Baker, Charles C.

English

Indiana University Bloomington Maurer School of Law

Indiana Law JournalVolume 5 | Issue 9 Article 246-1930Does a Purchaser for Value without Notice EverTake Land in Indiana Subject to an UnrecordedDefeasanceCharles C. BakerMember, New Yoik and Indiana BarsFollow this and additional works at: http://www.repository.law.indiana.edu/iljPart of the Property Law and Real Estate CommonsThis Article is brought to you for free and open access by the Law SchoolJournals at Digital Repository @ Maurer Law. It has been accepted forinclusion in Indiana Law Journal by an authorized administrator of DigitalRepository @ Maurer Law. For more information, please contactwattn@indiana.edu.Recommended CitationBaker, Charles C. (1930) "Does a Purchaser for Value without Notice Ever Take Land in Indiana Subject to an UnrecordedDefeasance," Indiana Law Journal: Vol. 5: Iss. 9, Article 24.Available at: http://www.repository.law.indiana.edu/ilj/vol5/iss9/24DOES A PURCHASER FOR VALUE WITHOUTNOTICE EVER TAKE LAND IN INDIANASUBJECT TO AN UNRECORDEDDEFEASANCE?CHARLES C. BAKER*The preseit Indiana Statutes relating to the recordation ofinstruments affecting the title to land are traceable to Chapter23 of I Revised Statutes-1852. On page 233, section 11 is setforth as follows:"No conveyance of any real estate in fee simple, or for life, or of anyfuture estate, and no lease for more than three years from the makingthereof, shall be valid and effectual against any person other than thegrantor, his heirs and devisees, and persons having notice thereof, unlessit is made by a deed recorded within the time and in the manner providedin this act."On page 234, section 16 is set forth as follows:"Every conveyance or mortgage of lands, or of any interest therein,and every lease for more than three years, shall be recorded in the record-er's office of the county where such lands shall be situated; and everysuch conveyance or lease not so recorded within ninety days from the exe-cution thereof, shall be fraudulent and void as against any subsequentpurchaser or mortgagee in good faith and for a valuable consideration."On page 235, section'17 is set forth as follows:"When a deed purports to contain an absolute conveyance of any estatein lands, but is made, or intended to be made, defeasible by force of adeed of defeasance, bond, or other instrument for that purpose, the originalconveyance shall not thereby be defeated or affected as against anyperson other than the maker of the defeasance, or his heirs or devisees,or persons having actual notice thereof, unless the instrument of defeasanceshall have been recorded, according to law, within ninety days after thedate of said deed."Neither section 11 nor section 17 as above set forth have beenamended. They are now found as sections 13390 and 13393 re-spectively in Burns Revised Statutes of 1926.The above section 16, however, has undergone four changessince 1852. The first amendment is found in the Acts of 1875,Chapter 62, page 94, and provided in effect that conveyances,mortgages and leases should be recorded within forty-five daysfrom the time of their execution. The second, third, and fourth* See p. 622 for biographical note.DOES A PURCHASER FOR VALUE, ETC.amendments are found in the Acts of 1913, 1921, and 1923 re-spectively. The changes effected in 1921 and 1923 are imma-terial to the present discussion and we may properly say thatthe present form of this section dates from Chapter 82, page233 of the Acts of 1913. As amended section 16 of Chapter 23of I Revised Statutes 1852 is now found as section 13391 Burns1926 as follows:"Every conveyance or mortgage of lands or of any interest therein,and every lease for more than three years, shall be recorded in the record-er's office of the county where such lands shall be situated; and everyconveyance, mortgage or lease shall take priority according to the timeof the filing thereof, and such conveyance, mortgage or lease shall befraudulent and void as against any subsequent purchaser, lessee or mort-gagee in good faith and for a valuable consideration, having his deed,mortgage or lease first recorded."Section 16 of the Revised Statutes of 1852 and the Amend-ment of 1875, each containing provisions for a period of timewithin which a deed, mortgage or lease should be recorded, weresimilar to recording statutes enacted in many other states atabout the same time.' Bad roads, isolated farming communities,and the more leisurely commercial practices of those times didnot make for a public policy that would demand a race to thecourt house as a factor in determining priority among grantees,mortgagees, and lessees. Substantially, the effect of such pro-visions was that if an instrument were recorded within the timelimited it would be effective as against all persons as of the dateof its execution and delivery, and that if it were not recordedwithin the time limited it would be effective as against subse-quent purchasers for value without notice only as of the dateof recording.