Aitken v. Lane , 108 Mont. 368 ( 1939 )

In this state, by the long and unbroken line of decisions cited below, one who takes a quitclaim deed gets only such title as the grantor has and the rule of caveat emptor applies. (McAdow v. Black, 6 Mont. 601, 13 P. 377; Lynde v.Wakefield, 19 Mont. 23, 47 P. 5; Butte Hardware Co. v.Frank, 25 Mont. 344, 65 P. 1; Wetzstein v. Largey,27 Mont. 212, 225, 70 P. 717; Gibson v. Morris State Bank,49 Mont. 60, 140 P. 76; Lindeman v. Pinson, 54 Mont. 466,171 P. 271; Johnson v. Kaiser, 104 Mont. 261,65 P.2d 1179.) For cases from other jurisdictions see note to Chesney v. Valley Livestock Co., 34 Wyo. 378, 244 P. 216, 44 A.L.R. 1255, note at page 1266, where the editor of the note says: "The decisions are in accord in holding that a quitclaim deed passes all the right, title and interest which the grantor has at the time of making the deed, unless a contrary intention appears, and no more." (See, also, 18 C.J. 314, sec. 299; 8 R.C.L. 1024, sec. 81.)

The argument of appellant to the effect that a grantee by quitclaim deed is entitled to rely upon the records and that many lawyers pass titles based upon quitclaim deeds where the records show a clear title in the quitclaimor, has several answers. In the first place, the findings of the trial court show that at the time he took the quitclaim deed, appellant had both actual and constructive knowledge and notice of the mortgage. Thus he did not rely upon the records but upon the opinion of his counsel as to the legal effect of absence from the records of any extension agreement or affidavit of renewal, which was that in such a condition of the record the land was free of the lien of the mortgage even as to the mortgagors and regardless as to whether there was an unrecorded extension agreement, and as to that, as the trial court found, he made no inquiry. The language of the Supreme Court of the United States in Moelle v.Sherwood, 148 U.S. 21, 13 Sup. Ct. 426, 37 L.Ed. 350, is pertinent: "Whether the grantee is to be treated as taking a mere speculative chance in the property or a clear title, must depend upon the character of the title the grantor had when he made the conveyance (by quitclaim deed); and the opportunities afforded the grantee of ascertaining this fact, and the diligence with which he has prosecuted them, will, besides the payment of a reasonable consideration, determine the bona fide nature of the transaction on his part." (See, also, 27 R.C.L., sec. 500; 66 C.J. 1099, sec. 916; 41 C.J. 555, sec. 508.)

"Every person who has actual notice of circumstances sufficient to put a prudent man upon inquiry as to a particular fact has constructive notice of the fact itself, in all cases in which, by prosecuting such inquiry, he might have learned such facts. (Sec. 8781, Rev. Codes 1921). This rule embodies an old rule of chancery (Trerise v. Bottego, 32 Mont. 244,79 P. 1057, 108 Am. St. Rep. 521), which is expressed as follows by the Supreme Court of the United States: ``Whatever is notice enough to excite attention and put the party on his guard and call for inquiry, is notice of everything to which such inquiry might have lead. When a person has sufficient information to lead him to a fact, he shall be deemed conversant of it.' (Wood v.Carpenter, 101 U.S. 135, 141; 25 L.Ed. 807)." (Yale Oil Corp. v. Sedlacek, 99 Mont. 411, 43 P.2d 887.) See, also, on the point of inquiry as to facts placing on notice: Maser v.Farmers' etc. Bank, 90 Mont. 33, 300 P. 207; Angus v.Mariner, 85 Mont. 365, 278 P. 996.

