First Citizens National Bank v. Sherwood

879 A.2d 178, 583 Pa. 466, 2005 Pa. LEXIS 1483

• Court: Supreme Court of Pennsylvania
• Decided: July 20, 2005
• Docket: 202 MAP 2003
• Status: Published

Opinions

OPINION

Chief Justice CAPPY.

This is a statutory construction matter. Specifically, we are asked to determine whether a purchaser of real property has constructive notice of a mortgage when the mortgage is properly recorded but defectively indexed. For the reasons that follow, we conclude that the applicable statutory authority mandates that a purchaser in such an instance is deemed to have constructive notice. Accordingly, we reverse the order of the Superior Court.

First Citizens National Bank (“First Citizens”) bought a piece of real property, which had been owned by J. Joel Turrell as Trustee for Genevieve Van Noy (“Turrell”), by virtue of a Sheriffs Deed. Prior to the purchase, First Citizens searched the mortgage index and discovered no encumbrances. After the sale was completed, First Citizens learned that Turrell had executed a mortgage in favor of Arthur W. Sherwood (“Sherwood”). The Bradford County Recorder of Deeds had properly recorded the Sherwood-Turrell mortgage. The mortgage was misindexed, however. Instead of being indexed under Turrell’s name, it was indexed under Van Noy’s name. Apparently, First Citizens had not cross-checked the mortgage index under Van Noy’s name as well as Turrell’s and thus did not discover the mortgage.

Upon discovering the Sherwood-Turrell mortgage, First Citizens filed an action to quiet title. The trial court granted summary judgment in favor of First Citizens. It held that when a lien had been improperly indexed, subsequent purchasers would not be deemed to have constructive notice of the lien. Accordingly, as the Sherwood-Turrell mortgage had been improperly indexed, the trial court concluded that First Citizens would not be deemed to have constructive notice of it.

Sherwood appealed. The Superior Court, relying heavily on case law from other jurisdictions, reasoned that a subsequent purchaser shall not be deemed to have notice of a prior lien so long as a “diligent search” would not have uncovered the lien. First Citizens Nat’l Bank v. Sherwood, 817 A.2d 501, 504-05 (Pa.Super.Ct.2003). The Superior Court held that the question of diligence is a factual one, dependent upon how accessible the records were at the time the search was conducted. Of import to the Superior Court was whether the particular county’s records were computerized or not. As the trial court had not conducted a factual inquiry into how accessible Bradford County’s records were, the Superior Court remanded this matter to the trial court for further proceedings.¹

First Citizens then filed a Petition for Allowance of Appeal, and we granted allocatur. The sole issue before this court is whether a purchaser may be deemed to have constructive notice of the existence of a mortgage when the mortgage is properly recorded but is defectively indexed. As this is a question of law, our standard of review is de novo and our scope of review is plenary. Buffalo Township v. Jones, 571 Pa. 637, 813 A.2d 659, 664 n. 4 (2002).

Our analysis focuses on two statutes. The first states that when a written agreement relating to real property is recorded, “[t]he legal effect of the recording of such agreements shall be to give constructive notice to subsequent purchasers....” 21 P.S. § 357.² Section 357 goes on to state that “the rights of the subsequent purchasers ... shall be limited thereby with the same force and effect as if said subsequent purchasers ... had actually joined in the execution of the [mortgage].... ” The second statute applies in those instances when a mortgage is properly indexed, and provides that such proper indexing “shall be notice to all persons of recording of the same.” 16 P.S. § 9853.

In applying these statutes to the matter sub judice, we are guided by the principles of our Statutory Construction Act. See 1 Pa.C.S. § 1501 et seq. The polestar in construing statutes is that where the words of a statute are clear and unambiguous, we must apply them as written. See 1 Pa.C.S. § 1921(b). The judiciary is not granted the liberty to disregard the plain words “under the pretext of pursuing its spirit.” Id. Furthermore, in the event that two statutes are in conflict, “the statute latest in date of final enactment shall prevail.” 1 Pa.C.S. § 1936.

