Appeal from the District Court of Bottineau County, Northeast Judicial District, the Honorable Michael G. Sturdevant, Judge.
The opinion of the court was delivered by: Maring, Justice.
N.D. Supreme CourtSwanson v. Swanson, 2011 ND 74 This opinion is subject to petition for rehearing. [Go to Documents]
Opinion of the Court by Maring, Justice.
[¶1] Glenn K. Swanson appeals from the trial court's judgment quieting title to certain real property located in Bottineau County in Michael Swanson, James Swanson, Robert Swanson, and Candyce Johnson ("Swanson children"). We conclude the trial court improperly analyzed the notice requirement for good-faith purchasers under the law and erred in finding the Swanson children acted in good faith. Therefore, we reverse the judgment of the trial court and remand for entry of judgment consistent with this opinion.
[¶2] The specific real property at issue has the following legal description: "SW 1/4 of Section 33, Township 161 N, Range 75 W, Bottineau County, North Dakota," and consists of 169 acres of farmland. Anna Swanson, the stepmother of Glenn Swanson and William Swanson, owned this property in June 1963. On June 1, 1963, she conveyed the property to William Swanson by warranty deed. Glenn Swanson, an attorney and William Swanson's brother, prepared and notarized the deed, which was recorded on December 2, 1966.
[¶3] On June 10, 1963, William Swanson and his wife, E. Lorraine Swanson, executed a warranty deed conveying the property to William Swanson and Glenn Swanson as joint tenants. At the time of the deed's execution, Lorraine Swanson did not have an ownership interest in the property; she signed the deed merely as an accommodation to waive any homestead claim. The trial court found Glenn Swanson prepared the June 10, 1963, deed and presumably kept the deed in his possession for more than 42 years. The trial court also found that, in November 1969, Glenn Swanson executed and recorded a mortgage on the property in favor of his brother, Arlo Swanson.
[¶4] William Swanson died on July 11, 1999. His funeral took place a week later in Florida, but his ashes were buried in North Dakota during an inurnment ceremony in the summer of 2001. Glenn Swanson testified that at the 1999 Florida funeral, he asked Lorraine Swanson to look for William Swanson's copy of the June 10, 1963, joint tenancy deed, effectively asserting an ownership interest in the property. In 2000, despite Glenn Swanson's asserted ownership interest, Lorraine Swanson, as personal representative of William Swanson's estate, conveyed the property to herself as trustee of her revocable trust by a personal representative's deed of distribution dated April 3, 2000, and recorded in May 2000. A year later, at the 2001 inurnment ceremony, Glenn Swanson again asserted an interest in the property by advising Robert Swanson, the son of William and Lorraine Swanson, that he, Glenn Swanson, owned the property. Regardless of his ownership claim, however, on June 18, 2003, Lorraine Swanson, as trustee of her revocable trust, executed a warranty deed conveying the property to her four children and retaining a life estate for herself. This deed was recorded on July 21, 2003.
[¶5] The trial court found that Glenn Swanson did not discover the June 10, 1963, joint tenancy deed until two years after the Swanson children recorded their deed. The court found Glenn Swanson discovered the deed in his files some time in the spring or summer of 2005, and recorded it on November 2, 2005. Then, in the summer of 2006, while he was visiting the home of Lorraine Swanson's niece, Glenn Swanson showed Lorraine Swanson the recorded joint tenancy deed and advised her he was the rightful owner of the property under the deed.
[¶6] In January 2008, the Swanson children commenced this quiet title action against Glenn Swanson and other defendants to declare that Glenn Swanson had no valid claim of ownership in the property. Glenn Swanson responded with a counterclaim against the Swanson children, seeking to quiet title in his name. He also brought a third-party action against Lorraine Swanson based on her conveyance under the warranty deed.
