Court Opinion

ID: 9551771
Source: CourtListenerOpinion
Date Created: 2023-08-07 18:58:55.328764+00
Date Added: 2024-06-11T15:24:35.067210
License: Public Domain

SPEAR, Justice
(dissenting).
I dissent.
The principal reason for this dissent is because the reasoning applied in the majority opinion necessarily results in an abrogation of the effectiveness of the recording statutes of the State of Idaho relative to the conveyances or transfers of real property. The pertinent statutes are: I.C. §§ 55-811,1 55-8122 and 55-813.3 These statutory provisions can hardly be classed as “newcomers” to the Idaho law for, with but one exception, they have been a part thereof since 1864. The one exception is *426the second paragraph of I.C. § 55-811, which was added to that section in 1941.
The key words in these statutes are “constructive notice,” for upon the interpretation thereof lies the solution to the cause at bar.
It is pointed out in American Jurisprudence that:
“The doctrine of constructive notice rests on the idea that all persons may learn and actually know that of which the law gives notice and implies knowledge. The notice imparted by the due and proper record of an instrument, although called a constructive notice, is just as effectual for the protection of the rights of the parties as an actual notice by word of mouth, or otherwise.” (emphasis supplied) (45 Am.Jur. at page 468, Record and Recording Laws § 86.)
In this same section of American Jurisprudence it is pointed out that the oft-repeated phrase that a properly or regularly recorded instrument gives notice “to all the •world” really means that the record is open to all and is notice to interested parties. The record of an instrument is notice only to those who are bound to search for it. Thus those who, by the terms of the recording laws, are charged with the constructive notice of the record of an instrument affecting land are, therefore, those who are bound to search the records for .that particular instrument.
The same authority in § 87 page 469 continues the general discussion of this subject as follows:
“In general, under the recording laws, the recording of a deed or mortgage or •other instrument entitled to be recorded •is constructive notice to purchasers and •encumbrancers who, subsequent to the recording, acquire some interest or right in the property under the grantor or •mortgagor. A subsequent encumbrancer ■or purchaser must know or take notice ■of the condition of the record title up to the time of creating the encumbrance or making the sale, for it is his duty to examine the record.”
Idaho has specifically recognized this principle and held that one who furnishes material for the construction of improvements on lands, the record title of which is in a person other than the one ordering the improvements, is bound to take notice of the record. Boise Payette Lumber Co. v. Bickel, 42 Idaho 245, 245 P. 92, 45 A.L.R. 575 (1926). The court specifically pointed out that the actual owners at all times had been in actual possession of their land and additionally held:
“Their title was of record, of which appellant was bound to take notice.” (42 Idaho at page 253, 245 P. at page 94)
For an interesting case concerning the interpretation and effectiveness of records and recording law, see Eckland v. Jankowski et al., 407 Ill. 263, 95 N.E.2d 342, 22 A.L.R.2d 1102 and cases noted at 22 A.L. R.2d 1121.
Constructive notice has also been defined as a legal inference or a legal presumption of notice which may not be disputed or controverted; it is notice which is imputed by law. In point of literal fact, constructive notice is neither notice nor knowledge, but is a fiction by which, for the promotion of sound policy or purpose, the legal rights and interests of the parties are treated as though they had actual notice or knowledge. The term is sometimes applied indiscriminately both to notice that is not susceptible of being explained or rebutted and to that which may be, but seems more appropriately applicable to the former kind of notice as distinguished from “implied notice” which is based on a presumption of fact. One kind of constructive notice is notice which results from a record or which is imputed by the recording statutes, and the other is notice which is presumed because of the fact that a person has knowledge of certain facts which should impart to him, or lead him to, knowledge of the ultimate facts. We are, of course, concerned only with the former in the case at bar. For these general principles, see 66 C.J.S. Notice § 6, pp. 639-640.
*427The same conclusion, i. e., that a proper and regular recording of a chattel mortgage becomes conclusive notice to anyone later dealing with that chattel, is reached by a California court in Bell v. Sage, 60 Cal.App. 149, 212 P. 404 (Cal.1922—D.C. App.3d dist., rehearing denied, hearing denied by S.Ct. Feb. 13, 1923). The court summarized its holding as follows:
