National Bank of Newberry v. Livingston , 155 S.C. 264 ( 1930 )

I regret that I am unable to concur with the leading opinion in this case and I will state the reasons for my dissent.

The statement of facts contained in the opinion of Mr. Justice Cothran are in the main correct as to material points except as to a statement on pages 2 and 3 that the Icard deed covers the timber on the Cooley place. This is a perfectly natural mistake, as will be shown herein, for the reason that the recitation in the Wheeler mortgage stated that the same was the identical tract of land on which Mrs. Livingston had recently sold Icard the standing timber, and not two other tracts.

Under the law, as I understand it, there are two classes of notice with reference to real estate. The first is commonly known and designated as constructive notice and is that notice which is imputed to a person by reason of the recording of an instrument which is permitted or required to be recorded. Under constructive notice it makes no difference whether the person whom it affects knew of the recorded instrument or not. The mere recording is sufficient to put all persons upon notice, as a matter of law, of its existence, its terms, and contents. Constructive notice of an instrument being a matter of statutory enactment, this Court has held repeatedly that, for it to be binding upon any one, the instrument must not only be recorded, but it must be in such condition that it is entitled to be recorded as a matter of law under the terms of the statute. The reason for this rule is apparent. This being a right conferred by statute and in derogation or limitation of the common law, the statute must be strictly complied with in every respect, and failure to comply strictly makes the attempted recording not operate as notice as a matter of law. It has been uniformly held by this Court that, where an instrument is not probated properly, even though it is recorded in the proper book, it does not constitute constructive notice.

Up to the Act of 1888 (20 St. at Large, p. 15) there had been adopted by the Supreme Court a rule that possession of real estate was in itself constructive notice of a claim to said real estate. The Supreme Court so ruled in a number of cases, and the Legislature, evidently feeling that the doctrine of constructive notice had been improperly enlarged, passed the Act of 1888, now 5313, Vol. 3, Code of 1922, which declares that possession of real estate is only notice of a claim when the notice is of the instrument itself or of its nature and purport. In other words, the Act of 1888 forever abolished the doctrine of constructive notice, except as to duly recorded instruments. Of course, if a person knew of the instrument itself or of its nature and purport, that would be actual notice as a matter of law and would not depend upon any recording, constructive notice, or any other outside fact.

We may, therefore, safely conclude that, since the Act of 1888, the only constructive notice existing in this state is of an instrument properly recorded in the correct book, properly probated, which completely complies with every provision of the recording act or acts.

The second class of notice is actual notice, and we shall dispose of the facts and circumstances through which it is claimed that the National Bank of Newberry had actualnotice of this instrument. The only testimony, considered by the majority opinion, along this line is that Mr. Workman, who drew the mortgage for Livingston to give the National Bank of Newberry, had knowledge of the existence of this paper, which knowledge was therefore imputable to the National Bank of Newberry. The master set forth that no such notice existed as a matter of fact, and this was concurred in by the Circuit Judge. Under the rule of this Court, which has been extant for more than one hundred years, a concurrent finding of a matter of fact in an equity case by the master and the Circuit Judge will not be disturbed, unless such finding is clearly against the testimony. I cannot see how, under any view of the testimony, notice on the part of Workman, who was preparing the mortgage for the mortgagor, could possibly be imputed to the mortgagee. The bar of this state has always taken the position, which has been repeatedly commended by the Supreme Court, that a lawyer cannot serve two clients in one and the same transaction whose interests are at variance. I can think of no case where the interests of the lender and the borrower are not at variance. I do not think that, even if the bank had retained Mr. Workman only to draw the mortgage, that notice which he had would be sufficient to put the Bank of Newberry on notice.

This finding, on the part of the leading opinion, that the bank had actual notice by reason of Mr. Workman's connection in the matter is put at the end of the opinion and is merely an added reason for the reversing of the order of the Circuit Judge, in my opinion. I do not feel that such finding is any more than an additional reason outside of the main issue of the case, and I shall therefore pass on the main issue.

