Georgia Bona Fide Purchaser: Occupants In Possession & The Duty To Inquire Into Their Unrecorded Rights & Equities - State Court Decisions
The following compilation of cases from the Georgia 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. Go here for the full case text for these and other Georgia cases.
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, and who attempt to invoke the protection of the recording statutes by claiming bona fide purchaser status.
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bona fide purchaser/encumbrancer status and, consequently, subjecting the deeds or mortgages to possibly being voided/rescinded/set aside.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.
For some case law from 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.
Darling Intern, Inc., v. Carter, 294 Ga. 455, 754 SE 2d 347 (Ga. 2014):
- "Any circumstance which would place a man of ordinary prudence fully upon his guard, and induce serious inquiry, is sufficient to constitute notice of a prior unrecorded deed." (Citations and punctuation omitted.) Montgomery v. Barrow, 286 Ga. 896, 897(1), 692 S.E.2d 351 (2010) (an issue of fact was created as to whether the purchaser was a bona fide purchaser without notice of prior unrecorded deeds where a representative of the corporation that purchased the property admitted he had been told unrecorded deeds to the property existed). See also OCGA § 23-1-17 ("Notice sufficient to excite attention and put a party on inquiry shall be notice of everything to which it is afterwards found that such inquiry might have led. Ignorance due to negligence shall be equivalent to knowledge in fixing the rights of parties.")
In this case, however, it is not an unrecorded deed but a fact wholly outside the chain of title that the Carter heirs claim should have placed Darling on notice and created a duty to conduct an inquiry into it. Circumstances that have been deemed sufficient to incite a duty to inquire into facts outside the recorded deed records, or at least raise an issue with respect to the purchaser's duty to inquire, include facts showing the purchaser had been informed of the existence of prior unrecorded deeds (see Montgomery, id.); evidence of open and notorious adverse possession of the property that should have placed the purchaser on notice of another's interest in the property (see, e.g., Dyal v. McLean, 188 Ga. 229, 3 S.E.2d 571 (1939)); and evidence sufficient to put a mortgagee on notice of a fraudulent scheme (see Collins v. Freeman, 226 Ga. 610, 611-612(3), 176 S.E.2d 704 (1970)).
- The Mitchell heirs further insist that the State cannot adversely possess this property against them because a grantor may not adversely possess against a grantee. This is true where the grantor simply remains in possession after a conveyance. In Malette v. Wright, 120 Ga. 735, 742 (48 SE 229) (1904), for example, we held that: "The execution of the deed and placing it upon the public records was a solemn publication to the world that the grantor had conveyed to the grantee the land therein described, and the grantor would be estopped from insisting that one who dealt with his grantee on the faith of the deed must take notice of his possession so as to make inquiry whether or not his deed really spoke the truth."
However, in Kent v. Simpson, 142 Ga. 49 (82 SE 440) (1914), we found that the rule that possession constitutes notice applies to possession of a grantor after making a grant and that cases in apparent conflict stand on their own facts.
In particular, we refused to extend Malette v. Wright beyond its facts, which concerned the effect of a mistake in a deed upon an innocent purchaser.
Editor's Note: This case involved the setting aside of a deed in connection with a foreclosure rescue ripoff. The court found that the possession held by an ex-wife and her kids of the former marital home titled in the name of the ex-husband was enough to put a foreclosure rescue operator on notice of their equitable interest in the property (equitable interest granted pursuant to a divorce decree). The foreclosure rescue operator had earlier been able to talk the ex-husband to sign over title to the home, to be held unrecorded as security for a loan, in exchange for an advance of a couple of thousand bucks to stall an ongoing foreclosure process. After the ex-husband failed to pay back the advance, the operator recorded the deed, asserted ownership of the premises, and then made a failed attempt to give the ex-wife and kids the boot while claiming protection under the recording statutes as a purported bona fide purchaser.
From the court ruling:
- Appellant also contends there was insufficient evidence to warrant the trial court's setting-aside his warranty deed from James Wyckoff. Appellant argues he is a bona fide purchaser for value without notice of an equity because at the time he made the loan to James Wyckoff, he had no notice of appellee's interest in the property. We disagree.
