The following compilation of cases is an extended version of the list of New Jersey cases contained in the February 1, 2009 post, Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire, that address the issue of the effect of possession by an occupant of real property by one other than the seller/vendor on a prospective purchaser's status as a bona fide purchaser.
As stated in my February 1 post, these cases are presented here to remind the reader of the importance of giving this issue the serious consideration it deserves when attempting to undo/unwind/void an abusive real estate transaction (ie. foreclosure rescue sale leasebacks, fraudulent inducement in the execution of a deed, forgeries, other real estate swindles) where, after scamming or otherwise abusively relieving an unwitting homeowner of his/her title, the scammer either sells the property to an unwitting third party, or encumbers the property with a loan from an unwitting mortgage lender, neither of whom participated in the abusive transaction with the homeowner, nor having any actual knowledge thereof. Voiding the deeds and mortgages in these cases (in situations where the instruments are voidable, as opposed to being absolutely void - "void ab initio") will turn on whether the subsequent third party purchaser or encumbrancer, despite lacking in actual knowledge of the fraud or other abusive transaction, can otherwise be charged with notice of the fraud, thereby making bona fide purchaser/encumbrancer status unavailable to them and, consequently, subjecting the deeds or mortgages to being voided/rescinded/set aside.
(In a related post that addresses the distinction between deeds that are absolutely void (void ab initio), and deeds that are merely voidable, see Unwinding An Abusive Or Fraudulent Real Estate Transaction? Determining If The Deed Is Void, Or Merely Voidable?)
While certainly not purporting to be an exhaustive list of cases dealing with the issue of possession and the duty to inquire when attempting to establish (or attack) one's status as a bona fide purchaser, the following compilation of case law citations specifically address this issue.
One caveat: Any serious consideration of the bona fide purchaser doctrine should, first and foremost, begin with a reading of the state recording statutes, as they are currently constituted. Since there are over 50 jurisdictions in the U.S., each with their own recording statute, I certainly can't address them here (for the New Jersey recording statute, see 46:22-1. Failure to record or register deeds or instruments; effect as to subsequent judgment creditors, purchasers and mortgagees
But after reading your state's recording statutes, you may want to consider how these cases, if at all, fit into making the legal analysis necessary when attempting to undo/unwind/void an abusive real estate transaction by attacking the bona fide purchaser status of a subsequent purchaser or encumbrancer/mortgage lender. Keep in mind that, even in the event that the New Jersey state legislature has passed laws subsequent to these court rulings that either modifies or renders them obsolete in New Jersey, the persuasiveness of the logic that underlies them may still be of value to those involved in litigation outside of New Jersey (don't lose sight of the fact that the doctrine of bona fide purchase is not a creature of state statute, but one of English common law, which is the starting point for this doctrine, not only as generally applied in New Jersey, but as generally applied in New Jersey's sister states as well).
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New Jersey Supreme Court
Eckman v. Beihl,116 N.J.L. 308; 184 A. 430 (Sup. Ct. 1936):
Possession, in order to constitute notice, must meet a definite standard. In Holmes v. Stout, supra, Chief Justice Green, for the Court of Errors and Appeals, laid down the rule that "suspicion of notice is not sufficient. * * * The inference must be necessary and unquestionable. * * * Every possession will not amount to implied notice. It must be an actual and exclusive possession manifested by notorious acts of ownership, and such as would naturally be observed and known by others. Merely cutting wood, or pasturing cattle on unenclosed woodland, repairing the fences, and even removing an old house standing on part of the land, which may be regarded as mere acts of trespass as well as ownership, have been held insufficient. Nor does even actual open notorious possession of the land necessarily and in all cases create a presumption of notice. * * *." Judge Potts, writing a concurring opinion, in the same case, observed that "occasional acts * * * by pasturing cattle or removing fences, would not be sufficient, unless they were so far continuous that, if done by wrong under a claim of title, they would lose the character of mere trespasses, and acquire that of disseisin." In accord are Hodges Executors v. Ammerman, 40 N.J. Eq. 99; 2 Atl. Rep. 257; Havens v. Bliss, 26 N.J. Eq. 363; Essex County National Bank v. Harrison, 57 N.J. Eq. 91; 40 Atl. Rep. 209; Wood v. Price, 79 N.J. Eq. 620; 81 Atl. Rep. 983. In the last cited case the court held:
"* * * possession of real estate which is actual, open and visible occupation, inconsistent with the title of the owner by the record and not equivocal, occasional or for a temporary or special purpose, is constructive notice to all the world of the rights of the party in possession."
In the case of Coleman v. Barklew, 27 N.J.L. 357, the Supreme Court held on pages 359, 360:
"* * * It is well settled under the registry acts, that implied notice may be equally effective with direct and positive notice, and that possession by the grantee is, or may be constructive notice of the existence of a prior unregistered deed. But the possession must be actual, distinct, and unequivocal. It must, moreover, be visible, and manifested by notorious acts of ownership, such as would be naturally observed by others.
And in the case of McCall v. Yard, 11 N.J. Eq. 58, the court held (at pp. 62, 63):
"* ** But the purchaser must have notice of the possession before he is bound to inquire into the estate. * * * But if the possession is such as from its very character is not visible and of common report, and would not attract the attention of an observing man, then it is not such a possession as is calculated to provoke inquiry and put a party upon his diligence, and a bona fide purchaser ought not be concluded by it. * * *." Feld v. Kantrowitz, 98 N.J. Eq. 167; 130 Atl. Rep. 6; affirmed, 99 N.J. Eq. 847; 132 Atl. Rep. 657; Clawans v. Ordway B. & L. Assn., 112 N.J. Eq. 280; 164 Atl. Rep. 267 (Court of Errors and Appeals).
Court of Errors and Appeals of New Jersey
Van Roden v. Manso, 115 N.J. Eq. 69; 169 A. 825 (E & A 1934 ): The court quoted from LaCombe v. Headley, 91 N.J. Eq. 63, 108 A. 185, in which it was stated:
"It is entirely settled, both in this state and elsewhere, that possession of land, if open, notorious, and unequivocal, constitutes notice of the right, or claim of right, under which the party in possession occupies it; and this notice is effective, not only to those who have actual knowledge of the occupation, but as to all the world.
