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Dealing with Dirty Deeds:
Matching Nemo dat Preferences
with Property Law Pragmatism
Donald J. Kochan*
I. INTRODUCTION
An organizing principle of the rule of law based on individualism and order is expressed by the Latin maxim nemo dat quod non habet (hereinafter nemo dat for shorthand)—roughly translated to mean that one can only give what they have or one can only transfer what they own.^1 It is a matter of only being permitted to do what is within your legal authority to do. I should not be able to sell you a house after I sold it to someone yesterday (even if I at one earlier point owned the house) any more than I could sell you the Golden Gate Bridge (which I do not and never did own). My lack of authority in each should be the same. Once I have sold the thing I previously owned, my right to sell it should be irrevocably lost, and the property should no longer be mine to sell any more than selling something I never owned at all. This seems simple enough, but the law is seldom so easy. Markets never operate quite so mechanically, and sellers of real property sometimes behave badly (in other words, sell property twice or more) instead of behaving benignly and in compliance with the nemo dat limitations on what one should be allowed to do. Instead of operating with a hammer when it comes to sales of
- Associate Dean for Research & Faculty Development and Professor of Law, Chapman University Dale E. Fowler School of Law. I appreciate the valuable comments and suggestions offered by Daniel Bogart, Wilson Freyermuth, and Jennifer Spinella on early drafts of this work; and I thank Regina Zernay and Susan Nikdel for valuable research assistance.
- See BLACK’S LAW DICTIONARY 1933 (10th ed. 2014) (“No one gives what he does not have; no one transfers (a right) that he does not possess.... [N]o one gives a better title to property than he himself possesses.”); see also Mitchell v. Hawley, 83 U.S. 544, 550 (1872) (“No one in general can sell personal property and convey a valid title to it unless he is the owner or lawfully represents the owner. Nemo dat quod non habet. ”). A related maxim is also relevant here: nemo plus juris ad alienum transferre potest quam ipse haberet , which means “no one can transfer to another a greater right than he himself might have.” BLACK’S LAW DICTIONARY 1934 (10th ed. 2014).
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property without authority, the law tolerates some curious deviations from our expected or desired adherence to the nemo dat paradigm in order to advance other policies, including fairness and certainty of title.^2 “Ownership” is more textured than one might immediately appreciate. With the aid of property recording acts, it becomes true that, in function, indeed one can sometimes sell more than they “own.” In this Article, the term “dirty deeds” shall take on two related meanings. One, it will represent those deeds (documents) that have been marked, or dirtied, by the first sale so that once they get to the second purchaser they are no longer clean and no longer entirely free for the taking. It shall also represent deeds (as in actions) that are disfavored, disagreeable, and harmful, against which we seek protection and deterrence to minimize their occurrence. Consider the following example in which dirty deeds and nemo dat exceptions collide. In most jurisdictions, a grantor X might sell Blackacre to person Y and then later sell to person Z , and Z might be awarded the title to the property so long as Z is a bona fide purchaser without notice of the previous conveyance to Y —even though Z might take the land by what we could call a “dirty deed” (here used in the document form)—where the deed is soiled by its previous conveyance to Y rather than being pure, clean, and fit for conveyance to Z ; the deed seemingly represents property spoiled and incapable of being passed to others because it is already sold to another; and the deed is transferred
- In an earlier work related to property recording laws, I focused my attention on deed traceability problems in recording associated with the mortgage foreclosure crisis and exacerbated by problems related to mortgage-backed securities and MERS. Donald J. Kochan, Certainty of Title: Perspectives After the Mortgage Foreclosure Crisis on the Essential Role of Effective Recording Systems , 66 ARK. L. REV. 267 (2013). That article also spent time developing some general background on the recording laws (without much discussion of the differences between types of recording statutes) and set forth a defense of the recording system itself as a vital facilitative component of a smooth functioning market system. Id. at 272–78. It spent particular time justifying the recording’s place from a legal/political-philosophy perspective, articulating reasons why the state’s role in recording is a necessary and essential foundational component of government even from a classical liberal or typically laissez-faire perspective. Id. at 298–311. In contrast, this Article does not deal with traceability of deeds and assignments nor does it implicate unique concerns associated with the mortgage and housing crisis. Instead, this Article carefully compares the types of recording statutes and types of notice. It then builds further support for the systematic importance of recording, but does so by dissecting the pragmatic deviations from the nemo dat principle facilitated by the bona fide purchaser exceptions to it in recording statutes. And, it analyzes the relative utility of these exceptions and presents a unique proposal for narrowing the frequency of access to those exceptions. Finally, this Article deals with a set of bad or irresponsible actors—those that fraudulently or mistakenly sell property multiple times—not evaluated in the previous work. Read together, however, both works contribute to a greater understanding of how the recording system works as a pragmatic tool, essential to markets in achieving the desirable ends of furthering certainty of title, security of ownership, traceability of deeds, and the smooth transfer of property at efficient values.