- The operation of section 16 may be seen fromthe following assumed situation. A, the owner of certain land,by deed conveys his land to B on April 1. On April 30 A bydeed conveys the same land to C who has no knowledge or noticeof the prior transaction and who gives a valuable consideration-or his deed. Immediately and on April 30 C records his deed.Under this set of facts B's deed would nevertheless take priorityover C's deed providing B placed his deed on record on or beforeI "Jones on Mortgages"-7th Edition; Sec. 458.2 "Jones on Mortgages"-7th Edition; Sec. 458.Carson v. Eickhoff, 148 Ind. 596.Meni v. Rathbone, 21 Ind. 454.Trisler v. Trisler, 38 Ind. 282.INDIANA LAW JOURNALJune 30 under the statutes of 1852, or on or before May 16 underthe amendment of 1875. The same principle held true as tomortgages and leases for more than three years.This situation gave rise to the following practice on the partof certain grantees and lessees, and more especially on the partof mortgage loan companies engaged in the business of lendingmoney on mortgages. After receiving the deed, lease or mort-gage such persons would immediately place the instrument onrecord. They would then wait ninety days under the act of1852 or forty-five days under the amendment of 1875. At theend of this time they would make a search of the records inorder to learn if prior instruments had been recorded. If thesearch showed that no prior instruments had been recorded theywould then pay over the consideration for the grant or themortgage moneys.It has been supposed that the amendment of 1913 eliminatedall necessity for the cautious investor to wait for the expirationof any statutory period of time before paying the considerationto the grantor, lessor, or mortgagor. It has been supposed thatthe investor need not worry about the possibility of any un-recorded instruments taking priority over his recorded instru-ment if he himself had no knowledge of such unrecorded instru-ment, if he gave a valuable consideration for the grant ormortgage, and if he immediately placed his instrument on record.It would seem that neither section 16 of the Revised Statutesof 1852 or any of the four amendments thereto in any mannerrelate to or affect the recording of instruments of defeasance.Although in the absence of section 17 the language of section 16might possibly be construed from the use of the words "con-veyance," "mortgage," and "lease" to include a "defeasance,"it must be clear when section 17 is considered in connectionwith section 16 that the legislature intended no such inclusion.The legislature must have regarded a "defeasance" as some-thing entirely different from a "conveyance," "mortgage," or"lease" and not to be included in section 16 because section 17relating solely to "defeasances" was enacted as a separate sec-tion to immediately follow section 16.For the purposes of this inquiry it is unnecessary to considerpro and con the kinds of instruments which may be classifiedas "defeasances" within the meaning of section 17 and whichDOES A PURCHASER FOR VALUE, ETC.may or may not be recorded under this section. 3 No case hasbeen found squarely on this point, but dicta seem to indicatethat an instrument providing that the grant should be void onthe happening of an event, 4 an agreement to reconvey on thehappening of an event, and a declaration of trust6 may all berecorded under and are defeasances within the meaning of thissection. In the majority of the cases found the defeasance oragreement made the entire transaction one of mortgage, andas the cases for the most part involved as parties only thegrantor and the grantee the effect as to third persons of record-ing or lack of recording was not an issue.Seven Indiana cases have been found where the owner con-veyed land and took back a defeasance or agreement to recon-vey, the defeasance or agreement not being recorded, where theissue in some way involved the rights of the original grantorand a third person. In two cases 7 a purchaser from the granteefor value and without notice of the agreement for reconveyancetook title to the land free of the agreement. In another case sthe grantee conveyed to a third person who had no notice of3 The following cases seem to indicate that a true defeasance must con-tain language substantially to the effect that the grant shall be void if thegrantor pays a certain sum of money or performs certain acts within acertain time,-in contrast with an agreement whereby the grantee agreesto reconvey in the event that the grantor pays a certain sum of money orperforms certain acts within a certain time. Ferguson v. Boyd, 169 Ind.537; Sinclair v. Gunzerhauser, 179 Ind. 78; Raub v. Lemon, 61 Ind. App.59.To the writer these cases do not make clear whether the differencebetween a so-called technical defeasance and an agreement to reconvey isone of substance or of procedure. It would seem that in the case of atechnical defeasance the title revests in the grantor on the happening ofthe event stated, while in the case of an agreement to reconvey the grantorwould have as his remedy a bill for specific performance which, being inequity, would be subject to the defense of laches, innocent purchaser forvalue, etc.Quere: Is the grantor's right in the first case legal, the deed anddefeasance together being in the nature of a grant on condition, and if so,and in the absence of recording statutes, could the doctrine of innocentpurchaser for value apply?4 Raub v. Lemon, 61 Ind. App. 59; Sinclair v. Guxzenhauser, 179 Ind.78; Ferguson v. Boyd, 169 Ind. 537.A Crassen v. Swoveland, 22 Ind. 427.6 Weeks v. Hathaway, 45 Ind. App. 196.7 Crassen v. Swoveland, 22 Ind. 427; Loeb v. McAlister, 15 Ind. App.643.8 Wilson P. Wilson, 86 Ind. 472.INDIANA LAW JOURNALthe defeasance but who gave no value, and the original grantorprevailed over the third person, the court reading into section17 the word "volunteer." In another case9 the grantee con-veyed to X who had notice of the agreement and who gave novalue. X conveyed to Y who gave value but who had notice ofthe agreement. The original grantor prevailed over Y. In an-other case X obtained a judgment against the grantee and fileda transcript in the county in which the land was located. X soldthe judgment to Y who gave value and who had no notice of thegrantor's right. Y prevailed over the original grantor. In an-other case" the facts are not entirely clear but the court indi-cates that a purchaser from the grantee for value and withoutnotice would take free of the agreement to reconvey. In anothercase12 after the grant and agreement to reconvey, X, a stranger,went into possession and then conveyed to Y who gave value andhad no notice. The original grantor prevailed over Y.The writer has found no case where the effect of recording: adefeasance has been decided. Section 17 in substance says,"When a deed . . is made . . . defeasible . . byforce of . . . instrument for that purpose . . . the orig-inal conveyance shall not thereby be defeated as against(purchasers for value without notice) unless theinstrument of defeasance shall have been recorded . . . withinninety days after the date of said deed." The section does notsay that a defeasance shall be effective if recorded but merelysays that it will not be effective unless recorded. 