Opinion
NOT TO BE PUBLISHED
APPEAL from the Superior Court of Riverside County No. RIC457627, Gary B. Tranbarger, Judge. Affirmed.
Galfin, Passon & Greely and Kenneth D. Passon for Plaintiffs and Appellants.
Liebersbach, Mohun, Carney & Reed and Richard W. Liebersbach for Defendants and Respondents.
OPINION
King, J.
I. INTRODUCTION
Plaintiffs/appellants Jesus M. and Antonia C. Simental (Simental) and Golden Empire Mortgage, Inc. (Golden Empire) and defendant/respondent Inyo-Mono Title Co. Profit-Sharing Plan (Inyo Profit-Sharing Plan) are each bona fide purchasers or encumbrancers for value of the same residential real property. Simental purchased the property and Golden Empire financed part of the purchase price; however, only one day before escrow closed on the sale of the property to Simental and a grant deed and trust deed (the Simental Grant Deed and the Golden Empire Trust Deed) were recorded in favor of Simental and Golden Empire, respectively, a trust deed securing an antecedent debt of the original owner to Inyo Profit-Sharing Plan (the Inyo Trust Deed) was recorded in favor of Inyo Profit-Sharing Plan. A fourth party, defendant/respondent Inyo-Mono Title Company (Inyo Title) was the trustee of the Inyo Trust Deed.
The question presented on this appeal is whether the Simental Grant Deed and the Golden Empire Trust Deed, on the one hand, or the competing Inyo Trust Deed, on the other, is prior in right. We conclude the Inyo Trust Deed is entitled to priority because it was “first duly recorded” within the meaning of Civil Code sections 1107 and 1214. We reject plaintiffs’ claim that their interests are entitled to priority on the ground plaintiffs had neither actual knowledge nor constructive notice of the Inyo Trust Deed at the time escrow closed on Simental’s purchase of the property and plaintiffs “parted with consideration” in exchange for their interests.
All further statutory references are to the Civil Code unless otherwise indicated.
The facts set forth in this section are taken from the parties’ “Joint Stipulation of Facts Re: Motion for Summary Judgment.”
On May 13, 2005, Simental entered into a contract to purchase a single-family residence located on Watson Road in Romoland (the Watson property) from its owner, Chad W. Prigmore, for $354,000. On the same date, Simental obtained a preliminary title report which indicated there were no outstanding liens or encumbrances on the Watson property in favor of Inyo Profit-Sharing Plan.
On June 17, the sale of the Watson property to Simental closed escrow, and the Riverside County Recorder (County Recorder) recorded the Simental Grant Deed and the Golden Empire Trust Deed. The Simental Grant Deed was executed by Prigmore and conveyed the property to Simental. The Golden Empire Trust Deed was executed by Simental in favor of Golden Empire, and secured Golden Empire’s loan to Simental of $160,000 of the $354,000 purchase price. The Simental Grant Deed and the Golden Empire Trust Deed were indexed on June 21, 2005, and were made available for public inspection on June 24.
Meanwhile, on May 20, and unbeknownst to Simental or Golden Empire, Prigmore executed the Inyo Trust Deed in favor of Inyo Profit-Sharing Plan, securing an antecedent debt of $100,000. The Inyo Trust Deed was received by the County Recorder by regular mail on June 3; it was recorded on June 16, indexed on June 20, and made available for public inspection on June 22.
Neither Simental nor Golden Empire knew of the Inyo Trust Deed or of Prigmore’s antecedent debt to Inyo Profit-Sharing Plan until after the Inyo Trust Deed was recorded, indexed, and made available for public inspection. Likewise, neither Inyo Profit-Sharing Plan nor Inyo Title knew that Prigmore had agreed to sell or had sold the Watson property to Simental, or that Simental would be executing a trust deed in favor of Golden Empire, until after the Simental Grant Deed and the Golden Empire Trust Deed were recorded, indexed, and made available for public inspection. In addition, the parties agreed that documents submitted to the recorder for recordation “are generally not indexed on the date they are received and [are] not available to members of the general public for a certain period of time.”