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achievement of) the maxim. That introduction leads to Part III, which is intended to provide a valuable summary of the recording acts and their purposes, along with the types of notice and their uses, while exposing the tensions these recording systems each have with a strict notion of nemo dat. Part III will also do a comparative assessment of different types of recording regimes in light of these realities, identifying which are better at navigating these tensions. Part IV returns to those tensions in detail and explains the purposes of the recording acts and why the protections for bona fide purchasers are necessary to facilitate markets in property and serve other goals. It reveals what might be called the impossibility of fully enforceable property rights in real property. It draws on case examples—where tough choices necessitate choosing certainty over protecting initially conferred “rights”—to reflect on why we make such choices. Part IV also explores the role of individual responsibility—particularly as it relates to purchaser obligations to record and examine records—as the core justification for setting the rules in a manner that may result in first- in-time titleholders sometimes losing out to subsequent purchasers. Finally, Part IV concludes with a defense of the proposition that, despite our recognition of some exceptions from nemo dat , the law should constantly strive to develop in ways that can better approximate full adherence to a nemo dat ideal. This Article contends that we should structure our property law based on a preference for achieving the nemo dat ideal as closely as possible, understanding that pragmatism concerns do in fact make some exceptions necessary while also appreciating that we should find ways to minimize the need for invoking such exceptions and reduce the need to rely on such second-best solutions to dirty deeds. Without changing criteria for the exceptions, we can change the access to information and the speed of its flow to shrink the pool of those who fit the criteria for the bona fide purchaser exception. This would not be done by changing the nature of the protections available to innocent bona fide purchasers but instead by finding new ways to inject more information about land conveyances into the public view—beyond traditional recording mechanisms—so that more and earlier notice of possible competing property claims is available to responsible purchasers exercising due diligence. To accomplish that goal, this Article concludes in Part V with one proposal that aims to take advantage of what I call the underexploited utility of “inquiry notice.” The idea is to create better conditions to give first-in-time purchasers additional opportunities to protect their title interests by more easily triggering the inquiry obligations of second-in- time and other subsequent purchasers. This Article outlines the
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components of a proposed new and innovative service that I call the “Title-Related Inquiry Notice Triggering System” (TINTS). As outlined, TINTS would operate in a manner that would provide a means for purchasers of property to protect their claim to title even earlier than official recording might accommodate. Taking advantage of modern technology with near-instantaneous uploading of information into the publicly available TINTS, purchasers can notify the world of the existence of their claim to a particular piece of property immediately upon the completion of a conveyance from the grantor. Through the development of custom, or perhaps by statutory mandate, it could become common practice for all purchasers to also access TINTS and search for potentially competing claims to the same property. Part V acknowledges potential risks of abuse in such a system like TINTS that could themselves have market-disrupting effects. It offers some starting suggestions for controls against such risks, while explaining the market-facilitating benefits from a system like TINTS. In the end, we should find ways to strengthen the law’s ability to make and defend the claim more frequently that one truly cannot sell what they have previously sold. TINTS, or other innovations like it, can assist us in matching these nemo dat preferences with property law pragmatism. Maximizing the consonance of outcomes in real world title contests with the nemo dat ideal should be a goal of the property system.
