Harjo v. Johnston ( 1940 )

While I concur in the dissenting views presented by Chief Justice, and in my opinion there are additional legal bars to plaintiff's recovery in this case, this dissent is addressed to the conclusion of the majority opinion that the immediate and remote vendees of defendant Johnston are not entitled to protection as bona fide purchasers. The rule announced is contained in syllabus 10, and is as follows:

"When a judgment or decree divests minors of title to land, and such subject matter of the decree remains in the hands of persons who were parties, or in privity with the parties, to the original proceedings, an action will lie by persons, who were minors at the time, to set aside such decree or judgment, for fraud in the procurement thereof, and the vendee of a purchaser who was a party litigant at a sale of a minor's interest in land will not be protected as an innocent purchaser."

It is my view that the majority opinion will vitally affect thousands of titles within this state, since many titles are dependent upon mortgage foreclosure proceedings, partition suits, and suits to quiet title where judicial sales are involved and where parties litigant are the purchasers at such sales, and therefore the rule so announced is of far-reaching importance. I have attempted to give careful consideration to the contentions of all the parties herein, and at the conclusion of my study and research I find myself unable to agree with my associates, and due to the importance of the question, I deem it proper to publish my views.

Plaintiff herein was born on February 9, 1906. This action was instituted on July 28, 1931, more than four years after he attained his majority.

We have often announced the essential elements which constitute a bona fide purchase. These are: (1) a valuable consideration; (2) the absence of notice; and (3) the presence of good faith. Brooks v. Tucker, 83 Okla. 255, 201 P. 643; Berry v. Tolleson, 68 Okla. 158, 172 P. 630; Atkinson v. King,93 Okla. 37, 219 P. 914. No contention is made that the transfers from defendant Johnston to the various vendees were made without a valid consideration or that there was absent any degree of good faith. Such vendees, therefore, are denied the right to protection as bona fide purchasers because they are charged with notice of any fraud perpetrated or participated in by the purchaser at the sale who was a party to the suit.

The majority opinion concedes the rule to be in this jurisdiction "that if a second purchaser for value and without notice purchases from a first purchaser who is charged with notice, he thereby becomes a bona fide purchaser and is entitled to protection." The principle of protection to bona fide purchasers is firmly imbedded in our jurisprudence, and in addition is a part of the legislative policy of this state. See 12 Okla. St. Ann. § 774, and 12 Okla. St. Ann. § 176. The majority opinion is predicated upon the case of Arnold v. Joines, 50 Okla. 4, 150 P. 130. In that case, as well as in the case of Morgan v. City of Ardmore, 182 Okla. 542, 78 P.2d 785, it was held that the grantee of a judgment creditor who purchased land at a sheriff's sale was not entitled to protection as a bona fide purchaser. Those cases are predicated upon the proposition that the judgment was absolutely void and that the invalidity was shown upon the face of the judgment roll, whereas in the instant case it is conceded that there is nothing upon the face of the judgment or the judgment roll which would disclose the alleged fraud or would operate as notice to any vendee of defendant of the invalidity of the judgment relied upon. These authorities, therefore, in my opinion, have no relation to the proposition now before the court. I have examined the various authorities relied upon by plaintiff to establish the position of my associates in the majority opinion and find that they involve either a void judgment, a purchase pendente lite, a failure to pay value, or actual knowledge of the fraud perpetrated upon the complaining party. I have been cited to no case which, in my judgment, supports the majority view in this respect.

An analysis of that portion of the opinion dealing with the rights of the vendees of defendant Johnston discloses that said vendees are held to be chargeable with notice (1) of the defeasible quality of his title and (2) of notice of an outstanding equity. In order to arrive at such conclusion it is necessary to indulge in certain presumptions, the first presumption being that Johnston's title was in fact defeasible and that he in fact took the same subject to an outstanding equity. Said presumptions are held to arise on the sole ground that the record discloses that Johnston was a party litigant.

I concede the principle to be well established that a party litigant who purchases at a judicial sale is not entitled to claim protection as a bona fide purchaser for the obvious reason that, as a party to such proceeding, he is chargeable with notice. Such fact, however, does not militate against his right to purchase. He has the same right to purchase as any other party. The majority opinion holds that if he exercises such right, his vendees are burdened with the presumption that his title is defeasible, even though such presumption may be, and in most cases is, contrary to the true facts. Such vendees also carry the burden of a presumption that such purchaser took only a legal title subject to a prior equity, which presumption likewise is most generally contrary to the true facts. I cannot concur in this logic.