It is the duty of an intending purchaser of land which is in the possession of a person other than the intending grantor to inquire of the occupant, and ascertain the rights under which he holds; and if he does not make such inquiry, he is chargeable with notice of such fact as the inquiry, if it had been in fact made, would have revealed."
Hinners v. Banville, 114 N.J. Eq. 348; 168 A. 618 (E & A 1933):
This respondent is chargeable with notice. Stephen Banville, his wife, Rose, and his sister, Helen, were occupants of the mortgaged premises. It is the duty of an intending purchaser of land which is in the possession of a person other than the intending grantor, to inquire of the occupant and ascertain the rights under which he holds; and if he does not make such inquiry, he is chargeable with notice of such facts as the inquiry, if it had been in fact made, would have revealed. LaCombe v. Headley, 91 N.J. Eq. 63, 66, 108 A. 185.
The effect of the constructive notice, due to possession, is a notice of everything which a party interested in the premises would get by inquiring of the party in possession. Essex County National Bank v. Harrison, 57 N.J. Eq. 91, 96, 40 A. 209. When facts are brought to the knowledge of the person contemplating the purchase of the record title which are sufficient to apprise him of the existence of an outstanding claim of title, and a reasonable investigation of such facts would necessarily discover the existence of such outstanding title, the purchaser is put upon inquiry, and charged with notice of the facts which a reasonably diligent inquiry would have ascertained.
It is also well settled that the open, visible, notorious and exclusive possession of land, by one who is not the record owner, affords a notice to one who purchases the record title which puts such purchaser upon inquiry, and charges him with a knowledge of such facts as a reasonably diligent inquiry would have ascertained. Schwoebel v. Storrie, 76 N.J. Eq. 466, 74 A. 969. The fact of possession is notice of all such matters as a prudent man, desirous of purchasing the property, would naturally inquire about respecting the title. Wood v. Price, 79 N.J. Eq. 620, 627, 81 A. 983.
In the last cited case this court held that the prospective purchaser, having ascertained that the possession of the occupant is that of a tenant, would, in the ordinary course of things, proceed to inquire as to the title of the landlord, and that, therefore, the possession of the premises by a tenant is constructive notice not only of such tenant's rights and equities, but as well notice of those of the landlord. See, also, Dele v. Bruning, 101 N.J. Eq. 58, 137 A. 826; affirmed, 105 N.J. Eq. 252, 147 A. 908.
In the instant case the possession of the above named appellants was open, notorious and unequivocal, and constituted, therefore, notice of the right, or claim of right, under which they occupied it. This notice is effective not only as to those who have actual knowledge of the occupation, but as to all the world. LaCombe v. Headley, supra. It is admitted that the respondent corporation made no effort to ascertain the rights under which these appellants held possession of the land, and having failed to do so, it is chargeable with notice of such facts as inquiry would have disclosed.
It is argued that, because Rose Banville, wife of Stephen, expressed a willingness to pay rent when complainant's husband informed her, on July 1st, 1932, that complainant had acquired title to the property in the foreclosure proceedings, and some of appellants thereafter negotiated for a reconveyance of the property, the right to relief was lost. The vice-chancellor concluded that if the purchaser had made inquiry of the occupants of the lands, the latter "would probably have said that they had been the owners, their title had been foreclosed, they were negotiating for a repurchase, and in the meanwhile were renting the property." This is purely speculative. The presumption is that such inquiry would have disclosed the fact that they had not been served with process in the foreclosure proceedings, and that, for lack of jurisdiction, the decree did not bar their equity of redemption. And the disclosures made would undoubtedly have been sufficient to, at least, put the prospective purchaser upon inquiry as to the outstanding claims of title of the other appellants.
Clawans v. Ordway Bldg. & Loan Ass'n, 112 N.J. Eq. 280; 164 A. 267 (E & A 1933): This case involved the imposition of the duty, on a mortgage lender looking to loan money against real estate collateral, to inquire of persons in possession as to their rights in the property:
In Wood v. Price, 79 N.J. Eq. 620, 81 A. 983, Mr. Justice Voorhees said (at p. 624): "All authorities are agreed that the general rule is that possession of real estate which is actual, open and visible occupation, inconsistent with the title of the apparent owner by the record and not equivocal, occasional or for a temporary or special purpose, is constructive notice to all the world of the rights of the party in possession."
The testimony relating to the complainant's possession, accepted by the trial court as true, was, we think, sufficient to bring that possession within the application of the rule thus stated. It was held by this court in La Combe v. Headley, 91 N.J. Eq. 63, 108 A. 185, opinion by the chief-justice, that: "It is the duty of an intending purchaser of land which is in the possession of a person other than the intending grantor to inquire of the occupant and ascertain the rights under which he holds; and if he does not make such inquiry, he is chargeable with notice of such facts as the inquiry, if it had been in fact made, would have revealed."
The efficacy of notice by actual possession applies to a person proposing to take a mortgage on the property. Phelan v. Brady, 119 N.Y. 587, 23 N.E. 1109; Chicago and A. R. Co. v. Kelly, 182 Ill. 267; 54 N.E. 979. The inquiry required to be made of the occupant must, of course, be made with due diligence; and it was not so made in the instant case. Indeed the visitation of the defendant's representatives at the premises seems to have been directed towards the physical condition of the property and not at all towards the character or significance of the occupancy.
LaCombe v. Headley, 91 N.J. Eq. 63; 108 A. 185 (E & A 1919):
The statute makes an unrecorded deed void only as against judgment creditors, bona fide purchasers and mortgagees who have no notice thereof, and it is entirely settled, both in this state and elsewhere, that possession of land, if open, notorious and unequivocal, constitutes notice of the right, or claim of right, under which the party in possession occupies it; and this notice is effective, not only as to those who have actual knowledge of the occupation, but as to all the world.
It is the duty of an intending purchaser of land which is in the possession of a person other than the intending grantor to inquire of the occupant and ascertain the rights under which he holds; and if he does not make such inquiry, he is chargeable with notice of such facts as the inquiry, if it had been in fact made, would have revealed. Havens v. Bliss, 26 N.J. Eq. 363; Johns v. Norris, 27 N.J. Eq. 485; Hodge v. Amerman, 40 N.J. Eq. 99, 2 A. 257; Wood v. Price, 79 N.J. Eq. 624.
