Court Opinion

ID: 6898484
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:52:25.807807+00
Date Added: 2024-06-11T16:06:05.224803
License: Public Domain

Mr. Justice Wolverton,
dissenting.
That the transaction of June 19, 1893, between Julius Loewenberg and wife and the Security Savings & Trust Company, whereby the former conveyed to- the latter certain real property by deed absolute upon its face, and the latter executed and delivered to the former a defeasance conditioned upon the repayment of a sum of money not to exceed $100,000, to be advanced by the latter to the former, consti*175tutes a mortgage, there can be no doubt. The sole purpose of the deed was to secure a loan. This is clearly manifested by the defeasance. When the two instruments were duly executed by the respective parties, and delivered, the transaction was completed without extraneous limitations or restrictions. The recording of the deed gave constructive notice of this transaction, because an inspection of the record would impart notice of a larger estate than the trust company really possessed, and made it, therefore, incumbent upon strangers or third persons to inform themselves by proper inquiry if they would know the exact nature thereof. This was not necessary so far as the defendant Watson was concerned, for he had personal knowledge thereof from its vety inception. It does not appear to have been shown that Leonard had other notice than such as he is chargeable with by the record. But in either case the question comes to this: Does the fact that the deed was recorded impart constructive notice of subsequent unrecorded transactions between the parties in modification of the first, or require inquiry touching them by parties dealing with the property? Or, to state it precisely within the facts of the case: Does the recorded deed impart notice of a subsequent unrecorded equitable mortgage given to secure a further and different demand (for such is the legal effect of the instrument last executed by Loewenberg to the trust company), or require purchasers or attaching creditors to make inquiry at their peril, further than to ascertain the nature and conditions of the original transaction ? I am strongly impressed that the consequences of recording the deed without the defeasance are not so far-reaching. It is well understood that the terms of a mortgage cannot be altered, after record, by secret agreement or understanding between the parties to it, so as to add to the debt, or create further incumbrances, to the prejudice of third parties dealing with the property. This is elementary, and needs no elucidation. If the defeasance had been recorded *176along with the deed, there would have been a disclosure of the entire transaction as it stood when fully consummated, so that it would have been just as difficult to change it, or increase the amount of the liability or incumbrance under it, as in the case of an ordinary mortgage duly recorded.
Now, can it be that this partially disclosed and partially concealed transaction gives any greater latitude or license to the parties thereto to change or modify it to the prejudice of others than if all its conditions had been fully revealed by promptly recording the defeasance at the time of its execution ? If so, the recording acts become a snare, rather than a protection. Mr. Watson, as we have seen, had actual knowledge. This was all that could possibly have been imparted by a full record. He was notified by the terms of the defeasance that the obligation might become less by payment, but he had no kind of notice, that it would be increased, and the fact that such defeasance was withheld from the record did not so admonish him. He had a right, therefore, to deal with the property relying upon that particular knowledge, without any further inquiry whatever, if he so desired; and this is just what he did. Much less can it be said that, for' his own protection, he was in duty bound to make further inquiry concerning subsequent incumbrances, imposed by secret, separate, and distinct agreements or conveyances having no relation to the first. Watson’s previous knowledge, however, is only an incident in the case, but it serves very aptly and strongly to elucidate the principle involved. Mr. Leonard and other third parties could not be required to possess themselves of any fuller knowledge than Watson had from the beginning, and thus it becomes manifest that the inquiry is not exacted in any event beyond the ascertainment of the nature and conditions of the single transaction of which the recorded deed forms a part. It is with reference to this transaction alone that third parties deal at their peril when they have constructive notice by the' record. They are *177not even bound to- make inquiry touching the precise terms and conditions of the original transaction; but, if they deal with the property, they must do so subject to whatever incumbrances it imposes, because of such constructive notice. Not being bound to make such inquiry, they are certainly not chargeable with knowledge of such disclosures as an inquiry would have developed of any subsequent modification of the mortgage or of subsequent unrecorded incumbrances -which may have been created by independent agreement .or contract if it had been pursued in any given direction. It was not the purpose of the recording acts to compel inquiry,but rather to render it unnecessary further than to consult public records. The mortgage, whatever may be its form, can give but one kind of interest in this state — that is, a lien upon the property for the demand for the securing of which it was created; and to say that the effect of its partial record will impart notice or compel inquiry of the mortgagee for subsequent mortgages or incumbrances, or, if carried to its natural consequence, for conveyances of the legal estate which are purposely withheld from the public, seems contrary to the purpose, and is carrying constructive notice of such a record far beyond any reasonable intendment of the recording act. It would permit the execution of a mortgage by deed and separate defeasance to secure an insignificant sum, covering vast estates in realty, and thereafter secret dealings and traffic with the property between the parties thereto, as fully as they may desire, and all at the peril of purchasers and attaching creditors if they do not inquire of the mortgagee touching what incumbrance or what estate he presently has in the property. This construction ignores the idea that all conveyances or mortgages must be made a public record, or else they are void against purchasers in good faith, or without notice, for a valuable consideration: Hill’s Ann. Laws, § 3027. For these reasons I am unable to concur in the conclusion reached by the prevailing opinion. Reversed.