II. A BRIEF INTRODUCTION TO THE NEMO DAT PRINCIPLE AND ITS PLACE IN REAL PROPERTY LAW
As stated at the top of this Article, the Latin maxim nemo dat quod non habet —one cannot give what they do not have (or, you have to have it to give it)^4 —holds a special place in our law. The nemo dat principle is so strong that it has broad applications associated with the transfer of most assets, not just real property.^5
- See BLACK’S LAW DICTIONARY 1933 (10th ed. 2014) (“No one gives what he does not have... .”); Kevin E. Davis, The Effects of Forfeiture on Third Parties , 48 MCGILL L.J. 183, 196– 97 (2003) (articulating the “common law rule of nemo dat quod non habet (‘he who hath not cannot give’)”).
- See, e.g. , Stephen T. Black, Psst! Wanna Buy a Bridge? IP Transfers of Non-Existent Property , 31 GA. ST. U. L. REV. 523, 529–30 (2015) (discussing the broader applications of nemo dat -like norms); Adam J. Levitin, Finding Nemo: Rediscovering the Virtues of Negotiability in the Wake of Enron , 2007 COLUM. BUS. L. REV. 83, 90 (2007) [hereinafter Levitin, Finding Nemo ] (defining “the commercial law principle of nemo dat quod non habet —you can transfer only what you have”) (emphasis added); Carl S. Bjerre, Secured Transactions Inside Out: Negative Pledge Covenants, Property and Perfection , 84 CORNELL L. REV. 305, 333 (1999) (“[I]f the owner grants a security interest to one lender, the nemo dat principle standing alone would dictate that the owner
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ownership.^10 Do the exceptions to nemo dat also make sense? To a degree, I think the answer is a clear yes. But those exceptions require more explanation, especially because they must overcome this intuitive, common sense belief^11 that no one should be able to sell the same thing twice. The application of nemo dat , however, cannot in modern law be divorced from the necessity of standards for setting priorities between multiple innocent claimants rather than simply applying a priority-by-time-of- conveyance rule.^12 The next Part will give readers the background necessary to understand how the law has come to develop these recording and title priority rules. The rules discussed are normally just referred to as basic rules of recording real property interests. Yet these rules take on a new meaning and understanding if they are framed as exceptions to, and pragmatic tools for the management of, the nemo dat principle and as considered deviations away from the nemo dat preference.
III. BACKGROUND: BASIC TERMINOLOGY AND DOCTRINE FOR RECORDING ACTS AND NOTICE MECHANISMS
Before reaching the heart of this Article’s assessment of the reasons to adhere to a nemo dat principle and the reasons for its exceptions, this Part will provide some basic terminological and doctrinal background to orient the reader to the various types of recording statutory regimes and how they operate. Most of the discussion regarding why these systems operate as they do and the purposes of recording will be saved for later Parts in this Article. For now, the purpose will be to make sure all readers have a basic understanding of the recording system and the types of notice recognized by the law within that system.
- Cf. generally ROBERT FULGHUM, ALL I REALLY NEED TO KNOW I LEARNED IN KINDERGARTEN 6 (1988) (“Don’t take things that aren’t yours.”).
- Henry E. Smith, On the Economy of Concepts in Property , 160 U. PA. L. REV. 2097, 2120 (2012) (stating that the nemo dat principle “sounds like common sense, and it is”).
- Davis, supra note 4, at 196 n.67 (“[ N ] emo dat rule is merely a priority rule... .”); see also Levinz v. Will, 1 Dall. 430, 433–34 (Pa. 1789) (evaluating early act requiring recording of mortgage within six months in order to be effective against mortgagor and discussing the fact that “in the case of an innocent purchasor without notice of a previous conveyance... there may be circumstances which place him in a more favorable point of view” and explaining that recording statutes reflect that concern).