In the present case, the fact that this land was in the possession of someone was, as we have already said, obvious. An examination of the wagons stored there would have disclosed the occupant. So, too, would inquiry made in the neighborhood; for the testimony indicates that it was generally known that Mr. LaCombe was using this land in his contracting business. Under the rule stated the defendant for her own protection was required to ascertain the rights under which LaCombe held; she made no effort to do so, and having failed in this regard she is chargeable with notice of what she would have learned had she performed this duty, namely, that LaCombe was in possession of this land under a tax deed made by the tax collector of the town of Irvington in 1909. In this situation she is not within the protection of the statute--that is, she is not a bona fide purchaser without notice of the existence of the LaCombe deed.
Superior Court of New Jersey, Appellate Division
City of Newark v. Block 1, Lots 1, 3, 902-904 McCarter Highway Breco Realty Co., (unpublished) DOCKET NO. A-3987-07T3, 2009 N.J. Super. Unpub. LEXIS 910, (App. Div. 2009):
Also, anyone who acquires title to property by paying valuable consideration is considered "a bona fide purchaser for value "without notice until the contrary appears." Venetsky v. West Essex Bldg. Supply Co., 28 N.J. Super. 178, 187, 100 A.2d 291 (App. Div. 1953). The burden to prove otherwise is on the party alleging that the purchaser had notice. Ibid. "'[C]onstructive notice may be just as effectual as actual notice, and . . . may arise from possession alone, but, in order to give it that effect, it must be open, notorious, exclusive and unequivocal.'" Michalski v. United States, 49 N.J. Super. 104, 108, 139 A.2d 324 (Ch. Div. 1958) (quoting Hodge's Executors v. Amerman, 40 N.J. Eq. 99, 103, 2 A. 257 (Ch. 1885)).
However, this possession must involve acts that are "open and notorious acts of ownership as will naturally be observed by others, and the acts must be of a character so certain and definite in denoting ownership as not to be liable to be misunderstood or misconstrued." Ibid. (quoting Hodge's, supra, 40 N.J. Eq. at 103). If such acts occur, then a bona fide purchaser has a "duty to inquire of the one in possession concerning the right by which he occupies the premises and been held bound by knowledge which such inquiry would have revealed." Id. at 109.
Left Field Props., L.L.C. v. James F. Keeney, L.L.C., DOCKET NO. A-3300-03T1, DOCKET NO. A-6743-03T1, 2006 N.J. Super. Unpub. LEXIS 75, (App Div. 2006):
We have held that "[c]onstructive notice may be brought home to a mortgagee by known circumstances." Howard v. Diolosa, 241 N.J. Super. 222, 232, 574 A.2d 995 (App. Div.), certif. denied, 122 N.J. 414, 585 A.2d 409 (1990). "If a purchaser or lienor is faced with extraordinary, suspicious, and unusual facts which should prompt an inquiry, it is equivalent to notice of the fact in question." Ibid. Exclusive possession must be inconsistent with record title and open and notorious. Michalski v. United States, 49 N.J. Super. 104, 108-9, 139 A.2d 324 (Ch. Div. 1958).
Martinique Realty Corp. v. Hull, 64 N.J. Super. 599; 166 A.2d 803 (App. Div. 1960):
Plaintiff, the purchaser of a leasehold interest in a 55-apartment building in Passaic, commenced this suit against the tenants of one of the apartments for damages for the nonpayment of rent allegedly due and owing under the terms of a five-year written lease. Defendants asserted the defense of payment, claiming that the entire rent for the term of the lease had been paid in advance to the former lessor, plaintiff's vendor, and that plaintiff purchased subject to all of defendants' rights as lessees. No basic facts being in issue, the Law Division granted defendants' motion for summary judgment on the ground that plaintiff was chargeable with notice of defendants' rights in and to the apartment, as created between defendants and plaintiff's assignor. Plaintiff files the instant appeal from that determination.
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Plaintiff's contention on this appeal is two-fold. It argues, first, that as the transferee of the leasehold interest, it was entitled to the benefit of all of the covenants between its predecessor and the Hulls. Secondly, it urges that it had a right to rely upon the terms of defendants' lease as written, and that the prepayment of rent is therefore no bar as such prepayment was inconsistent with the terms of the lease; further, that it had no notice, at the time of purchase, of defendants' advance payments, and that it was not, under the principle of Feld v. Kantrowitz, 98 N.J. Eq. 167 (Ch. 1925), affirmed 99 N.J. Eq. 847 (E. & A. 1926), and 99 N.J. Eq. 706 (Ch. 1926), required to make inquiry of each tenant as to the latter's interest in the property outside of the written lease. Defendants respond by questioning the applicability of the Feld case, arguing that plaintiff was under a duty to make inquiry respecting the rights of lessees under their tenancies and that failure to make such inquiry charges plaintiff with notice of such rights. They further contend that the payment of rent by a tenant to his landlord in advance of the time stipulated in the lease for its payment is a discharge pro tanto from the claim of the lessor, and therefore a valid defense against the assignee of the lessor's interest.
Plaintiff is confronted at the outset by the specific statutory provision that the rights of a lessee of real estate for a term of years vis-a-vis his lessor survive the passing of the lessor's interest to another by assignment or otherwise. R.S. 46:8-3; 51 C.J.S. Landlord and Tenant § 44(2), p. 567. This is but an illustration of the general rule that the assignee of a contract right takes subject to all defenses valid against his assignor. N.J.S. 2A:25-1. While it may be contended that the applicability of these sections is limited by the penalties inherent in our recording act, R.S. 46:22-1 et seq., embracing leases for a term exceeding two years, N.J.S.A. 46:16-1(a), the statute requires, however, that the prevailing purchaser be bona fide in nature.