III. PROCEDURAL HISTORY
In September 2006, Simental and Golden Empire filed a complaint in the present action against Inyo Profit-Sharing Plan and Inyo Title. In their first cause of action for declaratory and injunctive relief, they sought (1) a declaration that Simental’s ownership interest and Golden Empire’s security interest in the Watson property had priority over the Inyo Trust Deed, and (2) an injunction prohibiting defendants from foreclosing on the Inyo Trust Deed. Plaintiffs also sought a factual finding that they were bona fide purchasers and encumbrancers for value who had “no actual or constructive notice” of the Inyo Trust Deed. In their second cause of action, plaintiffs sought an accounting of the sums due under the Inyo Trust Deed.
The parties entered into a joint stipulation, agreeing that the facts set forth above were undisputed and that neither plaintiffs nor defendants had either actual knowledge or constructive notice of each other’s interests at the time their own interests were created or recorded. Thereafter, plaintiffs and defendants each filed motions for summary judgment/adjudication based on the stipulated or undisputed facts, with each claiming its interests in the Watson property were prior in right to the other’s.
See footnote 2, ante.
In their motion, plaintiffs argued that the Simental Grant Deed and the Golden Empire Trust Deed were prior in right to the Inyo Trust Deed because plaintiffs had no actual or constructive notice of the Inyo Trust Deed at the time escrow closed on the sale of the property and plaintiffs parted with consideration in exchange for their deeds. For their part, defendants claimed that the Inyo Trust Deed was prior in right to plaintiffs’ interests because it was the first to be “duly recorded” within the meaning of sections 1107 and 1214.
The trial court granted summary adjudication in favor of defendants on plaintiffs’ first cause of action for declaratory relief. The court found each of the parties’ stipulated facts to be true, and ruled that the Inyo Trust Deed had priority because it was “first duly recorded” (§§ 1107, 1214) and because Inyo Profit-Sharing Plan was a bona fide encumbrancer for value-that is, it had neither actual knowledge nor constructive notice of plaintiffs’ deeds at the time the Inyo Trust Deed was created and recorded (§§ 1107, 1214).
Following the trial court’s ruling, the parties stipulated to the entry of judgment in favor of defendants in order to facilitate the present appeal. (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 399-402 [rule barring appeal from consent judgment does not apply when the parties consent to a judgment in order to facilitate appeal from the judgment].) Judgment was accordingly entered in favor of defendants, and plaintiffs appealed.
IV. DISCUSSION
A. Plaintiffs’ Claim
Plaintiffs claim their ownership and security interests in the Watson property are prior in right to the Inyo Trust Deed because the Inyo Trust Deed could not have been located through a title or public records search until June 20 or June 22, 2005, or in any event after June 17, the date escrow closed on the sale of the Watson property to Simental and plaintiffs “parted with consideration” in exchange for their title and security interests. We reject this claim, and conclude that the Inyo Trust Deed is entitled to priority because it was “first duly recorded” within the meaning of sections 1107 and 1214.
B. Standard of Review
We determine de novo and independently of the trial court whether the competing interests of plaintiffs or Inyo Profit-Sharing Plan in the Watson property are entitled to priority. This is a question of law, because the pertinent facts are undisputed and the question of priorities involves the application of statutes, sections 1107 and 1214, to the undisputed facts. (Lozada v. City and County of San Francisco (2006) 145 Cal.App.4th 1139, 1148-1149 [application of statute to undisputed facts presents question of law subject to de novo review on appeal].)
C. Applicable Law and Analysis
Section 1107 deals with the conclusiveness of grants of estates in real property. It states: “Every grant of an estate in real property is conclusive against the grantor, also against every one subsequently claiming under him, except a purchaser or encumbrancer who in good faith and for a valuable consideration acquires a title or lien by an instrument that is first duly recorded.” (Italics added.)