The main position in the leading opinion is that the Bank of Newberry had notice, constructive I presume, because Mills M. Livingston, the owner of the tracts of land involved in this dispute, gave a mortgage to Mrs. Leonora C. Wheeler on May 6, 1925, which was properly recorded prior to the Bank of Newberry's mortgage, for the sum of $1,000.00 on a portion of his land commonly called the Cooley place, and in this mortgage stated that this was the same land on which the standing timber was recently sold to Icard, and that the mortgage was junior to said timber deed. That such recital in a collateral instrument not in the chain of title and in which the Bank of Newberry was in no wise interested, as I shall demonstrate, was not sufficient constructive notice to put the Bank of Newberry on inquiry as to the existence, terms, nature, and purport of the Icard timber deed. The first fact that should be kept in mind is that Icard did not have a timber deed on the Cooley place alone, but had a timber deed on two other tracts of land which are involved in this dispute. Therefore, the recitation in the Wheeler mortgage was erroneous, incorrect, and misleading in the first place because it did not correctly state even the tract of land over which the Icard timber deed was alleged to have been given. This mortgage says that it is the same land on which Icard bought the standing timber, whereas as a matter of fact it was only a portion of the land upon which Icard bought the timber and on which Icard is now claiming the timber.

An examination of the alleged timber deed in question discloses that it is really not a fee simple deed to the standing timber, but is simply a lease on the same with the privilege of cutting and removing the same within five years. The habendum clause and the tenendum clause both state clearly and distinctly that the contract is for a period of five years to cut and remove the timber, and a warranty is given for a period of five years only to cut the timber. So, under my construction of the instrument which was given to Icard, although commonly designated as a deed, at best it is a fee defeasible and not a deed in fee simple as would be concluded from the recital in the mortgage. I therefore conclude that the recital in the Wheeler mortgage did not give a correct statement of the nature of the instrument nor of its nature and purport, nor did it give sufficient information of the instrument itself as to place any one on notice as to its nature or purport. I hold that, had the entire timber deed been incorporated in the mortgage, there would still be a serious question as to whether or not it would constitute actual, notconstructive, notice, but, where the meager description of the alleged timber deed is given which admittedly is erroneous in at least two particulars, I cannot see how, under the law, it could possibly constitute notice to subsequent lienees or purchasers.

There is still another reason why the Bank of Newberry should not be charged with notice in this matter. The leading opinion admits that one is not charged with notice of the recitals contained in satisfied mortgages. The Joint-Stock Land Bank was to take a first mortgage on these premises clearing up all liens then existing, including the lien of the Wheeler mortgage, and this mortgage was to be paid before the Land Bank's mortgage could be taken. I think that the Bank of Newberry had a perfect right to conclude that all liens were satisfied, and, although the actual satisfaction was not entered of record until the 20th of March, 1926, the Wheeler mortgage was paid on the 18th of March, 1926, prior to the execution of the mortgage to the Bank of Newberry. Let us see what position the Court is in with reference to this. Suppose the Wheeler mortgage was paid and exhibited to the Bank of Newberry, but was not marked satisfied on the book for some weeks after? Could this Court hold that, where the bank actually saw the paper satisfied, the mere fact that it was still open on the books would be sufficient to charge it with constructive notice of recitals existing not material to the mortgage? I therefore think that, this mortgage having been actually satisfied before the Bank of Newberry's mortgage was taken as a matter of course, there was no duty upon the bank in any event to examine the recital therein.

This leads me to the main contention in the leading opinion, and that is because in the Wheeler mortgage there was an erroneous reference to an unrecorded paper then supposed to be existing that such recital is sufficient to place a person upon inquiry as to the existence of some instrument of like import and nature. If this rule is laid down, it would be wise in the future for lawyers to advise their clients with reference to real estate not to record their deeds, but simply have a recitation made to them in another recorded instrument which would give far more protection and far more notice than the instrument itself. There may be a fatal defect in the deed. It may not be probated. It may not be subject to be recorded. It may not be properly excluded. The description of the land may be totally and fatally defective. The actual terms and conditions of the deed may be against public policy. The deed may cover land which is not subject to be alienated as a matter of law. The deed may be a forged instrument which the clerk would not record. The deed may be supposedly given by a person who at the time of its execution was dead, but these trivial defects will amount to naught, if a recital is contained in a collateral instrument referring to it. Under the leading opinion in this case, when a person has notice of the execution of a paper through a collateral recorded instrument, it is even stronger than the recording of the paper itself.

I have carefully gone over all of the decisions cited by Mr. Justice Cothran, and in my opinion the same are not authority for the proposition that recitals in a mortgage notin the direct chain of title are sufficient to put a subsequent lienee or mortgagee on inquiry as to the existence of some instrument referred to in a collateral mortgage. I heartily concur that all decisions which hold that recitals in a deed, will, judicial decree, or mortgage which constitute an integral link in the chain of title are binding upon all subsequent purchasersand lienees and, in my opinion, an examination of the decisions cited by him will only show this rule and no more.