[¶7] On July 14 and 15, 2009, the trial court held a bench trial. After the trial, the court issued its memorandum opinion and order for judgment, finding Glenn Swanson had no interest in the property and quieting title in the Swanson children. The court concluded the Swanson children's claim to the property had priority under N.D.C.C. § 47-19-41. In reaching this conclusion, the court found the Swanson children had acted in good faith when they recorded the deed and had paid valuable consideration for the property at issue. The court dismissed Glenn Swanson's counterclaim and third-party complaint.
[¶8] On appeal, Glenn Swanson argues the trial court erred in quieting title in the Swanson children because they were not good-faith purchasers and did not pay valuable consideration for the property conveyed from Lorraine Swanson's trust. Rather, Glenn Swanson asserts that under the June 10, 1963, deed, the property passed to him in 1999 as a joint tenant by operation of law when William Swanson died.
[¶9] The dispositive issue on appeal is whether the trial court erred in finding the Swanson children acted in good faith when they acquired the property from their mother as a trustee of her revocable trust. The status of the Swanson children as good-faith purchasers depends on whether they had notice, actual or constructive, of Glenn Swanson's ownership claim. "A party's status as a good faith purchaser without notice of a competing interest is a mixed question of fact and law." Diocese of Bismarck Trust v. Ramada, Inc., 553 N.W.2d 760, 768 (N.D. 1996). The factual circumstances necessary to determine whether a party has attained the status of a good-faith purchaser without notice constitute findings of fact. Id. On the other hand, a trial court's ultimate determination a party acted in good faith constitutes a conclusion of law "because the determination describes the legal effect of the underlying factual circumstances." Id. Sections 47-19-41 and 1-01-25 of the North Dakota Century Code are relevant to determining whether the Swanson children were good-faith purchasers.
[¶10] Section 47-19-41, N.D.C.C., provides that "[e]very conveyance of real estate not recorded shall be void as against any subsequent purchaser in good faith, and for a valuable consideration . . . ." Section 1-01-25, N.D.C.C., further explains that "[e]very person who has actual notice of circumstances sufficient to put a prudent person upon inquiry as to a particular fact and who omits to make such inquiry with reasonable diligence is deemed to have constructive notice of the fact itself." We have consistently held that a purchaser who fails to make the requisite inquiry cannot claim the protection of a good-faith purchaser status for purposes of N.D.C.C. § 47-19-41. See Hunt Trust Estate v. Kiker, 269 N.W.2d 377, 381 (N.D. 1978) (citing Pierce Tp. of Barnes County v. Ernie, 74 N.D. 16, 19 N.W.2d 755 (1945)). Rather, a person who fails to make the proper inquiry will be charged with constructive notice of all facts that such inquiry would have revealed. See Northern Pac. Ry. Co. v. Advance Realty Co., 78 N.W.2d 705, 715 (N.D. 1956) (stating the purchasers had sufficient notice to put them on inquiry and holding they had constructive knowledge of the adverse interest claims as a result of their failure to inquire). Accordingly, the determination of the Swanson children's status as good-faith purchasers turns first on whether they had "actual notice of circumstances sufficient to put a prudent person upon inquiry." N.D.C.C. § 1-01-25. If the facts or circumstances were sufficient to put a prudent person on inquiry, then the Swanson children had a duty to conduct such inquiry with reasonable diligence. See id. We conclude the circumstances in this case gave rise to a duty to inquire and, when the Swanson children failed to make any inquiry, they lost the protection of a good-faith purchaser status for purposes of N.D.C.C. § 47-19-41.
[¶11] In its memorandum opinion and order, the trial court found that in the summer of 2001, at William Swanson's inurnment ceremony, "Glenn [Swanson] advised William and Lorraine's son Robert that he (Glenn) owned the Property." The trial court concluded Glenn Swanson's comment at the 2001 ceremony "must be deemed to be sufficient to have put the [Swanson children] on notice of Glenn's purported claim of ownership." We agree with the trial court that the Swanson children had actual notice of circumstances sufficient to put a prudent person on inquiry, thus requiring them to inquire further into Glenn Swanson's purported interest, but disagree with the trial court that the Swanson children acted in good faith.
