Corinth Bank & Trust Co. v. Wallace

71 So. 266, 111 Miss. 62

• Court: Mississippi Supreme Court
• Decided: March 15, 1916
• Status: Published

Opinion

Sykes, J.,

delivered the opinion of the court.

This is an appeal from a decree of the chancery court of Alcorn county upon an agreed statement of facts which is, in substance, as follows: On June 14, 1906, the complainant, Charles H. Gish, and one J, W. Taylor entered into a written lease contract whereby said J. W. Taylor leased to Charles H. Gish, for a consideration of one thousand, two hundred dollars per annum, the south half of the first floor of a brick building known as the Opera House building in the city of Corinth, Miss., said lease beginning the 1st day of September, 1906, and to end on the 1st day of September, 1911, with the option in the said Gish of renewing the lease for an additional three years. This lease was duly signed by the lessor and lessee, but was neither acknowledged nor recorded in the chancery clerk’s office in Alcorn county. On the 29th day of April 1907, J. W. Taylor, the owner of said opera House building borrowed from the Corinth Bank & Trust Company twenty-five thousand dollars for which he gave his note and executed a trust deed upon the lots on which said Opera House building was located, which trust deed was duly filed for record and recorded in trust deed book in the chancery clerk’s office in Alcorn county. It is agreed that Taylor was the owner of the lots and building, both at the time he executed this trust deed and at the time he executed the lease to the said Gish. It is further agreed that the trustee in the deed of trust, on the 22d day of June, 1908, sold the property under the terms of said trust deed, and that the Corinth Bank & Trust Company became the purchaser of said property, and that the trustee executed deed to same on the 24th day of June, 1908, which deed was promptly and duly recorded in the chancery clerk’s office in accordance with law; that the said bank immediately went into possession of the property so purchased; that the lessee Gish is occupying and using the property leased to him under the lease and has been in possession of it since the execution of same; that the said bank is collecting rent from all of the tenants in said building except the said Gish, who has declined to pay rent to sai*d bank. It is further agreed that the said lease was never recorded in the chancery clerk’s office of Alcorn county; also that the Corinth Bank & Trust Company had no notice of the lease contract, or knew of its existence, until some time after the execution of the note and deed of trust to it by the said Taylor. It is further agreed that the said bank knew that Gish was in possession of and occupying the said house and premises on the day and date that the said trust deed was executed and on the day of the sale by the said trustee. It is further agreed that on the day the lease contract was signed the said J. W. Taylor assigned said lease contract to the Tishomingo Savings Institution in the following manner,' as is stated by the said J. W. Taylor :

“I, on the same date, assigned the lease to the Tishomingo Savings Institution by entering the same on the note register of the Tishomingo Savings Institution, and they belong to the bank when they are entered on the said register. I was entitled to a credit on my individual account in said bank for the assignment of this lease, but I was never given any credit for the same. ’ ’

It is also agreed that J. W. Taylor was president and general manager of the Tishomingo Savings Institution, and that he owned the principal amount of the capital stock of said institution and that both he and the institution are insolvent. The agreement further" shows that Gish had a deposit account with the said Tishomingo Savings Institution, and that the installments or rent as the same matured were charged each month against the said Gish’s account in the bank. The agreement further shows that on December 10', 1907, J. W. Taylor and the Tishomingo Sayings Institution assigned in writing the said lease contract of Gish to W. F. Wallace. It is further agreed that after the assignment of the lease contract to the said Wallace, Gish has been paying the monthly rental as the same matured to the said Wallace until the sale and purchase of said property by the Corinth Bank & Trust Company. The Corinth Bank & Trust Company and the said Wallace are both claiming that the rents be paid them by the said Gish. Under this statement of facts Gish filed his bill in the chancery court of Alcorn county, praying that the court decree to whom he shall pay these rents, and making the bank and Wallace defendants. Both defendants filed their answers, each claiming the rent under said contract. The learned chancellor entered a decree in favor of W. F. Wallace, from which decree the Corinth Bank & Trust Company prosecute this appeal.

. It is the contention of the appellant that the possession of the tenant Gish was notice to the Corinth Bank & Trust Company: First, of the terms of the lease of Taylor to Gish; and, second, of its having been assigned by Taylor. Appellant admits that the possession of the tenant Gish is constructive notice of the lease or tenancy and of its terms, but denies that it is notice of the assignment of same.

Appellee contends that since the lease is assignable under sections 2877, 2878, and 4001 of the Code of 1906, it' would be a delusion and a snare for the courts to hold that a mortgagee does not have notice of this assignment at the time of the execution of the mortgage. A lease contract of this character, however, was assignable under the common law before the enactment of the statutes referred to by counsel for appellee. These statutes simply enlarge and broaden the rights of the assignee of the lease under them under certain circumstances which are not involved in this case. Consequently, these sections have nothing to do with the determinng of the case at bar.

Section 2763 of the Code of 1906 provides that an estate for a term of more than one year in lands shall not be conveyed from one to another unless the conveyance be declared by writing signed and delivered. Section 4775 provides that an action shall not be brought whereby to. charge a defendant or other party upon any contract for the sale of land, tenements, or hereditaments, or the making of any lease thereof for a longer term than one year, unless' the promise or agreement be.in writing, etc. Section 2787 of the Code-provides that all conveyances of lands, whether made for passing an estate of freehold or inheritance, or for a term of years, shall be void as to all creditors and subsequent purchasers for a valuable consideration without notice, unless they be acknowledged or proved and lodged with the clerk of the chancery court of the proper county to be.-recorded, etc.; but the same as between the parties and their heirs, and as, to all subsequent purchasers with notice or without valu-' able consideration, shall nevertheless be valid and binding. An examination of the above sections shows .that it is the general scheme and purpose of our law, relating to contracts with reference to lands, that they should be recorded in order to give notice to all parties dealing with these lands; that if they are not recorded, then no one is bound by any agreement not filed for record unless he has actual knowledge or constructive notice of the same. It is also the law that the evidence relating to constructive notice must be positive. In this case this notice is attempted to be fastened upon the appellant because of the possession of the tenant Gish.