In his brief appellant has discussed the purpose and effect of a quitclaim deed and asserts that "no special significance" should be given to the fact that what he took with full knowledge of the unsatisfied mortgage on record was a quitclaim deed, and that: "If the conclusion could be reached that Smith did not take title free from the lien of plaintiff's mortgage, because he took conveyance by quitclaim deed, such conclusion would upset and make uncertain the titles to much of the most valuable real estate in the state of Montana, the titles to which have heretofore been transferred by quitclaim deed." The answer to that seems to be that anyone with full, actual and constructive knowledge of an unsatisfied mortgage on record against the property quitclaimed, without inquiring searchingly and particularly as to the actual as well as the legal status of the instrument as between the parties to it, and taking a mere quitclaim or release of the property without such inquiry, cannot be understood as taking anything but a speculative chance that his counsel was right in his opinion that merely a failure to record an extension agreement or renewal affidavit within the time fixed by section 8267 as amended in 1933, even though such extension agreement had been made, released the lien of the mortgage even as to the mortgagors. A further answer is that under such a holding all of this court's decisions since McAdow v. Black to Johnson v. Kaiser, supra, a period of fifty years, as to what a purchaser gets by a quitclaim deed, must be overruled. This is an action to foreclose a real estate mortgage. It was begun by Susan Bauch, the holder of the mortgage. Thereafter Susan Bauch died and the administrator was substituted in her place as the plaintiff. November 4, 1919, the defendant Lane and wife made and delivered a promissory note for $5,000 to Drake-Ballard Company, a corporation, and at the same time made and delivered to that corporation a real estate mortgage on certain lands in Gallatin county as security. Thereafter Drake-Ballard Company endorsed and delivered the note and assigned the mortgage to the Security Trust Company of Freeport, Illinois, which corporation in turn sold and delivered the note and assigned the mortgage to Susan Bauch. These respective assignments of the mortgage were duly recorded in Gallatin county.

On January 25, 1928, the note being past due and unpaid, an extension agreement in writing pursuant to the provisions of section 8264, Revised Codes, was entered into between Susan Bauch and Lane and wife, by which the parties agreed that payment of the note should be extended for a term of three years from December 1, 1927. This agreement was duly acknowledged and certified to, but was not recorded until November 2, 1935. September 20, 1930, a similar extension of the time of payment of the debt was made between the parties, Susan Bauch being represented by A. Bidwell in the agreement, who it is alleged in the complaint was her duly authorized agent. This extension was for an additional three years from the first of December, 1930, and at the same time Lane and wife executed three promissory notes of $300 each, given in settlement of the annual interest on the original note of $5,000, and delivered the same to the plaintiff. The second agreement was never recorded.

The complaint asked for a foreclosure sale of the property. Defendant Smith by answer alleged that on June 14, 1935, he purchased the mortgaged property for a valuable consideration from Lane and wife and received a quitclaim deed therefor which was duly recorded on the same day; that he thereupon took possession of the property and has at all times since held possession thereof. As an affirmative defense it is alleged that the mortgage sought to be foreclosed by the plaintiff was by its terms and the terms of the promissory note to become due on the first day of December, 1926; that the lien of the mortgage expired on the first day of December, 1934, and ceased to be of any force or effect under the provisions of section 8267, Revised Codes, more than six months before the defendant Smith purchased the real estate involved; that no affidavit renewing the mortgage, as required by section 8267, was made or filed in the office of the county clerk of Gallatin county by the plaintiff, or by anyone representing her, within eight years and sixty days after the maturity of the debt, or at all, and that at the time defendant Smith purchased the mortgaged premises from Lane and wife, the mortgage of the plaintiff was not a subsisting lien against the land involved.

The reply alleged that defendant Smith purchased the land "with full actual knowledge" of the existence of the plaintiff's mortgage, and that he agreed with the defendants Lane and wife, "to take care of" the mortgage, and relieve the Lanes from all liability thereunder; that the Lanes quitclaimed the property to defendant Smith for $200 (which was subsequently agreed to be $600), with the understanding that Smith would take care of plaintiff's mortgage and protect the grantors from any deficiency judgment thereunder, and that without such promise or agreement by Smith the Lanes would not have conveyed the lands to Smith.

Findings of fact, conclusions of law and judgment went in favor of plaintiff, and this appeal followed.

The evidence is not before us, and hence we must assume that[1] there was evidence to support the findings. (MissoulaLight Water Co. v. Hughes, 106 Mont. 355,77 P.2d 1041.) The court found (1) that defendant Smith purchased the property on June 14, 1935, for a valuable consideration; (2) that he took a quitclaim deed to the property which was recorded on June 14; (3) that Smith paid $600 by check to Lane and wife when he received the deed, and agreed that Lane and wife might have possession of the premises until March 1, 1936; (4) that no affidavit of renewal of the mortgage was filed under section 8267, Revised Codes; (5) that there was no evidence to show that Smith at the time he purchased the property had knowledge of either of the extension agreements; and (6) that when Smith purchased the property he had "actual knowledge and constructive notice of the existence of the original mortgage executed by E.T. Lane and Hazel Lane" and of its assignment to Susan Bauch, "but that he did not have knowledge of the existence of either of the aforesaid extension agreements," and that Smith "made no inquiry from Susan Bauch or from E.T. Lane or Hazel Lane, to ascertain if said mortgage had been renewed, and that in purchasing said property he relied upon the records of Gallatin county."