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A. Types of Recording Statutes
When two or more individuals make claim to the same piece of property, rules must be established to resolve these competing claims. The following sections will evaluate four basic types of jurisdictional approaches to this problem: (1) no recording statute and instead where common law principles of first-in-time prevail; (2) “race” recording statutes; (3) “notice” recording statutes; and (4) “race-notice” statutes.^13 In each of these cases, we are concerned with a competing claimant other than the grantor, i.e. two different purchaser-grantees. Because a grantor and grantee are parties to their own conveyance, their respective rights vis-à-vis each other will be judged by the terms of the conveyance. Resolution of competing claims between those parties will be resolved based on the documents and circumstances surrounding their transaction rather than on the recording rules of the jurisdiction. An unrecorded deed is still valid and binding as between those parties to a conveyance of the property (and does so even in the face of statutory language that appears to claim only recorded deeds are “valid” because, under those statutes, the validity is being judged only with regard to subsequent purchasers).^14 This Article’s major concern lies outside that initial relationship and instead focuses most of its attention on disputes between multiple purchasers claiming to hold title to the same property. Today, all states have some type of recording act and none rely on common law rules alone for the priorities between successive purchasers.^15 Very few states use pure race rules,^16 while the remainder
- On each of the types of recording regimes, including first-in-time and no recording act, see JOSEPH WILLIAM SINGER, PROPERTY § 11.4.5.2 (3d ed. 2010); 1 JOYCE PALOMAR, PATTON AND PALOMAR ON LAND TITLES § 5 (3d ed. 2003) (dedicating treatise section to comparing recording acts); see also John H. Scheid, Down Labyrinthine Ways: A Recording Acts Guide for First Year Law Students , 80 U. DET. MERCY L. REV. 91, 106–10 (2002) (describing the basics of the recording acts and notice requirements and rules); Michael Palestina, Comment, Of Registry: Louisiana’s Revised Public Records Doctrine , 53 LOY. L. REV. 989, 1000–02 (2007) (describing the recording systems and notice requirements).
- See 5 HERBERT THORNDIKE TIFFANY, THE LAW OF REAL PROPERTY § 1262 (3d ed. 1939 & Supp. 2004) (failing to record only affects subsequent purchaser and “a failure to record the instrument in no way affects the passing of title as between the parties thereto” even when a statute “provides that a deed of real property shall not be valid for purpose of passing title unless it is acknowledged and recorded as directed by the statute”).
- See Charles Szypszak, Real Estate Records, The Captive Public, and Opportunities for the Public Good , 43 GONZ. L. REV. 5, 24 (2007–2008) [hereinafter Szypszak, Real Estate Records ] (“All states have... laws that govern the effect of recording... .”).
- See SINGER, supra note 13, § 11.4.5.2, at 541 n.308. See also Szypszak, Real Estate Records , supra note 15, at 26 (stating only three states have pure race statutes).
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same property twice and commit fraud, such second sale will not have legal effect and will not subordinate the first purchaser’s rights to the property. It is precisely the possibility of fraud and the way it was encouraged under these common law rules—because there was no definitive records office to verify claims, requiring multiple claimants to expend money proving their case for priority based on developing an evidentiary record that they were first in time—that led to substantial criticism of the system and motivated the adoption of recording laws as providing more effective verifiability systems.^23 Without recording provisions and effect given to the act of recording, individuals were easily duped into buying property that had already been sold to another because there was no way to check and verify the existence or non-existence of competing claims. The move toward recording regimes was designed, in part, to resolve that issue of undetectability.^24 Recording helps provide evidence of a superior claim to the world, or at least helps define the meaning of “superior” in a manner accompanied with mechanisms to verify that priority. Recording is the method by which modern purchasers vaunt their claim to newly conveyed property and serve public notice, which takes the place of less transparent and verifiable means of proof.^25 With the passage of recording acts, the states have replaced the common law priority rules with laws that require either some step beyond conveyance or, at the very least, an additional metric of notice to come into play before determining which grantee receives priority in a title contest.^26 In other words, in every state in the United States, it is now usually no longer enough to simply be the first party to be conveyed property in order to win in a title contest.^27 Of course, in those situations where recording acts exist but no claimants (original or subsequent) take advantage of them—i.e. when neither party can fit into the safe harbor that a recording system typically provides—the parties are defaulted
- Id. at 463 (“To meet the needs of today’s urban, highly mobile society, a land transfer system must provide for simple, secure, and inexpensive transfers.”).
- Charles Szypszak, North Carolina’s Real Estate Recording Laws: The Ghost of 1885 , 28 N.C. CENT. L.J. 199, 200 (2006) [hereinafter Szypszak, North Carolina ] (stating recording laws work to protect purchasers against “undetectable competing claims”).
- See 1 PALOMAR, supra note 13, § 17 (“The record of a deed today serves the same function of public notice as did livery of seisin and the delivery of a twig, clod or key in former times.”).