The case of Moyle v. Campbell, 126 S.C. 180,119 S.E., 186, in my opinion, is authority for the position taken by me and is not authority for the position taken in the leading opinion. This case clearly and distinctly holds that actual notice is only equivalent to recording, where such notice is of the instrument itself or of its nature and purport. The rule is clearly laid down by the Court that it is incumbent upon the person claiming under an unrecorded instrument to show by the preponderance of the evidence that the subsequent purchaser had actual notice of the instrument itself or of its nature and purport. The Court cites Sec. 5313, Vol. 3, Code of 1922, as authority for this proposition, and that section, which is the statute of 1888, which clearly states that no possession of real property described in any instrument of writing required by law to be recorded will operate as notice of such instrument; and actual notice shall be deemed and held sufficient to supply the place of registration only when such notice is of the instrument itself or of itsnature and purport.

The case of Simmons Creek Co. v. Doran, 142 U.S. 417,12 S.Ct., 239, 35 L.Ed., 1063, bases the decision upon the doctrine of caveat emptor. Of course, such doctrine does not exist in South Carolina. This case further holds that actual possession of land is sufficient notice to put a subsequent purchaser on inquiry, but, of course, this decision is in direct contradiction of Section 5313 of the Code above referred to. This case further holds that, where a description is to be found in a deed in the chain of title that a subsequent purchaser is charged with notice of the description, provided,it is in the chain of title.

Northwestern Bank v. Freeman, 171 U.S. 620,19 S.Ct., 36, 43 L.Ed., 307, has to do with a mortgage over certain personal property, to wit, some sheep. The Court here holds that where a prior mortgage exists describing certain sheep in the name of the same party giving the second mortgage, such description was sufficient to put the subsequent mortgagee on notice that the sheep involved in both transactions were one and the same. In other words, this was a question of identifying the property under a chattel mortgage.

The citation from 20 R.C.L., 353, is under the question of "Notice" and in no wise affects the question here at issue, in my opinion, as to what constitutes the chain of title. The citation in 23 R.C.L., is under the question of "Records" and under the same head, at page 219, § 80, it is held: "A record of an instrument is constructive notice of those matters only that are required to be stated." It was seen that under this rule, there being no necessity for the recital about the Icard deed, it would not be notice.

The citation from 41 C.J., 562, in which it is expressly held that the paper in question must be in the chain of title.

The citation from 1 Jones on Mortgages (7th Ed.), § 524, in my opinion, merely holds the same thing, that the mortgage must be in the line of the chain of title.

The quotation from 23 Am. Dec., 48, is taken from a note under the case of Lodge v. Simonton, and simply lays down the rule that the chain of title is the governing factor as to binding recitals. It is interesting to note that in this case the question was whether or not under a certain will of Hunter through which Simonton claimed, together with other circumstances, sufficient notice was given of the claim of Lodge as to one-half of the land in dispute. The lower Court held that it was, but the upper Court reversed the decision and granted a new trial on the ground that the description in the will referred to no particular tract, and that the notice was therefore vague and uncertain. It would seem that this case would be authority that vague and certain recitals, even in an instrument in the direct chain of title, are not sufficient to put a person on notice of itself and would not be sufficient to bind a subsequent purchaser. Cordova v. Hood, 71 Wall., 1, 21 L.Ed., 587, involves a question of vendor's lien reserved in a deed under the Texas law. The deed was in the direct chain of title, and the Court held that the lien existed until it was properly satisfied of record or until waiver could be shown. This recital, it will be seen, was in a deed constituting a link in the chain of title.

The case of Mettart v. Allen, 139 Ind. 644, 39 N.E., 239,240, seems to hold that a purchaser is bound by facts which an ordinary diligent examination of the record and a recital of the instruments recorded would disclose. The case, however, was not decided on this theory. The Court said: "The appellant Mettart is chargeable with the recitals in said deed of Martin Worl, an examination of which would have disclosed to him that this land had been previously owned by said Worl." But the finding of the Court was based on the fact, "that Mettart had actual knowledge of all these facts, aside from that with which he is chargeable from the recital in Worl's deed."