By conclusion of law the court found: "That by accepting a quitclaim deed from E.T. Lane and wife, the said defendant Wilber E. Smith, acquired thereby only the then right, title and interest of the said E.T. Lane and wife in and to the property described in said quitclaim deed, and took said property with implied notice of the outstanding unrecorded extension agreement executed by E.T. Lane and Hazel Lane, his wife, and Susan Bauch, bearing date January 25th, 1928, and took said property subject to the lien of the plaintiff's mortgage described in the plaintiff's complaint, as renewed and extended by said renewal agreement."

The propriety of this conclusion of law is the only point involved on this appeal. Smith's view is that since there was nothing of record extending the life of the mortgage under either section 8264 or 8267, it ceased to be a lien upon the property eight years after the maturity of the debt secured by it, or on December 1, 1934, and, therefore, when he purchased the property in June, 1935, he took it freed of the mortgage lien. Plaintiff contends that the mortgage was good and valid, as between the parties to it, by virtue of the extension agreements, and that, since Smith took only a quitclaim deed, he took simply the rights of his grantors, and, since the mortgage was good against the grantors, it was good against Smith, the grantee.

There is much discussion in the briefs of counsel as to the effect of the amendment made to section 8267 in 1933. (Chap. 104, Laws of 1933.) We need not here determine the question. Before amendment the mortgage ceased to exist as to purchasers without actual notice and for a valuable consideration. Certainly, since the amendment, purchasers for value and without notice of any extension take the property freed from the mortgage lien after the expiration of the eight years and sixty days. Here the life[2] of the mortgage was extended, if at all, by an agreement executed under section 8264, Revised Codes. An extension may be made under either section. (Register Life Ins.Co. v. Kenniston, 99 Mont. 191, 43 P.2d 251, and cases therein cited.) And, although the extension agreement was not recorded, it was valid between the parties. (Sec. 6938, Rev. Codes.) The question before us is, Were the extension agreements valid as against Smith, who was found to be a purchaser for value and without actual notice thereof?

This brings us to the main point in the case, namely: Does the[3] fact that Smith took a quitclaim deed put him on notice that there may be unrecorded instruments affecting the title or constituting encumbrances on the property? In other words, can Smith be regarded as a bona fide purchaser without notice? The United States Supreme Court, by way of dictum, in the case ofMay v. Le Claire, 78 U.S. 217, 11 Wall. 217, 20 L.Ed. 50, held that one taking only a quitclaim deed cannot be regarded as a bona fide purchaser without notice. On the strength of the MayCase it again announced the same conclusion, by way of dictum, in the case of Alexander v. Rodriguez, 79 U.S. 323, 12 Wall. 325, 20 L.Ed. 406. The holding in these cases, however, has been overruled in the later case of Moelle v. Sherwood,148 U.S. 21, 13 Sup. Ct. 426, 429, 37 L.Ed. 350. In the last cited case the court said: "There is in this country no difference, in their efficacy and operative force, between conveyances in the form of release and quitclaim, and those in the form of grant, bargain and sale." It further said: "If in either case the grantee takes the deed with notice of an outstanding conveyance of the premises from the grantor, or of the execution by him of obligations to make such conveyance of the premises, or to create a lien thereon, he takes the property subject to the operation of such outstanding conveyance and obligation, and cannot claim protection against them as a bona fide purchaser. But in either case, if the grantee takes the deed without notice of such outstanding conveyance or obligation respecting the property, or notice of facts which, if followed up, would lead to a knowledge of such outstanding conveyance or equity, he is entitled to protection as a bona fide purchaser upon showing that the consideration stipulated has been paid, and that such consideration was a fair price for the claim or interest designated. The mere fact that in either case the conveyance is unaccompanied by any warranty of title, and against incumbrances or liens, does not raise a presumption of the want of bona fides on the part of the purchaser in the transaction. Covenants of warranty do not constitute any operative part of the instrument in transferring the title. That passes independently of them. They are separate contracts, intended only as guarantees against future contingencies. The character of bona fide purchaser must depend upon attending circumstances or proof as to the transaction, and does not arise, as often, though, we think, inadvertently, said, either from the form of the conveyance, or the presence or the absence of any accompanying warranty." The court indicated clearly that examination of the records was all the inquiry that such a grantee must make. On this point it said: "In the present case, every available means of ascertaining the character of the title acquired, both at the time of his own purchase and at the time the purchase of his predecessors in interest were made, were pursued by the complainant. When he looked at the records of the county where the property was situated, he saw that the only deed executed by the patentee, the original source of title, was for property other than the premises in controversy. No mere speculative investment in the chance of obtaining a good title could, therefore, properly be imputed to him."

