Opinion ID: 2229151
Heading Depth: 1
Heading Rank: 1

Heading: Subsequent Purchaser in Good Faith

Text: In Bergstrom v. Johnson, 111 Minn. 247, 250, 126 N.W. 899, 900 (1910), we listed the following as the prerequisites to bona fide purchaser status under the recording statute:    (1) the payment of a valuable consideration; (2) good faith, without purpose to take an unfair advantage of third persons; and (3) absence of notice, actual or constructive, of outstanding rights of others. The last element is at issue in this case. Republic contends that although a person may have actual knowledge of a prior unrecorded conveyance, if he reasonably understood the prior conveyance to be subordinate to his own, he is without notice and may qualify as a bona fide purchaser. Republic argues that before it can be charged with having notice under the recording statute, it must have had either actual or constructive knowledge that the lease created an interest inconsistent with its own interest. [3] None of the cases cited by Republic supports in the least its proffered rule. Only one, Watts v. Lundeen, 165 Minn. 300, 206 N.W. 444 (1925), even involves an unrecorded prior conveyance. That case, however, is readily distinguishable because the plaintiff in Watts knew nothing of the prior conveyance nor did the record disclose any facts which would have put it on notice. Marquette, on the other hand, argues that knowledge of the mere existence of a prior unrecorded conveyance, in this case a lease, constitutes notice under the recording statute. Both case law and secondary sources articulate the rule as stated by Marquette. See, e. g., Errett v. Wheeler, 109 Minn. 157, 123 N.W. 414 (1909); Fifield v. Norton, 79 Minn. 264, 82 N.W. 581 (1900); McAlpine v. Resch, 82 Minn. 523, 85 N.W. 545 (1901); 20 Dunnell, Dig. (3 ed.) § 10076; 6 Powell, Real Property (Perm. ed.) par. 916, p. 288. No cited case involves facts similar to those of the case at bar, but the policy reasons underlying the rule are no less persuasive in this case. The purpose of the recording act is to protect third parties from claims against their property where such claims arise out of transactions in which they were not participants and about which they knew nothing. Republic is not such a third party. The conveyances of the mortgage to First Bank and the lease to Marquette were in effect part of the same transaction, the terms of which were dictated in large part by Republic. The recording statute cannot in and of itself create rights in Republic superior to the rights of Marquette when Republic knew of Marquette's prior unrecorded conveyance. Republic's knowledge of the preexisting lease precludes its status as a subsequent purchaser in good faith. [4] Republic raises a novel argument. If its theory were to prevail, the beliefs of one party would determine the rights of another, however innocent the latter. We will not so casually extinguish the rights of an innocent party. [5] See Bergstrom v. Johnson, 111 Minn. 247, 252, 126 N.W. 899, 901 (1910).