Sterling National Bank v. Fischer

Mr. Justice Denison delivered the opinion of the court. One Crosson was the owner of land and had it registered under the Torrens Act. He then conveyed it by deed which the grantee did not register but recorded. By several conveyances, all recorded but none registered, the land reached Fischer. Each grantee was in possession by himself or tenant. The banks, plaintiffs in error, recovered judgments against Crosson and registered their liens without actual notice of the unregistered conveyances or the possession by the grantees. Fischer then brought suit to compel the issue of a registry certificate to him. He had a decree and the banks bring error. The question is whether the recorded deeds or the possession was constructive notice of title in Fischer and his grantors. 1. It is not seriously contended that the recorded deeds are notice, but it is strongly urged that possession is notice. C. L, § 4956, provides that “every * * * purchaser of registered land who takes a certificate of title for value and in good faith, shall hold the same free from all incumbrances except only such estates, mortgages, liens, charges and interests as may be noted in the last certificate. * * *” It is claimed that a purchaser of land in the possession of another is not a purchaser in good faith. This claim is unsound. It is true, outside the Torrens Act, as held in Colburn v. Gilcrest, 60 Colo. 92, 151 Pac. 909, that possession is constructive notice. There are three requisites to innocent purchase: Payment of value, lack of notice, and good faith. Pom. Eq. Jur. § 745, et seq.; 8 C. J. 1146. Lack of notice and good faith are, therefore, different things. Good faith is lack of bad faith. Bad faith is a state of mind. It is sometimes by a fiction imputed to [373] a purchaser who has constructive notice, but, to constitute actual bad faith on the ground of notice, notice must be actual. To determine whether there was bad faith without actual notice then, we must first determine whether there was constructive notice. It is begging the question to say that there was bad faith, and therefore there was notice, because there is no suggestion of bad faith except because of notice, and it is reasoning in a circle to say that plaintiffs in error were guilty of bad faith because possession had given them notice, and that possession gives them notice because they were guilty of bad faith. Let us assume, however, that under the old law possession by one other than the grantor was conclusive proof of bad faith on the part of the grantee; does it follow that the same is true under the Torrens Act? No; because: First, the purpose of the .act was to escape from the old rules governing the transfer of real estate; second, the express provisions of the Torrens Act must be violated to support the theory that mere possession is notice to one without actual notice of it. C. L. § 4959 provides: “All dealings with the land or any estate or interest therein after the same has been brought under this act, and all liens, incumbrances and charges upon the same shall be made only subject to the terms of this act.” If subject only to the terms of this act then not subject to the terms of any other law. It will not be contended that this does not exclude the operation of the old recording acts and therefore eliminates constructive notice by record. How then can it be said that it does not eliminate constructive notice by possession? What are the terms of this act subject only to which the land may be dealt with? C. L. § 4968, says that the certificate “shall be received as evidence in all the courts of this state, and shall be conclusive as to all matters contained therein, except so far as is otherwise provided in this act.” (The exception must refer to those exceptions in section 4956.) Where is the provision that a purchaser or creditor cannot take the certificate as conclusive, but [374] must look further, outside of the certificate, and at his peril learn whether some one with an adverse claim is in possession? If we say he must, we import that into the statute and the dealings with the land are then not subject only to the terms of the act, but are subject also to other terms, and the certificate is then not conclusive evidence of title. The case of Follette v. Pac. L. & P. Corp., supreme court of California, 189 Cal. 193, 208 Pac. 295, 23 A. L. R. 965, was unquestionably decided correctly, but, as I read the decision, it by no means reaches the present case. The claimant in possession in that case was the grantee of an easement, and easements of all kinds are by the Torrens Act of California expressly excepted from the force of a certificate under that act. Besides that, the easement was granted by the owner who afterwards procured the registry without notice to his grantee, though in open possession, and without naming him as a party to the proceeding. The court, of course, said that the claim that such proceeding barred the right of the grantee would make the law unconstitutional for want of due process and that the registry, as against the grantee, was void. No such situation appears here. On the other hand, Bjornberg v. Myers, 212 Ill. App. 257, holds that even actual knowledge of possession by the holder of an unregistered claim is not in itself sufficient notice; but that holding depends upon a section of the Illinois Act which is not in the Colorado Act. The question is irrelevant here, however, because it is stipulated that in this case there was no actual notice of possession. Whether, then, a purchaser with actual notice of possession would be a purchaser in bad faith under section 4956, is a question we will answer when we meet it. The plaintiff before he brought the present suit, brought an action to quiet title and filed a lis pendens in the registry office. That suit was dismissed, but the Logan County Bank registered its lien after that lis pendens was filed. In the present suit Fischer alleged that the Logan [375] County Bank, at the time it registered this lien, -had notice of his claims. This was denied by the bank. We find no evidence in the record that the bank had actual notice of this lis pendens, and the court has made no finding upon that point, hence the matter is not before us. There is no question but that it had constructive notice thereof. The question is whether, after the dismissal of the suit, in which a notice of lis pendens is filed, constructive notice persists. In this state it does not, even when the dismissal is without prejudice. Pipe v. Jordan, 22 Colo. 392, 395, 45 Pac. 371, 55 Am. St. Rep. 138. It would follow that the bank had no constructive notice ávailable to plaintiff in the present action. The judgment is reversed and new trial granted. Mr. Justice Allen, Mr. Justice Sheafor and Mr. Justice Campbell dissent.