An essential characteristic of the bona fide purchaser is his lack of notice of the interest of the unrecorded or late-recorded party. It is long settled that the purchaser of a lessor's interest in property has a duty to make inquiry as to the extent of the rights of any person in open, notorious and exclusive possession of the premises; if this duty is not discharged, then notice is imputed to the purchaser of all facts which a reasonably prudent inquiry would have revealed. Holmes v. Stout, 10 N.J. Eq. 419, 426 (E. & A. 1855); Wood v. Price, 79 N.J. Eq. 620, 624 (E. & A. 1911); LaCombe v. Headley, 91 N.J. Eq. 63 (E. & A. 1919); Hinners v. Banville, 114 N.J. Eq. 348, 356 (E. & A. 1933); Zurick v. Perlmutter, 94 N.J.L. 328, 330 (Sup. Ct. 1920); McCall v. Yard, 11 N.J. Eq. 58, 62 (Ch. 1853); Serafin v. Wolff, 5 N.J. Super. 386, 390-391 (App. Div. 1949). See American Law of Property, § 17.12, pp. 574-78. 55 Am. Jur., Vendor and Purchaser, § 712, pp. 1087-88, § 720, p. 1093. Such inquiry must be made of the tenant in possession, and if inquiry is made only of the former lessor, the tenant will not be precluded from asserting against the purchaser such rights as he possessed against the lessor. Arcade Realty Holding Corp. v. Hildinger, 6 N.J. Misc. 1055, 1058, 144 A. 25 (Ch. 1928).
Moreover, it has been held, in a situation strikingly parallel to the one at hand, that the duty of inquiry is not discharged when an intending purchaser of a leasehold merely examines the written lease which the occupant has signed with the owner of record. The purchaser assumes at his peril that the instrument accurately defines the rights of the occupant. Caplan v. Palace Realty Co., N.J., 110 A. 584 (Ch. 1920). Vice-Chancellor Leaming stated unequivocally in the latter case that
"If the purchaser is content to rely upon the representations of the landlord, either express or implied, to the effect that the writing contains * * * an accurate statement of the terms actually agreed upon, and fails to inquire of the tenant touching those facts * * * the purchaser's rights as against the tenant can rise no higher than those which were in fact enjoyed by the landlord under that instrument and any right of reformation of the instrument for fraud or mistake which the tenant may have enjoyed against the landlord may in like manner be enjoyed against the purchaser." (110 A., at p. 585.)
Plaintiff contends, however, that the duty of inquiry has been severely restricted, if not eliminated entirely, in cases involving a multi-tenanted office or apartment building. Reliance is placed exclusively on the opinions in Feld v. Kantrowitz, supra. There, an attorney, a tenant in a small office building, claimed that he had acquired, under an unrecorded assignment, an option to purchase a one-sixth interest in the building. The defendant, who had entered into a contract to purchase the entire property without notice of plaintiff's option and without making inquiry of the tenant, claimed status as a bona fide purchaser and asserted that defendant's unrecorded option was extinguished. The vice-chancellor took cognizance of the doctrine of inquiry notice but held that it did not apply to the situation before him. He reasoned that since an office building or apartment house is constructed for the very purpose of creating numerous tenancies, a purchaser should be able to assume that the occupants of the offices or apartments possess the designated status of tenants. Therefore, he concluded, "under these circumstances, to charge a prospective purchaser with notice of any right, title, or interest of one of the tenants, beyond the right of tenancy would be absurd." (98 N.J. Eq., supra, at p. 169). He further discussed the rule that to put the purchaser on inquiry notice, the tenant must be in exclusive possession, and concluded that the interest of one of numerous tenants of a large building does not satisfy the exclusivity requirement. The vice-chancellor's decision was affirmed on the sole ground that he had applied the proper procedural principles in denying plaintiff a preliminary injunction; the Court of Errors and Appeals expressly disclaimed any examination of the merits of the litigation. 99 N.J. Eq. 847, 849 (E. & A. 1926). Subsequently, the cause came on for final hearing, at which time the vice-chancellor reiterated his position, further stating that Caplan v. Palace Realty Co., supra, "does not, so far as my reading of the opinion reveals, refer in any way to the constructive notice arising from tenancy in a building such as the one involved in the case at bar." 99 N.J. Eq., supra, at p. 707.
The precise holding in Feld would seem to be clearly distinguishable from the instant fact situation in that defendants are not herein asserting any interest "beyond the right of tenancy," that is, beyond a demand for recognition of the precise terms of their tenancy. To apply Feld to the instant situation would be to contravene the general rule that possession and occupancy of the premises by the tenant amount to notice of his advance payment of rent, and that such prepayment -- honestly made, and in the absence of special circumstances putting the tenant on notice that he is prejudicing the rights of third parties -- will protect the tenant against further liability for such rent to the landlord and all successors to his interest. 52 C.J.S. Landlord and Tenant § 535, p. 348; 32 Am. Jur., Landlord and Tenant, § 461, p. 378. Boteler v. Leber, 112 N.J. Eq. 441 (Ch. 1933), cited by plaintiff, is not opposed to this view. The court in Boteler left open the question of whether notice would affect the rights of the parties. Furthermore, the lease was expressly subordinated to the mortgage, thereby insulating the mortgagee's rights to the rents upon default.
On the other hand, we cannot in all candor overlook indications in the language of Feld broad enough to encompass the instant case, namely: (1) the vice-chancellor's statement (98 N.J. Eq., supra, at p. 172), that he might decide differently if "dealing with the right of a tenant as such, even in this kind of a building, that appears in his lease." (Emphasis added) Evidence of the prepayment of the Hulls did not, as we have noted, appear in their lease; and (2) the attempt to distinguish the Caplan case on the ground that a multi-tenanted building was not there involved, leaving the implication that the purchaser of such a building can justifiably rely exclusively on the tenants' leases as written.
We must therefore consider, to the extent it bears on the present appeal, the question which we left open in Schnakenberg v. Gibraltar Savings and Loan Ass'n, 37 N.J. Super. 150, 158 (App. Div. 1955): "Whether the rights of a tenant in possession and the duties of a purchaser of realty vary with the size and character of the building * * *."
At least with respect to the details of a tenant's leasehold arrangement with his landlord, we are convinced that the purchaser's duty of inquiry does not vary with the number of tenants occupying the property. The arguments advanced in favor of such a correspondence are of dubious validity. Inquiry notice is an equitable doctrine designed to effect a distribution of precautionary burdens in a situation involving two "innocent" parties. American Law of Property, § 17.11, pp. 565-66. We see little merit in plaintiff's insistence that it would be exceedingly onerous to require inquiry of every tenant in a multi-tenanted building. The statement in Feld, 98 N.J. Eq., supra, at p. 169, that it "would be absurd" to hold that "one contemplating the purchase of one of the great office buildings in the metropolitan district would be under a duty to personally interview every one of the hundreds of tenants occupying the offices thereof" ignores the very practical and effective device of the written communication. The duty to inquire is discharged by the exercise of due diligence or reasonable prudence, see Clawans v. Ordway B. & L. Ass'n, 112 N.J. Eq. 280, 284 (E. & A. 1933), and what such an inquiry fails to reveal is not further protected by the mere continued possession of the tenant. 4 American Law of Property, § 17.12, p. 576. Under certain circumstances, written inquiry may be sufficient to discharge that duty.