[¶12] It has long been established that the information sufficient to put a prudent person on inquiry "may consist of a statement made by the claimant of the adverse right." 5 Basil Jones, Tiffany on Real Property § 1285 (3d ed. 1939); see also Bell v. Bell, 87 S.E. 540, 542 (S.C. 1915) (holding that when a person asserts an ownership interest of certain property to another, such information is notice of that person's purported interest in the property); Davis v. Kennedy, 105 Ill. 300, 1883 WL 10130, *2 (Ill. Jan. 31, 1883) ("Where a person has been, before purchasing, informed of the equities of a third person, he should make inquiry of such person, and if he does not, he is chargeable with notice."). We first addressed the sufficiency of an adverse ownership statement in placing a prudent person on inquiry in Pierce Tp. of Barnes County v. Ernie, 74 N.D. 16, 19 N.W.2d 755 (1945). We held the respondent had sufficient facts to place him under a duty to conduct further inquiry into Pierce Township's purported interest in the property. Id. at 760. We explained:
The record contains an array of circumstances that militate against the good faith of the respondent within the meaning of that term as used in [N.D.C.C. § 47-19-41]. . . . [T]he respondent lived but ten rods from the Pierce Pit. He knew that someone had opened it up and was hauling gravel from it. His admissions indicate that he had heard that Pierce Township had bought or was contemplating buying a pit from the Bloedel tract. Id. at 759-60 (emphasis added). Similarly, in Hunt Trust Estate, we concluded that upon being informed the property was leased to another, the prospective purchaser "had a duty, as a prudent man, to make further inquiry to determine the nature and extent of the lease of which he had been informed." 269 N.W.2d at 381. In Nygaard v. Robinson, we further elaborated on the type of information sufficient to put a prudent person on inquiry:
The information need not be so full and detailed as to communicate a complete description of the opposing party interest. It is sufficient if it asserts the existence of a right or interest as a fact. . . . It need not state all the particulars or impart complete knowledge. It is enough if he has reasonable ground to believe that a conflicting right exists as a fact. 341 N.W.2d 349, 356 (N.D. 1983) (citations omitted) (emphasis added).
[¶13] The record establishes that at William Swanson's 2001 inurnment ceremony, Glenn Swanson informed Robert Swanson that he, Glenn Swanson, owned the property under the June 10, 1963 joint tenancy deed. Glenn Swanson was Robert Swanson's uncle and his father's brother. It was undisputed that throughout the course of events, Glenn Swanson acted as William and Lorraine Swanson's attorney and managed the property and made arrangements with tenants. The Swanson children were aware of his role and his involvement in their father's business affairs. At trial, James Swanson testified: "[I]t was well known in the family that Uncle Glenn was our attorney." Based on the record and the applicable law, we conclude Glenn Swanson's 2001 ownership statement was sufficient to charge the Swanson children with actual notice of Glenn Swanson's adverse ownership claim and place them under an obligation to make further inquiry into his purported interest in the property. Therefore, the trial court did not err in finding the Swanson children had information sufficient to put a prudent person on inquiry of Glenn Swanson's adverse ownership claim. The trial court, however, did err in concluding the Swanson children acted in good faith.
[¶14] The record in this case is void of any evidence establishing the Swanson children made any inquiry into Glenn Swanson's purported ownership interest in the property. In fact, the trial court itself stated that "[i]t is not known what inquiry, if any, the [Swanson children] made with regard to Glenn's claim." The law, however, is uncontroverted: "A purchaser who has actual notice of facts or circumstances which would put a prudent man upon inquiry is deemed to have constructive notice of those facts which such inquiry would in all probability have disclosed had it been properly pursued." Hunt Trust Estate, 269 N.W.2d at 380 (citing Northern Pac. Ry. Co., 78 N.W.2d 705). A reasonably diligent inquiry here would have required the Swanson children, at the very least, to conduct a record search.
