The Home Equity Theft Reporter Cases & Articles: Aug 3, 2014

The following compilation of cases decided by the Alabama Supreme Court address, either directly or tangentially, 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.

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 or setting aside 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 disqualifying the subsequent purchaser or encumbrancer from bona fide purchaser/encumbrancer status and, consequently, subjecting the deeds or mortgages to possibly being voided/rescinded/set aside.

This case law compilation represents raw research only, and certainly does not purport 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.

I post it, however, with the view that some readers may find a part of the contents a helpful starting point for additional legal research in an effort to void certain abusive real estate transactions involving unwitting, financially strapped homeowners who have been screwed out of the equity in their homes by unscrupulous real estate operators.

See Effect Of Persons In Possession Of Real Estate Other Than The Owner/Vendor On A Buyer's Status As A Bona Fide Purchaser - Alabama State Court Cases for a compilation of the full court rulings for these and other Alabama cases on this issue.

For other states, generally, see Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.

See the National Consumer Law Center's Dreams Foreclosed: The Rampant Theft of Americans' Homes Through Equity-stripping Foreclosure 'Rescue' Scams for an extensive review of one type of home equity ripoff to which the bona fide purchaser doctrine may apply.

See Foreclosure Rescue Scams (a chapter in a longer publication from the National Consumer Law Center) for a lawyer's guide to making a case on behalf of a victimized homeowner in attempting to void or set aside an abusive transaction.

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Alabama Supreme Court Cases

Baldwin County Fed. Sav. Bank v. Central Bank of the South, 585 So.2d 1279 (Ala. 1991):

BCFSB argues that, because it recorded its certificate of judgment before the recording of the Odoms' deed and Central's mortgage, its rights in the property are superior to those held by the Odoms and by Central.[2] Alternatively, it argues that the court's implicit finding that the Odoms' possession was such as to give it notice of the Odoms' unrecorded deed and Central's unrecorded mortgage before it filed the certificate of judgment is not supported by the evidence.

***

BCFSB's first argument concerns the provisions of Ala.Code 1975, §35-4-90(a). It contends that, pursuant to that section, once a judgment creditor records its certificate of judgment, all subsequently recorded conveyances are void as to that judgment. It directs this Court's attention to Johnson v. Haleyville Mobile Home Supply, Inc., 477 So.2d 328 (Ala.1985), as support for its argument.

We do not agree. Section 35-4-90(a) gives judgment creditors, purchasers, and mortgagees priority over an earlier executed deed that has not been recorded only when the judgment creditor, purchaser, or mortgagee records its instrument without actual knowledge or constructive notice of the earlier conveyance.

Therefore, simply winning the race to the courthouse and recording first is not enough to give a lienholder priority. It is also necessary that the judgment creditor, whose rights, if any, attach upon the act of recording, record its judgment without notice of the earlier deed. Smith v. Arrow Transp. Co., 571 So.2d 1003 (Ala. 1990); Department of Revenue v. Price-Williams, 545 So.2d 7 (Ala.1989); Gulf Oil Corp. v. Beck, 293 Ala. 158, 300 So.2d 822 (1974).

The language of §35-4-90(a) indicates that it was drafted, at least in part, to prevent the result argued for by BCFSB:

"All conveyances of real property, deeds, mortgages, deeds of trust or instruments in the nature of mortgages to secure any debts are inoperative and void as to purchasers for a valuable consideration, mortgagees and judgment creditors without notice, unless the same have been recorded before the accrual of the right of such purchasers, mortgagees or judgment creditors." Ala.Code 1975, §35-4-90 (emphasis added).

The principle that recording first creates superior rights only when the recording party does not have actual knowledge or constructive notice of prior unrecorded conveyances is an equitable principle of long standing that has been consistently applied in cases involving judgment creditors. Smith v. Arrow Transp. Co., supra; Gulf Oil, supra; W.T. Rawleigh Co. v. Barnette, 253 Ala. 433, 44 So.2d 585 (1950); Burt v. Cassety, 12 Ala. 734 (1848). In Gulf Oil, this Court noted:

"`It results from this view, that as the judgment creditor had, by the possession of the complainant, constructive notice of her title, he acquired no lien upon the land, in virtue of his judgment.'"

293 Ala. at 160, 300 So.2d at 823 (quoting Burt, supra, at 739; emphasis in original).

The character or quality of possession that is sufficient to provide notice has been described as "whatever is sufficient to put a party on inquiry" concerning possible competing claims to the property. Gamble v. Black Warrior Coal Co., 172 Ala. 669, 672, 55 So. 190, 190 (1911); Jefferson County v. Mosley, 284 Ala. 593, 226 So.2d 652 (1969).

Under § 35-4-90(a), judgment creditors and purchasers are "on the same footing." Gulf Oil, supra; Burt, supra; Therefore, the quantum of possession needed to put a judgment creditor on notice is no greater than that which is deemed sufficient to put a purchaser on notice. Id.

In addition, BCFSB's reliance on our opinion in Johnson, supra, is misplaced. The sole issue addressed in Johnson was whether a judgment creditor's rights had accrued upon the recording of the certificate of judgment even though the judgment debtor thereafter filed a motion for new trial. 477 So.2d at 328. That opinion mentioned only summarily that the judgment creditor did not have notice of the deed that had been executed before it recorded its certificate of judgment. Id., at 329-30. Thus, Johnson did not address the issue that is central to the instant case, i.e., whether the judgment creditor had notice of unrecorded conveyances before it recorded its certificate of judgment.

BCFSB also argues that the evidence does not support the trial court's implicit finding that there was sufficient evidence of the Odoms' possession of the property to put it on notice of the Odoms' deed and, by inference, the subsequent mortgage to Central.[3] The determination of whether BCFSB was chargeable with notice of the Odoms' possession was a question of fact within the equity jurisdiction of the court. Hodges v. Beardsley, 269 Ala. 280, 283-84, 112 So.2d 482, 484-85 (1959). Because the ore tenus rule applies to this case, the court's resolution of that question will not be reversed unless it is clearly erroneous or unsupported by credible evidence. May v. Campbell, 470 So.2d 1188 (Ala. 1985).

The most important evidence supporting the trial judge's decision showed that the Odoms had redeemed the property from a prior tax sale before BCFSB recorded its certificate of judgment. As a result, a certificate of redemption in the Odoms' names, dated May 19, 1986, was issued by the Baldwin County tax collector's office.[4] Documents that show the payment of such taxes have been held to be competent evidence of the payor's claim of title. Gantt v. Phillips, 262 Ala. 184, 77 So.2d 916 (1955). Mr. Odom testified that the property had been assessed in the Odoms' names from the time of the redemption. Thus, it appears that BCFSB had notice through the tax assessor's records that the Odoms claimed the property and had assessed it in their names.

There was also evidence of the Odoms' occupancy of the property that supports the trial court's determination that they "possessed" the property in a manner sufficient to put BCFSB on notice of their deed. An owner is not required to physically reside on property in order to establish possession. Instead, he need only make use of the property in a manner that is consistent with its nature. Hand, supra, at 1160; Turnham v. Potter, 289 Ala. 685, 271 So.2d 246 (1972).

The subject property is undeveloped beachfront property. Steve Odom testified that, during the period between the date of the deed and the date that BCFSB recorded its certificate of judgment, he and his wife repeatedly visited the property and walked its boundaries. They had it surveyed and had the corners marked with stakes. They also visited the property with real estate agents to discuss how to develop it and used it for family outings, picnics, swimming, and sunbathing.

This Court has recognized "that it is difficult, if not impossible, to lay down any general rule as to what facts will in every case be sufficient to charge a party with notice or put him on inquiry." Jefferson County v. Mosley, 284 Ala. at 599, 226 So.2d at 656. However, in light of the evidence set out above, we cannot say that the trial judge's implicit finding that BCFSB had constructive notice of the Odoms' deed, and therefore also of Central's mortgage, Smith, supra, was clearly erroneous or not supported by credible evidence. Therefore, the judgment is due to be affirmed. Hand, supra.

AFFIRMED.

