Ramirez v. Bell , 1927 Tex. App. LEXIS 773 ( 1927 )

McOLENDON, C. j.

Jesus and Refugia Ramirez, husband and wife, sued Harris Bell and Charles Wendlandt, Jr., (1) to cancel appellants’ deed of June 25, 1925, conveying to Bell their homestead of 121.64 acres of farm land in Bastrop county; and (2) to cancel Bell’s deed of trust to Wendlandt of August 6, 1925, securing $5,000, by lien upon the same property.

Trial . to jury; directed verdict; judgment: (1) As to Bell, canceling his deed and awarding appellants $3,136.15 against him; and (2) as to Wendlandt, establishing and foreclosing his trust deed lien. Separate appeals (1) by Ramirez and wife against Wendlandt; and (2) by Bell against Ramirez and wife.

In the Bell appeal we are affirming the judgment canceling his deed. See opinion, 298 S. W. -.

The correctness of the directed verdict establishing and foreclosing the trust deed lien depends upon whether the evidence conclusively shows Wendlandt to be a bona fide purchaser.

The pertinent facts, which are in large measure without substantial dispute, follow:

Ramirez and wife were ignorant Mexicans, speaking English sufficiently only to the ordinary transactions of people engaged in farming. In 1912 they bought the property (then raw land) from Seelig for $7,000, paying $1,000 in cash. The balance they had reduced to $1,860 in 1922, when it was extended so as to be paid off $310 annually; and to $1,434.20 when the trust deed was executed.. Ramirez and his family lived on the property continuously after its purchase, put part in cultivation, and made some small improvements, suited to residence, use, and occupancy as a farm by persons of their limited means and station. In the summer of 1925 the property was worth from $9,000 to $15,000. Wendlandt loaned the $5,000 on his estimate'of value at $9,000 to $10,000 for loan purposes. Seelig valued it at from $10,000 to $15,000. A reputable loan mortgage company to whom Bell applied for a loan placed the value at $10,500, and was willing to make a loan of $6,500, at 6%, per cent,, but “turned it down” on finding Ramirez in possession. BeU represented to this company that the property was worth $16,750.

The Bell deed was executed under these circumstances: Ramirez had been indicted in Bastrop county on four felony charges- of violating the liquor law. He engaged Bell to defend him, executing on June 20, 1925, his note for $1,000 which Bell claimed was only a retainer, and which he agreed to secure by lien on the farm, and the same day Bell had him execute an instrument designating an unimproved lot in Austin, which he had never occupied, as the homestead of himself and family. This designation was recorded in Bastrop county July 6, 1925, 11 days after execution of -Bell’s deed. Bell also prepared a trust deed to secure the $1,000 note for execution by Ramirez and wife, but, upon ascertaining from another attorney that a lien on a homestead would not be valid, he destroyed it. Ramirez and wife signed and acknowledged (before a notary employed in Bell’s office) the Bell deed on July 25, 1925, Bell claiming it to be a conditional sale; Ramirez and wife claiming it to have been fraudulently represented to them as a mortgage to secure the $1,000 note. Bell, born and reared in Austin, was a young lawyer of about 2 years’ practice. Wendlandt, 32 years old, had lived in Austin since 1901, and had been in the real estate and loan business there since he was 17. He knew Bell, but not intimately; had had no business dealings with him. Bell, his negotiations with the mortgage company, having failed, made to Wendlandt two verbal applications for loan about a week apart. The first (about the middle of July, 1925, or a little later) was refused because Wendlandt was not then in funds. The second terminated in the loan and trust deed in issue. Wendlandt agreed to inspect the land and make a loan if the security was good. He went with Bell and inspected the land. They stopped at Ramirez’s house, where they left their ear, and upon returning after the inspection, Wendlandt asked Bell if a certain Mexican boy he saw on the place was renting it. Bell answered “No”; that that was the fellow he bought the place from, and then .(quoting Wendlandt):

“I asked him if that hoy owned the farm, and he said ‘No; the old man did,’ but I did not see any old man then; and then he said the Mexican was going off the farm and that Mr. Walter was going to look after it. I saw the Mexican man before I left there. I saw him out in the front yard when, I walked up to the car or towards the ear, and Mr. Walter and Mr. Bell stopped back in the cowlot, or right close to the lot. I talked to the Mexican. I spoke to him in English, and he spoke to me. I would recognize that Mexican if I were to see him. He is the same Jesus Ramirez. At the time I was out there was the first time that I ever seen him. I do not know yet whether that was the man who was supposed to have owned the farm. When I first spoke to the Mexican, I said, ‘Howdy,’ and then I asked him whether he was going to work the land, and he said, ‘No’; he was going to move to San Antonio.”

