C. G. WATTS v. EMIL LUNDEEN AND OTHERS

Minnesota Supreme Court1925-12-18No. No. 24,977

165 Minn. 300

Summary · law.co

Holding. The court affirmed the judgment, holding that plaintiff became a good-faith purchaser with priority over the unrecorded mortgage assignments, and the mortgages were canceled as against the property while the Brandon bank retained rights only to the unpaid contract balance.

P. O. Unumb owned real property encumbered by two mortgages of $2,000 each, which he had assigned to two banks, though the assignments were never recorded. Unumb sold the property to plaintiff under a contract for deed for $4,500 and plaintiff took possession. Plaintiff asked Unumb about the title and was assured it was satisfactory. The two banks later sought to foreclose on their mortgages, and plaintiff moved to block foreclosure and cancel the mortgages.

The court found that plaintiff qualified as a good-faith purchaser despite not actually examining the property records. Although the record indicated Unumb held the mortgages, this was sufficient to put plaintiff on inquiry; plaintiff satisfied his obligation by questioning Unumb, who was the only reasonable source of information about the mortgages. The banks' failure to record their assignments meant they could not assert their mortgage rights against plaintiff, who had entered into possession in good faith. The court therefore protected plaintiff's interest in the property while allowing the Brandon bank to claim the remaining unpaid balance under the contract for deed.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

Whether an unrecorded mortgage assignment binds a subsequent good-faith purchaser in possession
Requirements for establishing good-faith purchaser status without examining property records
Scope of inquiry obligations imposed on purchasers when record suggests potential encumbrances
Effect of failure to record a mortgage assignment under the recording statute

Procedural posture

The two banks appealed from a judgment adverse to their foreclosure action that restrained them from foreclosing and ordered cancellation of the mortgages.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion · public domain

majority opinion

Wilson, C. J.

P. O. Unumb was the mortgagee in two real estate mortgages of $2,000 each, one of which he assigned to the Farmers State Bank of Hoffman and the other to the Farmers State Bank of Brandon. The mortgagor conveyed the fee to Unumb, the deed reciting the in-cumbrances. Unumb on October 4, 1921, sold the property to plaintiff on contract for deed for P,500 and he went into possession. At that time the mortgages were recorded, but the assignments were not. Plaintiff asked Unumb about the title and was assured it was all right. Unumb assigned his contract for deed and the notes, therein mentioned, to the Farmers State Bank of Brandon. On this contract $1,200 remains unpaid.

Plaintiff seeks to restrain the defendant banks from foreclosing said mortgages and for their cancelation, and to restrain the Brandon bank from selling the notes accompanying the contract for deed. The two banks appealed from an adverse judgment.

When plaintiff bought, the record showed that Unumb owned the fee and also the two mortgages. He did not examine the record. He is deemed to have purchased in reliance upon the record. To assert protection as a bona fide purchaser of a good record title, it is not necessary that he shall have examined the record and found the title good. He is also charged with such notice as the record disclosed. The language of the deed to Unumb was sufficient to have put him on inquiry. Such inquiry would naturally be made to Unumb. Plaintiff substantially met the duty the law imposed when he made the inquiry of Unumb as to the title and was given the assurance above mentioned. The record did not disclose anyone else of whom he could have made inquiry. A vendee who is put upon inquiry may not always fulfil his obligation by seeking information from his vendor, but we think he does when the record does not point to any> other reasonable source of inquiry. Under such circumstances the plaintiff became a purchaser in good faith, even though he did not actually examine the record. He was without knowledge or information that either of the mortgages had been transferred by the mortgagee.

An assignment of a real estate mortgage is a conveyance within the meaning of section 8226, G. S. 1923; Huitink v. Thompson, 95 Minn. 392, 104 N. W. 237, 111 Am. St. 476, 5 Ann. Cas. 338; Foss v. Dullam, 111 Minn. 220, 126 N. W. 820. A vendee in a subsisting contract for deed is also embraced within the purview of this statute. Shraiberg v. Hanson, 138 Minn. 80, 163 N. W. 1032. There was in fact no merger in this case. None was intended. The record however presented to the plaintiff a state of facts which might well lead him to assume that there was a’ merger. The fact that the banks withheld their assignment from record is the occasion for their present unenviable position, and by virtue of the recording act they are not in a position to assert their mortgages as against plaintiff in possession of the property under his purchase in good faith. The statute has not changed the rule that subsequent purchasers are charged with notice of the rights of the one in possession. Niles v. Cooper, 98 Minn. 39, 107 N. W. 744, 13 L. R. A. (N. S.) 49; Thompson v. Borg, 90 Minn. 209, 95 N. W. 896; Henderson v. Murray, 108 Minn. 76, 121 N. W. 214, 133 Am. St. 412; Teal v. Scan. Am. Bank, 114 Minn. 435, 131 N. W. 486; Butterwick v. Fuller & Johnson Mnfg. Co. 140 Minn. 327, 168 N. W. 18; Oxborough v. St. Martin, 142 Minn. 34, 170 N. W. 707. Plaintiff’s rights had attached and he was in possession when the assignments were recorded.

The judgment protects the bank of Brandon to the extent of the $1,200 remaining unpaid and interest and calls for a cancelation of the contract notes and frees the property as to the two mortgages.

Affirmed.