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Smith v. Arrow Transp. Co., 571 So.2d 1003 (Ala. 1990):

As a general rule, where a third party is in possession of the premises, a purchaser of those premises or a judgment creditor is charged with constructive notice of the nature of the third party's title. Gamble v. Black Warrior Coal Co., 172 Ala. 669, 55 So. 190 (1911). However, as this Court stated in Lightsey v. Stone, 255 Ala. 541, 547, 52 So.2d 376, 381 (1951):

"[F]or possession to operate as notice, it must be open, visible, exclusive and unambiguous, not liable to be misconstrued or misunderstood. Consequently, it is uniformly held that where there is no open and visible change of possession, it does not operate as notice. "Hence, we have held that where the possession of the vendor and vendee is joint at the time of the sale and conveyance [or recordation of the certificate of judgment], the rule does not apply. The joint possession does not operate as constructive notice, because there would be no visible act which is calculated to put a stranger on inquiry as to the changed attitude or status of the title."

(Emphasis added.) See Pake v. Lindsey Mill Co., 208 Ala. 569, 94 So. 573 (1922); Holly v. Dinkins, 202 Ala. 477, 80 So. 861 (1919); Autauga Banking & Trust Co. v. Chambliss, 200 Ala. 87, 75 So. 463 (1917); Sloss-Sheffield Steel & Iron Co. v. Taff, 178 Ala. 382, 59 So. 658 (1912); Christopher v. Curtis-Attalla Lumber Co., 175 Ala. 484, 57 So. 837 (1912); Langley v. Pulliam, 162 Ala. 142, 50 So. 365 (1909); O'Neal v. Prestwood, 153 Ala. 443, 45 So. 251 (1907); Kindred v. New England Mortgage Security Co., 116 Ala. 192, 23 So. 56 (1897); Munn v. Achey, 110 Ala. 628, 18 So. 299 (1895); Motley v. Jones, 98 Ala. 443, 13 So. 782 (1893); and McCarthy v. Nicrosi, 72 Ala. 332 (1882).

For more than two years before Arrow recorded its certificate of judgment, both Trico, as the record owner of the property, and Betty, as the occupier of the property, were in joint possession of the property. Betty's possession was attributable to the ownership of the property by the corporation owned by her husband's family and therefore did not unambiguously serve as notice of a claim by her that was inconsistent with the recorded title in Trico's name. The only deed conveying an interest to Betty was not recorded until almost one year after Arrow had recorded its certificate of judgment. At the only relevant time, the date that Arrow recorded its certificate of judgment, there had been no visible change of possession or "any visible act ... calculated to put [Arrow] on inquiry" as to Betty's possible claim. Therefore, her possession could not operate as notice. Lightsey, supra. See First Nat'l Bank of Birmingham v. Culberson, 342 So.2d 347 (Ala.1977); Wiggins, supra; Autauga Banking & Trust Co. v. Chambliss, 200 Ala. 87, 75 So. 463 (1917); Harris v. Hanchey, 192 Ala. 179, 68 So. 276 (1915); O'Neal v. Prestwood, 153 Ala. 443, 45 So. 251 (1907); McCarthy v. Nicrosi, 72 Ala. 332 (1882).

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United Companies Financial Corp. v. Wyers, 518 So.2d 700 (Ala. 1987) (Editor's Note: Court sets aside a mortgage; case involved a recently widowed woman who was left with no income, and who was then approached by a man thirty years her junior who became her "boyfriend", professing his love for her and offering to marry her. The boyfriend subsequently screwed the woman out of her free and clear home by fraudulently obtaining a mortgage on it, pocketing the proceeds and letting the property fall into foreclosure. Court found that widow's continued possession of home placed bank on notice of fraud, leaving lender "holding the bag"):

Our decision on this issue primarily rests on a determination of whether United was a bona fide purchaser, acting in good faith and without notice of any claim against the house that was to be mortgaged. First Alabama Bank v. Brooker, 418 So.2d 851 (Ala.1 982).

In order to be a bona fide purchaser, United must have had no knowledge that Gilreath's title to the mortgaged property was merely colorable, i.e., not genuine. United is not required to have actual knowledge in order to have notice of colorable title. A purchaser has constructive notice if the facts surrounding the transaction give notice, or are such that a reasonably prudent person would inquire further. Brooker, supra at 856; See Touchstone v. Peterson, 443 So.2d 1219 (Ala.1983).

Knowledge that the grantor retained possession of the conveyed property and received nominal consideration is sufficient to place the mortgagee on notice. Touchstone, supra; Brooker, supra; Cumberland Capital Co. v. Robinette, 331 So.2d 709 (Ala.1976).(1)

There are no allegations of bad faith on the part of United, only that it had notice of a potential problem in the conveyance between Wyers and Gilreath and allowed the mortgage in spite of this knowledge. If United was not a bona fide purchaser because it had notice, Wyers should not be required to tender more than the $300.00 she actually received. It follows that United should not be able to protect itself merely by requiring Wyers to sign the mortgage, because that does not avoid the problems of duress in the initial conveyance. In other words, if there was duress or undue influence in the conveyance of the deed, then Gilreath might use undue influence and duress to obtain Wyers's signature on the mortgage. In fact, there are facts presented, which, if believed, would support that theory.

Wyers testified that Gilreath had threatened her life and told her not to tell her sons about the transaction. Further, Gilreath drove Wyers to the mortgage closing and allegedly told her on the way not to get upset during the closing, not to answer any questions, and to do as she was told. At the closing, when United's agent asked whether Wyers understood what was happening, Gilreath allegedly hit Wyers under the table, indicating to her that she should be agreeable. Whether these factors were sufficient to constitute duress or undue influence was a question for the trial judge.

The record also states that United conducted a title search and concluded that the property had recently been deeded to Gilreath. This was discovered after Gilreath allegedly told United that he had received the property as an inheritance, and that he was a relative of Wyers's.

In addition, United knew that Wyers still maintained possession of the property. Though the remaining facts are disputed, it appears other circumstances aroused United's suspicions enough so that they contacted Wyers and required her to participate in the mortgage process. This is an unusual act, considering that the deed to the property was only in Gilreath's name. Regardless of what factors aroused the suspicions, United demonstrated its awareness of a potential problem in the conveyance when it required Wyers, who no longer had title to the property, to co-sign the mortgage.

We hold that there was sufficient evidence before the trial judge, which, if believed, would support the factual conclusion that United was aware that Gilreath had merely colorable title. For the foregoing reasons, we affirm the trial court's judgment setting aside the mortgage.

AFFIRMED.

(1) Editor's Note: It appears that the court may have reached its conclusion based, not solely on the grantor's retained possession of the conveyed property standing alone, but coupled with the fact that the grantor received but nominal consideration for the conveyed property.

When making a case in Alabama involving a grantor's retained possession, it may be good practice to raise one or more additional "red flags" that may be present that the "downstream" purchaser may have notice of which, when taken together with possession, will strengthen the assertion that said purchaser had sufficient notice to excite attention and be put upon inquiry, as it was in this case (ie. grantor's retained possession coupled with nominal consideration paid by grantee).

Such red flags can be described as any facts that tend to throw suspicion upon a transaction and call for an explanation. It may be that some facts, standing alone, may not be enough to put a "downstream" purchaser on inquiry, but when taken collectively, may be enough to require inquiry of the parties to the transaction in question, with the resulting effect being to require more persuasive proof as to the bona fides of the conveyance.

Coincidentally, it may be interesting to note that the two factors the court looked to for supporting its conclusion that the lender had notice of the fraudulent transaction (grantor's retained possession - Section 8-9A-4(b)(2), and the nominal consideration paid by the grantee - Section 8-9A-4(b)(8)) are listed as red flags to consider under the Alabama Fraudulent Transfer Act ("AFTA"), addressing fraudulent intent in asset transfers in efforts to defraud creditors . While the AFTA is not applicable in a real estate title theft scam, the list of red flags in Section 8-9A-4(b) of the Act may nevertheless provide a useful tool and a good starting point when examining a questionable conveyance to determine whether any of those factors were present and whether the "downstream" purchaser or lender had notice of their presence sufficient to impose upon him/her a duty to inquire of the parties into the circumstances surrounding the transaction at issue.

