American Federal Savings & Loan Ass'n v. Orenstein

265 N.W.2d 111, 81 Mich. App. 249, 1978 Mich. App. LEXIS 2126

• Court: Michigan Court of Appeals
• Decided: February 7, 1978
• Docket: Docket 77-2223
• Status: Published

Opinions

R. B. Burns, J.

We concur in the opinion of Judge Brown, except as to his discussion and resolution of the substantive issue. The reader is referred to Judge Brown’s opinion for the facts in the instant case.

The trial court granted summary judgment because it found the subordination clause unambiguously subordinated Orenstein’s mortgage to that of plaintiff. However, each party on appeal has presented reasonable interpretations of the same clause which are at variance with each other. If the clause is interpreted, as plaintiff suggests, as subordinating Orenstein’s mortgage not only to the interests of the New York State Teacher’s Retirement System and the General Electric Pension Trust, but also to an unspecified, yet-to-be-incurred interest of $4,125,000, then one immediately encounters an obvious ambiguity. If Orenstein’s mortgage is subordinate to three interests, why are only two numerals listed?

Judge Brown’s argument that the ambiguity must be resolved against the drafter of the clause, Orenstein, rests on the premise that a title searcher is never chargeable with inquiry notice when an ambiguity is encountered. This is not the law.

"It is the duty of a purchaser of real estate to investigate the title of his vendor, and to take notice of any adverse rights or equities of third persons which he has the means of discovering, and as to which he is put on inquiry. If he makes all the inquiry which due diligence requires, and still fails to discover the outstanding right, he is excused, but, if he fails to use due diligence, he is chargeable, as a matter of law, with notice of the facts which the inquiry would have disclosed.

"The questions in such cases are: First, whether the facts were sufficient to put the party on inquiry; and, second, did he fail to exercise due diligence in making the inquiry?” Schweiss v Woodruff, 73 Mich 473, 477-478; 41 NW 511, 512-513 (1889). (Emphasis in original.)

Cases in which a title defect would prevent a diligent title searcher from discovering the deed or recognizing its applicability must be distinguished from those in which the deed would have been discovered and a possible error revealed. Schweiss v Woodruff, supra at 478-479; 41 NW at 513; see, e.g., Savidge v Seager, 175 Mich 47; 140 NW 951 (1913); Van Slyck v Skinner, 41 Mich 186; 1 NW 971 (1879). In Patterson v Miller, 249 Mich 89, 96; 227 NW 674, 677 (1929), the ambiguity contained in a subordination clause was so subtle that the Court indicated that a covenant would have had to have been read into the clause to give it the asserted meaning.

The ambiguity in the instant subordination clause was so obvious as to put a prudent person on inquiry notice. Whether plaintiff would have discovered that the Orenstein mortgage would be superior or inferior to its own is a fact which is in dispute. Summary judgment was therefore improper.

Reversed and remanded for trial.

T. M. Burns, P. J., concurred.