"Possession of land shall constitute notice of the rights or title of the occupant." OCGA § 44-5-169 (Code Ann. § 85-408). In order for the possession to have the effect of notice, it must be actual, open, visible, exclusive, and unambiguous. McDonald v. Dabney, 161 Ga. 711 (132 SE 547) (1929). "He who takes with notice of an equity takes subject to that equity." OCGA § 23-1-16 (Code Ann. § 37-115). "Notice sufficient to excite attention and put a party on inquiry shall be notice of everything to which it is afterwards found that such inquiry might have led. Ignorance of a fact, due to negligence, shall be equivalent to knowledge in fixing the rights of the parties." OCGA § 23-1-17 (Code Ann. § 37-116).
The foregoing equitable principles demonstrate that once appellant found appellees in actual, open, visible, exclusive, and unambiguous possession of the property, he had an affirmative duty to inquire of Mrs. Wyckoff concerning appellees' rights in the premises and as a consequence of his failure to do so, he may not now prevail. Yancey v. Harris, 234 Ga. 320 (216 SE2d 83) (1975). Appellant's loss here is not traceable to appellees' actions, but to his own failure to perform his statutory duty to inform himself through inquiry as to the true state of the title.
Editor's Note: In addition to the issue of possession as notice, this case also addressed issues of resulting trust, estoppel, joint possession with the record owner, familial relationship with the record owner.
- This appeal presents a contest between, on one side, a homeowner who allowed record title to her residential property to stand in the name of her son-in-law because his income or credit rating was thought necessary to satisfy the mortgage lender at the time of purchase, and, on the other side, an attorney who loaned money to the son-in-law on the strength of his record title taking a security deed to the property, and the assignee of the attorney to whom he sold the son-in-law's note and security deed, all of which was done without homeowner's knowledge. The son-in-law defaulted on payments, and the assignee threatened foreclosure. The homeowner then brought suit asking that the court decree that the property held by the son-in-law was impressed with a resulting trust in her favor, and that the security deed was null and void.
At trial the homeowner presented evidence which was more than adequate to show that she was the true beneficial owner of the property; that at all times pertinent hereto she had been in open and exclusive possession of it under a claim of title; that the son-in-law did not live on the property with her; that the attorney, prior to making the loan to the son-in-law, visited the property and ascertained that she was the mother-in-law of Mr. Harris, her son-in-law, but that he said nothing to suggest to her that the son-in-law was encumbering the property; that he never asked her under what claim she held the property; and that the assignee similarly never inquired of her.
It appeared that the son-in-law had represented to the attorney that the homeowner rented the property from him. The evidence showed without conflict that the homeowner was unaware of her son-in-law's attempt to encumber the land until after the security deed was given to Siegel and transferred to Zimmerman. At the close of her case, the court directed that a verdict be entered as prayed for against the son-in-law; and that a verdict be entered for the attorney Siegel and the assignee Zimmerman (hereinafter, "the defendants") to the effect that the security deed was a valid encumbrance on the property. The only appeal is by the homeowner from the directed verdict for defendants. We agree with her contentions and reverse.
Homeowner's argument here, based on Code § 85-408, is that although record title stands in another's name her open, exclusive possession of the property is notice to all the world of whatever her right or title may be, and that Siegel and Zimmerman had a duty to inquire of her concerning her right, and as a consequence of their failure to do so they may not now prevail.
This argument is based upon very old principles of law set forth in, for example, Broadwell v. Maxwell, 30 Ga. App. 738, 747 (119 SE 344), in which property was impressed with a parol trust:
"The plaintiff Maxwell, who claims to have purchased the property from Smith [trustee], and who is seeking to dispossess the tenant [beneficiary], is not a bona fide purchaser for value without notice of whatever equitable title the defendant [tenant-beneficiary] had in the property. `Possession of land is notice of whatever right or title the occupant has.' Civil Code (1910), § 4528. `He who takes with notice of an equity takes subject to that equity.' Civil Code (1910), § 4529. `Notice sufficient to excite attention and put a party on inquiry is notice of everything to which it is afterwards found such inquiry might have led. Ignorance of a fact, due to negligence, is equivalent to knowledge, in fixing the rights of the parties.' Civil Code (1910), § 4530. A purchaser therefore is put on notice of all the right, title, and interest of a tenant in possession. The rule is not different where the tenant in possession is a cestui que trust. Actual possession by the cestui que trust is constructive notice to a purchaser as to the occupant's equitable title. [Cits.]" (Emphasis supplied.)