We need not dwell upon the statement in Feld that no single occupant of a multi-tenanted building is in such exclusive possession as to warrant the invoking of the purchaser's duty of inquiry. For the period of his lease, the lessee is considered the exclusive owner and occupier of the demised premises. Longi v. Raymond-Commerce Corp., 34 N.J. Super. 593, 600 (App. Div. 1955). That the demised premises consist of one apartment rather than an entire building should not be of consequence. This is not a situation involving the interests of the various family occupants of a single house. See Rankin v. Coar, 46 N.J. Eq. 566 (E. & A. 1890); Annotation, 2 A.L.R.2d 857 (1948). Each apartment in the building under consideration is an entirely separate habitational unit, evidenced by a separate landlord-tenant arrangement.
We expressly refrain from a determination as to whether a purchaser's duty of inquiry extends to collateral interests of the lessee which are independent of his tenancy. We note, however, that the majority rule appears to extend the inquiry notice doctrine to cover certain collateral interests of the lessee, such as an option to purchase, see Annotations, 17 A.L.R.2d 331 (1951), 37 A.L.R.2d 1112 (1954), though perhaps not a claim of ownership of the fee. See Annotation, 74 A.L.R. 355, 357 (1931). In any event, plaintiff, having failed to fulfill its duty of inquiry with respect to defendants' rights under their tenancy, is subject to the prior effective discharge by the latter of their rental obligations. Caplan v. Palace Realty Co., supra.
Schnakenberg v. Gibraltar Sav. & Loan Asso., 37 N.J. Super. 150; 117 A.2d 191 (App. Div. 1955):
The complaint alleges that on March 1, 1946, prior to the conveyance of title by the Sinnigens to Gibraltar, the plaintiff entered into open and exclusive possession of the premises. It has long been settled that under such circumstances it is the duty of a purchaser to inquire of the person in possession of the premises and ascertain the rights under which he holds, and if this duty of inquiry be disregarded, the purchaser is chargeable with notice of such facts as the inquiry, if it had been in fact made, would have revealed, and the possession of the tenant amounts to notice of his rights, not merely under the lease, but also under collateral agreements, including the right to renew the lease. Wood v. Price, 79 N.J. Eq. 620 (E. & A. 1911); Zurick v. Perlmutter, 94 N.J.L. 328 (Sup. Ct. 1920); Serafin v. Wolff, 5 N.J. Super. 386 (App. Div. 1949).
In Feld v. Kantrowitz, 98 N.J. Eq. 167 (Ch. 1925), id., 99 N.J. Eq. 706 (Ch. 1926), affirmed 99 N.J. Eq. 847 (E. & A. 1926), it was indicated that the constructive notice did not extend to the claim of a tenant in a small office building to an assignment of an undivided one-sixth interest in and to the premises. Vice-Chancellor Bentley distinguished between constructive notice chargeable to a purchaser where the tenant is in unequivocal and exclusive possession of the entire premises and where the tenant is one of a considerable number in an office building. Whether the rights of a tenant in possession and the duties of a purchaser of realty vary with the size and character of the building, we are not called upon to, and do not, decide. Here, the tenant is in sole and exclusive possession of almost the entire premises.
Reformation does not lie against a subsequent bona fide purchaser without notice. Flaacke v. The Mayor and Aldermen of Jersey City, 28 N.J. Eq. 110 (Ch. 1877), affirmed 30 N.J. Eq. 733 (E. & A. 1879). But in a situation where the purchaser is chargeable with constructive notice, any right of reformation of the instrument for fraud or mistake which the tenant has against the landlord may in like manner be enforced against the purchaser. Caplan v. Palace Realty Co., 110 A. 584 (Ch. 1920).
Serafin v. Wolff, 5 N.J. Super. 386; 69 A.2d 347 (App. Div. 1949):
The leading case in our State is Wood v. Price, 79 N.J. Eq. 620 (E. & A. 1911), in which the court said at p. 624:
"All authorities are agreed that the general rule is that possession of real estate which is actual, open and visible occupation, inconsistent with the title of the apparent owner by the record and not equivocal, occasional or for a temporary or special purpose, is constructive notice to all the world of the rights of the party in possession. "This agreement of the authorities also extends to include those equities of one who occupies as tenant that are connected with the tenancy, as the contents of and the covenents contained in the lease, and as well to interests under collateral agreements, as a contract to convey the land, or to renew the lease, etc. * * * "Now, it is the duty of a purchaser to inquire of the person in possession of the premises and ascertain the rights under which he holds, and if this duty of inquiry be disregarded, the purchaser is chargeable with notice of such facts as the inquiry, if it had been in fact made, would have revealed."
We think the exclusive, open and visible possession of the tenant is constructive notice to a purchaser of a collateral agreement such as this. It thus became the duty of the purchaser to inquire of the tenant and ascertain the rights under which he held. Since the purchaser failed to do this, he is chargeable with notice of such facts relating to the agreement as inquiry, if it had been made, would have revealed. Cf. Zurick v. Perlmutter, 94 N.J.L. 328 (Sup. Ct. 1920); 74 A.L.R. 355, 356, 360.
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Superior Court of New Jersey, Chancery/Law Divisions
Michalski v. United States, 49 N.J. Super. 104; 139 A.2d 324; 1958 N.J. Super. LEXIS 533 (1958):
The decision turns on a question of notice. The applicable statute
N.J.S.A. 46:22-1 provides:
"Every deed or instrument of the nature or description set forth in 46:16-1 of this title shall, until duly recorded or lodged for record in the office of the county recording officer in which the affected real estate or other property is situate,
be void and of no effect against subsequent judgment creditors without notice, and against all subsequent bona fide purchasers and mortgagees for valuable consideration, not having notice thereof, whose deed shall have been first duly recorded or whose mortgage shall have been first duly recorded or registered; but any such deed or instrument shall be valid and operative, although not recorded, except as against such subsequent judgment creditors, purchasers and mortgagees." (Italics ours)
Preliminarily it may be said that the settled law of the State is that whatever is sufficient to charge a purchaser with constructive notice is sufficient to charge a judgment creditor with the same. Lewis v. Hall, 7 N.J. Eq. 107, 120 (Ch. 1848); H.C. Tack Co. v. Ayers, 56 N.J. Eq. 56 (Ch. 1897); Majewski v. Greenberg, 101 N.J. Eq. 134, 138 (Ch. 1927).