13 Neverthelessthe meaning must be clear that it shall be effective if recorded,for otherwise the section would be entirely meaningless. 149 Weeks v. Hathaway, 45 Ind. App. 196.10 Tuttle v. Churchman, 74 Ind. 311.11 The Greenwood Bldg. & Loan Assn. v. Stanton, 28 Ind. App. 548.12 Parker v. Humble, 75 Ind. 580.13 Section 17 is worded after the manner of sections 11 and 16 wherelegal relationships are created and where in the absence of recordingstatutes transfers rank according to time. Tiffany "Modern Law of RealProperty" section 475. If defeasances create mere equitable rights in thegrantor (see Jones on Mortgages, 7th Ed. sec. 241-242-244) should not thestatute providing for their recordation merely have provided that theirrecording should give constructive notice?14 Opinions which cite section 17 seem to take for granted that thedefeasance is effective if recorded. Weeks v. Hathaway, 45 Ind. App. 196;Crassen v. Swoveland, 22 Ind. 427; Wilson v. Wilson, 86 Ind. 472. SeeDOES A PURCHASER FOR VALUE, ETC.As the period of time within which a defeasance should berecorded under section 17 (ninety days) is identical with theperiod of time within which a conveyance, mortgage or leaseshould be recorded under section 16, the legislature by enactingsections 11, 16, and 17 of Chapter 23 of the I Revised Statutesof 1852 must have intended to create a well-rounded and uni-form method of and time for recording instruments affectingthe title to real estate. As, under section 17, a defeasance isvoid as against subsequent purchasers for value without noticeunless recorded within ninety days of the execution of the deedit is to defeat; and as under section 16 a conveyance, mortgageor lease not recorded within ninety days from the date of itsexecution was void as against subsequent purchasers or mort-gagees for value without notice,-it would seem that the ninetyday provision in section 17 should apply in the same manner asdid the ninety day provision in section 16.15 If this is true, adefeasance, recorded within ninety days after the date of theexecution of the deed it was intended to defeat, would relateback as of the date of the execution of such deed and be effectiveas against all persons acquiring an interest in the land subse-quent to that date.As an example of the practical working of section 17 let usassume the following situation. A, the owner of land worth$6,000, borrows $1,000 from B and as security for the loan con-veys the land by deed to B on February 1. At the same timeB executes and delivers to A a separate defeasance which re-cites the deed and the indebtedness and provides either that thedeed shall be void or that B shall reconvey if A repays the$1,000 with interest on or before two years from date. B im-mediately records the deed. On April 15 B fraudulently mort-gages the property to C who knows nothing of the defeasance,for the sum of $5,000. C records the mortgage on April 15.Later, on April 25, A records the instrument of defeasance. Itis submitted that under these facts the defeasance held andrecorded by A would take priority over the mortgage held by C.If the conclusions arrived at are correct, it would seem thatalso Cogan v. Cook, 22 Minn. 137, where under a similar statute the de-feasance was recorded but was not acknowledged.15 "Jones on Mortgage"--7th Edition; Sec. 458.Carson v. Eickhoff, 148 Ind. 596.Men! v. Rathbone, 21 Ind. 454.Trisler v. Trisler, 38 Ind. 282.INDIANA LAW JOURNALthe cautious person who is about to accept a deed, mortgage orlease to land that had previously been conveyed within ninetydays should wait until such ninety day period had elapsed beforepaying over the consideration. He should then make a searchof the record to assure himself that a defeasance had not beenrecorded in the meantime. He could then and only then payover the consideration for the grant, mortgage or lease withthe assurance that he was not taking his instrument subject toa defeasance.1616 In the above situation C, before completing his transaction with B,might insist that B furnish him with an affidavit to the effect that he (B)did not take the deed from A subject to a defeasance. This might sub-ject B to a charge of perjury but surely could not affect the rights of A.A similar affidavit made by A might estop A from setting up the de-feasance against C. Quere: Could an affidavit by A to the affect thatthe grant from A to B was indefeasible work an estoppel against a thirdperson who had previously obtained the defeasance from A by assign-ment? Quere as to the effect of a release or quitclaim deed from A to Con rights of a third person who previously had obtained the defeasancefrom A by assignment? Would the form of the defeasance ("technicaldefeasance" in contrast to agreement to reconvey) affect the answer tothe last quere?

Does a Purchaser for Value without Notice Ever Take Land in Indiana Subject to an Unrecorded Defeasance

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Does a Purchaser for Value without Notice Ever Take Land in Indiana Subject to an Unrecorded Defeasance

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Indiana University Bloomington Maurer School of Law