Kirsch v. Tozier, 143 N.Y., 390, 38 N.E., 375, 42 Am. St. Rep., 729, deals with the satisfaction of a mortgage by a trustee in contravention of the trust. The Court lays down the proper rule that in trust estates it is the duty of the purchaser to inquire into the nature and extent of the trust which is disclosed from the record. The rule as to trust estates is much stricter than that of any other estate. The law throws around a trust safeguards which do not and could not apply to other instruments.

Pyles v. Brown, 189 Pa., 164, 42 A., 11, 69 Am. St. Rep., 794, holds that recitals in a satisfied mortgage do not constitute notice. This case further holds that a person who fails to record his title has every presumption against him, and that vague and indefinite recitals are not sufficient to put him on notice. This case would seem to sustain the position that such recitals as are in the Wheeler mortgage would not be sufficient. Mercantile National Bank v. Parson, 54 Minn., 56,55 N.W., 825, 40 Am. St. Rep., 299, involves a trust estate, where the word trustee is used without designating the nature or character of the trust. The Court holds that no more than ordinary prudence should be used in ascertaining the nature of the trust. This case seems to be in conflict, in my opinion, with the general rule as to the trust estates, and has no application to the case at bar.

Smith v. Lockwood, 100 Minn., 221, 110 N.W., 980, involves the question of an easement of which a bona fide purchaser did not have notice. The Court held that good title passed, free of the easement.

Ochoa v. Moralez, 230 U.S. 139, 33 S.Ct., 1033,57 L.Ed., 1427, is a case from the Province of Porto Rico and involves the construction of a Porto Rican statute. The Court lays down the rule that a person is charged with notice of facts which are registered under the laws of Porto Rico.

Mathieson v. Craven (D.C.), 228 F., 345, involves recitals in a will creating a charge upon certain funds. A proper examination of the chain of title would have disclosed these facts, and the Court holds that subsequent purchasers had constructive notice thereof.

Hewling v. Blake, 110 Miss., 225, 70 So., 247, in my opinion, is in direct conflict with Section 5313, Vol. 3, Code of 1922, in that it holds mere possession of real property to be sufficient to put a person on inquiry as to the nature of such possession.

Garrett v. Wiltse, 252 Mo., 699, 161 S.W. 694, is authority for only the proposition that a recital in the directchain of title is binding upon subsequent purchasers.

Allison v. White, 285 Ill., 311, 120 N.E., 809, also is authority for the proposition that recitals appearing in therecord chain of title are notice to the purchaser. This case further holds that subsequent purchasers are not chargeable with notice of facts contained in records not in their chain of title. Loser v. Plainfield Savings Bank, 149 Iowa, 672,128 N.W., 1101, 31 L.R.A. (N.S.), 1112, involves the use of two names of a person mortgaging a piece of property. It charges the purchaser with a duty of examining the records as to the use of such names.

White v. Moffett, 108 Ark. 490, 158 S.W. 505, lays down the rule that a purchaser takes notice of all prior recorded instruments in the line of his purchase title, and that a purchaser gets a good title as against an unrecorded prior deed from his grantor.

Griggs v. Houston Oil Co. of Taxes (Tex.Com.App.),213 S.W. 261, is a case where a deed is given in the name of Elizabeth O. Griggs. Subsequently a power of attorney is recorded in the name of Mrs. Elizabeth O. Griggs. The Court holds that this was sufficient notice that Mrs. Griggs was a married woman.

Glover v. Brown, 32 Idaho, 426, 184 P., 649, is authority that a person is charged with notice of any fact that appears on the face of a recorded deed which is an essential link inhis chain of title.

Simmons v. Myers, 61 Ind. App. 403, 112 N.E. 31, holds that a purchaser of land is charged with constructivenotice of a fact stated in a deed of the party from whom he purchased, and the recitals therein contained.

Simms v. Thompson, 291 Mo., 493, 236 S.W. 876, is authority for the proposition that a purchaser is charged with knowledge of the recitals contained in recorded deedswhich constitute the chain of title under which he holds. Whayne v. Seamons, 95 Okla. 168, 217 P., 859, lays down the rule that there is no duty upon a person who has a perfect and valid legal title to make outside investigation of the title, unless there is some reason therefor.

Houston Oil Co. of Texas v. Lane (Tex.Civ.App.),200 S.W. 216, involves the question of a description of land in a deed in the chain of title.