Although the doctrine of constructive notice is touched upon in Diehl v. Page, 3 N.J. Eq. 143 (Ch. 1834); Losey v. Simpson, 11 N.J. Eq. 246 (Ch. 1856); Havens v. Bliss, 26 N.J. Eq. 363 (Ch. 1875); Cooke v. Watson, 30 N.J. Eq. 345, 352 (Ch. 1879), and Wanner v. Sisson, 29 N.J. Eq. 141, 150 (Ch. 1878), the earliest definitive discussion of the principle in this State appears in Hodge's Ex'rs v. Amerman, 40 N.J. Eq. 99, 103 (Ch. 1885). Hodge purchased a tract of meadow land from Polhemus in 1871, failing to record the deed thereto until December 1883, ten months subsequent to the recovery by the defendants of a judgment against Polhemus. In pertinent effect the statute then in force, was the same as that presently involved. The court, in enjoining the enforcement of the judgment against Hodge's land, said:
"Now, it is well settled in cases of this kind that implied or constructive notice may be just as effectual as actual notice, and that constructive notice may arise from possession alone, but, in order to give it that effect, it must be open, notorious, exclusive and unequivocal. It need not be by actual residence on the land, but where there is no actual pedis possessio, dominion must be manifested by such open and notorious acts of ownership as will naturally be observed by others, and the acts must be of a character so certain and definite in denoting ownership as not to be liable to be misunderstood or misconstrued. Holmes v. Stout, 2 Stock. [10 N.J. Eq.], 419; Coleman v. Barklew. 3 Dutch [27 N.J.L.], 357; 4 Kent's Com. 172; 2 Lead. Cas. in Eq. (4th Am. ed.) 180. But it is not necessary, in order to establish the fact of notice in such cases, to show that the person to be affected by the notice knew of the possession of the other. If the possession of the other is of the character required by the law -- if his possession has the notoriety, certainty and exclusiveness which the law says shall constitute notice -- then notice is a legal deduction from the fact of possession, and all persons dealing with the title to the land in his possession are chargeable with notice of his possession, whether they have actual knowledge of his possession or not. The reason of the rule is this: That it is the duty of a person, who proposes to deal respecting the title to a particular tract of land, to ascertain, in advance, who is in possession of it, and by what right he claims to hold it, and if he neglects this duty, it is only just that he should be charged with the knowledge that he would have obtained had he performed it. 2 Lead. Cas. in Eq. (4th Am. ed.) 180; Rogers v. Jones, 8 N.H. 264; Wickes v. Lake, 25 Wis. 71; Buck v. Holloway ['s Devisees], 2 J.J. Marsh. 163; Billington ['s Lessee] v. Welsh. 5 Bin. 129; Boggs v. Varner, 6 Watts & S. [Pa.], 469."
In Gardom v. Chester, 60 N.J. Eq. 238, 244 (Ch. 1900), a case factually analogous to this case, it was held that occupation of the premises by the plaintiff for seven months before the defendant recovered a judgment against her grantor afforded the defendant "abundant notice that she was in possession as owner, and the least inquiry made of [her] would have disclosed her unrecorded deed." See also Wood v. Price, 79 N.J. Eq. 620 (E. & A. 1911).
And so to the present day in every reported case in this State in which exclusive possession inconsistent with the record has been open and notorious has the judgment creditor, bona fide purchaser or mortgagee been charged with a duty to inquire of the one in possession concerning the right by which he occupies the premises and been held bound by the knowledge which such inquiry would have revealed. See LaCombe v. Headley, 91 N.J. Eq. 63, 66 (E. & A. 1919); Majewski v. Greenberg, above, 101 N.J. Eq., at page 138. Only in those cases in which the unrecorded owner has not been in actual possession has relief been denied him in the circumstances with which we are confronted. Vide, H.C. Tack Co. v. Ayers, supra; Gawrillow v. Rutkowski, 104 N.J. Eq. 329, 330 (Ch. 1929).
But the question presented is this: Was the sole occupancy of the premises by the plaintiffs inconsistent with the record title of co-tenancy with the Guerrieros? Neither counsel nor the court has come upon any case in this jurisdiction which deals with this precise problem. However, the proposition has received judicial consideration in other jurisdictions.
In Weisberger v. Wisner, 55 Mich. 246, 21 N.W. 331, 332 (Sup. Ct. 1884), a foreclosure action in which it appeared that the defendant co-tenant held a larger interest in the property involved than shown by the record title, by reason of an unrecorded sale to him of his co-tenants interest prior to the time the latter mortgaged it to the plaintiff, the court held:
"It is true, as complainant says, that the possession was not apparently inconsistent with the record title; * * * and if that were sufficient reason for holding that the possession is no notice of actual rights, the principle on which decisions have been made, giving protection to occupants, would have very limited application * * *. It seems to be unquestionable that Wisner occupied exclusively, and White would have learned this fact on inquiry. No reason is apparent why he should not have been held bound to inquire, as much in this case as in any other."
In Schmidt v. Steinbach, 193 Mich. 640, 160 N.W. 448 (Sup. Ct. 1916), it was held that the actual possession by a tenant in common is sufficient to put another on inquiry and the other is chargeable with knowledge of all the facts which he might have learned in making inquiry of the party in possession, citing Weisberger v. Wisner, supra. The same rule was adopted in Peck v. Williams, 113 Ind. 256, 15 N.E. 270 (Sup. Ct. 1888), wherein the court said that where one tenant in common has purchased and paid for the interest of his co-tenant and has taken exclusive possession of what was theretofore the common estate and made lasting and valuable improvements thereon, before the lien of a judgment attaches a judgment creditor who purchases the apparent interest of the tenant who has sold will be affected with notice of the rights of the tenant in possession. This holding was reiterated in Kirkham v. Moore, 30 Ind. App. 549, 65 N.E. 1042 (App. Div. 1903).