Some possible "red flags":

(1) The relationship between grantor and grantee;
(2) The grantor retained possession or control of the property conveyed after the transfer;
(3) The grantee's failure to record (or delay in recording) his/her interest in conveyed property (or possibly has yet to take legal title from grantor - ie. contract-flipping situation);
(4) Before conveyance, grantee or subsequent purchaser knew or were on notice of lawsuits, threatened lawsuits, or other legal process against grantor?;
(5) Insufficiency/inadequacy of consideration (a recorded deed from grantor to grantee will generally reflect the consideration paid for the property - ie. documentary stamps, revenue stamps, recording taxes, etc.);
(6) Insolvency of grantor; was there reasonable belief that grantor was insolvent or otherwise financially embarrassed?;
(7) Recorded foreclosure notice filed around the time of grantor's conveyance (ie. lis pendens, notice of default, etc.; This type of notice is an indicator that the grantor may be insolvent or otherwise under financial duress, and that he/she is or has been recently involved in some litigation or non-judicial legal process relating to said financial straits -see (4) & (6), above);
(8) Essentially, anything else one can think of, as long as it "is sufficient to excite attention and put the party on his guard and call for inquiry is notice of everything to which the inquiry would have led; ... it is difficult, if not impossible, to lay down any general rule as to what facts will in every case be sufficient to charge a party with notice or put him on inquiry." Jefferson County v. Mosley, 284 Ala. 593, 226 So.2d 652 (Ala. 1969).

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Touchstone v. Peterson, 443 So.2d 1219 (Ala. 1983):

Beyond the element present here of actual notice of prior claims before acquiring legal title, it is apparent that Rosa Lee Peterson would further be deprived of bona fide purchaser status under the constructive notice doctrine as well. Generally, actual notice on the part of the subsequent purchaser of the error to be corrected in the deed is not necessary in order to permit reformation of the instrument as against him, provided he had constructive notice, or the facts were such as to put a prudent person on inquiry as to title, charging him with notice of all facts to which diligent inquiry and investigation would have led him. See generally, 79 A.L.R.2d 1180 (1961); Holly v. Dinkins, 202 Ala. 477, 80 So. 861 (1919). See also, Leslie v. Click, 221 Ala. 163, 165, 128 So. 170, 172 (1930), where this Court stated as follows:

"A purchaser with sufficient information to stimulate inquiry which would lead to knowledge of adverse or hostile and superior claim or title, and fails therein, the injury is the result of his own folly—he is wanting in good faith, an indispensable element of a purchaser (for value) without notice—and a court of equity will not protect such reckless purchaser. Taylor v. A. & M. Ass'n, 68 Ala. 229...."

Accord, Adams v. Adams, 346 So.2d 1146 (Ala. 1977); First National Bank of Birmingham v. Culberson, supra; Murphree v. Henson, supra; Lightsey v. Stone, supra.

Furthermore, it is settled law in this state that, where a purchaser buys land and has knowledge that a third person is in possession thereof, he is charged with notice as to the nature of that party's title, including the occupant's equitable rights. This principle is stated in Holly v. Dinkins, supra, as follows:

"Whenever a party, dealing as a purchaser or incumbrancer with respect to a parcel of land, is informed or knows, or is in a condition which prevents him from denying that he knows, that the premises are in the possession of a third person, other than the one with whom he is dealing as owner, he is thereby put upon an inquiry, and is charged with constructive notice of all the facts concerning the occupant's right, title, and interest which he might have ascertained by means of a due inquiry. 2 Pom.Eq.Jur. § 615...." 202 Ala. at 479, 80 So. at 863.

Accord, Lightsey v. Stone, supra; Walling v. Moss, supra; Sulzbacher v. Campbell, 219 Ala. 191, 121 So. 706 (1929); Copeland v. Warren, 214 Ala. 150, 107 So. 94 (1926). In Gilmore v. Sexton, supra, reformation of deeds was upheld as against third parties who had purchased the disputed land with notice that it was occupied and possessed by the complainant. There, this Court said that such continued possession is notice of all the equitable and other rights of the possessor. See also, Cumberland Capital Corporation, Inc. v. Robinette, 57 Ala.App. 697, 331 So.2d 709 (1976); Hill v. Taylor, 285 Ala. 612, 235 So.2d 647 (1970).

However, to put a purchaser upon inquiry and to operate as constructive notice, possession must exist at the time of the transaction by which his rights and interest were created. Holgerson v. Gard, 257 Ala. 579, 60 So.2d 427 (1952). Such possession must be open, visible, exclusive, and unambiguous, not liable to be misconstrued or misunderstood. Lightsey v. Stone, supra. Nevertheless, in Evans v. Bryan, 202 Ala. 484, 485, 80 So. 868, 869 (1919), this Court said:

"If the possession of the grantor, after making a conveyance, is long continued, it may be more reasonable to refer it to his right to occupancy rather than to the sufferance of the grantee. Possession, therefore, for an unreasonable period after a conveyance may well be sufficient to put persons upon inquiry as to the occupant's rights." (Emphasis added.)

See also, A. Shiff & Son v. Andress, 147 Ala. 690, 40 So. 824, 825 (1906), holding that where the complainant continued in possession of land after having been induced to convey the same such possession constituted notice of her equitable rights to purchasers from her grantee.

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Fleming v. Watson, 416 So. 2d 706 (Ala. 1982) (Editor's Note: case involved BFP determination in connection with a purchaser at a foreclosure sale and an occupant in possession of premises being foreclosed on who is not named on mortgage document):

doctrine of caveat emptor is properly applied to mortgage foreclosure sales

It is important, however, to keep in mind that the notice with which the purchaser at a mortgage foreclosure sale is charged is that notice which would have resulted from a careful and diligent inquiry into the recorded history of the mortgaged property

Murphree v. Henson

Possession of the property to be sold at a foreclosure sale by one whose name does not appear on the mortgage document is an obvious "fact [which] would lead an ordinarily prudent person to further inquiry," which inquiry would reveal the claimed interest of the possessor

Strong v. Strong

the Texas commission of appeals correctly summarized the legal principles which guide our resolution of the issue now before us

A purchaser of land must search the records

He must also make inquiry as to the rights or title of the possessor, for possession is equivalent to registration, in that it gives constructive notice of the possessor's rights

The notice, therefore, upon the same motives of expediency, is made as absolute as in the case of a registration

by the fact that ordinarily the truth as to title may be readily obtained from the person in possession

Strong v. Strong

The burden of a diligent search into the history of property one purposes to buy is not an onerous one, nor is it unfair to apply the doctrine of caveat emptor to mortgage foreclosure sales. The purchaser at a mortgage foreclosure sale should be in no better position than buyers in all situations who claim to be bona fide purchasers for value without notice of unascertainable defects or secret equities

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First National Bank of Birmingham v. Culberson, 342 So.2d 347 (Ala.1977) (Editor's Note: case involved a home builder - "Griffin", a prospective homebuyer - "the Culbersons" - who contracted with Griffin to construct a new home and who was in joint possession of the premises with Griffin during the construction process, and a foreclosing lender in connection with a construction loan given to the Griffin):

In this we have concluded that the trial court erred, since there is at least a scintilla of evidence furnished by the deposition of the witness Jones, the Bank's real estate inspector. contesting the possession of Lot 4.

In that deposition offered by the Bank in support of its own summary judgment motion filed after that of the plaintiffs, Jones states that he first inspected Lot 4 when the foundation was laid and found some lumber there also. This inspection was made in connection with Griffin's application for a loan, and he inspected the premises about once or twice a month thereafter, and "watched it go up from the foundation on." He did not know when the Culbersons actually moved in, and did not recall having seen Mrs. Culberson before the deposition was taken.

Not only did this evidence make an issue of the Culbersons' possession, but both Mrs. Culberson's deposition and the trial court's order show that workmen were present much of the time when Mrs. Culberson was at the site.

While the trial court may have been correct in characterizing the Culbersons' acts of possession as "open, visible, and obvious," it is questionable whether these acts were also unambiguous and exclusive, as our cases require. Lightsey v. Stone, 255 Ala. 541, 52 So.2d 376 (1951).

Notwithstanding the fact that the Culbersons had keys to the house before they actually began to live there, Mrs. Culberson's own statement poses the question whether their possession was exclusive, or joint with Griffin because his workmen were still present on the premises, apparently in accord with the construction agreement.

