Smelsey v. Guarantee Finance Corp.

I am for reversal. Plaintiff was not a purchaser in good faith when he took the quitclaim deed of an undivided 1/4 interest in this property from Robert Hascall Moore who held a mere nakedrecord title but who had already conveyed his title to the defendants by an unrecorded quitclaim deed. The facts and circumstances disclosed to Ostrow, the agent or alter ego of plaintiff in the transaction, were such as to require that plaintiff make inquiry as to the title from the defendants known to be in possession of the property. Defendants had been continuously in possession of the premises since 1936. Plaintiff had actual knowledge of defendants' possession prior to the time plaintiff acquired any ostensible title or interest therein. InAmerican Cedar Lumber Co. v. Gustin, 236 Mich. 351, 359, this court has said:

"It is elementary that as a general rule possession of real estate is constructive notice of title in the possessor.

"`Constructive notice by possession is equal to constructive notice by record.' Fraser v. Fleming, 190 Mich. 238, 244.

"Notice in such cases is a legal deduction from the fact of possession. Delosh v. Delosh, 171 Mich. 175."

Ostrow admitted knowing that defendants were in possession, and gave as his excuse for failing to contact the defendants "that they were attempting to buy the same rights I was trying to buy." Had Ostrow made inquiry from defendants as to the ownership of the 1/4 interest in question he would undoubtedly have learned that the defendants were not attempting to buy this same right, for the simple reason that the defendants had already acquired it, by quitclaim deed, from the same Robert Hascall Moore whose quitclaim deed Ostrow proceeded to obtain.

Furthermore, the probate court records and proceedings examined by Ostrow, of which plaintiff must be charged with actual knowledge (Act No. 288, chap. 1, § 28, Pub. Acts 1939 [Comp. Laws Supp. 1940, § 16289-1 (28), Stat. Ann. 1943 Rev. § 27.3178 (28)]), establish the fact that this property was owned by one Jeremiah H. Hascall who died intestate in 1926; that the interest of the Hascall estate in the property in question consisted of an equity in a land contract whereby Hascall as vendor during his lifetime had sold this property to one Leslie A.B. Walsh. By means of regular assignments of the vendee's interest in this land contract the defendants acquired the entire vendee's interest and rights in the entire property (including the right to possession of the entire property) in 1936. This contract and the assignments were not recorded, but the defendants went into possession of the entire property in 1936, and have since been continuously in possession. Had plaintiff — or Ostrow — made the obvious inquiry required of him, from the defendants known to be in possession, the facts regarding the land contract disclosed by the probate court records were readily obtainable from defendants. Ostrow's excuse for refraining from contacting the defendants — "I knew I would get all the wrong information; all the misleading information I could possibly get" — shows that he was equally apprehensive that if he contacted the defendants he might discover facts, not disclosed by records, which would show that the defendants were in possession under a bona fide (but unrecorded) chain of title as to the 1/4 interest Ostrow was then investigating. By his own admission Ostrow designedly refrained from making inquiry from the defendants in possession, although he had reason to believe that the defendants had the facts. This clearly distinguishes the instant case from Holly Lumber Supply Co. v. Friedel,271 Mich. 425, where Mr. Justice EDWARD M. SHARPE, writing for the court, said:

"We cannot find that Mr. Haddan designedly abstained from making inquiries, but we do find that he inquired from such sources as he thought should know the facts."

The record of transfers and conveyances of the title originally held by Jeremiah H. Hascall discloses that the defendants held undisputed record title to an undivided half interest in the property. Ostrow was engaged in the business of buying and selling real estate, stocks or bonds and other securities "or any other evidence of title or any other rights." Plaintiff Smelsey was engaged in the same business. Smelsey advised Ostrow there was a chance to acquire some interest in the property in question. Ostrow checked the title with the abstract company (Burton's), examined the probate court records, found certain conveyances of record to defendants herein as grantees, checked the tax records, made inquiry of the woman who occupied the dwelling house property in question who told him she was paying rent to the defendants herein; but Ostrow studiously refrained from contacting the defendants herein with any inquiry as to title. A simple inquiry directed to the defendants in possession would undoubtedly have brought the truthful information that the defendants held equitable title by assignment of the original land contract, and legal title, although not of record, by quitclaim deed of the same 1/4 interest from the same grantor under whom plaintiff now claims his title. The unrecorded title previously acquired by defendants in the 1/4 interest now claimed by plaintiff on the ground that his quitclaim deed was recorded ahead of defendants' deed is not voided by the statute unless plaintiff was a subsequent purchaser in good faith. 3 Comp. Laws 1929, § 13304 (Stat. Ann. § 26.547).