Of like import are the cases of Bank v. Lee,99 Ala., 493, 12 So., 572, 19 L.R.A., 705; Whisler v. Cole,81 Misc. Rep., 519, 143 N.Y.S., 478; Miller v. Holland,84 Va., 652, 5 S.E., 701; Fulkerson v. Taylor, 102 Va., 314,46 S.E., 309; Keesling v. Doyle, 8 Ind. App. 43,35 N.E., 126; Maurer v. Friedman, 197 N.Y., 248, 90 N.E., 814;Simons v. Simmons, 85 W. Va., 25, 100 S.E., 743; Bankv. Rogers, 87 Fla., 147, 99 So., 546.

And the other cases and citations are all authority only for the proposition that recitals contained in deeds, mortgages, or proceedings in the direct chain of title are constructive notice to a prospective purchaser.

I think the correct rule is laid down in Pomeroy's Equity Jurisprudence (4th Ed.), Vol. 2, p. 1199 § 626. I quote this entire paragraph to show that this is the general rule, and that no exceptions are noted thereto:

"By Recital or Reference in Instruments of Title — GeneralRule — Wherever a purchaser holds under a conveyance, and is obliged to make out his title through that deed, or through a series of prior deeds, the general rule is firmly established that he has constructive notice of every matter connected with or affecting the estate which appears, either by description of parties, by recital, by reference, or otherwise, on the face of any deed which forms an essential link in the chain of instruments through which he must derive his title. The reasons for this doctrine are obvious and most convincing; in fact there could be no security in land ownership unless it were strictly enforced. The right of such a purchaser is, under our system of conveyancing, confined to the instruments which constitute his chain of title, which are his title deeds, and everything appearing in those instruments and forming a legitimate part thereof is a necessary element of his title. The rationale of the rule is equally clear and certain. Any description, recital of fact, reference to other documents, puts the purchaser upon an inquiry; he is bound to follow up this inquiry step by step, from one discovery to another, from one instrument to another, until the whole series of title deeds is exhausted, and a complete knowledge of all the matters referred to in their provisions and affecting the estate is obtained. Being thus put upon the inquiry, he is conclusively presumed to have prosecuted it until its final result, and with ultimate success. The purchaser's ignorance that a particular instrument forming a link in his chain of title was in existence, and his consequent failure to examine it, would not in the slightest affect the operation of the rule. An imperative duty is laid upon him to ascertain all the instruments which constitute essential parts of his title, and to inform himself of all that they contain."

It is interesting to note that under this section are cited more than a hundred cases sustaining the rule. See, also, Sections 627, 628, and 629 of the same work. I do not think that anything that I could say could add to or take away from the clear and unequivocal quotation of one of the greatest equity text-writers in the entire history of our jurisprudence. This very section is cited in many of the cases referred to in the leading opinion, and seems to have been the compelling authority for a great many of such decisions. I think therefore that the correct rule is as laid down by Pomeroy.

This is a case of novel impression not only in South Carolina but in every other State where I have examined the decisions. The rule will be broader here than in any other State in the Union. In spite of the efforts of the Legislature to confine constructive notice to duly recorded instruments under the statute, this Court will enlarge the doctrine to where Section 5313 is limited at least. The chain of title in South Carolina will include, not only the deeds, wills, decrees, foreclosed mortgages, but will include every collateral instrument, however insignificant, with all of the various recitals therein contained. In this respect the case is certainly one of most novel impression. South Carolina will blaze the trail with respect to constructive notice contained in unessential recitals in collateral instruments.

I think that the recording laws, being creatures of the Statute, should be strictly complied with to give protection, and that a person who negligently fails to record a paper should be denied protection, except in cases of actual notice under the rules laid down by this Court. I do not feel that this Court should place a premium upon Icard's failure to record his timber contract. The clerk's office was open to him, and he was the author of his own destruction. He was the captain of the ship who ignored the compass given by the law and found himself stranded upon the rock of carelessness. He now asks that this Court go out of the channel of the declared law and throw to him the rope of judicial construction to save his vessel. Like the law of the sea, whenever a vessel leaves the channel which is marked and traveled, sooner or later it will reach the rocks and go down by reason of its failure to adhere to the charted course.

I therefore, for the reasons herein stated, respectfully dissent from the leading opinion in this case.

The judgment of this Court should be that the judgment of the Circuit Court be affirmed.

MR. JUSTICE STABLER concurs.