Phillipine Com. No. 496, § 38). In Illinois (Act May 1, 1897 [Laws 1897, p. 141]; Starr & C. Ann. St. Supp. 1902, p. 266, c. 30, par. 48) and Oregon (Laws 1901, p. 438; 2 B. & C. Comp. § 5432), the registered owner.shall, “except in cases of fraud to which he is a party or of the person through whom he claims without valuable consideration paid in good faith,” hold the land subject only to such estates as are noted or reserved by the statute. In California (Gen. Raws 1903, p. 1397, Act 4115, § 37), it is provided that “In case of fraud any person defrauded shall have all rights and remedies that he would have had if the land were not under the provisions of this act, provided that nothing contained in this section shall affect the title of a registered owner who has taken bona fide, for a valuable consideration or of any person bona fide claiming through or under him.”

The Colorado statute (Laws 1893, p. 298, c. 107; 3 Mills, An. St. Rep. Supp. c. 29) is based on the Minnesota statute, and contains.no exception of fraud. For the construction of the provisions relating to fraud in the Australian and New Zealand acts, see Assets Co. v. Mere Roihi (1905) A. C. 176, and numerous cases cited in the Australian Torrens Digest (1893); 1 Hunter, Torrens Title Cases; Hogg, Australian Torrens System, 833, et seq.

(b) These provisions are omitted from the Minnesota statute. It declares that every person securing a title in pursuance of a decree of registration and every subsequent purchaser of registered land who takes a certificate of title for value and in good faith shall hold the same free from all incumbrances except only such estate, mortgages, liens, charges, and interests as may be noted in the last certificate of title in the registrar’s office and except (1) lien claims on rights arising or existing under the laws or the constitution of the United States which the statutes of this state cannot require to appear in the record of the registry; (2) any tax or special assessment for which a sale of the land has not been had at the date of the certificate of title; (3) any lease for a period not exceeding three years when there is actual occupation of the premises under the lease; (4) all public highways embraced in the description of the lands included in the certificates shall be deemed to be excluded from the certificates; (5) such right of appeal or right to appeal and contest the application as is allowed by the act.

The act gives a right of appeal to the supreme court within the time and upon the conditions provided for appeals in civil actions and provides that the decree may within sixty days after it is entered be opened upon the petition of an interested party who had no actual notice of the proceedings. R. L. 1905, §. 3394, requires this petition to be filed within sixty days; although the time within which the decree may be set aside and the original certificate of registration declared invalid is, by section 3396, extended to six months. It also provides that any person interested may petition for the correction of omissions or mistakes but “that this section shall not give the court authority to open the original decree of registration.” There is no express provision for vacating a decree obtained by fraud even as against the original wrongdoer and before the rights of innocent parties have attached. It is provided that when an innocent purchaser has acquired rights within the sixty days, the decree shall not be opened, but the “person aggrieved by such decree in any case may pursue his remedy by action of tort against the applicant or any other person for fraud for procuring the decree.” The only other references to fraud are found in the provisions that a person who fraudulently procures the registration of a title is guilty of a felony and that an action may be brought against the county treasurer for the recovery of damages out of the insurance fund.

4. If the legislature intended to protect a party, who, by fraudulent means, obtains the registration of some other person’s land in his name, it should have said so clearly and definitely, and left nothing to implication. It must be presumed that the legislature understood and expected that the courts of equity would remain open to parties who were able to bring themselves within the rules which require the granting of equitable relief. The fact that a statute does not expressly provide that fraud shall invalidate acts authorized to be done under it does not deprive the courts of the general power to protect the rights of parties. The principles which are recognized and enforced in courts of equity underlie our entire system of jurisprudence. They are no more excluded by the failure to insert an exception in the statute than by the failure of parties to insert a similar exception in a private contract. Equity will not allow a party to hold the benefits of a fraudulent transaction although obtained under the forms of law. It is the just and proper pride of our system of equity jurisprudence that fraud vitiates every transaction. However men may surround it by forms, solemn instruments, proceedings conforming to all the details required by the law, or even by the formal judgment of a court, a court of equity will disregard them all if necessary that justice and equity may prevail. It has often been held that the general terms of a statute are subject to implied exceptions founded in the rules of public policy and the maxims of natural justice, so as to avoid absurd and unjust consequences. Hantzch v. Massolt, 61 Minn. 361, 63 N. W. 1069; State v. Board of Commrs. of Red Lake County, 67 Minn. 352, 69 N. W. 1083; Duckstadt v. Board of Co. Commrs. of Polk County, 69 Minn. 202, 71 N. W. 933; State v. Rollins, 80 Minn. 216, 83 N. W. 141; State v. Barge, 82 Minn. 256, 84 N. W. 911; State v. City Council, 87 Minn. 156, 91 N. W. 298; U. S. v. Williams, 194 U. S. 279, 24 Sup. Ct. 791, 48 L. Ed. 979. For English authorities in which the courts have raised implications when necessary to prevent injustice, see articles in 20 Law Quar. Rev. 399, and 22 Law Quar. Rev. 299.