- See 5 TIFFANY, supra note 14, § 1262 (describing how recording acts preempt prior first- in-time common law rules).
- See Szypszak, Real Estate Records , supra note 15, at 24 (describing the resolution of conflicting claims under no recording statute and then under each of the existing recording regimes).
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back into a first-in-time resolution of a title dispute. Without a recording system, a purchaser would be entirely dependent on the assurances of the vendor of the property—a situation that is rife with the potential for abuse.^28 After all, what incentive would there be for a vendor to disclose the existence of prior competing interests? The recording system seeks to provide an institutional correction and a market-enhancing mechanism to defeat those temptations to commit such dirty deeds. A primary purpose of recording is to create official public records that protect buyers “against any competing claims that may be created by the grantor in others”^29 and to influence the behavior of owners (and their lawyers and other representatives) in a way that motivates the creation and transaction of title that is as clean as possible. The next subsections outline the three jurisdictional models adopted in various states. Through application of each of these recording acts in their own way, it can be said that particular individuals will “win” in some contests based on operational exceptions to the nemo dat principle. All of the recording acts at least diminish the nemo dat principle’s power as a controlling influence in title disputes.
- Race Jurisdictions
In the very few jurisdictions that have chosen to operate under a “race” statute, the idea is simple: when there are two competing successive purchasers of a particular piece of property, the first to record his interest is awarded the property because he has won the race to the recording office.^30 To see how a race statute is typically worded, consider the following language from the recording laws of North Carolina:
§ 47-18. Conveyances, contracts to convey, options and leases of land
- The U.S. Supreme Court explained these perverse incentives in its Neslin v. Wells opinion: To hold otherwise would be to declare that land should cease generally to be the subject of sale; for no amount of diligence on the part of a purchaser would insure his title. He would, of course, demand of the vender an inspection of his title-deeds. From them he would learn the chain of title. A production and examination of the deeds made in the common form would show by their recitals that none of the preceding owners could have any claim for unpaid purchase-money, for the receipt of it, in each instance, is usually contained in the deed. He would, therefore, reasonably deem it unnecessary to make any personal inquiry, and in respect to supposed incumbrances in favor of strangers he would be compelled to rely upon the statements of the vendor. Neslin v. Wells, 104 U.S. 428, 436 (1881).
- SINGER, supra note 13, § 11.4.5.1, at 538.
- See Szypszak, Real Estate Records , supra note 15, at 24–25.
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purchasers without notice are valued less in pure race jurisdictions.^34 Neither time of conveyance nor whether either party had notice of the other party matters in a pure race jurisdiction.^35 Thus, even a second purchaser who knows of the first purchaser can prevail.^36 For this reason, some see pure race as unfair, explaining also the popularity of the other two regimes: notice and race-notice.^37 In contrast to pure race regimes, the idea behind notice and race-notice alternatives is to protect bona fide purchasers who take from grantors and, by no fault of their own, have no idea that another party has been previously sold the property.^38 On the other side of the coin, another related purpose is to avoid rewarding later purchasers who know the grantor has already sold the same property to someone else.^39 In other words, these other models protect a bona fide purchaser for value and without notice—someone who has no reason to question the authority of his grantor to sell the property in question^40 —while race is indifferent to such a complexion. The recording laws have developed in most jurisdictions under models that care about such purchaser characteristics.^41 With slight variation between them, these two notice-based models shield those later purchasers who have an honest belief in the legitimacy of the real property transaction to which they become a party,^42 as the next two subsections detail in turn.
- See, e.g., ANDERSON & BOGART, supra note 17, at 542 (“[R]ace statutes value certainty over fairness,” promoting the idea that by “fair” we mean protecting subsequent purchasers without notice).
- See id. at 542–43.
- Id.
- SINGER, supra note 13, § 11.4.5.2, at 542 (discussing the inequities in race statute regimes where it allows “later buyers to prevail over earlier buyers when they know about the earlier conveyance” that notice and race-notice attempt to correct).
- See Hutchinson v. Harttmann, 15 Kan. 133, 141 (1875) (defining bona fide purchaser); Cunningham v. Norwegian Lutheran Church of Am., 184 P.2d 834, 836 – 37 (Wash. 1947) (upholding basic protections for bona fide purchasers) (citing Kroetch v. Hinnenkamp, 18 P.2d 491, 492 (Wash. 1933)).