A joint possession with the vendor is not unambiguous, but equivocal. O'Neal et al. v. Prestwood, 153 Ala. 443, 45 So. 251 (1907).

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Yeargin v. Donnelly, 292 Ala. 430, 296 So. 2d 144 (Ala. 1974) (Editor's Note: case involved a procedural ruling in an action involving homeowners in possession who sued to clear their title after allegedly being duped into signing away their home in exchange for worthless stock; the title to the home was then reconveyed twice to "downstream" purchasers, one of whom ("Yeargin") sought the statute's protection as a bona fide purchaser):

Allegations by complainants that they were in possession of the subject property are not necessary in order to state a valid cause of action and to remove respondent Yeargin's deed as a cloud on their title.

Possession by complainants goes only to the issue of whether or not appellant was a bona fide purchaser. This Court specifically held in Barton v. Barton, 75 Ala. 400 (1883) and in Marsh v. Elba Bank and Trust Co., 207 Ala. 553, 93 So. 604 (1922), that the issue of bona fide purchaser for value is an affirmative defense, in the nature of confession and avoidance, which must be raised by respondent in an action such as the one at bar.

When respondent alleges and proves such, burden then shifts to complainants to prove the respondent had actual or constructive notice of the facts constituting the fraud before his purchase or of facts or circumstances sufficient to put him on inquiry, which if followed up, would lead to discovery thereof. There is no duty upon complainants, pleading a fraudulent conveyance, to anticipate the defense and to affirmatively plead and prove that all subsequent purchasers are not bona fide purchasers.

***

While the complaint does not allege "wrong doing" on the part of Yeargin, as respects him, it alleges that Yeargin received no interest in the real estate by virtue of his deed because his predecessors in title had no interest to convey on account of fraud and misrepresentation.

We think it clear that the complaint alleges a substantial cause of action and that the judgment was responsive to the complaint. The contention that the bill does not state a cause of action is without merit.

In assignments of error 3. and 4., appellant Yeargin complains that the trial court erred in considering testimony relating to complainants' possession of the property because there was no allegation of possession by the complainants in the bill of complaint. Appellant argues that proof of a fact not alleged is unavailable for relief, citing Sachs v. Sachs, 278 Ala. 464, 179 So.2d 46 (1965); W. T. Smith Lumber Co. v. L. J. Foshee, 277 Ala. 71, 167 So.2d 154 (1964); AGM Drug Company of Alabama v. Dobbs, 277 Ala. 493, 172 So.2d 379 (1965); Mid-State Homes, Inc. v. Ledford, 284 Ala. 613, 227 So.2d 126 (1969).

While we agree that this may be a correct principle of law as stated in these cases [insofar as it has not been altered by the adoption of the Alabama Rules of Civil Procedure, Rule 15(b)], we cannot agree that this principle is dispositive of the case at bar. The above cited cases involve situations wherein the trial court granted relief not requested by complainants or where the facts, as proven at trial, were entirely inconsistent with the allegations of the complaint. These cases simply stand for the proposition that one cannot plead one set of facts and then prevail at trial by proving an entirely different set of facts, even if the latter facts, as proven, would entitle the complainant to relief if properly pleaded. Testimony, whose only relevancy is to prove facts not properly part of the cause of action pleaded, is inadmissible as irrelevant.

In the instant case, however, we cannot say that the testimony as to complainants' possession was irrelevant under the pleadings.

While complainants were not under any duty to plead and prove their possession in anticipation of respondent's defense of bona fide purchaser, nevertheless, once respondent alleged in his answer that he gave value for his deed and did not have notice that complainants were in possession of the property, and claimed an interest in said property, until just two weeks prior to commencement of this suit, we think the defense of bona fide purchaser was injected into the action by respondent Yeargin himself. The issue of possession of the property, therefore, was properly before the court and the testimony of Joseph Donnelly and John Day as to complainants' possession of the property was admissible being relevant to the issue as to whether respondent Yeargin was a bona fide purchaser or whether he was put on notice of complainants' claims to the property by complainants' possession of the property.

Respondent also argues that, even if relevant to the issue as to whether or not he was a bona fide purchaser, the cases of Barton v. Barton, supra, and Marsh v. Elba Bank and Trust Co., supra, hold that only after the party alleging to be a bona fide purchaser has proven such allegation does the burden shift to the opposing party to disprove such status. Respondent argues that it was reversible error for the trial court to consider complainants' proof of possession during complainants' case in chief before the respondent had put on his case to prove he was a bona fide purchaser for value.

We conceive this argument to be without merit. The aforementioned cases deal only with the shifting of the burden of proof; they in no way purport to regulate the order of presentation of testimony, a matter we take generally to be within the sound discretion of the trial court.

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Hill v. Taylor, 285 Ala. 612, 235 So.2d 647 (Ala. 1970):

Here the appellee admitted that he knew that Mrs. Hill had long been in possession of the property, he knew she was in possession of it at the time he took the deed from Brown. It was not disputed that Mrs. Hill had paid taxes on the land for more than 30 years, and a title search would have revealed that a contract for the sale of this land was in existence in favor of Mrs. Hill. These facts defeat appellee's contention that he was a bona fide purchaser of this land without notice of the claim asserted by Mrs. Hill. We think all of these facts were sufficient to charge the appellee with knowledge which due inquiry would have revealed, such facts being sufficient to have led an ordinarily prudent purchaser to inquire. Dewyer v. Dover, 222 Ala. 543, 133 So. 581. Surely these facts supplied appellee with sufficient information to stimulate inquiry, and having failed to do so, he is not under our cases a bona fide purchaser without notice.

In fact, his knowledge alone that Mrs. Hill was in possession was, under Alabama law, sufficient to charge him with notice of the nature of her claim to possession. Alexander v. Fountain, 195 Ala. 3, 70 So. 669..

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Walker v. Coley, 264 Ala. 492, 88 So.2d 868 (Ala. 1956):

(Editor's Note: While not implicating the duty to inquire, this case addresses a situation where a grantor who remains in possession of conveyed property after the execution of a deed does so presumptively as a tenant at the sufferance of the grantee. It also addresses two exceptions to this rule, one being that the presumption shall only apply to the grantee named in the deed, and not to subsequent, "downstream" grantees (ie. those grantees claiming under the first grantee; this exception would appear to be typically applicable in cases involving the various real estate title-swindling scams affecting downstream grantees claiming to invoke recording statute protection as bona fide purchasers and encumbrancers.) The other exception, according to the court, involves circumstances where the doctrine of prescription applies.)

In respect to Parcel A, it is necessary to consider some appropriate principles of law with reference to possession by a grantor after the execution of a deed. The general rule relied upon by appellant is thus stated by our cases:

"It is the well-settled rule that by the execution and delivery of a deed the entire interest vests in the grantee, and, if the grantor continues in possession afterward, his possession will be that either of tenant or trustee of the grantee. He will be regarded as holding the premises in subserviency to the grantee, and nothing short of an explicit disclaimer of such relation and a notorious assertion of right in himself will be sufficient to change the character of his possession and render it adverse to the grantee. 2 C. J. 143; Daniels v. Williams, 177 Ala. 140, 58 So. 419; Chancellor v. Teel, 141 Ala. 634, 37 So. 665; Ivey v. Beddingfield, 107 Ala. 616, 18 So. 139." Alabama Power Co. v. Rodgers, 222 Ala. 571, 573, 133 So. 584, 586.

***

There is another reason why the presumption of subserviency is not here controlling. That presumption obtains "only between the grantor * * * and the grantee * * * and not the latter's grantee * * *. It is observed of the rule that a grantor remaining in possession is presumptively but a tenant at the sufferance of the grantee named in the conveyance, and not by the sufferance of some other grantee." Gerald v. Hayes, 205 Ala. 105(5), 87 So. 351, 352; Findlay v. Hardwick, 230 Ala. 197(6), 160 So. 336.

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Holgerson v. Gard, 257 Ala. 579, 60 So.2d 427 (Ala. 1952):

Before we get to the evidence on the issue of bona fide purchase for value, our attention has been directed to the pleading on such an issue.