I am not in accord with the view that "there need be no difference made in every case between reversal of a judgment and the proper and timely vacation of a judgment." It might be inferred that the judgments alluded to are judgments against minors, but the language is not so limited. I cannot conceive of a statement more subversive to the established principles of collateral attack. In support of the view the majority opinion refers to annotations appearing in 29 A.L.R. 1078, 1084. The first deals with purchasers by judgment creditors at execution sales. The second relates to purchases pendente lite. Considerable emphasis is placed upon the case of Denk v. Fiel, 249 Ill. 424, 94 N.E. 672. Portions of the opinion of the court in that case are quoted in the majority opinion. An examination of that case discloses, however, that the discussion related to a purchase pendente lite. The court was discussing the rights of one who had purchased pending the equitable proceeding to set aside a former conveyance executed during the minority of the complainants. We quote the following language therefrom:

"At the time the bill in this case was filed the title to the real estate involved was in the widow, Anna Fiel, and her husband, Frank Fiel. While Frank Fiel was not a party to the original proceeding, he does not occupy the position of an innocent purchaser for value without notice. In fact, his relation to the property is the result of his having paid off an indebtedness against it which was secured by a trust deed. He might have some right, by way of subrogation or otherwise, to reimbursement for whatever amount he has paid to relieve the property of liens. After the bill in the case at bar was filed, Anna Fiel and her husband conveyed the property in question to James M. McManus for an express consideration of $5,400.McManus, having purchased the property after the commencementof this suit, holds his title subject to any interest that may ultimately be established in the parties as the result of this litigation. Under the rules announced, the rights of the parties are to be determined in the same manner and with like results as though a writ of error had been sued out to bring the original decree of the probate court into review."

The Illinois court recognized the well-established rule relating to protection to bona fide purchasers, as is disclosed by the following quotation from the opinion:

"It is a rule founded on reason and well supported by authority, that a purchaser at a judicial sale who is not a party to the record will be protected against any errors or irregularities in the proceeding anterior to the sale, provided that the court rendering such decree had jurisdiction. Innocent third parties have a right to rely upon a judgment or decree of a court having jurisdiction to pronounce it. They are not required to look beyond the question of jurisdiction, and if the decree is one which the court has jurisdiction to render, both as to subject matter and the parties, innocent purchasers acting in good faith will be protected notwithstanding the existence of errors which would cause a reversal of such decree or judgment by the court of review."

A careful analysis of the entire opinion discloses that the rule last cited would have been determinative of the controversy except for the fact that there was involved a purchase pendente lite.

The sweeping and far-reaching effect of the rule announced by the majority opinion upon outstanding titles is obvious. Judicial sales are had in mortgage and lien foreclosures, partition and probate proceedings, and others too numerous to mention. In the great majority of cases the purchasers at such sales are parties litigant. Judicial sales and purchases by parties litigant are to be found in many chains of title. Upon every such title the majority opinion in this case casts a cloud; although the judgment and sale proceedings are regular on their face, the present owners of such property are now burdened with the necessity of overcoming presumptions that the title is imperfect in the event of an attack thereon by a former owner. Specifically named, such presumptions are that the title of the litigant purchaser is defeasible, and that he purchased subject to a prior equity.

The courts often express regret at the necessity of enforcing the principle of protection to a bona fide purchaser, for frequently it appears that the result is to work positive detriment to an owner of property who has been cheated or defrauded. See Whiteman v. Cornwell (Kan.) 164 P. 280. It is often said, however, that a recognition of such a principle is necessary in order "to give full faith and credit to judicial sales and sales made in consequence of final judgments. This is necessary in order to give final judgments the full faith and credit to which they are entitled." Van Noy v. Jackson, 68 Okla. 44, 171 P. 462. Judicial opinion is practically unanimous to the effect that a greater and more widespread detriment to titles would result if the courts should fail to give effect to the ancient principle of protection to bona fide purchasers.