- See Szypszak, Real Estate Records , supra note 15, at 25.
- Chad J. Pomeroy, Ending Surprise Liens on Real Property , 11 NEV. L.J. 139, 142 n. (2010) (describing the broad meaning of “bona fide purchaser for value” as “derivative of the common law concept of one who gains an interest in property for fair value and in good faith believing the seller possessed full rights to the transferred property interest”).
- See Szypszak, Real Estate Records , supra note 15, at 24–25.
- Beach v. Faust, 40 P.2d 822, 823 (Cal. 1935) (“The recording laws[‘]... purpose is to protect those who honestly believe they are acquiring a good title, and who invest some substantial sum in reliance on that belief.”).
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- Notice Jurisdictions
Pure notice jurisdictions^43 focus on just that—notice.^44 In a pure notice jurisdiction, a subsequent purchaser who takes a property without notice of the prior claimant will win, in essence, invalidating or subordinating the rights of the prior grantee.^45 Some phrase the notice jurisdiction rules as meaning this result occurs regardless of who records first, and that phrasing has some merit.^46 But, while that may be technically true, it is always the case that if the first grantee records before the conveyance to the subsequent grantee, then the subsequent grantee will be on record notice of the prior grantee and will not be in a position to invalidate the prior grantee’s claim.^47 In other words, if the subsequent grantee has notice—record or otherwise—of the earlier conveyance then that subsequent grantee cannot take priority. A typical notice jurisdiction will have language in its recording act similar to that used in Kansas: “No such instrument [conveying or affecting real estate] in writing shall be valid, except between the parties thereto, and such as have actual notice thereof, until the same shall be deposited with the register of deeds for record.”^48 Recording itself ensures that all parties will have notice of the pre-existing claim and cannot claim to be without notice.^49 But until title is recorded, so long as a subsequent purchaser is without “actual notice” (which is a term that Kansas and other jurisdictions have generally interpreted quite broadly to include actual, implied, constructive, record, and inquiry notice^50 ) of the
- Notice jurisdictions are sometimes referred to as “pure notice” jurisdictions so as not to be confused with race-notice jurisdictions. See Szypszak, Real Estate Records , supra note 15, at 28.
- See id. at 27.
- Id.
- See id. at 26–27 (explaining notice jurisdiction rules).
- See infra Part III.B.
- KAN. STAT. ANN. § 58-2223 (2008). This section is titled “[Recordation of instruments conveying or affecting real estate]; unrecorded instrument valid only between parties having actual notice.” See also MO. REV. STAT. § 442.400 (2000) (“No such instrument in writing shall be valid, except between the parties thereto, and such as have actual notice thereof, until the same shall be deposited with the recorder for record.”). It should be noted that the word “deposited” here identifies the point of legal effectiveness for certain purposes but not all. See infra Part V. This is because subsequent purchasers sometimes will not be charged with knowledge of the recording until it is both deposited and thereafter indexed and recorded in a manner that makes the deed capable of being found through a diligent search of the records in the records office. Id. Cases dealing with delays and misindexing often raise complex, fact-specific issues and differential treatment across jurisdictions that are beyond the scope of this Article.
- See infra Part III.B.
- See, e.g. , Faris v. Finnup, 113 P. 407, 408 (Kan. 1911) (“Actual notice may be either express or implied; that is, it may consist of knowledge actually brought personally home, or it may consist of knowledge of facts so informing that a reasonably cautious person would be led by them
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the property is sold to a second purchaser without notice, the first purchaser (so long as he also had no notice of competing claims at the time of his purchase (which is subsumed if he is truly “first”)) still has a window to perfect his claim to title by recording before (and winning the race with) the subsequent purchaser.^54 California’s recording statute provides a good example of terms used to create a race-notice system:
Every conveyance of real property or an estate for years therein, other than a lease for a term not exceeding one year, 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.^55
In essence, race-notice jurisdictions protect those that are first to file so long as they are without notice of prior purchasers.^56 Consider the following example application. If the subsequent purchaser D takes without notice on Tuesday, then the earlier purchaser C (who was also without notice of competing claims) records on Wednesday, then the subsequent purchaser D records on Thursday, the result is that the subsequent purchaser D is too late in a race-notice jurisdiction. Despite his “innocence”—i.e. lack of knowledge or notice of the earlier claimant— D was not quick enough, and D loses. Note that in a pure notice jurisdiction, however, D would have won under the above facts (because he took without notice, including without record notice because at the time D purchased C still had not yet recorded). In order for D to win in the facts above, he would have needed to record sometime before C.