As against an outstanding equity a bona fide purchase for value without notice must be specially pleaded where this does not appear on the face of the bill. Adams v. Pollak, 217 Ala. 688, 117 So. 299. And if the pleading is defective in this respect, even though there is proof, the respondent cannot have the benefit of this defense without amendment. Hooper Adm'r. v. Strahan, 71 Ala. 75.

In the recent cases of Larkins v. Howard, 252 Ala. 9, 39 So.2d 224, 7 A.L.R.2d 541, and Lightsey v. Stone, 255 Ala. 541, 52 So.2d 376, citing Craft v. Russell, 67 Ala. 9, and other authorities, it was said that in order to constitute one a bona fide purchaser without notice and entitle him to the protection of the rule as against a prior equity or conveyance, it is essential "`* * * (1) that he is the purchaser of the legal as distinguished from an equitable title; (2) that he purchased the same in good faith; (3) that he parted with value as a consideration therefor by paying money or other thing of value, assuming a liability or incurring an injury; (4) that he had no notice, and knew no fact sufficient to put him on inquiry as to complainant's equity, either at the time of his purchase, or at or before the time he paid the purchase-money, or otherwise parted with such value.' * * *" [252 Ala. 9, 39 So.2d 226.]

Appellants contend that a plea or answer setting up the defense of bona fide purchase for value without notice must allege that the purchase was from one in actual or constructive possession who was seized or claimed to be seized of the legal title at the same time. In support of this proposition the appellant cites the following cases: Hooper v. Strahan, 71 Ala. 75; May v. Wilkinson, 76 Ala. 543; Tutwiler v. Montgomery, 73 Ala. 263; Webb v. Elyton Land Co., 105 Ala. 471, 18 So. 178.

Assuming for the purpose of discussion that the pleading omits the allegation referred to, we do not think that there is any contradiction in the early decisions of this court which have just been cited and the recent decisions of this court which have been referred to above. We say this because if in accordance with essential (4), as set forth in Larkins v. Howard, supra, and Lightsey v. Stone, supra it is alleged and shown that the purchaser had no notice and knew of no fact sufficient to put him on inquiry as to the complainant's equity at the time of his purchase or at or before he paid the purchase money, then the requirements of the earlier cases have been complied with, where it is shown that the purchaser is a purchaser of the legal as distinguished from an equitable title.

The vital question is not whether the purchaser bought from one in or out of actual or constructive possession, but whether the purchaser had no notice and knew of no fact sufficient to put him on inquiry. Of course, it must be conceded that if there is possession by another than the grantor, then the purchaser would be put on his guard and be required to make inquiry as to the rights of such other person in possession. Alexander v. Fountain, 195 Ala. 3, 70 So. 669; Evans v. Bryan, 202 Ala. 484, 80 So. 868.

It will be noticed that in both Webb v. Elyton Land Co., supra, and in Sherrod v. Hollywood Holding Corp., 233 Ala. 557, 173 So. 33, the case of Craft v. Russell, 67 Ala. 9, is cited along with Hooper v. Strahan, supra, and May v. Wilkinson, supra, as to the requirements of a plea of bona fide purchase for value without notice, just as though there was no conflict in these cases, even though in Craft v. Russell, supra, there is no statement of a requirement of purchase from one in actual or constructive possession.

In Thompson on Real Property, Vol. 8, § 4287, the matter is stated as follows:

"The courts define a `bona fide purchaser' to be one who has in good faith paid a valuable consideration without notice of the adverse rights in another. In other words, it is essential that he be a good faith purchaser for value without notice. The three elements necessary to constitute an innocent purchaser are payment of a valuable consideration, absence of notice, and good faith on the part of the purchaser. "He not only must have purchased in good faith and for a valuable consideration without notice, but he must have had no knowledge or notice of prior rights at the time of his purchase or at any time prior to payment of the purchase-price. It is the policy of the law to protect such purchasers. The bona fide purchaser doctrine applies only to legal title. * * *."

We accordingly consider that the pleading in the case at bar in the respect which has been under discussion is adequate to set up the defense of bona fide purchaser for value without notice.

It is also claimed that there is not a sufficient allegation that William and Ethel Zdenek had no notice or knowledge of the equity of the Holgersons. In the answer of William and Ethel Zdenek it is averred that they had no notice or knowledge of the facts which complainants had alleged in their bill of complaint as constituting the basis of their claim of an equity. This was the only equity which the complainants asserted in the bill of complaint and William and Ethel Zdenek alleged directly and positively that they had no notice or knowledge of such equity. The pleadings in this last respect were also sufficient.

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Sanford v. Alabama Power Co., 256 Ala. 280, 54 So.2d 562 (Ala. 1951):

It was agreed upon the trial of this cause that J. M. Garner and his successors in interest had been in possession of the surface of the land covered by the deed of January 16, 1874, from the date of its execution until the day of trial. But we cannot agree with the contention of respondent, appellant here, that the open and notorious possession of the surface was notice to complainant, appellee here, of such interest as the respondent might have, regardless of the record, and that complainant seeking to acquire an interest in the property, was bound to go further than a mere examination of the record and to ascertain whether those in possession of the surface also claimed the minerals.

Respondent cites authorities to sustain the contention that a purchaser is charged with notice of the nature of the title of one in possession of the premises. Those authorities need not be cited here, for€ that general rule has been often stated by this court and is well known.

However, that rule has no application here, for the only instrument on record tending to show any interest in J. M. Garner or his successors in interest was the deed of January 16, 1874, wherein Garner only secured title to the surface and the possession of the surface by Garner's successors in interest was consistent with the record title.

While possession by a person having a record title is notice, the purchaser may ascribe the possession to the recorded deed and is not affected with notice of any other undisclosed title or interest which the occupant may have. Otherwise expressed, where the record shows a conveyance under which a person is entitled to possession, his possession will be referred to the record title, and a subsequent purchaser will not be charged by it with notice of any other undisclosed title or equity which the occupant may have.

The possession is a matter tending to excite inquiry, but the fact that the occupant has placed upon the public records written evidence of his right, with the terms of which his possession is consistent, arrests inquiry at that point, and reasonably informs the purchaser that he may rest upon the knowledge thus obtained. 66 Corpus Juris, Vendor and Purchaser, § 1018, p. 1172; 55 American Jurisprudence, Vendor and Purchaser, § 731, p. 1099; Adkins v. Arsht, D. C., 50 F.Supp. p. 761; Rose v. Roberts, 195 Okl. 687, 161 P.2d 851; Schlegel v. Kinzie, 158 Okl. 93, 12 P.2d 223.

The case of Sloss-Sheffield Steel & Iron Co. v. Taff, 178 Ala. 382, 59 So. 658, does not hold to the contrary. In that case there was no deed on record showing the conveyance of any interest in the land to the person in possession at the time the Sloss-Sheffield Steel & Iron Company secured its deed purporting to convey the mineral interests.

Under such circumstances, the majority of the court were of the opinion that the duty of inquiry was upon that company at the time it made its purchase; that proper inquiry would have discovered the existence of an unrecorded deed to the deceased husband of the woman in possession, which deed covered the entire interest in the land, although the wife also had an unrecorded deed purporting to convey the surface interest only; that the widow's, or her agent's, possession, even under the deed conveying only the surface interest, was not inconsistent with a possession under the deed to the husband covering the entire interest. That is not this case. As before shown, the deed conveying surface interest only was on record at the time the complainant secured its deed to the mineral interests in the land.

***

To put a purchaser upon inquiry and operate as constructive notice, possession must exist at the time of the transaction by which his rights and interests are created. A possession that has ended before, or commenced after, the sale does not affect the purchaser with notice. Holly v. Dinkins, 202 Ala. 477, 80 So. 861; Wood v. Bowden, 182 Ga. 329, 185 S.E. 516; Webster v. Black, 142 Ga. 806, 83 S.E. 941; 66 Corpus Juris, Vendor and Purchaser, § 1017, p. 1171; 55 American Jurisprudence, § 714, p. 1089..

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Lightsey v. Stone, 255 Ala. 541, 52 So.2d 376 (Ala. 1951):

We think the evidence warrants a finding that complainants had an equitable interest in the strip of land here involved.