McLaren v. American Tel. & Tel. Co., 1 N.J. Super. 600; 63 A.2d 922 (1948):
As an instrument affecting the title to real estate or any interest therein or granting any right or interest therein, R.S. 46:16-1 & 2, it was void and of no effect against subsequent bona fide purchasers not having notice thereof until duly recorded or lodged for record in the office of the county recording officer in which the affected real estate is situate, R.S. 46:22-1. The key words are "not having notice thereof."
Possession or occupation of land, to be effectual as notice must be exclusive and uninterrupted, open, notorious and visible, i.e., it must indicate the occupant; it must indicate that someone other than he who appears by the record to be the owner has rights in the premises. Cox v. Devinney, 65 N.J.L. 389, 47 Atl. Rep. 569. Whatever is sufficient to put a party on inquiry is good notice.
The rule is the same at law as in equity and the ground upon which the title acquired by a prior registry of a deed is lost in the case of notice to the second grantee of the existence of the prior conveyance is that it is a fraud in the second grantee to take a deed knowing or having reason to suspect the existence of a prior title. Holmes v. Stout, 10 N.J. Eq. 419. The plaintiffs had constructive notice of the prior rights of the defendant. Since October 1923 when the poles were erected, the defendant's occupation of the strip of land upon which the poles were erected was exclusive and uninterrupted, open, notorious and visible. The presence of the poles, the wires, cables, guys and anchors as a part of a communication system indicated that someone other than he who appeared by the record to be the owner had rights in the premises. The visible presence of the poles and wires was sufficient to put the plaintiffs upon inquiry to determine whether the defendant or some other similar company had the right to erect and maintain the telephone lines. The occupation of the strip of land by the defendant was as exclusive as the circumstances of the case would permit. The plaintiffs took title to the premises in question with notice of the defendant's rights and subject thereto. The failure of the defendant to record the instrument does not affect its rights in the circumstances.
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Court of Chancery of New Jersey
Feld v. Kantrowitz, 98 N.J. Eq. 167; 130 A. 6 (Ch. 1925):
The rule of constructive notice created by possession of real property grew up at a time prior to the developing of the rather perfect recording statute that now exists in this state. It was said that fraud is the true ground in cases involving the doctrine of notice. LeNeve v. LeNeve, 1 Ves. 64. The same authority lays down the rule that it is fraudulent to get in the legal estate when it is known that the right was in another. So it has come to be the settled rule that open, notorious, visible, unequivocal, exclusive and uninterrupted possession is notice, and puts a purchaser dealing with the record owner under a duty of inquiry and constitutes constructive notice of everything he would have learned by inquiry from the person in possession. Wood v. Price, 79 N.J. Eq. 620, 81 A. 983. The authority just named, I think, puts New Jersey in the category of jurisdictions that have carried the notice implied from possession and occupation of land to its logical conclusion. But this rule, like any other, is to be applied, not blindly, but according to the surrounding circumstances affecting the rationale of the doctrine of notice.
In the case at bar there is not the simple transaction of the purchase of a dwelling-house or a farm or a piece of woodland with someone in visible occupation or possession thereof, but presents the case of a building constructed to accommodate a considerable number of tenants, and which, in fact, was so occupied. The very purpose of the building is to permit the leasing of suites or stores to a number of independent persons and from the rent so acquired to establish an income for the owner. Under these circumstances to charge a prospective purchaser with notice of any right, title or interest of one of the tenants, beyond the right of tenancy would be absurd. While not so large or occupied by so many, I think that it might as well be said that one contemplating the purchase of one of the great office buildings in the metropolitan district would be under a duty to personally interview every one of the hundreds of tenants occupying the offices thereof. Can it be said that the rule should be extended to cover the purchase of a large hotel?
The correct statement of the doctrine under consideration discloses that by the authorities, as well as common sense, it was never intended that the rule should be extended to cover a situation such as the present one. Professor Pomeroy, in his Eq. Jur. § 620, says that for one to successfully impute notice to a subsequent grantee or encumbrancer "his possession must be an actual, open, distinct, notorious and exclusive occupancy of the land in question. No mere occupation of the premises in common or in connection with a third person, and no mere exercise of acts of ownership equivocal in their nature over the land will then suffice." Every author and every well-written opinion accentuates the fact that only exclusive and unequivocal possession will satisfy the rule. To like effect is Coleman v. Barklew, 27 N.J.L. 357, where it is said that the possession "must be actual, distinct and unequivocal. It must, moreover, be visible and manifested by notorious acts of ownership. Holmes v. Stout, 3 Gr. Ch. 492," and other authorities.
In Cox v. Devinney, 65 N.J.L. 389, 47 A. 569, the chief-justice, in dealing with the present subject, said as follows: "While the general rule is that possession of land is notice to a purchaser of the possessor's right therein, nevertheless such possession, to be effectual as notice, must be not only exclusive and uninterrupted, it must also be open, notorious and visible."
In Rankin v. Coar, 46 N.J. Eq. 566, 22 A. 177, the owner of an ordinary dwelling-house died intestate, and, subsequently, his widow released her dower to the only heir, and the same was recorded. Contemporaneously, the heir entered into an agreement with his mother, in writing, that she should have the use and occupation for life of the rooms then occupied by her in the premises aforesaid. This agreement was not recorded. Subsequently, the son executed a mortgage upon the property, and the mortgagee foreclosed. At the sale, under the fi. fa., the widow gave notice of her claim, and, subsequently, she filed a petition in the cause to have the rooms so occupied by her declared to be hers during her life by force of the agreement mentioned.
The court of errors and appeals, unanimously reversing this court, held that her possession of the rooms then in question did not come within the true meaning of the doctrine: "Possession, to give notice or to make inquiry a duty, must be open, notorious and unequivocal. There must be such an occupation of the premises as a man of ordinary prudence, treating for the acquisiton of some interest therein, would observe, and, observing, would perceive to be inconsistent with the right of him with whom he was treating, and so be led to inquiry."
