Pacific Trust Co. v. Nagamori

This is an action at law brought under the statute to quiet the title to real estate, the plaintiff claiming as mortgagee, after default. The undisputed facts are as follows: in pursuance of an oral agreement entered into on June 20, 1922, between Bunjiro Mizushima and Tsunejiro Nakamura and executed, to a certain extent, on September 21 of the same year, these two parties bought an undivided seven-eighths interest in a parcel of land, taking the deed in the name of Mizushima as sole grantee. On November 18, 1922, Mizushima and his wife, and also Nakamura, executed and acknowledged an agreement declaring in effect that while the deed had been taken in the name of Mizushima alone, nevertheless both Mizushima and Nakamura had certain interests in the land which were in the instrument set forth. This agreement was placed on record in the office of the registrar of conveyances on August 31, 1926, and not earlier. On August 27, 1926, the plaintiff loaned to Mizushima the sum of $45,000, taking as security a mortgage on the same land. Nakamura died on November 9, 1924. The mortgage was not executed either by Nakamura or by his successors in interest. The mortgage was recorded on September 1, 1926, one day after the recording of the agreement. This action was commenced on May 29, 1929. Mizushima died November 16, 1929. Nakamura left a will naming as devisees the three minor defendants and Ishi Nakamura, who apparently is not a minor, all four being his children. The circuit court, after trial, entered judgment that "plaintiff's complaint be and the same hereby is dismissed." The case comes to this court by writ of error.

One of the contentions of the defendants is that the judgment must be affirmed because the plaintiff did not prove that at the date of the mortgage the title to the land was in Mizushima. The defendants' sole claim of title, however, was under Mizushima, that is, that they held as beneficiaries under a trust of which Mizushima was the trustee, the trust being that declared in the agreement above referred to. In other words, both parties to the action claimed title from the same source and therefore it was unnecessary for the plaintiff to prove Mizushima's title.

The two main issues argued by the parties are whether the priority in registration gave the defendants a title under the agreement superior to that of the plaintiff under the mortgage and, secondly, whether the defendants are estopped by reason of their conduct or that of their predecessor Nakamura, or both, to set up the priority of registration. Section 3168, R.L. 1925, reads as follows: "Every conveyance or other instrument, acknowledged or proved, and certified in the manner hereinbefore prescribed, by any of the officers before named, may be read in evidence without further proof thereof, and shall be entitled to be recorded." Section 3170, Ib., reads as follows: "All deeds, leases for a term of more than one year, or other conveyances of real estate within the Territory, shall be recorded in the office of the registrar of conveyances, and every such conveyance not so recorded shall be void as against any subsequent purchaser, in good faith and for a valuable consideration, not having actual notice of the conveyance, of the same real estate, or any portion thereof, whose conveyance shall be first duly recorded." Under section 3168 the written agreement between Mizushima and Nakamura was entitled to be recorded. It was in its essence a declaration by Mizushima that while the earlier deed had been taken in his name only, nevertheless, the truth was that he held the title for Nakamura and himself as joint owners and adventurers. It stated the nature and the terms of that co-ownership and showed that the two were owners in shares proportionate to the amounts which each had contributed towards the purchase price, — with the qualification that the fractions might be altered by subsequent changes in the amounts of their respective contributions. It showed also that the outstanding one-eighth interest was to be purchased, if possible, with the funds of the two, and that if purchased it was to be merged into the common property upon the same terms as the seven-eighths. Other terms of the arrangement were specified. Instruments of this general nature have always been regarded in this jurisdiction as entitled to be recorded. They are the equivalent of conveyances of interests in land.

It is inexact to say, as has been repeatedly stated in argument by counsel for the defendants, that the purpose of section 3170 was to protect subsequent purchasers who purchased in good faith, for a valuable consideration and without actual notice of an earlier conveyance. That is only a part of the truth. The purpose of that section was to protect subsequent purchasers who not only purchased in good faith for a valuable consideration and without actual notice, but who in addition recorded their conveyances first. The language of the section seems to us to be unambiguous. The intent of the legislature is clear. To disregard the phrase "whose conveyance shall be first duly recorded" would be to thwart the intent of the legislature. The wisdom of the policy thereby enunciated is something that was solely for the legislature to determine. There is much to be said in its favor, that may have actuated the legislature. Recognizing that an earlier grantee may have been slow to record his deed, it may well have been deemed just, nevertheless, to give notice, as every law is notice, that if a subsequent grantee wished to prevail he should examine the records up to the moment of the acceptance of his deed and place it on record before the earlier grantee should place his on record. There is no real injustice in this requirement. To observe it has been found easily feasible in practice. A search of the record of the title of one who wishes to borrow on mortgage disclosing at the time of the application that there are no adverse encumbrances, the mortgage may be drawn and executed, but not delivered or accepted unless and until an additional search of the short intervening period shall disclose that in that interim no encumbrances have been recorded. That is familiar practice. The plaintiff in this case apparently did not take these precautions and delayed five days in placing his mortgage of record. The defendants' declaration of trust had been placed of record the day before and under the statute took precedence.