While returning to Austin Wendlandt agreed to loan Bell $5,000 on the place, if Judge Doom should approve the title. Bell delivered to Doom an abstract of title certified to July 4, 1925, together with the original Ramirez deed which had not then been recorded. Doom required recording this deed and the abstract, including it, certified to date.. All this was done on August 4,1925. Two days later Doom gave Wendlandt a written opinion (supplementing an opinion of December 30, 1899, by his father to Seelig), in which he certified that, subject to the Seelig debt and taxes, the abstracts, “together with my examination of the abstract company’s books, show good title in Harris Bell.” The loan was consummated on August 6, 1925, by Bell’s executing the trust deed and three 8 per cent, notes, two for $500, due October 1, 1926, and 1927, respectively, and one for $4,000, due October 15, 1930. Wend-landt paid off the Seelig debt ($1,434.20) and taxes ($439.75), total, $1,873.75; and paid Bell the residue of the loan in money. Wendlandt had no actual knowledge of any' infirmity in the Ramirez-Bell conveyance ; and relied on his own inspection as to value and Doom’s opinion as to Bell’s title.

The three following propositions embrace the substance of appellants’ contentions to the effect that Wendlandt was not, as a matter of law, a bona fide purchaser:

(1) Appellants being in possession of the property when Wendlandt inspected it, and Bell’s deed not being then of record, Wend-landt was charged as a matter of law with notice of appellants’ claims.

(2) Appellants’ evidence that they' signed the Bell deed upon representation that it was a mortgage raised the issue of the genuineness of the instrument as their act. In other words, under this evidence, the deed was in law a forgery and void.

' (3) The facts and circumstances in evidence were sufficient to put Wendlandt upon inquiry as a matter of law — or, in any event, were sufficient to support a jury finding that Wendlandt was put upon inquiry — with reference to the claim of appellants.

We will consider these contentions in the above order.

Generally speaking, possession of real estate “is equivalent to registration” (Mainwarring v. Templeman, 51 Tex. 205), and is constructive notice of the possessor’s right or claim, in that, as a matter of law, it. puts a purchaser upon inquiry as to the nature of the claim of right of the possessor, and in the absence of proper inquiry the law charges the purchaser with notice of that claim upon the presumption that proper inquiry would disclose it. This rule is elementary.

Where a grantor, after executing a deed in proper form and in terms absolute as an alienation of his title, continues in possession, it is held in this and some other jurisdictions that a purchaser may rely upon the terms of the deed as a declaration of the grantor that he has parted with title, and, as a matter of law, he is relieved of further' inquiry. Eylar v. Eylar, 60 Tex. 315; Hurt v. Cooper, 63 Tex. 362; Heidenheimer v. Stewart, 65 Tex. 321; Love v. Breedlove, 75 Tex. 649, 13 S. W. 222; Graves v. Kinney, 95 Tex. 210, 66 S. W. 293; Stephens v. Summerfield, 22 Tex. Civ. App. 182, 54 S. W. 1088 (writ of error denied); Cooper v. Ford, 29 Tex. Civ. App. 253, 69 S. W. 487 (writ of error denied); Bryant v. Sons of Herman (Tex. Civ. App.) 152 S. W. 714 (writ of error denied); Brooker v. Wright (Tex. Civ. App.) 216 S. E. 196; Sperry v. Moody (Tex. Civ. App.) 269 S. W. 272; Welborn v. Earle (Tex. Civ. App.) 268 S. W. 982.

Some jurisdictions hold to the contrary. 39 Cyc. 1753; 2 Tiffany, Real Property (2d Ed.) 2238. Tiffany makes the following comment on the rule followed in this state:

“One difficulty with this latter view is that it imputes to a conveyance-an effect as a declaration by the grantor, for the purpose of raising an estoppel against him; which is not necessarily in accord with the understanding of the parties or with the legal effect of the conveyance. One executing, for instance, a conveyance of a fee-simple title, may perfectly well acquire, by the same or a subsequent transaction, an equity against the grantee or a lease for a limited period, and it is difficult to see why his conveyance should be regarded as a declaration that he has not acquired, or will not acquire, such an interest, or why a subsequent purchaser should be justified in assuming, for the purpose of being' relieved from any duty of inquiry, that the grantor’s continuance in possession is wrongful rather than rightful.”