But the mere establishment of an equity in the complainants in the strip of land here involved is not sufficient to entitle them to possession. They are not entitled to possession if Lightsey was a bona fide purchaser.

In order to constitute one a bona fide purchaser and entitle him to the protection of the rule, as against a prior equity or conveyance, it is essential: "* * * (1) that he is the purchaser of the legal as distinguished from an equitable title; (2) that he purchased the same in good faith; (3) that he parted with value as a consideration therefor by paying money or other thing of value, assuming a liability or incurring an injury; (4) that he had no notice, and knew no fact sufficient to put him on inquiry as to complainant's equity, either at the time of his purchase, or at, or before the time he paid the purchase-money, or otherwise parted with value * * *." Craft v. Russell, 67 Ala. 9, 12, and cases cited. Webb v. Elyton Land Co., 105 Ala. 471, 18 So. 178; Sherrod v. Hollywood Holding Corp., 233 Ala. 557, 173 So. 33; Gibson v. Gibson, 200 Ala. 591, 76 So. 949; Holly v. Dinkins, 202 Ala. 477, 80 So. 861; Larkins v. Howard, 252 Ala. 9, 39 So.2d 224, 7 A.L.R.2d 541.

Since the respondent, Lightsey, proved the execution of a deed to him purporting to convey legal title to all of Lot 20 and further showed payment of a valuable consideration, there was a presumption that the purchase was in good faith and the burden was upon complainants of proceeding by evidence to show that respondent, Lightsey, took with notice of their equity. Stone v. Lacy, 245 Ala. 521, 17 So.2d 865; Lamar v. Lincoln Reserve Life Ins. Co., 222 Ala. 60, 131 So. 223.

Such notice, according to our cases, could be "actual or constructive, or knowledge of facts sufficient to put a reasonable person on inquiry, which, if followed up, would have discovered the title" asserted by complainants. Reeder v. Cox, 218 Ala. 182, 118 So. 338, 341; Stone v. Lacy, supra. See also Hatter v. Quina, 216 Ala. 225, 113 So. 47; Ely v. Pace, 139 Ala. 293, 35 So. 877.

Complainants asserted and sought to show that Lightsey was not a bona fide purchaser in that their possession of the strip of land was sufficient notice of their equity.

It is a familiar principle that a possession which contains all the required elements will operate as notice of the occupant's equitable rights. Munn v. Achey, 110 Ala. 628, 18 So. 299, and cases cited; King v. Paulk, 85 Ala. 186, 4 So. 825; Fowler v. Morrow, 245 Ala. 2, 15 So.2d 629; Alexander v. Fountain, 195 Ala. 3, 70 So. 669; Rankin Mfg. Co. v. Bishop, 137 Ala. 271, 34 So. 991.

But for possession to operate as notice, it must be open, visible, exclusive and unambiguous, not liable to be misconstrued or misunderstood. Wells v. American Mortgage Co., 109 Ala. 430, 20 So. 136; Brunson v. Brooks, 68 Ala. 248; Rankin Mfg. Co. v. Bishop, supra. Consequently, it is uniformly held that where there is no open and visible change of possession, it does not operate as notice. Troy v. Walter Bros., 87 Ala. 233, 6 So. 54; Motley v. Jones, 98 Ala. 443, 13 So. 782; Scotch Lumber Co. v. Sage, 132 Ala. 598, 32 So. 607; McCullars v. Reaves, 162 Ala. 158, 50 So. 313.

Hence, we have held that where the possession of the vendor and vendee is joint at the time of the sale and conveyance, the rule does not apply. The joint possession does not operate as constructive notice, because there would be no visible act which is calculated to put a stranger on inquiry as to the changed attitude or status of the title, created by the secret conveyance by the vendor to the vendee. McCarthy v. Nicrosi, 72 Ala. 332; Motley v. Jones, supra; Munn v. Achey, supra; Kindred v. New England Mortgage Security Co., 116 Ala. 192, 23 So. 56; O'Neal v. Prestwood, 153 Ala. 443, 45 So. 251; Langley v. Pulliam, 162 Ala. 142, 50 So. 365; Christopher v. Curtis-Attalla Lumber Co., 175 Ala. 484, 57 So. 837; Sloss-Sheffield Steel & Iron Co. v. Taff, 178 Ala. 382, 59 So. 658; Autauga Banking & Trust Co. v. Chambliss, 200 Ala. 87, 75 So. 463; Holly v. Dinkins, supra; Pake v. Lindsey Mill Co., 208 Ala. 569, 94 So. 573. Relevant in this connection is the observation of this court in Munn v. Achey, supra, where it is said that the court, in discussing possession or constructive notice, lays quite as much stress upon the fact that the vendor is out as that the claimants of the equity or unrecorded legal title are in possession.

Much evidence was adduced in the trial court as to the possession of the land both before and after the respondent, Lightsey, secured his deed to Lot 20. But in considering the question as to whether complainants' possession was such as to charge Lightsey with notice of their equity, we are limited to the evidence which relates to the nature of their possession at the time Lightsey secured his deed to Lot 20. Possession, to put a purchaser upon inquiry and operate as constructive notice, must exist at the time of the transaction by which his rights and interests are created. A possession that has ended before, or commenced after, the sale does not charge the purchaser with notice. Holly v. Dinkins, supra; O'Neal v. Prestwood, supra; Scotch Lumber Co. v. Sage, supra.

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Gilmore v. Sexton, 254 Ala. 560, 49 So.2d 157 (Ala. 1950):

With respect to the question of the effect of a grantor's continued possession of land after the execution of his deed as notice of a claim adverse to the title conveyed, the authorities are not harmonious. See annotations 105 A.L.R. page 846.

But our cases are clear to the effect that such continued possession is notice of all the equitable and other rights of the possessor. Copeland v. Warren, 214 Ala. 150, 107 So. 94; Walling v. Moss, 240 Ala. 87, 197 So. 30; Evans v. Bryan, 202 Ala. 484, 80 So. 868; Shiff & Sons v. Andress, 147 Ala. 690, 40 So. 824; Gewin v. Shields, 187 Ala. 153, 65 So. 769; Sulzbacher v. Campbell, 219 Ala. 191, 121 So. 706; Alexander v. Fountain, 195 Ala. 3, 70 So. 669.

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Fowler v. Morrow, 245 Ala. 2, 15 So.2d 629 (Ala. 1943):

A further established rule as to notice is that the possession of land by a vendee under a deed, not duly recorded, is sufficient to give notice to a purchaser, equivalent to a due registration of the title. Lester v. Walker, 172 Ala. 104, 55 So. 619.

The purchaser of land in the actual occupancy of a vendee, under a parol contract to convey, is charged with notice of the vendee's title. Walling v. Moss, 240 Ala. 87, 197 So. 30, and authorities therein cited.

In Sherrod v. Hollywood Holding Corporation, 233 Ala. 557, 173 So. 33, it is held, on authority, that to make defense that one is a bona fide purchaser without notice, it must be clearly averred and proven that one is the holder of legal title purchased in good faith, parted with valuable considerations in such purchase, or assumed a liability, and had no notice or knowledge sufficient to put him on inquiry as to complainant's equity at the time of the purchase or at or before the time he paid the purchase money or parted with such value.

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Walling v. Moss, 240 Ala. 87, 197 So. 30 (Ala. 1940):

The possession of tract "A" by Mrs. Moss through a tenant was constructive notice of her claim upon the idea that had Walling inquired of her tenant he would have ascertained that she had a claim to it, the nature of which he could have ascertained then from her. Brunson v. Brooks, 68 Ala. 248; Pique v. Arendale, 71 Ala. 91; Vandiveer v. Stickney, 75 Ala. 225; Tutwiler v. Montgomery, 73 Ala. 263; Price v. Bell, 91 Ala. 180, 181, 8 So. 565; 66 Corpus Juris 1177, sec. 1022.