The superior court ruled that the son-in-law held the land as trustee under a resulting trust for her benefit. This ruling has not been appealed.
The law is clear that where a trustee attempts to transfer the trust realty to a purchaser in violation of the rights of a beneficiary in possession, the purchaser takes with notice of the equitable title, and the purchaser will not succeed in an attempt to eject the beneficiary. Bank of Arlington v. Sasser, 182 Ga. 474 (185 SE 826). Cf. Chapman v. Faughnan, 183 Ga. 114, 115 (187 SE 634) (beneficiary in possession may enjoin trespass by purchasers from her trustee).
This result is compatible with generally applied legal principles. "In all but a few jurisdictions, a purchaser of land has constructive notice of all facts affecting the title of which he would have learned by an inspection of the premises. It is, therefore, the general rule that, if land is in possession of any one other than the vendor, a purchaser takes title subject to all existing rights and equities of the person in possession." 2 Patton on Titles 603, § 674 (2d Ed. 1957).
It is true that Mrs. Yancey, by allowing title to the property to stand in another's name, contributed to a confusing situation. However, this does not undercut her right to prevail in this lawsuit. We note with reference to concepts of estoppel that estoppel must be specially pleaded (Code Ann. § 81A-108 (c)), and none of the three defendants here pleaded estoppel in his answer to Mrs. Yancey's complaint. Nonetheless, assuming estoppel had been an issue, we find that the classical elements giving rise to an estoppel, including either intentional deception or gross negligence, are not present here in Mrs. Yancey's actions:
"In order for an equitable estoppel to arise, there must generally be some intended deception in the conduct or declarations of the party to be estopped, or such gross negligence as to amount to constructive fraud, by which another has been misled to his injury." Code § 38-116.
Moreover, Siegel and Zimmerman, who exercised no diligence in their own behalf to discover her interest, have not positioned themselves to claim estoppel against her. "`... the party who claims the benefit of estoppel... must have acted in good faith and reasonable diligence; otherwise no equity will arise in his favor.' 2 Pomeroy's Equity Jurisprudence (4 Ed.), § 813." Johnson v. Ellis, 172 Ga. 435 (5) (158 SE 39). (Emphasis supplied.)
In summary, there is no rule of law in Georgia, statutory or otherwise, which denies to Mrs. Yancey the right to hold and enforce equitable title to this land while she allows legal title to stand in the name of another. However, there is a rule of law, Code § 85-408, which required of defendants here that they ask her the source of her claim to the land in light of her flagrant, sole possession of it. Their loss here is not traceable to her actions, but to their own failure to perform their statutory duty to inform themselves through inquiry as to the true state of the title. Had they inquired and had Mrs. Yancey misrepresented anything to them, then questions of estoppel might conceivably arise. But there was no inquiry made of her; no misrepresentation; and no notice to her of her son-in-law's actions until it was too late to prevent his giving the deed. She is not estopped to assert her claim. Code § 85-408 establishes a flat rule that one is not estopped to claim land by the mere act of allowing legal title to stand in the name of another.
The sole argument of defendants, on which they must stand or fall, is that the general rule homeowner relies on does not apply where there is a familial or other relationship between the record owner and the possessor sufficient to suggest that the possessor holds the land at the permission of the other and not inconsistently with the other's title.
The directed verdict for defendants is reversed because the rule of law on which their case is founded does not exist in Georgia. The law might support their position if the son-in-law resided on the property with the homeowner, but he does not.