The Eylar Case holding prescribes the limit of duty of a purchaser of real estate, and, in view of its long establishment in this state, it should be treated as a rule of property, regardless of one’s individual views concerning its inherent soundness.

Appellants’ contention is that the" Eylar rule does not apply to conveyances which have not been recorded — a contention based in the main upon the following language in the Eylar opinion:

“If the inquiry is prosecuted to the highest source which the law of the land declares shall exist for the determination of title, and to the source which the parties have created as the highest evidence of their respective rights, can it be true that it is further necessary to examine sources inferior and make inquiry as to whether or not there are claims, or even rights, in others not evidenced as the law requires, or otherwise the purchaser be charged with constructive notice of secret vices in the title which he buys.

“To so hold, we are of the opinion, would be to strike at the very foundation of the policy upon which registration laws rest.”

But for holdings noted later, the contention would be strengthened by the following notation in granting a writ of error in Harris v. Hamilton (decided on another point [Tex. Com. App.] 221 S. W. 273):

"We are inclined to the view that since the deed to King was not registered when A. D. Hamilton bought, and the casé was therefore not within the rule of Eylar v. Eylar, 60 Tex. [315], the possession of the land by the 'tenants of King’s grantors placed upon Hamilton the duty of inquiry, affording constructive notice, in other words, of tlieir title. Watkins v. Edwards, 23 Tex. 443; Glendenning v. Bell, 70 Tex. 632 [8 S. W. 324].”

Although sometimes held'to be based upon estoppel, the rule also rests upon “the principles of the law existing in favor of a bona fide purchaser,” the question being:

“Whether the court, in ascertaining his rights, should look behind the evidence of their rights which the other parties had thus created and upon which he acted, or should, in his favor, hold them to the transaction as they had made it appear to be. The decisions of this court have, it seems to us, settled the question in favor of the purchaser.” Graves v. Kinney, above.

In the Eylar Case the purchaser had examined and relied upon the record, and the language quoted was therefore peculiarly Apropos. The opinion was by Judge Stayton, who also wrote in Hurt v. Oooper and Love v. Breedlove, the latter after he became Chief Justice. In the former he made no reference to registration, but based his holding upon the purchaser’s reliance upon the possessors’ “deed for divestiture of title.” So in the latter the possession was held “not sufficient in the face of the absolute deed to Porter to affect appellee with notice of any secret agreement between Love and wife and Porter.” While it does not affirmatively appear from the opinion, the record in that case shows that this deed was not of record at the time it was exhibited to the mortgagee.

The exact point under discussion was decided adversely to appellants in Bryant v. Sons of Herman, above. We think the holding in that ease is sound, and, in view of denial of writ of error, must be regarded as having the sanction of the Supreme Court.

The mere failure to record the deed, except perhaps where continued for an unreasonable length of time, should not, we think, operate to render the rule in Eylar and other cases cited inoperative. On the other hand, registration does afford absolute protection to the grantee against subsequent impairment of his title by acts of his grantor or the latter’s creditors; where the grantor remains in possession it affords the grantee’s only protection. Common business prudence would therefore dictate such registration, where such protection is important, and failure to register promptly may be regarded as a circumstance, when others accompany it, in determining whether reasonable prudence requires inquiry, either as a question of law or of fact.

The second contention that the deed was a forgery, and therefore void, if procured by representation that it was only a mortgage, is overruled.

Eorgery, at common law, was the making or altering of a written instrument “purporting to be the act of another.” 26 C. J. 898.

Some jurisdictions hold that procuring execution of an instrument by misrepresentation of its contents is forgery. For cases see 26 C. J. 900, notes 52 and 53, and note to Illinois v. Pfeiffer (Ill. Sup.) 26 L. R. A. (N. S.) 138. But, as stated by the author of the note last cited:

“By the great weight of authority it is held that fraudulently procuring a genuine signature to an instrument does not constitute forgery.”

The express ‘ lánguage of our Penal Code defining forgery is in accord with this pronouncement. See articles 979 to 995, inclusive, and articles 1006 to 1011, inclusive, which latter deal specially with forgeries of land titles.

Except as to mere legal or constructive fraud, some degree of moral turpitude attends every fraudulent transaction, and many such transactions have by statute been placed in the category of crimes, with penalties varying with the supposed degree of turpitude. Forgery generally is treated under chapter 1 of title 14 of our present Penal Code, entitled “Offenses Affecting Written Instruments,” and articles 1000 and 1001 of that chapter mate felonies, respectively, of falsely reading or interpreting an instrument or fraudulently substituting one instrument for another. These offenses are not, however, constituted forgeries by any language in the statute, and it is to be noted the maximum penalty prescribed therefor is 5 years’ penitentiary confinement, whereas the maximum for forgery is 7 years.