As mentioned above, despite variations in the language of some
investigate and ascertain the ultimate facts.” Id. at 170.
- See William A. Reppy, Jr., Some Issues Raised by Alaska’s Recording Act , 27 ALASKA L. REV. 195, 198 (2010). Professor Reppy explains it this way: Under a Notice-type statute, as soon as the second-in-time deed is delivered to a bona fide purchaser, the prior grantee who had yet to record is divested of his or her title that conflicts with the grant to the subsequent purchaser. But under a Race-Notice statute, title remains in the first grantee until the subsequent bona fide purchaser records. Thus, the prior grantee is only divested if the subsequent purchaser actually records. Id. at 197.
- CAL. CIV. CODE § 1214 (West 2007). The title of this section is “Prior recording of subsequent conveyances, mortgages, judgments.”
- Id.
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recording statutes, they (except for race jurisdictions) “almost invariably... have received the same construction, as affording protection to a subsequent purchaser only when he is without notice of the unrecorded conveyance.”^57 Under all of these variations on establishing priority, if a first-in-time purchaser acts responsibly and records, most often he will be protected.^58 Of course prudence dictates that one should immediately record, yet that may not be enough protection in every case. There may be gaps between the filing of a record and its effectiveness in the recording office that must be addressed and these are some of the concerns addressed later in this Article.^59 Nonetheless, the vast majority of interests can be protected against adverse claims by prompt recording no matter what jurisdictional rules apply—whether it is to win the race, to use the recording to provide notice, or to both provide notice and beat others (who are without notice) in a race to the perfection of one’s title. Once the first grantee files and creates record notice, he is protected against subsequent purchasers under both notice and race-notice regimes because all others will be put on notice of the competing claim^60 and therefore will be unable to meet the standards to be an eligible bona fide purchaser without notice^61 (and, consequently, will usually lose in a contest with a prior title claimant^62 ). Once title is recorded, the prior owner’s ability to successfully carry out a fraudulent re-conveyance without exposure and liability is severely diminished. This fraud-deterrence function is at least one rationale underlying the development of recording laws and bona fide purchaser protections.^63 The process of recording should capture and prevent most multiple sales from subordinating the first-in-time purchaser.^64 Nonetheless—whether it is because of errors in recording, gaps in
- 5 TIFFANY, supra note 14, § 1283.
- See id.
- See infra Part V.
- Neslin v. Wells, 104 U.S. 428, 433 (1881) (“It is a mere corollary from this datum that these records are, by construction of law, notice to all persons of what they contain.”).
- Poplin v. Mundell, 27 Kan. 138, 156 (Kan. 1882) (acknowledging effects of record notice on subsequent purchasers).
- See Dan S. Schechter, Judicial Lien Creditors Versus Prior Unrecorded Transferees of Real Property: Rethinking the Goals of the Recording System and Their Consequences , 62 S. CAL. L. REV. 105, 116–17 (1988) (discussing relative cost avoidance and explaining that when we assume that a subsequent purchaser had “notice of the prior unrecorded interest, it follows that he could have avoided the problem” by informing himself and thereafter refusing to purchase “but failed to do so”).
- Id. at 112 (“[T]he fraud deterrence rationale partly explains why relying classes of subsequent transferees would be protected, while the certainty rationale partly explains why some unrecorded transfers not involving fraud are nevertheless invalidated.”).
- See id. at 118.
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about it typically lacks the ability to “win” in a battle for the property over the prior grantee.^68 Given how critical notice becomes to the operation of the recording system and the identification of priority between competing claims, this Part will close with some introductory background on the types of notice recognized by the law as defeating one’s ability to claim status as a subsequent bona fide purchaser.