"To operate as notice, the possession must be open, visible, exclusive, and unambiguous, not liable to be misconstrued or misunderstood. It must not be mixed or ambiguous possession. So it has been held that possession of land by the grantee, holding under an unrecorded deed, together with the grantor, is not constructive notice of the unrecorded deed to a subsequent purchaser. Wells v. American Mortgage Co., 109 Ala. 430 (20 S 136). Where a widow contributed a part of the purchase-money of a farm, and her brother, who contributed the remainder, took title thereto in his own name without her knowledge, it was held that the fact that she lived on the farm with him did not give notice of her resulting trust to a purchaser from him. Harris v. McIntyre, 118 Ill. 275 (8 NE 182). The correct rule is that when the occupation by one is not exclusive, but in connection with another, with respect to whom there exists a relationship sufficient to account for the situation, and the circumstances do not suggest an inconsistent claim, then such a possession will not give notice of a right by an unrecorded grant... If, of two occupants, one has the record title, a purchaser has the right to assume that the other has no title. [Cits.]"
McDonald v. Dabney, 161 Ga. 711, 725 (132 SE 547). (Emphasis supplied.) Accord, Manning v. Manning, 135 Ga. 597 (3) (69 SE 1126); Goodwynne v. Bellerby, 116 Ga. 901 (5) (43 SE 275).
However, where, as here, there is no joint occupation of the land involved and defendants must rely solely on a claimed familial relation between the one in possession and the record title owner, the law does not support them.
In Hall v. Turner, 198 Ga. 763 (32 SE2d 829), the possession of a father and mother was held sufficient to put a purchaser upon inquiry where the son, to whom the father and mother had deeded the property under an agreement that they might remain in possession for their lifetimes, attempted to sell without a reservation of their rights.
To the same effect is Waddell v. City of Atlanta, 121 Ga. App. 94 (172 SE2d 862), wherein the possession of a wife and children under an award of temporary alimony was sufficient to give notice to a prospective purchaser from the husband.
Also, in Lewis v. Lewis, 210 Ga. 330 (80 SE2d 312), "[t]he actual possession of the home place by the wife and children was sufficient to put Graham [the husband's attorney who was paid with a deed to the premises] on inquiry as to the claim under which she held possession. Code § 85-408..." Id. at 334-335.
The trial court erred in directing a verdict for the son-in-law's grantee, Siegel. Zimmerman, as a remote grantee, stands in no better position (Coffey Enterprises Realty &c. Co. v. Holmes, 233 Ga. 937; Chandler v. Ga. Chemical Works, 182 Ga. 419 (1b) (185 SE 787, 105 ALR 837)), and the direction of a verdict for him was also error.
Editor's Note: In this case, the Georgia Supreme Court affirmed a denial of a motion for summary judgment filed by a "downstream" purchaser, and its "downstream" mortgage lender asserting protection of the recording statutes as bona fide purchasers. The "downstream" purchaser and encumbrancer claimed they had no notice of a deal involving a sale coupled with a buyback option between grantor/homeowners facing foreclosure and a grantee/foreclosure rescue operator. The grantor/homeowners remained in possession of real property conveyed to the grantee/foreclosure rescue operator, and the court's ruling supports the view that the grantor's continued possession of the conveyed premises operated as notice imposing a duty to inquire upon third parties claiming under the grantee (ie. the downstream purchaser & lender) in connection with said premises. See Haynes v. Blackwell, 232 Ga. 430, 207 SE2d 66 (Ga. 1974) for more background facts on this related case.
Note that substantially all of the text of the court's majority opinion on the issue of possession as notice that follows below is nothing more than a word-for-word regurgitation of a significant portion of the court's earlier ruling in Chandler v. Ga. Chemical Works, 182 Ga. 419, 185 SE 787 (Ga. 1936), in which the court similarly reached a conclusion favorable to a grantor remaining in possession of conveyed property.
- 1. The appellants contend that since the record showed that the Haynes were in possession of the property under an expired lease agreement, they were relieved from inquiring into the nature of their possession. There is no merit in this contention.
In Chandler v. Ga. Chemical Works, 182 Ga. 419, 424 (185 SE 787) this court said:
"`Possession of land is notice of whatever right or title the occupant has.' Code of 1933, § 85-408. In reference to this section it was said in Hadaway v. Smedley, 119 Ga. 264, 268 (46 SE 96): `If it had been a new principle announced for the first time in that Code (of 1895), it might not have applied to some of the transactions in this case; but it is not a new principle and has always been the law in this State, as will be seen by reference to the opinion of Bleckley, C. J., in Broome v. Davis, 87 Ga. 587 (13 SE 749), from which this section of the Code was taken.'