[¶15] North Dakota uses a tract index system for recording real estate transactions, which makes all instruments easily accessible by focusing on the tract of land in question, rather than on the grantor or grantee of the land. Hanson v. Zoller, 187 N.W.2d 47, 55 (N.D. 1971); see also N.D.C.C. § 11-18-07 (requiring a recorder to keep a tract index of all deeds and other instruments, including mortgages, that affect the title to the real property). Thus, under North Dakota's tract index system, the names of the grantor or grantee are irrelevant; rather, the title is traced by searching for instruments, including mortgages, that pertain to the tract of land. Hanson, 187 N.W.2d at 56. "The fundamental purpose of the recording statutes is to protect potential purchasers of real property against the risk that they may be paying out good money to someone who does not actually own the property that he is purporting to sell." Id. at 54. "The recording acts operate by making the history of the title involved in a real estate transaction readily available to a prospective purchaser, and by providing that the history so disclosed by the record is binding upon a prospective purchaser whether he consults the record or not." Id. As prospective purchasers put on notice of Glenn Swanson's adverse ownership claim, the Swanson children had a duty to conduct a record search and examine the tract index. See id. at 55-56; see also 66 Am. Jur. 2d Records and Recording Laws § 99 (2010) (providing that when a statute requires a tract index be kept, a subsequent purchaser is under a duty to examine that index). A simple record search by the Swanson children would have revealed the 1969 mortgage Glenn Swanson recorded on the property, identifying him as the mortgagor and giving his brother, Arlo Swanson, a security interest in Glenn Swanson's then-one-half ownership interest in the property.
[¶16] The trial court relies on Title Standard 2-01 of the North Dakota State Bar Association to conclude that the mortgage is of no evidentiary value and could be ignored. See also N.D.C.C. § 47-19-46 (explaining that knowledge of an instrument outside the chain of title does not constitute constructive knowledge under the law). However, the trial court quotes only part of the Standard. Title Standard 2-01 states:
Conveyances by strangers to the chain of title may be disregarded, unless a title examiner has actual notice or knowledge (through sources other than the record) of the interest of the grantor, or unless subsequent to such conveyance there is recorded a deed or other conveyance vesting title in such stranger.
Caveat: In order to ignore conveyances from a "stranger" the "good faith" test of the Recording Act (NDCC 47-19-41) must be met. Any circumstances which should cause further inquiry to be made as to the status of the "stranger" which inquiry would disclose the unrecorded interest of the "stranger", preclude ignoring the "stranger's" conveyance. Id. (State Bar Ass'n of North Dakota 2009). The trial court found Glenn Swanson was a stranger to the chain of title at the time the 1969 mortgage was recorded and, therefore, concluded the recording of the mortgage has no evidentiary value. The circumstances here, however, "preclude ignoring the 'stranger's' conveyance." Id. It is undisputed that at the 2001 inurnment ceremony, Glenn Swanson advised Robert Swanson that he, Glenn Swanson, was the rightful owner of the property following William Swanson's death.
[¶17] Under Title Standard 2-01, a prospective purchaser may ignore such a conveyance only if the purchaser meets the "good faith" test of N.D.C.C. § 47-19-41. See Title Standard 2-01. Thus, any circumstances, which should cause further inquiry into the status of the "stranger" preclude the prospective purchaser from ignoring the "stranger's" conveyance. Id. Given the factual circumstances of this case, a prudent person acting with reasonable diligence would have made further inquiries of Glenn Swanson to ascertain whether in fact he owned the land. See Doran v. Dazey, 5 N.D. 167, 64 N.W. 1023, 1025 (1895) (explaining that a prudent man on inquiry of a purported claim of ownership would have asked the mortgagor if he owned the land); see also Miller v. Henner, 438 N.W.2d 366, 371 (Minn. 1989) (holding the purchaser's investigation of the recorded mortgage, which consisted of visiting the property, searching the tract index for other instruments, and contacting the record owner, to be a reasonable off-record search of the title to the property); N.D.C.C. § 47-19-19 ("The record of any instrument shall be notice of the contents of the instrument, as it appears of record, as to all persons."). The Swanson children had actual notice of Glenn Swanson's ownership claim and could have easily asked Glenn Swanson to prove his ownership interest by providing the original or a copy of the 1963 warranty deed, which conveyed the property to him and the Swanson children's father, William Swanson, as joint tenants. They could have also asked their mother, Lorraine Swanson, about her signing the 1963 deed and about Glenn Swanson's request for her to search for the deed at their father's 1999 Florida funeral. Instead, the Swanson children chose to do nothing. Doing nothing is not acting with "reasonable diligence." Although, as the trial court found, Glenn Swanson's 2001 comment put the Swanson children on notice of Glenn Swanson's purported ownership claim, the Swanson children chose to ignore their duty to inquire into this claim with reasonable diligence. They did not conduct a record search. They did not inquire whether Glenn Swanson did, in fact, own the land. They did not inquire of their mother, the alleged owner of the property, about Glenn Swanson's adverse ownership claim.