Similar statutes have been similarly construed in other jurisdictions. In Wisconsin the provision of the statute was: "Every conveyance of real estate * * * which shall not be recorded * * * shall be void as against any subsequent purchaser in good faith and for a valuable consideration, of the same real estate or any portion thereof, whose conveyance shall first be duly recorded." Quoting from the statutes of Massachusetts and Vermont, the supreme court of Wisconsin said: "Now the great and remarkable difference between our statute and the statutes of those states, and which, as it seems to me, must lead to a difference of construction, arises from the employment of and the effect which must be given to the words which I have above put in italics, namely, ``whose conveyance shall first be duly recorded?' This is a condition not found in them, but super-added in ours, and which must be complied with by the subsequent purchaser in good faith and for a valuable consideration, before he can claim the benefit and protection of the statute. Without the deed to such a subsequent purchaser first upon record, the title under the prior unregistered deed must still be preferred. Under the statutes of the states to which reference has been made, this is not so. It is enough there that the subsequent purchaser for a valuable consideration and without actual notice, looks upon the record at the time of purchase and finds no conveyance from his grantor then recorded. He is not required to put his deed first upon record in order to be protected as against prior conveyances from his grantor, but only to do so in order to protect himself against subsequent bona fide purchasers for value, from the same grantor or in the line of recorded conveyances from him. Accordingly in those states the courts hold that if A. conveys to B., a bona fide purchaser of real estate for value who fails to put his deed upon record until after A. conveys the same land to C., a second bona fide purchaser for value, and B. then puts his deed on record before C. records his, that the title of C. shall nevertheless prevail as between him and B., because it is the fault of the latter that he did not immediately record his deed, and so the equities are with C. But under our statute this cannot be so, because C. must not only be a subsequent bonafide purchaser for value, but must also have had his deed first duly recorded. Both conditions of the statute must be complied with." Fallass v. Pierce, 30 Wis. 443, 458. In a later case the same court, under the same statute, said: "The bank then was a subsequent purchaser in good faith, within the meaning of the recording act. But, in order to be protected against the prior conveyances or mortgage, it must be something more than a subsequent purchaser in good faith. Its conveyance must first beduly recorded. Its conveyance, as we have seen, was the assignment of the mortgage, and it was not recorded till long after the plaintiff's mortgage; hence it is in no way protected."Butler v. Bank, 94 Wis. 351, 356.

Under a statute containing the same qualification, "whose deeds, mortgages and other instruments shall be first recorded," the supreme court of Nebraska said: "That the mortgages were valid between the parties thereto from the date of their execution will of course be conceded. And, under the provisions of the section quoted, it is perfectly plain that they were not void as to creditors generally, but only as to creditors whose deeds, mortgages or other instruments should be first recorded." Bank v. Stewart, 77 N.W. 370, 371. See alsoSheasley v. Keens, 66 N.W. (Neb.) 1010.

"Many recording acts provide that a prior unrecorded instrument shall be void as against subsequent bona fide purchasers whose conveyance shall first be duly recorded. So that in order to receive the benefit of the acts a subsequent purchaser must, in addition to being a bona fide purchaser, have his deed recorded before a prior unrecorded deed is placed on record." 23 R.C.L. 238, 239.

Concerning the claim of estoppel, there is not the slightest evidence that either Nakamura or any of his successors in interest, the present defendants, were guilty of any act or omission which could possibly be construed as the equivalent of a misrepresentation or of silence when there was a duty to speak, — other than the sole fact that they omitted for about four years, until August 31, 1926, to place their mortgage of record. The legislature must be deemed to have realized that such omissions or delays in recording would occur. It is obvious that the statute (section 3170) was intended to meet just that contingency. The will of the legislature is shown by that section to have been that in spite of any such delay the earlier conveyance would prevail unless the subsequent one was first recorded. To declare that the defendants are estopped, without any misrepresentation or silence on their part when under a duty to speak, — and there was no such duty in this instance — would be to circumvent the express command of the legislature on the subject of priority.

One of the provisions of the agreement of November 18, 1922, was that "neither party shall assign, transfer, sell or in any way encumber his interest, or any part thereof, in said property without first the consent in writing of the other party be given." The defendants contend that because of this provision the mortgage of Mizushima was unauthorized and invalid and that for that reason the judgment below must be sustained. It is true that the mortgage does not bear on its face the written consent of Nakamura's heirs (Nakamura had died before its execution); but there is no evidence tending to show whether the consent was secured by a separate written instrument. Passing by the question whether the burden was on the plaintiff to prove that the written consent was given or on the defendants to prove that it was not given, it is sufficient to say that the provision last quoted from the agreement was an attempt to restrain the owners of interests in the land from aliening the same for an indefinite time in the future, in fact, for all generations. It was expressly provided in the instrument that its terms were binding on the heirs, executors, administrators and permitted assigns of each of the parties. Such an attempted restraint on alienation violates the rule against perpetuities which is law in this jurisdiction (Fitchie v. Brown, 18 Haw. 52, 69) and is void.Lucas v. Lucas, 20 Haw. 433, 441; Winsor v. Mills,157 Mass. 362.

Since the requirement of the written consent of Nakamura or his devisees was void, Mizushima's mortgage, in the absence of the establishment of any other defense, operated to convey to the plaintiff at least his, Mizushima's, interest in the property, which interest appears from the face of the agreement to be approximately three-fifths, — that is, if there was no subsequent change in the fractional interests of the two parties and as to the latter no evidence was adduced at the trial.

While the circuit judge was right in his construction of section 3170 and in the disposition which he made of the claim of estoppel, the judgment must, nevertheless, be set aside, because upon the showing made the mortgage was effective as to Mizushima's interest in the land and the plaintiff is entitled to recover pro tanto. The statutory action to quiet title was intended as one means of establishing and declaring the interests of the parties in the same land.

The judgment is set aside and a new trial is granted.