Mr. Justice COOLEY, writing for the court, in Converse v.Blumrich, 14 Mich. 109, 120 (90 Am. Dec. 230), declared:

"A person is chargeable with constructive notice where, having the means of knowledge, he does not use them: Mayor ofBaltimore v. Williams, 6 Md. 235. If he has knowledge of such facts as would lead any honest man, using ordinary caution, to make further inquiries, and does not make, but on the contrary studiously avoids making such obvious inquiries, he must be taken to have notice of those facts, which, if he had used such ordinary diligence, he would readily have ascertained."

"It is not competent to insist upon a state of ignorance when knowledge is the necessary consequence of admitted or established facts, or on any qualification of belief which is repugnant to reason and experience." Michigan Mutual Life Ins. Co. v. Conant,40 Mich. 530, 537.

"Good faith is not less important than the payment of value, and is not to be determined alone upon the testimony of the party that he acted in good faith; but he must show that from the inception to the conclusion of the transaction he had no notice or knowledge that could affect his conscience, or render it inequitable for him to make the purchase. And it must be remembered that this plaintiff is not putting forward this claim of being an innocent purchaser in good faith, without notice, as a shield to protect a possession acquired, but as a sword to attack the possession and rights of others. It rests with him, therefore, to disprove every fact and circumstance put in evidence by the defendants from which notice may legitimately be inferred, or which justifies the inference that it was his duty to inquire as to Lyon's ownership. He is chargeable with notice, not only where the evidence raises a presumption that he knew, but where there is just ground for inferring that reasonable diligence would have led him to a discovery of the truth.Warren v. Swett, 31 N.H. 332; Nute v. Nute, 41 N.H. 60. `One who willfully remains ignorant where the rights of a third person are concerned, is as much in default as if he had the knowledge which he avoids. The question, therefore, is not merely did the "plaintiff" know, but had he sufficient information to render it his duty to inquire, and would an investigation in the ordinary course of business have led to a discovery of the' title claimed by the opposite party; `or, as the rule is sometimes stated, a purchaser has notice, not only of what is definitely communicated to him, but of all that a proper use of that information would have enabled him to ascertain.' Oliver v.Sanborn, 60 Mich. 346, 354.

"If defendant had been acting in good faith in the transaction, while he was making an effort to ascertain if the title was clear, and what rights complainant had, if any, he would have made inquiry of the very person who could have given him the information he was seeking. This he did not do, though on the very day he was making the purchase he met and talked with complainant.

"It is not necessary to consider the doctrine of constructive notice in disposing of this case. A person is chargeable with constructive notice where, having the means of knowledge, he does not use them. Mayor of Baltimore v. Williams, 6 Md. 235.

"If one has knowledge of such facts as would lead any honest man, using ordinary caution, to make further inquiries, and does not make but on the contrary studiously avoids making, such inquiries, he must be taken to have notice of those facts which, if he had used such ordinary diligence, he would have readily ascertained. Whitbread v. Jordan, 1 Younge C. Ex. 303 (160 Eng. Rep. 123); Jackson, L. S.R. Co. v. Davison (syllabus),65 Mich. 417, 437." Hains v. Hains, 69 Mich. 581, 587.

Plaintiff's right to judgment in ejectment depends upon his claim that by the prior recording of his quitclaim deed to an undivided 1/4 interest in the property without notice of defendants' prior unrecorded deed, he acquired title to the said interest as against defendants. Such right depends upon whether he became a subsequent purchaser in good faith, wherefore defendants' prior unrecorded deed would be void as to him, by virtue of the above-cited statute. Under the facts and circumstances of the case plaintiff was not a purchaser in good faith, and defendants' deed was not void as to him. Plaintiff did not have title as against defendants and for that reason his action of ejectment must fail.

Reversed and remanded for entry of judgment for defendants, with costs.

STARR, C.J., and NORTH, BUTZEL, BUSHNELL, and REID, JJ., concurred with BOYLES, J.