An instrument procured by fraud is no,t void, but is only voidable at the election of the defrauded, and the maker will not be permitted to assert the fraud against a bona fide purchaser.

We sustain that portion of appellants’ third contention to the effect that the evidence raised as an issue of fact Wendlandt’s bona fides, and that appellants were entitled to have submitted the issue whether, under the circumstances, he was charged with the duty of inquiry. He was legally charged with knowledge of all recitals in Bell's chain of title and of such facts as came to Doom’s knowledge in the course of his employment as attorney to examine the title.

“Knowledge of such facts as ought to put a prudent man upon inquiry as to the title charges a subsequent purchaser with notice not only of those facts which are actually known, but also of all the other facts which a reasonably diligent investigation would have ascertained, provided the inquiry becomes a duty, and would lead to the knowledge of the requisite fact by the exercise of ordinary diligence and understanding.” 39 Cyc. 1703.

The following circumstances raise, we think, the issue of notice as a fact question: Ramirez and wife were ignorant Mexicans. They purchased the property in 1912 when it was raw land for $7,000, which they had paid to within $1,434.20. They had lived on the land ever since and were living there when they conveyed to Bell, when Wend-landt inspected it, and when he made the loan. Bell’s deed recited a total consideration of $5,000 cash, which was only from one-third to one-half of the actual value of the land at the date of the deed, and $2,000 less than it cost Ramirez 13 years before. Bell’s deed had been executed only about a month before negotiations with Wendlandt began; only 5 days before it was executed Ramirez designated an unimproved lot in Austin, which he had never lived on, as his homestead; and this designation was recorded in Bastrop county 11 days after Bell’s deed was executed, at which time, if the recitals in Bell’s deed were correct, all title had passed out of Ramirez, and a prior homestead designation could have no purpose. Bell, though claiming under an absolute deed, had left the grantors in possession and was withholding his deed from record up to the very time the loan negotiations were completed.

The gross inadequacy of consideration recited in Bell’s deed was a potent circumstance, and, taken in connection with the other circumstances, and especially the homestead designation, its filing after execution of Bell’s deed, the continued possession of the grantors, and the withholding of Bell’s deed from record were sufficient to raise the fact issue of notice.

We have endeavored to make a careful examination of the authorities upon the effect of inadequacy of consideration alone as notice. The cases are divided into three classes: Those in which the inadequacy appears (1) in the price paid by the party claiming to be an innocent purchaser; (2) in the deed of the latter’s immediate grantor; and (3) in some antecedent conveyance in the chain of title.

The facts in this ease-fall within the second class as to which the rule applied is thus stated in 2 Tiffany, Real Property (2d Ed.) 2243:

, “A purchaser has occasionally been held to be charged with notice of the inadequacy of the consideration recited in a conveyance under which his grantor claims, so as to be put on inquiry as to whether the title is not defective. But such a view has been regarded as inapplicable when the conveyance had been executed a number of years before.”

Cyc. states the rule:

“A nominal or grossly inadequate consideration recited in a deed is a sufficient circumstance, for a reasonable time after such deed is made and recorded,, to put a purchaser on inquiry; but after it has remained of record for some years unquestioned, a person about to purchase under it has a right to conclude that there was no vice in the deed, that a sufficient consideration had in fact been paid, or it would have been attacked within a reasonable time; and he is justified in relying upon it.” 39 Cyc. 1718.

The following cases support the quoted texts: Kinney v. McCall, 57 Wash. 545, 107 P. 385; Ross v. Kenwood Inv. Co., 73 Wash. 131, 131 P. 649; Lawley v. Hickenlooper, 61 Utah, 298, 212 P. 526; Hatfield v. Lotty, 48 Okl. 173, 149 P. 1171; Winters v. Powell, 180 Ala. 425, 61 So. 96; Babcock v. Collins, 60 Minn. 73, 61 N. W. 1020, 51 Am. St. Rep. 503; Hume v. Eranzen, 73 Iowa, 25, 34 N. W. 490; Gaines v. Saunders, 50 Ark. 322; 7 S. W. 303.

The trial court’s judgment as between Ramirez and wife and Wendlandt is reversed and the cause remanded to that court for a new trial. In other respects the judgment is disposed of by our opinion in Bell’s Appeal, 299 S. W. 655.

Reversed and remanded.