The principle is also found in Peck v. Land, 2 Ga. 1 (2) (46 AD 368), the second headnote of which is: `The possession of property, real or personal, remaining with the vendor after an absolute deed of conveyance, is an evidence of fraud.' (Italics ours.)
In Fleming v. Townsend, 6 Ga. 103 (50 AD 318), it was held: `Possession retained by the vendor, after an absolute sale of real or personal property, is prima facie evidence of fraud, which may be explained, and after the possession is proven, the burthen of explaining it rests upon those who claim under the sale.' In that case Judge Nisbet approved the holding of the lower court that `The possession in the vendor was, under that Statute (27 Elizabeth), and also by the principles of the Common Law, independent of it, prima facie evidence of fraud.'
While this case does not involve the question of defrauding creditors, yet the fundamental principles of notice implied from possession is at the core. The badge of fraud is there prima facie, and required one claiming under the grantee to determine by inquiry whether the badge was real or apparent. `The burthen of explaining it rests upon those who claim under the sale.'
Or as was said in Fleming v. Townsend, supra: `The onus of explanation, after possession is proven, is upon the grantee.'
So it can be seen that from very early times deeds and assignments of property, where the grantor remained in possession, were said to be affected with an infirmity that prevented them from being conclusive. The possession called for inquiry as to the right or title of the occupant in the present case, and opened the transaction to investigation. In such circumstances the grantee assumed the risk of a court declaring his contract void, in the absence of a satisfactory showing that the transaction was bona fide.
In Berry v. Williams, 141 Ga. 642 (81 SE 881), it was held: `1. A deed absolute in form may be shown to have been made to secure a debt, where the maker remains in possession of the land. Mercer v. Morgan, 136 Ga. 632 (71 SE 1075). 2. Actual possession is notice to the world of the right or title of the occupant. Mercer v. Morgan, supra; Bridger v. Exchange Bank, 126 Ga. 821 (56 SE 97, 8 LRA (NS) 463, 115 ASR 118); Austin v. Southern Home &c. Asso., 122 Ga. 439 (50 SE 382). 3. Where the owner of land executes a deed of the character mentioned in the first note, and remains in possession of the land, and the grantee conveys the land to another who has no actual notice of the undisclosed agreement that the deed should operate as a security for debt, and who has made no inquiry of the occupant, the latter may pay or tender the amount of the debt to the first grantee and maintain an equitable action against the first grantee and the remote grantee for cancellation of both deeds as clouds upon his title, and to have the title decreed to be in him.'
It will be noted that in that case there was `actual possession' by the grantor. No other facts or circumstances are shown which would demand an inquiry, except the single fact of possession. We have undertaken to show such facts in the present case as an additional reason for a reversal of the judgment. See, to the same effect as in the last mentioned case: Cogan v. Christie, 48 Ga. 585; Franklin v. Newsom, 53 Ga. 580; Broome v. Davis, 87 Ga. 584, 587, supra; Kent v. Simpson, 142 Ga. 49 (82 SE 440); Summerour v. Summerour, 148 Ga. 499 (97 SE 71); Waller v. Dunn, 151 Ga. 181 (106 SE 93); Sims v. Sims, 162 Ga. 523 (134 SE 308).
"It is contended by the defendant, however, that the present case is not controlled by the foregoing cases, but is controlled by a line of decisions beginning with Jay v. Whelchel, 78 Ga. 786 (3 SE 906), and including Malette v. Wright, 120 Ga. 735 (48 SE 229); Peabody v. Fletcher, 150 Ga. 468, 479 (104 SE 448); Johnson v. Hume, 163 Ga. 867 (137 SE 56); Rimes v. Floyd, 168 Ga. 426, 428 (148 SE 86). We think it will be found that the case of Jay v. Whelchel, supra, and the cases following and based upon it, stand upon their special facts. If not, the older cases upon which section 85-408, supra, is founded must prevail.