“ * * * While the decisions bearing directly upon the question under consideration are not numerous and text-writers have generally omitted the discussion thereof, it is believed that the conclusion reached is supported by both reason and the weight of authority. In the absence of statutory provison, the record of a chattel mortgage would not constitute notice for any purpose. When the terms of the statute are complied with, the record becomes conclusive notice, often contrary to the fact. * * * ” (212 P. at p. 406)
Thus, in my opinion, “constructive notice” provided for in the first paragraph of I.C. § 55 — 811 by the due and regular recording of any conveyance of any Idaho property, as defined in I.C. § 55-813, a mortgage being included therein, is tantamount to actual notice by any subsequent purchaser or mortgagee.
The applicability of this interpretation of our recording statutes to the case at bar is readily discernable when one considers the facts, the pertinent portions of which are as follows: (1) Penard loaned Cannon $5000 as evidenced by a promissory note secured by a real property mortgage on the premises involved in this cause of action, which mortgage was executed on February 10, 1961 but not recorded until September 21, 1964; (2) Nelson loaned Cannon some $13,000 evidenced by a promissory note and secured by a real property mortgage on the same premises involved in the Penard mortgage, executed by Cannon on April 1, 1963 and recorded April 17, 1963; (3) to escape the necessarily attendant expenses of a foreclosure action of the Nelson mortgage, Cannon suggested that Nelson accept a warranty deed with the agreement that the promissory note of April 1, 1963 be “cancelled” and “of no further force nor effect” and that the mortgage of April 1, 1963 would be “satisfied and discharged.” (emphasis added) This agreement was made and the deed from Cannon and his wife to Nelson was executed on July 26, 1965; (4) Cannon also represented to Nelson, both orally and in writing, that the premises were free and clear of encumbrances at the time of the agreement and the execution of the deed, i. e., July 26, 1965; (5) the record is not clear on whether, in fact, the Nelson mortgage was satisfied and discharged as a matter of record.
Thus it will be seen that the Penard mortgage was first in time, being executed February 10, 1961, as compared to the April 1, 1963 date of the Nelson mortgage. However, the Nelson mortgage was recorded first, i. e., on April 17, 1963 as compared to September 21, 1964 for the Penard mortgage.
It was contended in the trial court, and this contention is again asserted on appeal by the representatives of the Penard interests, who incidentally instigated this litigation by commencing an action to foreclose the defaulted mortgage, that the acceptance of the warranty deed by Nelson coupled with the agreement that the note .be can-celled and that the mortgage be satisfied and discharged constituted a merger of the mortgage interest with the interest in fee; and therefore the Penard mortgage which had always been prior in time to the Nelson mortgage and which had been duly recorded prior to the merger date constituted an enforceable lien on the premises.
The majority opinion recognizes the merger principle and correctly quotes the general rule that the question of merger of the interests of mortgagee with that of that holder of the title in fee upon transfer thereof by the mortgagor is primarily a question of intention. The general princi*428pies involved are aptly stated in American Jurisprudence, as follows:
“The question of merger of the interests of a mortgagee as mortgagee and his interests as transferee of the mortgagor is primarily a question of intention, and a merger will generally be held to take place where there is an intention to merge the two estates, and not to take place where there is an intention to keep the mortgage alive. This result has been regarded as prevailing whether such intention is expressed or implied.” (55 Am.Jur.2d 1025 Mortgages § 1258)
' “In the absence of an expression of intention on the part of the mortgagee at the time he acquires the interest of the mortgagor in the mortgaged property, the general rule is that the mortgage is not merged if-it is not to the interest of the mortgagee to have it merged. In such case, it must be presumed that the mortgagee intended to do that which was most advantageous to himself, and if this is that the two estates shall not merge, no merger will take place. This presumption, however, is not conclusive; it may be rebutted by evidence that would warrant a jury in finding that a merger had been expressly agreed to, or that the mortgagee’s conduct and action were such as could fairly be ascribed only to an intention to merge.” (55 Am.Jur.2d 1026 Mortgages § 1260)
