Lown v. Nichols Plumbing and Heating, Inc.

634 P.2d 554, 1981 Alas. LEXIS 552

• Court: Alaska Supreme Court
• Decided: October 16, 1981
• Docket: 5087
• Status: Published

Opinions

OPINION

Before RABINOWITZ, C. J., CONNOR, BURKE and MATTHEWS, JJ., and DIMOND, Senior Justice.*

MATTHEWS, Justice.

In February 1978, the appellee, Nichols Plumbing and Heating, Inc. sued to quiet title to a parcel of land in the Chilkat Acres subdivision, located at Swanson Harbor, twenty-six miles west of Juneau. Appellant Robin Lown answered and counterclaimed, asserting that he was the fee simple owner of the land in question. The parties moved for summary judgment and the court ruled in favor of Nichols. Lown has appealed. We affirm.

On January 1, 1965, Walter and Carol Reams executed a promissory note to the Coast Small Business Investment Company, a California corporation. On December 14, 1965, as security for this note, the Reams signed a deed of trust covering several parcels of land, including the parcel at issue. Although this land lies within the Juneau recording district, the deed of trust was originally recorded in Petersburg, and was not correctly recorded in Juneau until May 1967.

Eight days after he executed the deed of trust, Walter Reams executed and recorded a deed conveying the land to J. J. Lown, appellant’s father. However, Reams did not tell J. J. Lown about this conveyance until early 1966. Shortly thereafter, the two visited the property. According to Lown, Reams told him that he had deeded Lown the property to induce him to build a lodge on it, so that the surrounding parcels retained by Reams would be saleable as cabin sites. Lown stated that he decided to accept the conveyance and to proceed with the lodge project in the summer of 1966.

On a second trip to Swanson Harbor that summer, Reams and Lown set up a wall tent on the land deeded to Lown. This tent was to be used in the initial stages of the lodge construction. Because they were unable to come up with construction money, however, nothing further was done in 1966.

In June 1967, Lown and Laura Bailey moved to Swanson Harbor and undertook construction of a 48' X 64' lodge. Their building and living supplies were paid for by Reams and delivered by him by boat from Juneau. However, neither Lown nor Bailey were paid for their work. After Reams’ death in the summer of 1968 Lown and Bailey were forced to abandon construction because of their lack of money and inability to get supplies.

In July of 1967, Coast began non-judicial foreclosure pursuant to the terms of the deed of trust. Notice of Reams’ default was mailed to Lown at his Juneau address, but he evidently did not receive this notice, although Reams had apparently been bringing his mail to Swanson Harbor. Reams was served personally with the notice of default, but never told Lown about it. The foreclosure sale took place on November 7, 1967, and Coast bought all the property listed in the deed of trust for the amount owed by Reams.

In December 1967, Lown, at the instigation of Bailey, finally asked Reams to deliver the deed to the property. Reams did so and explained to Lown that he had taken a loan on the rest of the property, but that the section deeded to Lown was unencumbered. Reams did not mention that the foreclosure sale had already occurred.

Lown deeded the land to Bailey and his son Robin in 1969. In 1975, Bailey deeded her interest in the land to Robin. Coast conveyed its interest to Nichols in April 1976, about two years before commencement of this action.

AS 34.15.290, provides:

Invalidity of unrecorded conveyance. A conveyance of real property in the state hereafter made, other than a lease for a term not exceeding one year, is void as against a subsequent innocent purchaser or mortgagee in good faith for a valuable consideration of the property or a portion of it, whose conveyance is first duly recorded. An unrecorded instrument is valid as between the parties to it and as against one who has actual notice of it.

The question in this case is whether J. J. Lown was, to use the terms of the statute, ah innocent purchaser in good faith for a valuable consideration, before Coast’s deed of trust was properly recorded in Juneau in May of 1967. If he was not, Robin Lown cannot claim priority of title under this statute. Instead, the general rule that a “purchaser at a deed of trust sale takes land subject only to those encumbrances which were created before execution of the trust deed. ...” ¹ governs.

J. J. Lown was initially a donee rather than a purchaser. By working to build a lodge on the property he substantially relied on his grant. Arguably, he may be said to have then given valuable consideration and perhaps should be considered to be a purchaser for the purposes of AS 34.15.290 as of the time of his substantial reliance.² If so, the statute cannot be construed to protect him because his substantial reliance did not take place until June of 1967, after Coast’s deed of trust was properly recorded.