It is to be remembered, however, that the contract of lease was made between J. W. Taylor and Gish, and, at best for the appellee, appellant is only charged in this case with the terms and conditions of the lease, namely, that Gish had leased the building at a certain stated price ■for a period of years from J. W. Taylor. It was not incumbent upon the appellant, however, to make any inquiry whatever save as to the terms of the lease. In fact, the record is absolutely silent that Gish himself had notice of the assignment of the lease. The agreed statement of facts shows that J. W. Taylor, the lessor, was the manager and president of the Tishomingo Savings Institution, and that Gish had a deposit in this bank, and that the rents were charged to him monthly by the bank. It is perfectly natural for Gish to have assumed that this was being done for the benefit of Mr. Taylor, since the record shows that Taylor was the active manager and owner of a large part of the stock of this bank. Consequently the case of appellee would fail even if the court should hold that whatever knowledge Gish had of the assignment of this lease was chargeable to the Corinth Bank,& Trust Company. This, however, is not the law. In passing upon this question of constructive notice, this court, in the case of Claiborne v. Holmes, 51 Miss. 146, says:

“It is contended that aside from the question of registration, Thatcher had notice of the conveyance to Mrs. Dunbar. It is not pretended that Thatcher had positive knowledge of the deed, but that he had knowledge of facts from which notice should be inferred. The alleged fact is the possession by Mrs. Dunbar after her purchase. It is laid down in many cases that possession is notice, or a fact from which it may be inferred. Dixon & Starkey v. Lacoste, 1 Smedes & M. 107; Wilty v. Hightower, 6 Smedes & M. 345; Jones v. Loggins, 37 Miss. 546. The subsequent vendee, with notice, is a purchaser mala fide. Where the evidence, as in this case, is to fix the notice inferentially, the circumstances ought to be positive, distinct, and emphatic. The notice must be clearly proved. McMechan v. Griffing, 3 Pick. (Mass.) 154, 15 Am. Dec. 198.”

In the case of Loughridge & Bogan v. John Bowland, 52 Miss. 546, this court, through Chief Justice Simrall, said:

“Possession by the vendor under an unrecorded deed is notice to creditors. Possession is a badge of ownership and evidence of a right. If the debtor has parted with the possession, a creditor is interested to know the nature and extent of the right, and is therefore put upon inquiry and is esteemed to know the truth to which investigation would lead. But, that possession may have the effect of protecting the title under which it is held, it must be of that character which would arrest attention. . . . Possession was laid hold of as a circumstance from which notice may be inferred; but, like other inferences, it depends for its force on the nature of the fact from which it Is deduced. The reason which underlies the doctrine is that it is a fraud — an act of mala fides — for a creditor or purchaser who had knowledge of a prior sale and purchase to attempt to defeat the purchaser’s right by getting his estate. . . . ‘There was no change in the occupancy of the ¿and. At the time of the sale Chears was in possession, by his tenants. After the sale the same tenants continued to hold, on an agreement to pay rents to Loughridge & Bogan. Nothing more occurred than a technical attornment of the tenants to them. There was a transfer of the title, but no change of possession that a stranger could observe. The actual occupancy in March and April after the sale, was just as it had been the prior months of the year. In all this there was nothing to arrest notice or to put a creditor or purchaser on inquiry. ’ ’ ’

In the case at bar Gish came into possession as a tenant of Taylor. There was no change in this tenancy whatever after the assignment of the lease. There was no knowledge of its assignment shown by said Gish, and there was no acknowledgment in any way by him or recognition of any other landlord than Taylor, so far as this record shows. In this respect the case is a much stronger one in favor of the appellant here than the case from which we have above quoted. In the Bowland Case there was notice shown in the tenants of the sale, and technical attornment by them to the new landlord, but the court held that the purchaser was not chargeable with such notice. We regard this case as decisive of the one under consideration.

A case directly in point is that of Steel v. De May et al., 102 Mich. 274, 60 N. W. 684, decided by the supreme ' court of Michigan, upon this same proposition. The opinion in part reads:

‘ ‘ It is contended by complainant that it was not necessary to the protection of complainant’s rights that the assignment of the lease be recorded; and that, the premises being in possession of lessees, and the leases in the custody of the complainant, it was the duty of the defendant Ella De May to make inquiry as to the terms of the lease, and as to the possession of the instruments, before purchasing, as the leases were the only evidence of the grantor’s title to the rents reserved, and of his right to collect such rents from the tenants in possession; and that, in the absence of such inquiry, she [Mrs. De May]' would be chargeable with notice of all the facts which she would have learned upon making the inquiry. We think that, while such possession of the lessees would be notice of their rights, it would not be notice that the title of De May had'been incumbered by the assignment' of the leases, reserving rent to himself.”

To hold that a bona fide mortgagee for value without notice is chargeable with an unrecorded assignment of a lease, would be, in our opinion, to open wide the door for fraud in transactions of this kind. The assignee or owner of the lease should protect himself by having Ms lease acknowledged and recorded. When he fails to do this, his rights are always subject to that of a purchaser or mortgagee for value and without notice.

Reversed and decree here for appellant.

Reversed.