To the same effect is United States v. California OregonLand Co., 148 U.S. 31, 13 Sup. Ct. 458, 37 L.Ed. 354, where the court expressly stated that the Moelle Case disaffirmed the prior decisions of that court. Other courts have divided on the question. The weight of authority and the better-reasoned and more recent cases support the view announced in the MoelleCase.

In 23 R.C.L. 242, it is said: "There is some conflict among the authorities as to whether the grantee in a quitclaim deed is a purchaser in good faith or whether the nature of conveyance charges him with notice of prior opposing equities. The rule supported by the better reason is that the holder of a quitclaim deed is entitled to the same protection as one under a deed of bargain and sale or containing covenants of warranty. While the courts have expressed themselves to the effect that a quitclaim deed passes no more than the grantor's present interest, this expression has been used to state a general truth, and not as a construction of the Recording Acts, and so far as concerns the rights of a grantee under a quitclaim deed by virtue of the Recording Acts the tendency of modern decisions is uniformly in favor of the rule stated; and, indeed, in several of the states, the later cases overrule earlier cases holding the contrary view."

The cases on the subject are annotated in 59 A.L.R. 633. It is there said: "The rule in most jurisdictions is that a recorded quitclaim deed, when taken in good faith for a valuable consideration without notice, will prevail over a prior unrecorded deed." Cases are there cited from twenty-five states in support of the majority view. Cases from twelve states are cited in support of the minority view (p. 643). Among the cases from the states supporting the minority view is cited the case ofMcAdow v. Black, 6 Mont. 601, 13 P. 377. That case, after holding that the recorded mortgage there involved was valid, went further than necessary to a decision of the case and quoted from the case of May v. Le Claire, supra. The May Case, however, has been overruled by the cases of Moelle v. Sherwood, supra, and United States v. California Oregon Land Co., supra, and to the extent that the McAdow Case followed the May Case, it is hereby expressly overruled.

The case of Wetzstein v. Largey, 27 Mont. 212,70 P. 717, is not in point because there the holder of the quitclaim deed had full notice of the prior unrecorded deed under which the grantee was holding possession of the property.

Since Smith purchased the property here for value and without[4] notice or knowledge of the extension agreements and had his deed placed of record before the extension agreement was placed on record, and since the grantee in a quitclaim deed is entitled to claim as a bona fide purchaser, the case before us is ruled by that of Hastings v. Wise, 91 Mont. 430, 8 P.2d 636. In that case we had under consideration section 6935, Revised Codes, reading: "Every conveyance of real property, other than a lease for a term not exceeding one year, is void against any subsequent purchaser or encumbrancer, including an assignee of a mortgage, lease, or other conditional estate, of the same property, or any part thereof, in good faith and for a valuable consideration, whose conveyance is first duly recorded." We held that whether the rights of the mortgagee under an extension agreement took precedence over a deed taken in good faith and for a valuable consideration while the mortgage was still in effect and subject to the mortgage depended upon whether the deed or the extension agreement was first recorded. For the greater reason, where the deed here was taken when the mortgage, so far as the records disclosed, was no longer valid, and when the deed was recorded before the extension agreement was placed of record, the rights of the grantee in the deed took precedence over the rights of the mortgagee. The court erred in entering judgment for plaintiff.

The judgment for plaintiff is set aside and the cause remanded with direction to enter judgment for defendant Smith.

MR. CHIEF JUSTICE JOHNSON and MR. JUSTICE ERICKSON concur.