[¶18] The dissents state we should affirm the trial court's conclusion the Swanson children acted in good faith and emphasize the trial court's finding that a "reasonable inquiry properly pursued would have disclosed . . . Glenn could not produce the original of the June 10, 1963 Joint Tenancy Warranty Deed nor a copy thereof." Sandstrom, J., dissenting, at ¶ 31 (stating that even if the children had pursued an inquiry, Glenn Swanson could not have produced the deed); Vande Walle, C.J., dissenting, at ¶ 53 (emphasizing Glenn Swanson would have been unable "to come up with a deed anyway"). We are not persuaded. First, Glenn Swanson's presumed inability to produce the original or a copy of the deed cannot excuse the Swanson children's failure to make the requisite reasonable inquiry under the law. Hunt Trust Estate, 269 N.W.2d at 381 (holding that upon being informed the property was leased to another, the prospective purchaser had a duty to further inquire into the nature and extent of the lease). Second, even if Glenn Swanson could not produce the original or a copy of the deed, our case law allows for an action to establish title to real estate by virtue of a lost deed. See, e.g., Nelson v. Christianson, 343 N.W.2d 375 (N.D. 1984) (addressing the requirements to prove a lost deed in a quiet title action); Tostenson v. Ihland, 147 N.W.2d 104 (N.D. 1966) (explaining the burden of proof in actions to sustain title to real estate by virtue of a lost deed); Stone v. Stone, 238 N.W. 81 (N.D. 1931) (discussing an action to quiet title in which defendant claimed under lost deed). Therefore, we conclude Glenn Swanson's ability, or lack thereof, to produce the original or a copy of the deed back in 2001 is not dispositive on the issue of whether the Swanson children were good-faith purchasers. We hold the Swanson children failed to make the requisite inquiry into Glenn Swanson's ownership interest and, consequently, cannot claim the protection afforded to good-faith purchasers under N.D.C.C. § 47-19-41.
[¶19] The trial court found the Swanson children had actual notice of circumstances sufficient to put a prudent person on inquiry as to Glenn Swanson's purported ownership claim. Under the law, therefore, the Swanson children had to make such inquiry with reasonable diligence. See N.D.C.C. § 1-01-25. They did not. In fact, the Swanson children made no inquiry at all. Our case law is clear: "A purchaser who fails to make such inquiry is not protected as a good faith purchaser under § 47-19-41, N.D.C.C., with regard to those prior interests of which he is deemed to have constructive notice by his failure to make such inquiry." Hunt Trust Estate, 269 N.W.2d at 381. Moreover, we have consistently held that "it is the performance of the duty and not the understanding of it or lack thereof that determines the rights of the parties." Pierce Tp., 19 N.W.2d at 760. Thus, when the Swanson children failed to make the requisite inquiry, they lost their protection as good-faith purchasers. As a result, the trial court erred, as a matter of law, in concluding the Swanson children acted in good faith when they proceeded to record their deed. Therefore, we reverse. Because we reverse the judgment of the trial court and hold the Swanson children were not good-faith purchasers for purposes of N.D.C.C. § 47-19-41, we need not reach the issue of whether they paid valuable consideration for the property. We do take this opportunity, however, to address why the equitable remedies of laches and estoppel are not available to the Swanson children.