The rule which authorizes an exception or an evident omission to be read into a statute was applied by this court in State v. Board of Co. Commrs. of Polk County, 87 Minn. 325, 92 N. W. 216, where it was held that the omission from a statute of a provision the absence of which would render the statute unconstitutional would be presumed unintentional. “We are not,” said the court, “authorized to indulge in the presumption that the legislature wilfully intended by the passage of this act to depart from the settled law of the land.” Hence when necessary to prevent a fraud, a court of equity will read an exception into a statute which is expressed in general terms.

By statute 7 Anne, c. 20, all unregistered conveyances of land were declared fraudulent and void as against subsequent purchasers for a valuable consideration. The statute did not except purchasers with full knowledge, and the courts of law held that a subsequent deed was void, although the party claiming under it had .full knowledge when it was executed of the existence of the prior deed. Doe v. Allsop, 5 Barn. & Ald. 142. But the courts of equity, in order “to maintain and extend a righteous and beneficient jurisdiction,” ingrafted an exception into the act of Parliament. In the language of Lord Mansfield, “Equity says, if the party knew of the unregistered deed, his registered deed shall not set it aside because he has that notice which the act of Parliament intended he should have.” Doe v. Routledge, Cowp. 712. The principle is applied in a line of English cases beginning with LeNeve v. LeNeve, Amb. 436, 1 Ves. 64, 2 White & Tudor L. C. Eq. 109, decided under registration acts which contained no exception of fraud or a provision in favor of bona fide purchasers only.

We cannot- presume that the legislature in enacting a law, which was intended to benefit the public, and at the same time fully and adequately protect and guard the rights of individuals, intended, by failing to insert an exception in cases of fraud; to deprive the courts of the universally recognized and established jurisdiction to protect the individual from the consequences of fraud. What we have said applies only so long as the land remains registered in the name of the fraudulent wrongdoer. When the rights of an innocent purchaser for value in reliance on the register are involved, other considerations prevail. In the case at bar, the court has found that the registration was obtained by actual fraud, and that the intervenor, Deanej was a party to the fraudulent transaction under conditions which supply the moral element which distinguishes actual from so-called legal fraud.' We are, therefore, not required to determine whether mere notice of the rights of others constitutes fraud under this statute.

5. An application to vacate the decree, directing the registration of land and the cancellation of the certificate of registration issued thereunder, on the ground that it was obtained by the fraud of the applicant for registration, is governed by general equitable .considerations. The Torrens statute makes the provisions of the general statutes relating to the vacating and opening of ordinary judgments, inapplicable. A person who seeks equitable relief must, therefore, proceed promptly after notice of the fraud, and is, of course, subject to all the restrictions and exceptions applicable in proceedings in equity. The sixty-day limitation contained in the statute when these transactions occurred (now made six months by R. R. 1905, § 3396) has no application to the case at bar. If the defrauded party is not guilty of laches, he may attack the decree on the ground that it was obtained by fraud, so long as the land stands registered in the name of the party who was guilty of the fraud. No public policy requires that such a title be indefeasible, or that so tempting a reward be offered for the stealing of land under the forms of law. We have given all the assignments of error careful consideration, but do not find it necessary to discuss them in detail.

The order of the trial court is affirmed on both appeals.