« PreviousContinue »
of course, the arrest is made conditional upon an amendment or such other action as will remove the cause of arrest.” If a new trial is not awarded it operates as a discontinuance and the defendant is dismissed without delay.”
MoRRELL DE REIGN. Benton, Mo
THE LIEN THEORY OF THE MORTGAGE TWO CRUCIAL PROBLEMS.
In a recent article in this review the writer discussed in a general way the nature of a mortgage of real property in the states which adopt the lien or equitable theory of the mortgage. The conclusion therein arrived at was that, while the mortgage does not convey the legal title to the land until foreclosure, it does convey to the mortgagee, at the time of its execution, a present interest in the land, the general ownership of which remains in the mortgagor —an interest which is limited and special, more analogous to an easement than to general ownership; which is contingent or inchoate, in that default and foreclosure are essential to its ultimate enjoyment; and which is merely collateral to a principal right to receive something of value, but which is a legal interest as distinguished from an equitable interest; a right in rem as distinguished from a right in personam ; a right which, in the terminology of jurisprudence, would be called an “hypothecation.” This conclusion was arrived at by a course of deductive reasoning. The premises were found in our case law but the conclusion was so remote from the premises that it lacked a convincing foundation of authority. In the present article we will examine two specific problems in mortgage law which offer a test of this conclusion. The discussion will be chiefly confined to the specific problems in hand but the primary purpose will be to get at the underlying theory of the mortgage. The chief practical difference between a legal interest in land and a merely equitable interest lies in the application of the equitable doctrine of bona fide purchase, by which the bona fide purchase of a legal interest is a complete defence to the assertion of a prior equitable interest, while between conflicting interests both of which are legal or both of which are equitable the one which is prior in time is preferred. For a test of the question in hand we would, therefore, naturally turn to the case of a mortgage of land followed by a bona fide purchase of the legal title from the mortgagor and the case of the creation of an equitable interest followed by a mortgage by the owner of the legal title to a bona fide mortgagee. Cases of this sort, however, are almost invariably controlled by the recording acts, which make no distinction between legal and equitable interests, either as to the prior conveyances, on the one hand, which they avoid or postpone, if not recorded, and give constructive notice of, if recorded, or as to the subsequent purchaser, on the other hand, whom they preter or charge with constructive notice, as the case may be.” To test the theory in question, then, we must eliminate the recording acts, and the problems hereinafter discussed are selected as involving questions of priority between a mortgagee and a subsequent bona fide purchaser, on the other hand, or a prior equitable claimant, on the other, which are not controlled by those statutes.
1*.Johnson v. Johnson. 30 Colo. 402.
1 Vol. 10, pp. 587-607 (June, 1912).
* For a definition of this term and an analysis of the various rights which one may have in land, see Holland, Jurisprudence (10th Ed.) pp. 1S3-225.
The first of these problems is this: given a mortgage and operating under the lien theory and a subsequent absolute conveyance by the mortgagor, or one deriving title from the mortgagor, to one who gives value and has no notice of the mortgage, neither the mortgage nor the conveyance being recorded, or the mortgage being recorded after the execution of the conveyance but before the recording of the conveyance; and given a recording act of the common form requiring certain conveyances to be recorded and providing that an unrecorded conveyance -hall be void as against a subsequent purchaser in good faith . . . whose conveyance shall first he duly recorded;” which party has priority?
* Jones, Mortgages, sec. 476; 13 L. R. A. 236, note.