In the case of Smith v. Herdlika (Ill.) 154 N.E. 414, it was held:

"Purchaser of land, ignorant of fraud on part of grantor in legal proceedings affecting title, and without notice of anything to put him on inquiry as to whether there was any such fraud, will be protected in his purchase against person claiming to have been defrauded."

In announcing the above rule of law, the Supreme Court of Illinois relied wholly upon the early case of Hunter v. Stoneburner, 92 Ill. 75. In that case it appeared that John and William Stoneburner owned 870 acres of land as tenants in common. John Stoneburner died testate leaving Samuel G. Stoneburner, his nine-year-old son, all of his real and personal property, subject to certain conditions named in the will. William Stoneburner filed a petition for partition of the 870 acres of land owned by him and the devisee of his deceased brother, John. A guardian ad litem was appointed and the court decreed a partition of the land. Commissioners were appointed and reported that the land was not susceptible of division and recommended a sale thereof. The court decreed a sale of the land, and William Stoneburner purchased the same. He thereafter sold the land to one Hunter. Samuel G. Stoneburner filed an action to set aside the sale to William Stoneburner and the sale to Hunter, charging, among other things, that the partition proceeding was fraudulent. With regard to the rights of Hunter, the purchaser from William Stoneburner, who prosecuted the partition proceeding, it was said:

"If it were conceded, or proved, that William Stoneburner procured the report of the commissioners that the lands were not susceptible of division, and procured the order of sale of the land, and purchased it, by fraud, still that would not, in the least, affect appellant's (Hunter's) title, if he purchased in good faith without actual or constructive notice of the fraud. This is a rule that is found in all of the books, and has, so far as we know, never been controverted; and the rule is so eminently just and equitable, that we are unable to conceive that it ever can be controverted, with success. To hold otherwise would be flagrantly unjust and perpetrate monstrous injustice. If, then, appellee was a bona fide purchaser from William Stoneburner, he must be protected in his purchase."

In the case of Fowler v. Poor, 93 N.C. 466, there was involved a purchase of land at an administrator's sale, by the attorney for the administrator, and a transfer from said purchaser to another. Therein it was held:

"If a judgment and sale be fraudulent and liable to be set aside as to the purchaser, an innocent party buying from such fraudulent purchaser, gets a good title."

The case of Graham v. Floyd, 214 N.C. 77, 197 S.E. 873, was an action by a minor after reaching majority for recovery of land sold in a probate proceeding for payment of debts of the estate of the minor's ancestor. One O.I. Floyd was the sole creditor of the estate and acted as guardian ad litem for the minor at the sale. The purchaser at the sale was Lydia P. Floyd, who was the wife of O.I. Floyd. The deed was executed to her on November 8, 1915, and on September 30, 1918, O.I. Floyd and Lydia P. Floyd conveyed the land to Cheston Branch and wife. The court held that O.I. Floyd was in no position to buy at the sale either directly or indirectly, and that if he stood by and permitted his wife to buy the land at a price greatly less than its real value, the same would be evidence for consideration by a jury in passing on the issue of fraud. The following legal propositions were announced as controlling of the situation:

"The special proceeding to which the present action relates is extremely irregular, but the judgment is not void, — but voidable. By reason of the irregularities the judgment may be vacated as to all parties, unless the defendants Branch are innocent purchasers. If it should appear upon the hearing that they are purchasers for value without notice, then the plaintiff is not entitled to recover as against them. 'A purchaser for value from one whose deed was procured by fraud gets a good title if he has no notice of the fraud.' Phillips v. Lumber Co., 151 N.C. 519, 66 S.E. 603, 604; Martin v. Cowles, 18 N.C. 29; Saunders v. Lee, 101 N.C. 3, 7 S.E. 590; Odom v. Riddick, 104 N.C. 515, 10 S.E. 609, 7 L.R.A. 118, 17 Am. St. Rep. 686; Cheek v. Squires, 200 N.C. 661, 158 S.E. 198.