In applying these principles, we conclude that the language of 21 P.S. § 357 is plain and unambiguous. Per § 357, the legal effect of the recording of a written agreement such as a mortgage is to give subsequent purchasers constructive notice of the mortgage. There is no ambiguity in the statute. There is no scope for us to read into that statute an equitable exception whereby a subsequent purchaser may be excused from constructive notice when the mortgage was properly recorded but improperly indexed. In applying 21 P.S. § 357 to the matter sub judice, First Citizens must be deemed to have constructive notice of the Sherwood-Turrell mortgage as it is beyond cavil that the Sherwood-Turrell mortgage was properly recorded.

First Citizens attempts to avoid this conclusion via two separate arguments. First, it argues that 16 P.S. § 9853 supports its position that a subsequent purchaser has no notice of a mortgage where that mortgage is improperly indexed, regardless of whether the mortgage was properly recorded. As noted by First Citizens, § 9853 states that a properly indexed mortgage shall be notice to all persons of the recording of the mortgage. First Citizens argues that if a proper indexing is notice to all persons, then the obverse is true: a subsequent purchaser presumptively has no notice where a mortgage is improperly indexed.

This argument fails. First, 16 P.S. § 9853 does not create a negative inference—namely, § 9853 does not stand for the proposition that a subsequent purchaser per se lacks notice where a mortgage is improperly indexed.

Furthermore, even if this were a logical interpretation of 16 P.S. § 9853, First Citizens would still not be entitled to relief. This is because such an interpretation of 16 P.S. § 9853 is squarely at odds with 21 P.S. § 357’s dictate that proper recordation of a mortgage constitutes constructive notice of the mortgage to subsequent purchasers. Accordingly, even if we were to adopt First Citizens construction of 16 P.S. § 9853, then we would have to find that 21 P.S. § 357 and 16 P.S. § 9853 are in conflict with each other. Were we to find that the two statutes were in conflict, 21 P.S. § 357 would prevail in any contest between the two because it was the statute enacted later in time.³ See 1 Pa.C.S. § 1936 (stating that in the event that two statutes are in conflict with one another, “the statute latest in date of final enactment shall prevail.”).

First Citizens’ next argument is that we cannot follow the plain language of 16 P.S. § 357 because it conflicts with Prouty v. Marshall, 225 Pa. 570, 74 A. 550 (1909). In brief, this Court in Prouty declared that where a mortgage is defectively recorded and wrongly indexed, a purchaser of the mortgaged premises without actual notice is not chargeable with constructive notice of such a mortgage.

Prouty does not support First Citizens position. First, the factual scenario in Prouty was quite different from that in the matter sub judice. In Prouty, the mortgage in that instance was not only improperly indexed but also defectively recorded. In this matter, it is without question that the mortgage was properly recorded. Furthermore, even if Prouty could be read to stand for the proposition that a subsequent purchaser will not be deemed to have constructive notice of a properly recorded but improperly indexed mortgage, it does not control the outcome of this matter as such a putative holding was effectively abrogated when the Legislature promulgated 16 P.S. § 357.⁴

Finally, we address a concept that runs through First Citizens’ arguments to this court. This concept is that we should adopt First Citizens’ position because it is sensible. In essence, First Citizens invites us to find in its favor because it is prudent to charge a subsequent purchaser with constructive notice only in those situations where the mortgage is both properly recorded and properly indexed.

We cannot accept this invitation. In addressing an issue of statutory construction, this court’s power is limited. Where the Legislature has crafted a statute which is clear and is squarely on point, we may not decline to apply it simply because we find that there are better policy options. Nor may we decline to follow an unambiguous statute on the basis that other jurisdictions have charted a different course with regard to the same issue.⁵ To put it bluntly, it is not our role to disregard clear policy choices made by the Legislature merely because we may believe these choices to be poor. If the Legislature chooses to amend the applicable statutes to create a system as envisioned by First Citizens, it may do so. We, however, may not. See Pap’s A.M. v. City of Erie, 553 Pa. 348, 719 A.2d 273, 281 (1998), reversed on other grounds, 529 U.S. 277, 120 S.Ct. 1382, 146 L.Ed.2d 265 (2000) (judiciary may not rewrite legislative enactments; separation of powers doctrine confers such authority solely on the legislative branch).

