Court Opinion

ID: 7818512
Source: CourtListenerOpinion
Date Created: 2022-09-07 17:45:20.242072+00
Date Added: 2024-06-11T16:30:40.218015
License: Public Domain

John A. Fogleman, Justice, dissenting. I cannot agree with the decree canceling Modern American Mortgage Company’s mortgage and its affirmance here. If ever there was a case where the principle that, as between two innocent parties, the one whose negligence made a loss possible should bear it and be estopped to set up his prior right against the party without fault, this is one. See Turman v. Bell, 54 Ark. 273, 15 S. W. 886, 26 Am. St. R. 35. This rule applies in favor of a subsequent purchaser for value even where the maker of a deed carelessly executes it in reliance upon the false representations of a person in whom he placed confidence and trust. Davidson v. Davidson, 42 Ark. 362. Bypassing the extremely doubtful proposition that appellees could possibly contend that their failure to read the deed they signed, and which they admit they had every opportunity to read, was justified by any express or implied representation by persons in whom the Nelsons had no specific reason to place trust and confidence, this record falls far short of showing that appellant was not a bona fide purchaser, as mortgagee, without notice, actual or constructive, of defects in the title of Jimmy Ray Jones or unknown equities in the Nelsons and the claim of fraud should be unavailing against it. The only contract of which Modern American can be charged with either notice or knowledge is that of June 20, 1969. In that contract, the Nelsons were called “purchasers.” That contract specified that the “buyer” was to furnish a lot valued at $600. The completed house was to be mortgaged to appellant when completed to secure a loan to be insured by the Federal Housing Authority pursuant to its commitment issued to appellant. In making the construction loan, appellant relied upon the record tide held by Jimmy Ray Jones d/b/a Imperial Builders and placed in him by the Nelsons, intentionally or negligently. Mr. Kooistra testified that, in every case in which there is an FHA commitment and the builder has title to the property, there is an assumption that the property will be conveyed to the person to whom the commitment runs upon termination of construction. He also said that the FHA does not insure construction loans on single family units. This testimony was undisputed. The construction by Jones was commenced in August and ceased in December. There were several inspections by the FHA upon the basis of which appellant made advances on the construction loan. The porch of the house in which the Nelsons lived was torn off to make room for the new one. The Nelsons themselves constructed a carport on the new house. There can be no doubt that appellant gave valuable consideration for the mortgage executed by Jones. Consequently, the burden was upon the Nelsons to show that Modern American had actual or constructive notice of their rights and that appellant was not acting in good faith. Ellis v. Nickle, 193 Ark. 657, 101 S. W. 2d 958; Scott v. Carnes, 183 Ark. 650, 37 S. W. 2d 876; Story v. Grayson, 208 Ark. 1029, 185 S. W. 2d 287; Smith v. Olin Industries, 224 Ark. 606, 275 S. W. 2d 439. Appellees do not contend that there was actual notice or that Modern American did not act in good faith. Good faith is presumed unless notice to the alleged bona fide purchaser is shown. Ellis v. Nickle, supra. Unless it was shown that the fact that the Nelsons were residing on the tract on which the house was being built constituted constructive notice that they claimed the property adversely to Jones, the mortgage must be held valid. Before possession can constitute constructive notice, the occupancy must be apparently exclusive, otherwise possession is presumed to follow the title and those dealing with the owner of the record title are warranted in treating him as the exclusive owner. Walden v. Williams, 128 Ark. 5, 193 S. W. 71. Possession cannot be exclusive, when it might be referable to possession of another. Alphin v. Blackmon, 180 Ark. 260, 21 S. W. 2d 426. There can be no constructive notice where occupancy is joint or referable to the record title or in connection with the occupancy of another. Walden v. Williams, supra; Ellis v. Nickle, supra; Story v. Grayson, supra. If the possession of the claimant is referable to the possession of the holder of the record title, it is not such as would require a subsequent purchaser to make inquiry as to the nature of the possession or any hidden equities which might exist in favor of the claimant. Ellis v. Nickle, supra; Story v. Grayson, supra. The claimant’s possession must be adverse, exclusive, unequivocal and inconsistent with the claims of any other person in order to constitute constructive notice. If it is to put a purchaser on his guard, it must be sufficiently distinct and unequivocal that it is not likely to be misunderstood or misconstrued. Scott v. Carnes, 183 Ark. 650, 37 S. W. 2d 876. Possession of a grantor after execution of a deed is deemed to be subordinate to the rights of his grantee, if not long continued. Turman v. Bell, 54 Ark. 273, 15 S. W. 886, 26 Am. St. R. 35. If the possession of the grantor is continued but a short time, it may reasonably be referred to the sufferance of the grantee. Turman v. Bell, supra; Morgan v. McCuin, 96 Ark. 512, 132 S. W. 459. In this case, the deed to Jones was executed by the Nelsons on September 4. The mortgage to Modern American was executed on September 15, 1969. Construction was underway. In view of the designation of the Nelsons as “purchasers” in the contract with Jones, the obligation of the Nelsons to furnish the lot upon which the house was built, the short lapse of time between the execution of the deed and appellant’s acceptance of the mortgage, and the natural association of their continued occupancy of the old dwelling house on the property with the construction contract and the occupancy by Jones, the holder of the record title by deed of the Nelsons, it seems to me that appellant was not put to any inquiry more than that which it made. The possession of the Nelsons was equivocal and subject to misunderstanding and misconstruction. It was certainly not so inconsistent with the Jones title, under the circumstances, as to put appellant on guard. It was certainly not exclusive. I would reverse the decree and direct a foreclosure of the mortgage. I am authorized to state that Justice George Rose Smith joins in this dissent.