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Findlay v. Hardwick, 230 Ala. 197, 160 So. 336 (Ala. 1935):

(Editor's Note: While not implicating the duty to inquire, this case addresses a situation where a grantor who remains in possession of conveyed property after the execution of a deed does so presumptively as a tenant at the sufferance of the grantee. It addresses an exception to this rule, being that the presumption shall only apply to the grantee named in the deed, and not to subsequent, "downstream" grantees (ie. those grantees claiming under the first grantee; this exception would appear to be typically applicable in cases involving the various real estate title-swindling scams affecting downstream grantees claiming to invoke recording statute protection as bona fide purchasers and encumbrancers.)

One of appellants' major contentions is that a grantor remaining in possession is presumptively but a tenant at sufferance of the grantee, and such possession cannot become adverse, until there is a clear, unequivocal, and notorious disclaimer of the title "of his landlord." Daniels et al. v. Williams et al., 177 Ala. 140, 58 So. 419.

This is a sound proposition of law, but it is not applicable, where the supposed grantee claims no interest in the land covered by the deed and recognizes the title of the person in possession by renting the land and becoming a tenant himself. Nor is it applicable except as between the parties to the deed. It does not apply to subsequent grantees. Gerald et al. v. Hayes et al., 205 Ala. 105, 87 So. 351.

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Leslie v. Click, 221 Ala. 163, 128 So. 170 (Ala. 1930):

A purchaser with sufficient information to stimulate inquiry which would lead to knowledge of adverse or hostile and superior claim or title, and fails therein, the injury is the result of his own folly—he is wanting in good faith, an indispensable element of a purchaser (for value) without notice—and a court of equity will not protect such reckless purchaser.

Editor's Note: Go here for links to subsequent Alabama cases that quote this proposition.

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Gerald v. Hayes, 205 Ala. 105 (Ala. 1920):

(Editor's Note: While not implicating the duty to inquire, this case addresses a situation where a grantor who remains in possession of conveyed property after the execution of a deed does so presumptively as a tenant at the sufferance of the grantee. It addresses an exception to this rule, being that the presumption shall only apply to the grantee named in the deed, and not to subsequent, "downstream" grantees (ie. those grantees claiming under the first grantee; this exception would appear to be typically applicable in cases involving the various real estate title-swindling scams affecting downstream grantees claiming to invoke recording statute protection as bona fide purchasers and encumbrancers.)

Nor is the case changed by the rule that by statute the property and possession of a grantor pass as fully by his conveyance "as if seizin had been formally delivered" (Code, §3364; Chandler v. Pope, 87 So. 539; Yancey v. S. & W. R. Co., 101 Ala. 234, 13 So. 311; Daniels v. Williams, 177 Ala. 140, 58 So. 419; Chapman v. Chapman, 194 Ala. 518, 70 So. 121); that if a grantor remains in possession, he is presumptively but a tenant by sufferance of the grantee, and nothing short of an explicit disclaimer of such a relation and a notorious assertion of right in himself will be sufficient to change the character of his possession, and render it adverse to the grantee" (Yancey v. S. & W. R. Co., supra; Ivey v. Beddingfield, 107 Ala. 616, 18 So. 139; Daniels v. Williams, supra).

Such were the presumptions of fact obtaining only between the grantor Jake Hayes and the grantee Franzen, and not the latter's grantee, Gerald & Co. It is observed of the rule that a grantor remaining in possession is presumptively but a tenant at the sufferance of the grantee named in the conveyance, and not by the sufferance of some other grantee. The retention of the possession of the lands by defendant, if open, notorious, adverse, and without recognition of Gerald's rights on December 23, 1904, was sufficient to warrant the rejection of the deed from Franzen to Gerald in evidence.

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Evans v. Bryan, 202 Ala. 484, 80 So. 868 (Ala. 1919):

Editor's Note: The Alabama Supreme Court reaffirmed the principle that "[n]otice from an outstanding possession in a third person is generally applied to the continued possession of the grantor of him from whom the noticee has purchased."

However, it went on to qualify this rule to say that the continued possession by the grantor for a short time only may be referred to the sufferance of the purchaser, and furnishes no cause for inquiry on the part of a subsequent purchaser.

Further, while intimating that the short period of time would be that time "which would be reasonably necessary for [the grantor's] removal from the [premises]", the court made clear that it was not drawing any bright lines in defining the specific length of said time period ("Without undertaking to define the duration of an occupation that would not be a warning to subpurchasers, which may obviously vary according to circumstances, ..."). It simply concluded that, based on the facts of the case before it, the continued possession by the grantor for a mere few hours was not enough to furnish any cause for inquiry on the part of a subsequent purchaser.

The pertinent excerpts from the court's ruling follows below.

It is a principle of universal recognition that the possession of land is notice to all the world of the right or title of the occupant.

"Neither a purchaser, nor a creditor can affirm that, with just confidence, he acquired title to, or a lien upon, lands of which his debtor or vendor had not possession. The want of possession is a fact which must excite inquiry, especially when the title he claims entitles him to immediate possession." Tutwiler v. Montgomery, 73 Ala. 263.

This principle of notice from an outstanding possession in a third person is generally applied to the continued possession of the grantor of him from whom the noticee has purchased. Burns v. Taylor, 23 Ala. 255, 272; Shiff v. Andress, 147 Ala. 690, 40 So. 824; 1 Gewin v. Shields, 187 Ala. 153, 65 So. 769; Crooks v. Jenkins, 124 Iowa 317, 100 N.W. 82, 104 Am. St. Rep. 326, note, 345. Our own cases have merely stated and applied the general rule, and have not considered the question with reference to the duration of the first grantor's possession.

As shown by Judge Freeman's note to Crooks v. Jenkins, supra, a number of authorities seem to hold that, without qualification as to its duration, any continuation of such possession is sufficient to excite inquiry by a subpurchaser, and so to give notice of any right, legal or equitable, remaining in such grantor.

But by the weight of authority it is held that such grantor's continued possession for a short time only may be referred to the sufferance of the purchaser, and furnishes no cause for inquiry on the part of a subpurchaser who relies upon the original grantor's deed conveying a perfect fee-simple title on its face, without equitable reservation or impediment. 104 Am. St. Rep. 346, where the authorities are collected; 39 Cyc. 1753(2).

In the note above referred to Judge Freeman says:

"If the possession of the grantor, after making a conveyance, is long continued, it may be more reasonable to refer it to his right to occupancy rather than to the sufferance of the grantee. Possession, therefore, for an unreasonable period after a conveyance may well be sufficient to put persons upon inquiry as to the occupant's rights."

In Cameron v. Romele, 53 Tex. 238, it was held that a grantor's possession after his conveyance would not be notice of a secret equity in him, unless continued beyond a period of time which would be reasonably necessary for his removal from the place. This principle is also well illustrated in Turman v. Bell, 54 Ark. 273, 15 S.W. 886, 26 Am. St. Rep. 35, 41.

We think this qualification of the general rule is well grounded in reason, and is perfectly consistent with the theory of the rule itself. Nor do we find that any of our decisions are inconsistent with its recognition in proper cases.

Without undertaking to define the duration of an occupation that would not be a warning to subpurchasers, which may obviously vary according to circumstances, we are clear in the conclusion that, when Patterson purchased from Bryan in full view of complainant's perfect deed to him, he was not put upon inquiry as to her equitable right to rescission by the mere fact that at that time--within a few hours after she had delivered her deed to Bryan--she had not yet moved from the premises. Certainly that brief period of delay was not inconsistent with the unfettered operation of her deed, and would not suggest to Patterson that she was retaining the possession because of the reservation or existence of a right to impeach and rescind it.

The testimony shows that when Patterson bought this land from Bryan, on the very day of Bryan's purchase from complainant, complainant was not aware of any mistake in her transaction with Bryan, did not know she was equitably entitled to a rescission, and hence was not holding possession under that claim, but merely by the sufferance of Bryan.

Under these circumstances it must be presumed that inquiry by Patterson would not have informed him of any claim by complainant in derogation of her deed which she had but just delivered to Bryan. Such an occupation, without either assertion or knowledge of any hostile claim by complainant, is not the possession which is in law equivalent to notice of an interest hostile to the title conveyed to her grantee. Certainly it would be illogical to say that the purchaser was charged with notice of a claim the existence of which complainant herself did not even suspect. The precise question does not seem to have been considered by this court in previous cases.