"It is well settled that, in the absence of fraud or the knowledge of fraud, one who purchases at a judicial sale, or who purchased from one who purchased at such sale, is required only to look to the proceeding to see if the court had jurisdiction of the parties and of the subject matter of the proceeding, and that the judgment on its face authorized the sale. Sutton v. Schonwald, 86 N.C. 198, 41 Am. Rep. 455; Morris v. Gentry, 89 N.C. 248; England v. Garner,90 N.C. 197; Fowler v. Poor, 93 N.C. 466; Dickens v. Long,112 N.C. 311, 17 S.E. 150; Barcello v. Hapgood, 118 N.C. 712,24 S.E. 124; Smith v. Huffman, 132 N.C. 600, 44 S.E. 113; Millsaps v. Estes, 137 N.C. 535, 536, 50 S.E. 227, 70 L.R.A. 170, 107 Am. St. Rep. 496; Carraway v. Lassiter, 139 N.C. 145,51 S.E. 968; Card v. Finch, 142 N.C. 140, 54 S.E. 1009. * * *

"However, if the defendant, O.I. Floyd, bought the land in question, and had the title conveyed to his wife, and they having conveyed the same to innocent purchasers, he may be charged with the full value of the land, and this without regard to the question of fraud."

The case of Haggerty v. Moyerman (Pa.) 184 A. 654, was an action to cancel and satisfy of record a bond and mortgage on certain real property. Plaintiff was the owner of two properties, each assessed for taxation at $6,500. The defendant, Moyerman, fraudulently procured the sale of both properties in satisfaction of a judgment in the sum of $98.18. Moyerman was attorney for the judgment creditor. We may assume that the record disclosed such fact. Both properties were sold to him at the sheriff's sale for $75. He assigned his bid to one Charles Young and sheriff's deeds to both properties were executed to Young. Young executed a mortgage on one of the properties for $4,500 and all the proceeds were paid to Moyerman. Another mortgage was executed by Young to Krakauer Building Loan Association for $6,500, part of the money was used to satisfy the former mortgage and the balance was paid to Moyerman. Young likewise mortgaged the other property to the same company for $3,500, the proceeds of that mortgage were paid to Moyerman. In other words, Moyerman profited from these transactions to the extent of almost $10,000. This action was to cancel the mortgage for $6,500 held by defendant company. It was held that plaintiff was entitled to an accounting in the way of damages against Moyerman. With regard to the mortgage the court said:

"Although the levy and sale were a fraud on plaintiff's rights, it does not necessarily follow that plaintiff is entitled to satisfaction of the mortgage held by the defendant association. This mortgage was placed on the property by Young, and the association, in lending the money, relied upon the strength of his title. Unless the association had knowledge of Moyerman's fraud, or unless Young's title was upon its face so defective as to give notice of this fact, the association is in the position of an innocent purchaser for value, and is not to be visited with loss because of plaintiff's failure promptly to protect her interests. A purchaser of land who pays value for it, or a mortgagee who lends money upon the security of the title of a mortgagor, and who has neither actual nor constructive knowledge of any claims of third parties, holds the title or lien so acquired free of any such secret equities. Stonecipher v. Keane, 268 Pa. 540, 112 A. 233; Salvation Army v. Lawson, 293 Pa. 459, 143 A. 113; Puharic v. Novy, 317 Pa. 119, 176 A. 233. This is but an application of the fundamental principle that, where one of two innocent persons must suffer, he whose neglect made the injury possible should bear the loss. Spragg v. Shriver, 25 Pa. 282, 285, 64 Am. Dec. 698; Puharic v. Novy, supra."

The case of Klinger v. Milton Holding Co. (Fla.) 186 So. 526, was an action to set aside a decree of foreclosure of a tax lien and certain conveyances based thereon. It appeared that the defendant therein had foreclosed a tax lien upon the property of plaintiff and had procured title thereto on February 11, 1932, as the purchaser at a master's sale. On August 16, 1932, the defendant conveyed the lot to Mrs. Lula Lummus. The court held that there was a lack of due diligence on the part of the plaintiff in the foreclosure suit in failing to ascertain and show in the affidavit for publication the place of residence of defendant in that suit, but it was held that the affidavit for service being valid and sufficient on the face of the record, the final decree and the action taken thereunder were not absolutely void but merely voidable. Insofar as the rights of Mrs. Lummus, the vendee of the party litigant who purchased at the tax sale, were concerned, it was held that her rights were governed by the rule announced in 35 C. J. 94, as follows:

"A bona fide grantee from a purchaser at a judicial sale is not affected by irregularities, mistakes or fraud, of which he did not have notice, although as to the grantor, sale might have been set aside."