B. Background on Types of Notice
If you know or should know that a grantor lacks or might lack the authority to sell you a piece of property, then you cannot claim to be innocent in the possible perpetuation of fraud by the grantor.^69 It is a matter of equity, always (both before, after, and irrespective of any existing notice or race-notice recording acts), that one with notice of an adverse claim purchases without the good faith necessary to give that purchaser the legal status surrounding the term “bona fide purchaser.”^70 Although this status is more formally sometimes referred to as “bona fide purchaser for value” or “bona fide purchaser for value and without notice” or “bona fide purchaser without notice,” this Article will mainly use “bona fide purchaser” as shorthand for these longer terms that mean essentially: to be entitled to protection under notice and race-notice recording acts, the purchaser is one who buys the property, for a real, non-sham value, is not engaged in fraud, and has no notice that something is not quite right with the sale.^71 This Article’s concern is principally on the “notice” aspect of this status, and this section will
- See 5 TIFFANY, supra note 14, § 1285 (explaining in most states actual notice or information that will put one “on inquiry in regard to [a prior] conveyance” is “sufficient, in order to deprive a person of the right to claim as against a prior unrecorded conveyance”).
- See 1 PALOMAR, supra note 13, § 11 (noting that the phrase “innocent” purchaser is sometimes used as the equivalent of “bona fide” purchaser).
- It has always been the case that as an equitable matter one taking property with notice of an adverse and enforceable claim cannot claim to have the qualities of an innocent necessary to be a bona fide purchaser: [I]n the period prior to the enactment of recording statutes, rules originated for the determination of priorities.... Conflicting claims not covered by statute fall into three classifications, all covered by the general law rule that the first in time is first in right, re- enforced by the equity maxim that equity follows the law.... [W]hen the earlier right is equitable, the courts allow it priority in the event only that the holder of the later legal interest acquired it with notice, or did not pay value for it; if the holder of the later legal claim is a purchaser for value without notice of the earlier equitable right or interest, the equitable doctrine of bona fide purchaser prevails and it is the later claim which is protected. 4 THOMAS E. ATKINSON ET AL., AMERICAN LAW OF PROPERTY § 17.1, at 523–25 (A. James Casner ed., 1952).
- See 1 PALOMAR, supra note 13, § 11.
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address the meaning of “notice.” Notice itself is a broad concept with a number of variations but each having the same essential effect.^72 Notice may include actual knowledge of, or actual notice of, a fact.^73 This means the purchaser not only had information available to him but he also knew of that information (e.g., he was told the fact, he read the fact in the records, etc.).^74 Note that our protection through notice requirements is aimed at protecting a purchase, and thus what matters most is the quantum of notice available at the time the purchaser must pay consideration for the property. Many courts hold that actual notice may be express or implied.^75 There is also the category of “record notice” (sometimes referred to simply as “constructive notice” even though it is only one of several types of “constructive” notice, as will be discussed in a moment) where the world is presumed to be on notice of all claims to title properly recorded and of any facts that may be included in the title, deed, and other documents filed in that record for a particular piece of property.^76 And, it is the responsibility of all purchasers to check the record before purchasing property, lest they risk losing to a prior titleholder of record. Some wonderful language on record notice exists to describe the benefits and purposes of recording in the 1881 U.S. Supreme Court opinion in Neslin v. Wells ,^77 which, surprisingly, turns out to be an inexplicably rarely cited opinion. Neslin is a case involving claims of priority lien status by a claimed prior mortgagee of the same land to which another mortgagee made a claim.^78 Because it is so instructive and has rarely received ink in legal commentary, it is worth quoting parts of that opinion at length. Faced with interpreting early Utah legislation that “did not require that a mortgage should be recorded in order to be valid, and did not in terms declare what should be the legal effect of recording or omitting to record it,”^79 the Court needed to set forth some general principles of notice that it identified as broadly applicable regardless of the type of
- Id. § 12 (defining various types of notice for recording statute purposes).
- Id.
- Id.
- See, e.g. , Faris v. Finnup, 113 P. 407, 408 (Kan. 1911) (“Actual notice may be either express or implied; that is, it may consist of knowledge actually brought personally home, or it may consist of knowledge of facts so informing that a reasonably cautious person would be led by them to the ultimate fact.”).
- Id.
- 104 U.S. 428, 428 (1881). 78_. Id._
- Id. at 432.