The recording act is wholly inoperative in this case. It does not avoid the mortgage in favour of the purchaser because the latter's conveyance is not “first duly recorded.” The purchaser satisfies the first requirement of the statute, as being a “subsequent purchaser in good faith,” but he fails to satisfy the second requirement of the statute, which is conjunctive with the first. The only doubt which can be thrown on this position is engendered by approaching the question from the point of view of constructive notice and insisting that the purchaser does not have constructive notice of the mortgage from the record and therefore takes free from the mortgage. This line of reasoning, supported by dicta of the Court, led to a decision in Fallis v. Pierce, 30 Wis. 443, (1872), that on the facts of our problem the purchaser would prevail. This decision was affirmed on rehearing (Ib. 450) but on a second rehearing it was reversed and the mortgagee allowed to foreclose (Ib. 454-482). Dixon, J., in delivering the final opinion in the case, says: “This . . . condition (‘whose conveyance shall first be duly recorded ') 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. Much confusion and uncertainty have been brought into the treatment and discussion of this subject, by the frequent and almost continuous use and recurrence in the opinions of Courts and the works of authors, of the words ‘constructive notice.’ Those words are not anywhere found in the registry laws, and, although their meaning is in general well understood, yet they are often so employed as to confuse and perplex the reader, rather than to convey an intelligent idea of the precise view which the Court takes of the statute or of the principle or reason which lies at the foundation of the decision. . . . In respect to the deed first executed, and first recorded, the registry law does not break in upon or conflict, but is in entire harmony with the rule of the common law, that he who is first in time is first in right; that an owner, who has once conveyed his estate of title, cannot afterwards convey the same estate or title by the execution of a subsequent deed to another. Independently of the recording act, the prior deed, though unrecorded, has full operation and effect, that is to say, defeats a subsequent purchase and deed, however truly made, in good faith and without notice.” The same result, so far as concerns the construction of the statute, has been arrived at in other states having this statute without the difficulty encountered in Wisconsin and therefore, of course, without the fullness of explanation found in the foregoing case." To these authorities, which shew that upon the facts of our problem the purchaser cannot claim any benefit under the recording acts, we may add that neither can the mortgagee derive any advantage therefrom. On the first of the two alternatives included in the problem, that of neither conveyance being recorded, this is obvious. On the other alternative, that of the mortgage being recorded, after the subsequent conveyance is executed but before it is recorded, it is less obvious but equally true. The statute merely provides that unrecorded conveyances shall be void as against certain subsequent conveyances, and does not provide that recorded conveyances shall be superior to subsequent conveyances. It denies the advantage of the statute to subsequent purchasers whose conveyances are not first recorded, but does not say that all conveyances shall take rank in the order of recordation." It does not expressly abrogate the equitable doctrine of bona fide purchase and only does so by implication in those cases in which it substitutes a different rule of law. Here, again, the only doubt which can be thrown upon the question arises from a misapplication of the doctrine of constructive notice. To the literal import of the statute has been added, by judicial interpretation, the doctrine of constructive notice from the record, which amounts only to this, that a purchaser of land is charged with knowledge of all recorded conveyance in his chain of title, whether he actually has such knowledge or not—in other words that the record of such conveyance is equivalent to actual notice of them and is equally effectual in destroy
“24 Am. & Eng. Encyc. 140.
* The statement that conveyances take rank in the order of their recordation is not uncommon in text and opinion. It is usually qualified by some such expression as “in general.” but, whether so qualified or not, it must be taken as being but a convenient formula which gives the correct result in the majority of cases. It does not appear to have been applied in any case where the difference between it and the terms of the recording act was material.
The result might be otherwise under such a statute as that in Ohio, which says, “Mortgages * * * shall take effect from the time the same are delivered * * * for record.” Gen. Code, sec. 85.42. * 23 Am. & Eng. Encyc. 522. Statutes of the form considered in the text, add to the requirement of bona fide purchase, the requirement of priority of record, but do not provide that the recording as well as the purchase must be bona fide, and no requirement of bona fide recording exists, either for the application of the recording acts (Ely V. Scofield, 35 Barb. 330), or, still less, for the application of the equitable doctrine of bona fide purchase, which the recording acts have not altered except in so far as they have substituted for certain cases a paramount rule of law. In short, the recording of the prior conveyance, after the subsequent convey. ance is executed and the consideration paid, but before the subsequent conveyance is recorded, has a purely negative effect, viz., to prevent the subsequent purchaser from taking advantage of the recording acts.
ing bona fides. Constructive notice by the record is not more effective than actual notice for this purpose, and neither destroys bona fides if it comes after a purchase is completed by delivery of the conveyance and payment of the consideration." Aside from the doctrine of constructive notice, thus limited, a subsequent purchaser is not precluded by the recording acts from setting up any rights he may have against a prior conveyance under the equitable doctrine of bona fide purchase.
Our problem, then, being unaffected by the recording acts, the rights of the parties must be worked out under the rules of common law and equity. Under those rules, if the mortgagee's interest in the land is merely equitable it will be cut off by a bona fide purchase of the legal title, whereas, if it is a legal interest it will be unimpaired by such purchase.
In the case of Ely v. Schofield,” decided by the Supreme Court of New York, General Term, in 1861, there was a mortgage executed on March 19th, 1851, and recorded on March 21st of the same year; an assignment of the mortgage by the mortgagee's administrator to the plaintiff, executed on March 2nd, 1855, but never recorded; a release of the mortgage by the administrator, executed April 9th. 1858, and recorded May 4th, 1858, which release was executed by mistake, without payment and without plaintiff's consent; and a conveyance, by one who had acquired the title of the mortgagor (subject it would seem to the plaintiff's rights), of part of the mortgaged land to the defendant, a bona fide purchaser, by a deed dated May 15th, 1858, which was never recorded. The plaintiff filed a bill to foreclose the mortgage. The Court held that the discharge of the mort: gage had no other effect than to discharge the record of the mortgage leaving the plaintiff the holder of an unrecorded
* 3: , Harb. 330.