In the case of Martin v. Robinson (Tex.) 3 S.W. 550, it was held:

"Claims against a decedent's estate having been allowed by the fraudulent collusion of the claimant and the administrator, and lands ordered sold by the court to pay the claims, the claimant purchased the lands, and afterwards sold to others. Held, in an action by the heirs of the intestate against these subsequent purchasers, the lands could not be recovered; it appearing they had been purchased bona fide, and for value, from the original purchaser, who was guilty of the fraud."

In the case of Schneider v. Sellers (Tex.) 84 S.W. 417, there was involved a set of facts quite similar to the facts involved herein. Among other issues involved was the question of whether or not a bona fide purchaser from one who had procured title from her children by a fraudulent partition action was entitled to protection. The court there solved the problem by application of the doctrine of constructive trusts. In the body of the opinion it was said:

"* * * Having secured title to the land by fraud, through the judgments entered in the district court of Ellis county, Mrs. Walker held the land charged with a constructive trust in favor of her children. 2 Pomeroy's Equity, sec. 1053. Mr. Pomeroy says: 'In general, whenever the legal title to property, real or personal, has been obtained through actual fraud, misrepresentations, concealments, or through undue influence, duress, taking advantage of one's weakness or necessities, or through any other similar means, or under any other similar circumstances which render it unconscientious for the holder of the legal title to retain and enjoy the beneficial interest, equity impresses a constructive trust on the property thus acquired, in favor of the one who is truly and equitably entitled to the same, although he may never, perhaps, have had any legal estate therein; and a court of equity has jurisdiction to reach the property, either in the hands of the wrongdoer, or in the hands of any subsequent holder, until a purchaser of it, in good faith and without notice, acquires a higher right, and takes the property relieved from the trust. * * *

" 'As a necessary consequence of this doctrine, whenever property subject to a trust is wrongfully sold and transferred to a bona fide purchaser, so that it is freed from the trust, the trust immediately attaches to the price and proceeds in the hands of the vendor, whether such price be a debt yet unpaid due from the purchaser, or a different kind of property taken in exchange, or even a sum of money paid to the vendor, as long as the money can be identified and reached in his hands or under his control. It is not essential for the application of this doctrine that an actual trust or fiduciary relation should exist between the original wrongdoer and the beneficial owner."

The following cases are cited by the defendant and the attorneys amici curiae and involve fact situations similar to those cases to which we have referred, that is, where the rights of vendees of parties litigant who purchased at judicial sales are concerned. See Young v. Wiley (Ind.) 107 N.E. 278; Allison v. Drake (Ill.) 32 N.E. 537; Federal Land Bank of Omaha v. Tuma (Neb.) 216 N.W. 186; Stewart v. Kellough (Ohio) 135 N.E. 608; Dean v. Dean (Tex. Civ. App.) 165 S.W. 90; Doyle v. Hampton, 159 Cal. 729, 116 P. 39.

The majority opinion holds that the vendee of one who purchased under an erroneous decree in his own favor stands in the shoes of the vendor, thus nullifying to a considerable degree the doctrine of bona fide purchasers. The authorities which I have cited and from which I have quoted, in my opinion, are overwhelmingly against the statement found in the majority opinion. The controlling principle in this case has been applied by this court in the following cases: Illinois Valley Trust Co. v. Sells, 167 Okla. 58, 27 P.2d 1945; Ross v. Groom,90 Okla. 270, 217 P. 480; Atkinson v. King, 93 Okla. 37,219 P. 914; McNaughton v. Lewis, 124 Okla. 181, 254 P. 972; Plant v. Shrock, 102 Okla. 97, 227 P. 439; Allison v. Crummy,64 Okla. 20, 166 P. 691; Tootle v. Payne, 82 Okla. 178, 199 P. 201.

Under these authorities it is clear that bona fide grantee from a litigant who was a purchaser at a judicial sale is not affected by extraneous fraud practiced by his grantor of which fraud he had no notice, and that plaintiff's remedy is to proceed against the defendant Johnston.

For the above reasons, I respectfully dissent.

I am authorized to say that Chief Justice BAYLESS and Justices HURST and DAVISON concur in this dissenting view.