Section 1214 states the same rule in a different context. It provides, in pertinent part, that: “Every conveyance of real property... 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, and as against any judgment affecting the title, unless the conveyance shall have been duly recorded prior to the record of notice of action.” (Italics added.)
In effect, sections 1107 and 1214 require that the real property interest of a bona fide purchaser or encumbrancer for value or “BFP”-that is, a party who acquires its interest in good faith, for valuable consideration, and with neither actual knowledge nor constructive notice of a previously-created interest in the same real property-takes priority over the previously-created but unknown interest, provided the interest of the BFP is “first duly recorded.” (5 Miller & Starr, Cal. Real Estate (3d ed. 2000) § 11.50, pp. 11-171 - 11-172.)
“[A]ctual notice means that which a person actually knows or could discover by making a reasonable investigation.” (Perry v. O’Donnell (9th Cir. 1984) 749 F.2d 1346, 1351.) Constructive notice of an interest in real property is imparted by the recordation and proper indexing of an instrument in the public records. (§ 1213; Dyer v. Martinez (2007) 147 Cal.App.4th 1240, 1242-1245.)
Simply put, a party must satisfy two requirements in order to obtain priority for its real property interest pursuant to sections 1107 and 1214: (1) it must acquire its interest as a BFP, that is, for valuable consideration and with neither actual knowledge nor constructive notice of the previously-created interest; and (2) its interest must be “first duly recorded” before the previously-created interest is recorded.
Both plaintiffs and Inyo Profit-Sharing Plan have met the statutes’ first requirement of having acquired their interests as BFP’s, without either actual knowledge or constructive notice of the other’s interests or of any intention on the part of Prigmore to create those interests. The second requirement of being “first duly recorded, ” however, was satisfied only by Inyo Profit-Sharing Plan.
The parties agree that the phrase “first duly recorded, ” as used in sections 1107 and 1214, means both the recording and proper indexing of the instrument evidencing the BFP’s interest. The parties rely on settled case law interpreting the phrase “recorded as required by law” as used in another statute, section 1213, as meaning both recording and proper indexing. (See, e.g., Dyer v. Martinez, supra, 147 Cal.App.4th at pp. 1244-1245 and cases discussed.) To our knowledge, however, no California court has determined whether the phrase “first duly recorded, ” as used in sections 1107 or 1214, requires the proper indexing of a document in addition to its recordation.
Though the functions of recording and indexing have been somewhat conflated (see Citizens for Covenant Compliance v. Anderson (1995) 12 Cal.4th 345, 355 [“Recording consists of copying the instrument in the record book and indexing it under the names of the parties.”], quoting 12 Witkin, Summary of Cal. Law (10th ed. 2005) Real Property, § 322, p. 406), they are separate and distinct functions. “An instrument is deemed to be recorded when, being duly acknowledged or proved and certified, it is deposited in the Recorder’s office, with the proper officer, for record.” (§ 1170, italics added.) After a document has been recorded, the recorder is obliged to index it. (Gov. Code, § 27324; Ricketts v. McCormack (2009) 177 Cal.App.4th 1324, 1332-1333.)
Moreover, it is unnecessary to determine the question here because the Inyo Trust Deed was “first duly recorded”-whether that phrase means it had to be both recorded and indexed first or only recorded first. (§ 1107, 1214.) As the parties agreed, the Inyo Trust Deed was recorded on June 16, indexed on June 20, and made available for public inspection on June 22. Plaintiffs’ deeds, in contrast, were recorded on June 17, indexed on June 22, and made available for public inspection on June 24. Thus, under either interpretation, the Inyo Trust Deed was first duly recorded.