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Recent Alabama Intermediate Appeals Court Case

Alabama State Employees Ass'n v. Sanks, 32 So. 3d 47 (Ala. Civ. App. 2009):

Citing Nelson v. Barnett Recovery Corp., 652 So.2d 279, 281 (Ala.Civ.App. 1994), for the proposition that the "first-in-time, first-in-right" rule of § 35-4-90(a), Ala.Code 1975, governs this appeal, ASEA contends that the circuit court erred by giving the former husband's later recorded quitclaim deed priority over its earlier recorded judgment lien. Section 35-4-90(a) provides:

"All conveyances of real property, deeds, mortgages, deeds of trust or instruments in the nature of mortgages to secure any debts are inoperative and void as to purchasers for a valuable consideration, mortgagees and judgment creditors without notice, unless the same have been recorded before the accrual of the right of such purchasers, mortgagees or judgment creditors."

If a judgment creditor had actual knowledge or constructive notice of the existence of an unrecorded deed at or before the time its rights under the judgment accrued, then it can claim no priority by virtue of its having recorded the judgment before the deed, and the "first-in-time, first-in-right" rule does not apply. See Baldwin County Fed. Sav. Bank v. Central Bank of the South, 585 So.2d 1279 (Ala.1991).

In Baldwin County Federal Savings Bank, 585 So.2d at 1281, our supreme court explained the "notice" exception to § 35-4-90:

"Section 35-4-90(a) gives judgment creditors ... priority over an earlier executed deed that has not been recorded only when the judgment creditor ... records its instrument without actual knowledge or constructive notice of the earlier conveyance. Therefore, simply winning the race to the courthouse and recording first is not enough to give a lienholder priority. It is also necessary that the judgment creditor, whose rights, if any, attach upon the act of recording, record its judgment without notice of the earlier deed."

Alabama cases have long held that when the holder of an unrecorded deed is in "possession" of property, a lienholder is charged with constructive notice of the nature of the possessor's title. See, e.g., Gulf Oil Corp. v. Beck, 293 Ala. 158, 300 So.2d 822 (1974); Burt v. Cassety, 12 Ala. 734 (1848).

In Gulf Oil, supra, the Becks bought land from the Thompsons and received a deed in 1966. The Becks began residing on the property immediately but did not record their deed until 1973. In 1967, Gulf Oil obtained and recorded a judgment against the Thompsons. The Becks filed an action to remove Gulf Oil's judgment lien as a cloud on their title. The trial court entered a summary judgment for the Becks, and Gulf Oil appealed to the Alabama Supreme Court, which stated the question presented as follows: "Is actual possession of land under a purchase such `notice' to a creditor as will prevent the creditor's judgment lien from attaching upon it, though the deed is not recorded?" 293 Ala. at 159, 300 So.2d at 823. Relying on Burt v. Cassety, supra, the court concluded that the Becks' possession did prevent Gulf Oil's judgment lien from attaching to the property. Id.

In Burt, a mother purchased land from her son and was put in possession in 1839. The son delivered a deed to the mother, but the mother never recorded it. In 1843, creditors of the son obtained and recorded a judgment against the son. The mother sought to have the judgment creditors enjoined from selling the land in satisfaction of their judgment. Our supreme court stated:

"The deed was never recorded, and was therefore inoperative, as against subsequent purchasers, and creditors without notice. Actual notice of the execution of the deed, is not brought home to the creditor, who subsequently obtained a judgment against the [son]; but the possession by the [mother], of the land, and the exercise of ownership over it by her, is an implied notice, quite as effectual as the implied notice from a registry of the deed, and as potent in its effects as an actual notice of the existence of the deed, before the judgment was obtained.

"Our registry acts place creditors, and subsequent purchasers, upon the same footing, as to unregistered deeds; but the term creditor in the statute, does not mean creditors at large of the grantor, but such creditors as by obtaining a judgment against him, have acquired a lien, without notice of the existence of the deed, either express or implied. That possession by the vendee, is constructive notice of the conveyance, so as to defeat a subsequent purchaser, and prevent the judgment creditor from obtaining a lien.

"It results from this view, that as the judgment creditor had, by the possession of the [mother], constructive notice of her title, he acquired no lien upon the land, in virtue of his judgment."

12 Ala. at 739 (citations omitted).

In Baldwin County Federal Savings Bank, buyers of real property received a deed from their seller on March 30, 1986, but did not record the deed until July 16, 1986. In the interim, a judgment creditor recorded a judgment against the seller on June 4, 1986. The buyers filed an action seeking a declaration that their interest in the property was superior to that of the judgment creditor. The trial court held that it was, and the judgment creditor appealed.

The subject property was undeveloped beachfront real estate on which the buyers had not continuously resided during the slightly more than two-month period that they had owned it before the judgment was recorded. During that time, the buyers had "repeatedly visited" the property, "walked its boundaries," and "had it surveyed and had the corners marked with stakes." 585 So.2d at 1282.

The supreme court stated that "[a]n owner is not required to physically reside on property in order to establish possession. Instead, he need only make use of the property in a manner that is consistent with its nature." Id. Noting that "[t]he character or quality of possession that is sufficient to provide notice has been described as `whatever is sufficient to put a party on inquiry' concerning possible competing claims to the property," 585 So.2d at 1281 (quoting Gamble v. Black Warrior Coal Co., 172 Ala. 669, 672, 55 So. 190, 190 (1911)), the supreme court determined that the trial court's implicit finding—that the buyers' possession was sufficient to give the judgment creditor constructive notice of the buyers' unrecorded deed—was supported by the evidence and due to be affirmed. See also Alexander v. Fountain, 195 Ala. 3, 5, 70 So. 669, 670 (1916) (stating that "[w]hatever is sufficient to put one on his guard and call for inquiry is notice of everything to which the inquiry would lead").

In Nelson, the case on which ASEA relies, a seller had sold real property and delivered a deed to the buyers on November 4. Previously, on June 15, a judgment creditor had recovered a judgment against the seller. The judgment creditor recorded its judgment on November 6, and the buyers recorded their deed on November 10. This court held that the "first-in time, first-in-right" rule governed the case because the judgment creditor had recorded its judgment four days before the buyers had recorded their deed. The court did not mention the question of notice except to state the general rule that "a judgment creditor without notice who perfects a lien against the property has priority over subsequently recorded instruments, regardless of the date of execution or delivery of those instruments." 652 So.2d at 281. The court apparently assumed without deciding that the judgment creditor was "without notice" of the buyers' unrecorded deed.

Such an assumption may have stemmed from the fact that the buyers had received a deed to the property only two days before the judgment was recorded. The opinion in Nelson is silent with respect to whether, during that two-day period, the buyers had actually occupied the property or otherwise made use of the property in such a way as to have put the judgment creditor "`on inquiry' concerning possible competing claims to the property," Baldwin County Fed. Sav. Bank, 585 So.2d at 1281.

Moreover, even if the buyers had begun to reside on the property the moment the sale was consummated, a two-day occupancy of the premises would have presented a close factual question as to whether the buyers had "`possessed' the property in a manner sufficient to put [the judgment creditor] on notice of their deed," Baldwin County Fed. Sav. Bank, 585 So.2d at 1282. See Jefferson County v. Mosley, 284 Ala. 593, 599, 226 So.2d 652, 656 (1969) (recognizing "that it is difficult, if not impossible, to lay down any general rule as to what facts will in every case be sufficient to charge a party with notice or put him on inquiry").

Nevertheless, because the Nelson court decided the case strictly on the "first-in-time, first-in-right" rule without addressing the potential notice issue, Nelson has only limited, if any, precedential value on the issue presented by this appeal. Moreover, Nelson is distinguishable from the present case because it involved, at most, only a two-day possession by the holder of the unrecorded deed before the recording of the judgment lien. In this case, the former husband's possession continued for four years before the recording of the judgment lien—clearly a sufficient time to have put ASEA on notice to inquire as to the source of the former husband's claim to the property.

The weight of Alabama authority dictates that the circuit court's implicit finding in the present case—that the former husband's continuous and sole occupancy of the property for four years after he was divorced from the former wife constituted constructive notice to ASEA of the former husband's unrecorded deed and thereby prevented ASEA's judgment lien from attaching to the property—be affirmed.

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Thursday, August 7, 2014

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