Schwoebel v. Storrie, 76 N.J. Eq. 466; 74 A. 969 (Ch. 1909):
The notice contemplated by the recording statute as sufficient to defeat its protection to a subsequent purchaser need not, in itself, apprise the purchaser of all the facts touching the outstanding title. When facts are brought to the knowledge of the person contemplating the purchase of the record title which are sufficient to appraise him of the existence of an outstanding claim of title, and a reasonable investigation of such facts would necessarily discover the existence of such outstanding title, the purchaser is put upon inquiry and charged with notice of the facts which a reasonably diligent inquiry would have ascertained. It is also well settled that the open, visible, notorious and exclusive possession of land by one who is not the record owner affords a notice to one who purchases the record title which puts such purchaser upon inquiry and charges him with a knowledge of such facts as a reasonably diligent inquiry would have ascertained. Diehl v. Page, 3 N.J. Eq. 143, 145; Van Keuren v. Central Railway Co., 38 N.J.L. 165, 167; Havens v. Bliss, 26 N.J. Eq. 363, 370; Johns v. Norris, 27 N.J. Eq. 485, 487; Wanner v. Sisson, 29 N.J. Eq. 141, 150; Cooke v. Watson, 30 N.J. Eq. 345, 352; Essex County Bank v. Harrison, 57 N.J. Eq. 91, 96, 40 A. 209; see, also, 2 Pom. Eq. Jur. §§ 614, 615; 2 Dev. Deeds §§ 760, 777.
The rule as stated in Allen v. Seckham, 11 Ch. Div. 790, 795, is: "Where a person purchases property where a visible state of things exists which could not legally exist without the property being subject to some burden, he is taken to have notice of the extent and nature of the burden."
Gardom v. Chester, 60 N.J. Eq. 238; 46 A. 602 (Ch. 1900):
In this case the property consists of a dwelling-house and town lot at a New Jersey seaside resort. The complainant used it as her residence, paid the taxes assessed upon it, without dispute or denial of her right by anyone. She testifies that she personally occupied the house all the time that she did not have to work in the city to make her living. Her daughter also personally occupied it under her mother's title.
These personal uses of the premises were shown to have been quite frequent during all the seasons of the year, at intervals sometimes of a week or two, and sometimes of longer periods. At seaside resorts occupation of residences in this way is very common. The population of such places increases tenfold in the summer time and decreases in the same proportion when the season is concluded.
Hundreds of dwelling-houses are there held empty during nine months of the year, to be occupied only during the three summer months. No one deals with such property expecting an owner to have it continually personally occupied. The proofs show that the complainant's personal presence on the premises, in addition to her stay in the summer season, extended over other periods of the year.
The presence of the dwelling-house itself, with its curtains in the windows and other signs of personal use--the pump in the yard and the outhouse--were effectual to give notice of an actual possession by those who lived there, whether during every hour of the day they were personally on the premises or not. In Losey v. Simpson, 11 N.J. Eq. 246, 255, Chancellor Williamson held that the actual occupancy of one claiming adversely to the record title imposed upon the other claiming under it the duty of inquiring of the party in possession of the premises of what his right of possession consisted. Vice-Chancellor Pitney, in Essex County Bank v. Harrison, 57 N.J. Eq. 91, 96, 40 A. 209, states the same rule even more forcibly in favor of the party in possession, and cites the New Jersey cases on the point.
The occupation of the premises in question by Mrs. Gardom for seven months before the Browning judgment was entered afforded the plaintiff in that judgment abundant notice that she was in possession as owner, and the least inquiry made of Mrs. Gardom would have disclosed the existence of her unrecorded deed.
Hodge's Excrs. v. Amerman, 40 N.J. Eq. 99, 104, 2 A. 257 (Ch. 1885):
Now, it is well settled in cases of this kind that implied or constructive notice may be just as effectual as actual notice, and that constructive notice may arise from possession alone, but, in order to give it that effect, it must be open, notorious, exclusive and unequivocal.
It need not be by actual residence on the land, but where there is no actual pedis possessio, dominion must be manifested by such open and notorious acts of ownership as will naturally be observed by others, and the acts must be of a character so certain and definite in denoting ownership as not to be liable to be misunderstood or misconstrued. Holmes v. Stout, 10 N.J. Eq. 419; Coleman v. Barklew, 27 N.J.L. 357; 4 Kent's Com. 172; 2 Lead. Cas. in Eq. (4th Am. ed.) 180.
But it is not necessary, in order to establish the fact of notice in such cases, to show that the person to be affected by the notice knew of the possession of the other. If the possession of the other is of the character required by the law--if his possession has the notoriety, certainty and exclusiveness which the law says shall constitute notice--then notice is a legal deduction from the fact of possession, and all persons dealing with the title to the land in his possession are chargeable with notice of his possession, whether they have actual knowledge of his possession or not.
The reason of the rule is this: That it is the duty of a person, who proposes to deal respecting the title to a particular tract of land, to ascertain, in advance, who is in possession of it, and by what right he claims to hold it, and if he neglects this duty it is only just that he should be charged with the knowledge that he would have obtained had he performed it. 2 Lead. Cas. in Eq. (4th Am. ed.) 180; Rogers v. Jones, 8 N.H. 264; Wickes v. Lake, 25 Wis. 71; Buck v. Holloway, 25 Ky. 163, 2 J.J. Marsh. 163; Billington v. Welsh, 5 Binn. 129; Boggs v. Varner, 6 Watts & Serg. 469.
Recent Cases
I.E.'s, L.L.C. v. Simmons, Docket No. F-13336-03, 392 N.J. Super. 520; 921 A.2d 483; 2006 N.J. Super. Lexis 352 (Superior Court Of New Jersey, Law Division, Middlesex County, 2006):
New Jersey law has long recognized that a bona fide purchaser for value of real estate who purchases the property knowing others are in possession of the property has a duty to make reasonable and diligent inquiry of the rights to the property by those in possession. Hinners v. Banville, 114 N.J. Eq. 348, 168 A. 618 (E. & A.1933). Hinners is a mortgage foreclosure case where owners were served by publication. The property was sold at a sheriff's sale and then purportedly sold to a bona fide purchaser for value. The sale to the bona fide purchaser for value was set aside since the family was in possession of the property, and the court held that the bona fide purchaser for value had a duty to make a reasonable investigation of the rights of the party in possession. Id. at 356-57, 168 A. 618. See also, Michalski v. U.S., 49 N.J. Super. 104, 108-09, 139 A.2d 324 (Ch.Div.1958).