In sum, we conclude that since the Sherwood-Turrell mortgage was properly recorded, then per 21 P.S. § 357 all subsequent purchasers are deemed to have constructive notice of it. Accordingly, the order of the Superior Court is reversed, and this matter is remanded to the trial court for proceedings consistent with this opinion.

Former Justice LAMB did not participate in the decision of this case. Justice EAKIN files a dissenting opinion in which Justice SAYLOR joins.

1 . The Superior Court neglected to note in its order that the trial court's order was vacated. This was clearly an oversight on the lower court's part. Without vacating the order of the trial court, the trial court's order would stay in effect. Yet, the thrust of the Superior Court’s opinion was obviously that the trial court's original order was to have no effect. Accordingly, as this was clearly an oversight by the Superior Court, we will treat the Superior Court’s order as if it had vacated the trial court's order.

2 . We note that First Citizens fleetingly argues that 21 P.S. § 357 does not apply to this matter. Our esteemed colleague, Mr. Justice Eakin, also contends that § 357 does not apply. Mr. Justice Eakin offers a detailed analysis of his position. He states that 21 P.S. § 356 provides that only rights or privileges to real property which are of a "permanent nature" are subject to § 357's provision. He goes on to reason that rights created by mortgages are not permanent in nature and thus the provisions of § 357 cannot apply to mortgages.

While there is some surface appeal to our learned colleague’s argument, we find that we cannot adopt it as it is in tension with our recent decision in Pines v. Farrell, 577 Pa. 564, 848 A.2d 94 (2004). In Pines, this court wrestled with defining the nature of a mortgage. We recognized that there were two schools of thought on the matter. One view, called the "title theory", deems a mortgage to be a conveyance of land, granting the mortgagee (i.e., the entity which is loaning the money) title in the land. Pines, 848 A.2d at 99. The “lien theory”, however, stated that a mortgage did not grant the mortgagee title to the property, but merely a security interest. Id. After a detailed recitation of the history of these two competing schools of thought, Pines unambiguously endorsed the title theory. We stated that "mortgages traditionally have been treated as conveyances. In all questions upon the recording acts, the mortgage is spoken of as a conveyance of land.” Id. at 100 (citations and internal quotation marks omitted; emphasis supplied).

In light of our decision in Pines, we find it difficult to agree with the view taken by our learned colleague in the matter sub judice. A transfer of title is no insubstantial thing, but rather resembles a right or privilege which is permanent in nature. The fact that at one point the mortgagor may fulfill the obligations of the mortgage, and thereby receive title to the mortgaged property, does not negate the fact that mortgaging the property transfers the title to the mortgagee.

3 . 21 P.S. § 357 was enacted into law in 1931; 16 P.S. § 9853 was enacted in 1875.

4 . We note that 16 P.S. § 356 was enacted subsequent to our decision in Prouty.

5 . Although we may understand the frustration of the Superior Court in analyzing this matter, we are constrained to disapprove of its reliance on decisions from other jurisdictions with regard to this issue. As stated supra, the proper first step in analyzing this matter is to determine whether the language of the statutes is clear. While the Superior Court recognized that 21 P.S. § 357 and 16 P.S. § 9853 were implicated in this matter, it hastily abandoned its analysis of these statutes and turned instead to examining whether other jurisdictions declare that a subsequent purchaser has notice of a mortgage which has been improperly indexed. In divorcing itself from an analysis of the statutory law, the Superior Court clearly erred. As the language of 21 P.S. § 357 is clear and free from ambiguity, we must apply it; we may not avoid such an application on the basis that other jurisdictions have charted a different course.