Plaintiffs rely on the settled principle that a party is not charged with constructive notice of a recorded document or instrument unless and until the document or instrument has been properly indexed and can therefore be located through a public records search. (See, e.g, Dyer v. Martinez, supra, 147 Cal.App.4th at pp. 1242-1245 and cases discussed, including Chamberlain v. Bell (1857) 7 Cal. 292; Cady v. Purser (1901) 131 Cal. 552; Hochstein v. Romero (1990) 219 Cal.App.3d 447; Lewis v. Superior Court (1994) 30 Cal.App.4th 1850; see also March v. Pantaleo (1935) 4 Cal.2d 242; First Fideli1ty Thrift & Loan Assn. v. Alliance Bank (1998) 60 Cal.App.4th 1433.) The Lewis court explained the rationale for the rule: “The reason an improperly indexed document does not give notice is that no one can find it. The complete absence of indexing, even though it may be temporary, means exactly the same thing-no one can find the document.” (Lewis v. Superior Court, supra, at p. 1867.)
In addition to being properly indexed, a recorded document or instrument must meet several other requirements in order to impart constructive notice of its contents to third parties. “The recordation of a document or instrument in the public records imparts constructive notice to a subsequent purchaser or encumbrancer when (1) it is entitled to be recorded pursuant to a statute that provides for recordation, (2) it is an instrument that either creates, alienates, mortgages, or encumbers an estate in real property or affects the title to real property, or is otherwise provided by statute to impart constructive notice effect, (3) the document is ‘duly recorded’ and properly indexed, and (4) it is recorded in the chain of title. When each of these requirements [is] satisfied, all persons who thereafter deal with the property described in the instrument are conclusively presumed to have constructive notice of the contents of the recorded document.” (5 Miller & Starr, Cal. Real Estate, supra, § 11.60, pp. 11-193 - 11-194, fns. omitted.)
To be sure, for well over a century California courts have consistently held that a recorded instrument or document does not impart constructive notice of its contents to third parties unless and until it has been properly indexed, that is, unless and until it can be located by a public records search. (See, e.g., Dyer v. Martinez, supra, 147 Cal.App.4th at pp. 1242-1245 [discussing cases].) This is beside the point, however.
In order to determine which of two competing interests in real property are entitled to priority when, as here, each interest was acquired by a BFP in good faith, for valuable consideration, and without actual knowledge or constructive notice of the other’s interest, the question is not whether one BFP had constructive notice of the other BFP’s interest. Rather, the question is which BFP’s interest was “first duly recorded.” (§§ 1107, 1214.)
Thus here, the question is not whether plaintiffs had constructive notice of the Inyo Trust Deed when they acquired their title and security interests in the Watson property on June 17, 2005. It is undisputed that they did not, and that is part of what makes them BFP’s. Plaintiffs are effectively arguing that they are entitled to priority over the Inyo Trust Deed simply because they are BFP’s-because they acquired their interests without actual knowledge or constructive notice of the Inyo Trust Deed. But plaintiffs’ status as BFP’s are insufficient to entitle them to priority under sections 1107 and 1214. Their interests were also required to be “first duly recorded, ” and they were not.
Sections 1107 and 1214 reflect the “race-notice” principle of priorities. (5 Miller & Starr, Cal. Real Estate, supra, § 11:50, p. 11-171.) This means that, “in order to attain priority, a party acquiring a subsequent interest must both be the first to record and not have notice of the prior interest.” (Id., § 11.1, p. 11-12, fn. omitted.) Though both plaintiffs and Inyo Profit-Sharing Plan acquired their interests in the Watson property as BFP’s, the Inyo Trust Deed was “first duly recorded” within the meaning of the statutes and for this reason takes priority, even though plaintiffs had no actual or constructive notice of the Inyo Trust Deed when, on June 17, 2005, they “parted with consideration” and acquired their interests in the Watson property. The Inyo Trust Deed won the race to the recorder’s office.
V. DISPOSITION
The judgment is affirmed. Defendants and respondents shall recover their costs on appeal.
We concur: Hollenhorst Acting P.J., McKinster J.