Opinion
Decided February 6, 1930.
Real property — Priorities of liens by reason of recording acts — Executory land contract recorded but title in vendor — Vendor's written assignment on unrecorded copy of contract — Not constructive notice to vendor's mortgagee, when — Mortgagee's rights superior to vendor's assignee — Executory land contract not entitled to be recorded.
1. Executory contract for purchase and sale of land is not an instrument entitled to be recorded, thereby giving notice to prospective purchasers of equity owned or claimed under such contract.
2. Purchaser's right under executory contract rests solely in action under contract, and therefore is essentially a chose in action.
3. Purchaser having possession under executory contract for sale of land would be secure in his rights against world, because world must take notice of his interest in real estate during his possession thereof.
4. Where purchaser took possession under executory contract and vendor assigned his interest in land by assignment on margin of contract and delivered it to assignee, and thereafter mortgaged property to another who had no notice of executory contract or assignment, mortgagee's lien on purchase price due vendor held superior to lien of assignee.
APPEAL: Court of Appeals for Marion county.
Mr. William P. Moloney, for plaintiff.
Messrs. Hayes, Thompson, Donithen Donithen, and Mr. George T. Geran, for defendants.
This case is heard on appeal. The sole question for determination is raised by an issue made between the Home Building, Savings Loan Company and the West Side Banking Company, each claiming priority for liens against the balance of the purchase price due to one Edward S. Moon from the purchaser of a piece of property owned by Moon. The facts are agreed upon.
Edward S. Moon, on and prior to February 14, 1925, owned in fee simple the piece of property that was on that date sold to one Smith under a land contract; Smith taking possession of the property and filing his land contract for record on April 23d following. On August 5, 1925, Moon, who still held the legal title to this property, and who had borrowed $500 from the West Side Banking Company, made a written assignment of his interest in the land covered by this written contract of sale to said banking company, and wrote this assignment of interest on the margin of his copy of said contract and delivered the same to said banking company. On December 22, 1925, Moon executed and delivered to the Home Building, Savings Loan Company his mortgage upon this same property; and this mortgage was, on the 31st day of December, 1925, filed and recorded in the recorder's office of Marion county, Ohio.
In the proceedings below, in the form of a creditor's bill against Moon, a trustee was appointed, who, in the discharge of his duties, has collected or is in the act of collecting from Smith, the purchaser of this real estate, the balance of the purchase money, and the sole and only question before us for determination is whether or not the mortgage of the Home Building, Savings Loan Company has priority over the assignment made to the West Side Banking Company prior to the recording of said mortgage.
It is agreed that the Home Building, Savings Loan Company had no actual notice of the land contract, or of any agreement between Moon and Smith, or between Moon and the West Side Banking Company.
It is well settled that an executory contract for the purchase and sale of land is not an instrument entitled to be recorded, like deeds, mortgages, or leases, thereby giving notice to prospective purchasers of the equity owned or claimed under such contracts. Churchill v. Little, 23 Ohio St. 301. It is said in that case by Judge Stone, at page 308, that "it seems necessarily to follow that where, as in this case, such executory contract, or the mere equitable interest thereby created, is alone the subject of transfer, the recording act has no application."
Moon, when he gave this land contract of sale to Smith, retained in himself the legal title to this property, giving to Smith, the purchaser, a claim to the land, which in proper proceedings might be enforced in a court of equity upon Smith's full performance of his contract, requiring, in turn, specific performance of the contract by Moon and a conveyance to Smith of the legal title to the land; but Smith's right under this contract rests solely in action under the contract, and was therefore essentially a chose in action.
Using the thought expressed by Judge Stone in the above-mentioned case, Smith having taken possession under this contract was of course secure in his rights against the world, because the world must take notice of his interest in this real estate during his possession thereof. But the notice that the world must take of Moon's interest is gained either from public records of the county or actual knowledge thereof. It being conceded that the Home Building, Savings Loan Company had no knowledge of the assignment of Moon's interest to the West Side Banking Company, it must follow that the interest conveyed to the Home Building, Savings Loan Company by the regularly executed, delivered, and recorded mortgage covering the legal interest or title to this property would be superior to that of the West Side Banking Company, by reason of the effect of the recording acts of the state.
In the case of Wood Sash, Door Paint Co. v. Burrows, reported in 2 C.C. (N.S.), 213, 15 C.D., 781, the court holds that, even though the equitable interest of the purchaser under a land contract is assigned in the form of a duly executed, delivered and recorded mortgage, still it will not pass any enforceable title or claim in favor of the mortgagee against the holder of the legal title who has taken his title thereto in good faith without notice of the claim of the mortgagee.
Judge Spear, in the case of Coe v. Erb, 59 Ohio St. 259, at page 264, 52 N.E. 640, 641, 69 Am. St. Rep., 764, says, discussing the purpose of our recording acts:
"These acts rest upon a recognition of the policy that there should somewhere be found a record which will disclose the state of the title of all lands within the county. For conveyances, mortgages, leases, etc., resort is had to the office of the county recorder * * *. The business public, therefore, has a high interest in the maintenance of such a system as will enable every person, by the ordinary inquiry — that is, an examination of the records — to ascertain the condition of titles."
And in discussing the statute involved in the case, making judgments a lien from the first day of the term in which they are entered, he says further, at page 264 of 59 Ohio State, 52 N.E. 642:
"The statute in review was enacted for the benefit of the judgment creditor; but it is only reasonable to hold that the obligation rests on him, if he claims the advantage it gives, to comply strictly with its terms, in order that due notice of such claim be given to the world, and that innocent persons shall not suffer. He controls the proceedings. He can take advantage of the statute, or not, at his pleasure. If he does comply, he has given the notice and effected the lien. If, for any cause, he falls short, the consequences should be upon him."
In the present case, if the loan company had traced the title of the property here in question, it would have found it in the name of Moon, and, by the notice that it must necessarily have taken of the interest of Smith, by reason of his possession, it further would have found that Smith was the owner of the equitable title under a contract of purchase which required him to pay to Moon the full purchase price called for by such contract. The loan company would have been justified in concluding that all the money that was due under this land contract would be paid by Smith to Moon; in other words, that Moon still had a balance of the purchase money coming to him, with its payment secured by the legal title still held in him.
And again using the thought of Judge Spear expressed in the Coe case, supra, it is well to say that every consideration of justice, in order to make the Recording Act effective, requires the holding that the lien of the loan company is superior to that of the claim of the bank, arising from a mere assignment of an equitable interest, with no notice thereof to the loan company.
Decree accordingly.
JUSTICE and CROW, JJ., concur.