This result is well supported by authority. Where a purchase is made, but the purchaser does not give substantial consideration until after a prior conveyance is recorded, the purchaser takes subject to the prior conveyance.³

This does not mean, as the dissent suggests, that one making installment payments must check the title at the recording office before making each payment. All that is required is an initial payment of substantial consideration, or a promise to pay which has been relied upon by a third person.⁴ Part of the policy of the rule is based on a change of position in reliance on the absence of record or actual notice. As the court stated in La Fon v. Grimes:

The principle upon which the doctrine of innocent purchaser for value rests, like equitable principles in general, is not a hard and fast rule of narrow application, but one to be liberally and equitably applied. Under it relief is denied to a purchaser without notice who has not paid value, on the ground that his equity arises, not out of his mere lack of notice, but out of injury to him, through an innocent change of position to his prejudice. It is therefore denied where the matter of the payment remains executory between purchaser and seller, and there is no irrevocable change of position. It is granted where either the buyer has paid the purchase price or has entered with third persons into a binding obligation with regard to it, whether the obligation arises out of the execution or the assumption of negotiable promissory notes, or other form of undertaking which the buyer is able to perform, and from which he cannot in law withdraw. McAnally v. Panther (Tex.Civ.App.) 26 S.W.2d 478; Essex v. Mitchell (Tex.Civ.App.) 183 S.W. 399; Tobin v. Benson (Tex.Civ.App.) 152 S.W. 642; Sparks v. Taylor, 99 Tex. 411, 90 S.W. 485, 6 L.R.A. (N.S.) 381; Clemmons v. McDowell (Tex.Civ.App.) 5 S.W.2d 224.

86 F.2d 809, 812-13 (5th Cir. 1936).

Since J. J. Lown, at best, stood in the position of a subsequent purchaser for valuable consideration only after Coast’s deed of trust was properly recorded, the deed of trust had priority over his deed.

Accordingly, the judgment is AFFIRMED.

RABINOWITZ, C. J., dissenting.

COMPTON, J., not participating.

1 . Alaska Laborers Training Fund v. P & R Enterprises, Inc., 583 P.2d 825, 826 (Alaska 1978) quoting Lynch v. McCann, 478 P.2d 835, 836-37 (Alaska 1970).

2 . We are aware of no cases holding that a donee who spends money in reliance on a deed of gift is protected under recording statutes similar to AS 34.15.290. Generally, donees are not regarded as receiving protection. See 6A R. Powell, The Law of Real Property § 915 at 284 (1980). However, see also Note, 41 U. of Colo.L.Rev. 290, 292 — 93 (1969) where a proposal is made for statutory reform recognizing the interest of a relying donee.

3 . E. g. La Fon v. Grimes, 86 F.2d 809, 812 (5th Cir. 1936); Givens v. Turner, 272 Ky. 211, 113 S.W.2d 1166, 1170 (1938); 4 A. Casner, American Law of Property § 17.10 at 557 (1952); 8 G. Thompson, Real Property §§ 4321, 4322, 4323 (J. Grimes rev. ed. 1963); R. Powell, supra note 3 § 916 at 288; 3 J. Pomeroy, A Treatise on Equity Jurisprudence §§ 750, 751, 755 (5th ed. 1948).

4 . A broad reading of Givens v. Turner, supra, might lead to a contrary result, but the Court of Appeals of Kentucky has since opted for a narrower reading. In Young v. Adams, the court stated that:

It is also contended that appellant’s status as an innocent purchaser is destroyed because part of the purchase price was not paid until after the deed from H. C. Fields to Theo and Joseph Fields was recorded. In the deed from Orpha Moore to appellant, a vendor’s lien was retained to secure a part of the purchase price. This lien was released by marginal endorsement on May 5, 1938. We have held that a purchaser who obtains notice of an unrecorded conveyance before payment of the purchase price will not be considered as an innocent purchaser for value. Kentucky River Coal Corporation v. Sumner, 195 Ky. 119, 241 S.W. 820; Givens v. Turner, 272 Ky. 211, 113 S.W.2d 1166. In the Givens case, we said, although the statement was not material to the decision, that if any of the purchase price is paid subsequent to notice of the first conveyance, the second will not be considered an innocent purchaser. We doubt that the rule is as broad as the opinion would indicate, but it is not necessary to turn this case on a reexamination of that question.

267 S.W.2d 85, 87 (Ky.App.1954).