After quoting these general principles, the majority opinion concedes that “[t]he record herein clearly indicates an intention to extinguish the mortgage and cancel the debt, and the agreement between Cannon and Nelson expressly stated that the note was to be cancelled, and of no further force or effect and that the mortgage would be ‘satisfied and discharged.’ ” But the majority then rationalizes that these principles do not govern in this instance because the mortgagee could not have intended a merger under the circumstances here involved when obviously such merger would not be for her best interests. The authority relied upon for this theory is Osborne on Mortgages, the basic principle of which is not applicable here. One of the emphasized portions of Osborne quotation contained in the majority opinion serves to illustrate my point wherein it is stated:
“But the courts go beyond this and hold, in spite of an undisputed intent on the part of the mortgage creditor to discharge the first mortgage, that nevertheless he may use it for foreclosure purposes against junior interests. This is the almost uniform result where the mortgage creditor was ignorant of the intervening lien." (emphasis supplied) (Osborne, Mortgages 773-74 1951 Ed.)
As previously discussed at the beginning of this dissent, it is my opinion that under the Idaho recording statutes the constructive notice provided therein is tantamount to actual notice; and that the mortgage creditor here (Nelson) cannot claim ignorance of the so-called intervening lien which had been regularly recorded for several months prior to her acceptance of the warranty deed from Cannon.
Secondly, there is still serious doubt in my mind whether under the facts in this case the Penard mortgage can be accurately described as an “intervening lien,” because it must be remembered that the Penard mortgage is prior in time to the Nelson mortgage although recorded later.
Thus in my opinion the equities lie with the appellant Barton insofar as knowledge by Nelson of the Penard recorded mortgage prior to the merger is concerned.
The majority opinion also relies on a general rule that “where fraud and false representations are the motivation for acceptance by the mortgagee of a conveyance of the property, a merger does not take place even to the extent that the mortgage might have been discharged and the evidence thereof surrendered.” The authorities cited are 55 Am.Jur.2d § 1265 of Mortgages and 95 A.L.R. 628. I do not find these authorities impelling in view of the interpretation to be given the “constructive notice” in our recording statute. Additionally, the authorities in the A.L.R. citation are divided or split. Too, the facts in some *429of them which on their face appear to be in accord with the general rule being applied by the majority opinion here are readily distinguishable. For instance, in Howard v. Clark, 71 Vt. 424, 45 A. 1042, 95 A.L. R. 648, although it appeared thát the first mortgagee intended to accept a deed of equity of redemption in consideration of the discharge of the mortgage debt, nevertheless it was held that where he was induced to accept the deed by the mortgagor’s fraudulent representation that the premises were not otherwise encumbered, equity would relieve him from the unconscionable position in which the mortgagor’s fraud had placed him, by reinstating him in his rights under his mortgage and the note secured thereby, as existed before the taking of the deed, as against a junior mortgagee who had taken his mortgage with knowledge of the senior mortgage. As previously pointed out, the Penard mortgage was executed some two years prior to the Nelson mortgage in the case at bar. It is difficult for me to perceive how the fraud on the part of Cannon unknown to, and not participated in by, Penard can constitute grounds for denying the enforcement of the Penard lien against the property involved.
In my opinion the trial court committed error in granting respondent’s motion for a summary judgment. The cause should be remanded for trial on the merits with the Penard mortgage given priority as a lien against the fee title of the Nelson representatives.

.§ 55-811. Record as notice. — Every conveyance of real property acknowledged or proved, and certified, and recorded as prescribed by law, from the time it is filed with the recorder for record, is constructive notice of the contents thereof to subsequent purchasers and mortgagee) es.
Every conveyance of real property acknowledged or proved, and certified, and recorded as prescribed by law, and which is executed by one who thereafter acquires an intei’est in said real property by a conveyance which is constructive notice as aforesaid, is, from the time such latter conveyance is filed with the recorder for record, constructive notice of the contents thereof to subsequent purchasers and mortgagees.”

. § 55-812. Unrecorded conveyance void against subsequent purchasers. — Every conveyance of real property other than a lease for a term not exceeding one year, is void as against any subsequent purchaser or mortgagee of the same property, or any part thereof, in good faith and for a valuable consideration, whose conveyance is first duly recorded.”

. § 55-813. Conveyance defined. — The term “conveyance” as used in this chapter, embraces every instrument in writing by which any estate or interest in real property is created, alienated, mortgaged or encumbered, or by which the title to any real property may be affected, except wills.