[¶20] The general rules of pleading require that a party shall state affirmatively in a pleading laches and estoppel. N.D.R.Civ.P. 8(c). In the present case, the Swanson children never set forth affirmatively either laches or estoppel in their complaint or answer to counterclaim. Even if it could be argued that the parties tried the issues of laches and estoppel by consent and that these issues are properly before the Court, we conclude that reliance on these equitable remedies is unfounded.
[¶21] Our Court has held that when the vendee is not a good-faith purchaser of the property, the vendee cannot rely on the doctrines of equitable estoppel and laches. See Burlington Northern, Inc. v. Hall, 322 N.W.2d 233, 239-40, 242 (N.D. 1982). Burlington Northern brought a quiet title action asserting ownership of certain mineral rights in twelve sections of land. Id. at 237. The Mossers and the Hall heirs also asserted ownership of these mineral rights. Id. Northwestern Improvement was the named owner of the entire fee simple estate and the Mossers entered into a contract for deed to buy the land from Northwestern. Id. at 236. The contract for deed was dated April 15, 1944, and was not recorded. Id. The contract for deed reserved the minerals unto the vendor Northwestern. Id. In 1948, the Mossers listed for sale the twelve sections of land. Id. A contract for deed was entered into between the Mossers and L. P. Hall for the twelve sections. Id. The contract for deed was recorded on January 12, 1949. Id. On December 27, 1948, the Mossers made their final payments on the contract with Northwestern; Northwestern deeded the land to the Mossers by warranty deed dated December 29, 1948; and recorded the deed February 23, 1949. Id. The warranty deed conveying the land to the Mossers excepted the minerals. Id. The Mossers, by a warranty deed dated August 29, 1951, deeded the twelve sections to Hall and the deed was recorded on September 7, 1951. Id. The warranty deed excepted unto the Mossers fifty percent of all remaining minerals. Id. Meanwhile, Northwestern deeded the minerals to Northern Pacific Railway and recorded the mineral deed on April 29, 1953. Id. at 237. Burlington Northern was the successor in the interest of Northern Pacific Railway. Id.
[¶22] The trial court found that Hall was "chargeable with actual, constructive or implied knowledge of the terms of the 1944 contracts between the Mossers and Northwestern" and not a bona fide purchaser. Id. at 237-38. The trial court held that Burlington Northern was the owner in fee simple of all the minerals. Id. at 237.
[¶23] Among the claims on appeal, "[t]he Hall heirs asserted that because of the deliberate failure of Northwestern to record its contract for deed with Mossers and because of Burlington Northern's deliberate failure to record its deed seasonably, Burlington Northern should be equitably estopped from asserting title to the prejudice of the Hall heirs." Id. at 239. Our Court stated:
The rule as to the requisites of an estoppel in pais as applied to the title to realty which appeals to us as the most equitable to all parties is that . . . [i]t is undoubtedly true that a party may in many instances be concluded by his declarations or conduct, which have influenced the conduct of another to his injury. The party is said in such cases to be estopped from denying the truth of his admissions. But to the application of this principle with respect to the title of property it must appear: First, that the party making the admission by his declaration or conduct was apprised of the true state of his own title; second, that he made the admission with the express intention to deceive or with such careless and culpable negligence as to amount to constructive fraud; third, that the other party was not only destitute of all knowledge of the true state of the title, but of the means of acquiring such knowledge; and, fourth, that he relied directly upon such admission, and will be injured by allowing its truth to be disproved. There must be some degree of turpitude in the conduct of a party before a court of equity will estop him from the assertion of his title; the effect of the estoppel being to forfeit his property, and transfer its enjoyment to another. Id. at 239-40 (quoting ...