In Bridger v. Exchange Bank, 126 Ga. 821, 826 (56 SE 97, 8 LRA (NS) 463, 115 ASR 118), it was stated, as to the Malette case: `The decision never intended to abrogate the general rule, but merely held that the facts of that case did not fall within it.' The two lines of cases have led to some very close decisions. It is worth while to note that Chief Justice Bleckley wrote the decisions in both Jay v. Whelchel and Broome v. Davis, from which latter the Code provision was taken. There is no conflict between the two decisions."
2. The appellants contend further that because the Haynes knew that the warranty deed and rental agreement were placed on the public record and knew that they would mislead innocent purchasers for value, they are estopped to attempt to set aside the conveyances even though they remained in possession of the land. There is no merit in this contention.
Code § 38-116 provides: "In order for an equitable estoppel to arise, there must generally be some intended deception in the conduct or declarations of the party to be estopped, or such gross negligence as to amount to constructive fraud, by which another has been misled to his injury." Jones v. Tri-State Elec. Coop., 212 Ga. 577 (94 SE2d 497); Tybrisa Co. v. Tybeeland, Inc., 220 Ga. 442 (139 SE2d 302).
"`Since the whole doctrine [of estoppel] is a creature of equity and governed by equitable principles, it necessarily follows that the party who claims the benefit of an estoppel must not only have been free from fraud in the transaction, but must have acted in good faith and reasonable diligence; otherwise no equity will arise in his favor.' 2 Pomeroy's Equity Jurisprudence (4 Ed.), § 813." Johnson v. Ellis, 172 Ga. 435 (5) (158 SE 39). Estoppels are not favored. Code § 38-114; Parker v. Crosby, 150 Ga. 1 (102 SE 446); Cobb County Rural Elec. Mem. Corp. v. Bd. of Lights &c., 211 Ga. 535, 539 (87 SE2d 80); Travelodge Corp. v. Carwen Realty Co., 223 Ga. 821, 823 (1) (158 SE2d 378); Yancey v. Harris, 234 Ga. 320.
3. Under the evidence adduced a fact question is presented as to whether the transaction was a sale or a loan.
Editor's Note: In this case, the Georgia Supreme Court reinstated a lawsuit earlier dismissed on summary judgment by a lower court which was brought by homeowners facing foreclosure, in which they claimed that money they received from a foreclosure rescue operator in a sale leaseback deal involving their home coupled with an option to repurchase it in the future, and where plaintiffs retained possession of the premises "was in reality a loan and that the instruments executed in carrying out said transaction were, in fact, executed to secure a loan and as a subterfuge to disguise the fact that said transaction was, in fact, a usurious loan." (ie. a usurious equitable mortgage).
- 1. The allegations of the complaint in this case follow the allegations made in Isaacson v. House, 216 Ga. 698, 705 (119 SE2d 113). In that case it was said: "In the instant case, every allegation is direct and clear, perfectly consistent with every other allegation. Indeed the petition in the instant case is structurally as near perfect as should be desired or required. Whatever may be the truth of the case, it was well plead."
2. In Waller v. Dunn, 151 Ga. 181 (106 SE 93) it was held: "A deed absolute in form may be shown to have been made to secure a debt, where the maker remains in possession of the land. Mercer v. Morgan, 136 Ga. 632 (71 SE 1075).
"Actual possession is notice to the world of the right or title of the occupant. Mercer v. Morgan, supra; Bridger v. Exchange Bank, 126 Ga. 821 (56 SE 97, 8 LRA (NS) 463 115 ASR 118); Austin v. Southern Home &c. Assn., 122 Ga. 439 (50 SE 382).
"One who purchases land with notice of an outstanding equity in the property, held by a third person, takes subject to the right of such person to enforce it. Civil Code, § 4529; Stone v. Georgia Loan & Trust Co., 107 Ga. 524 (33 SE 861).
"Where the owner of land executes a deed of the character mentioned in the first note, and remains in possession of the land, and the grantee conveys the land to another person who has no actual notice of the undisclosed agreement that the deed shall operate as a security for debt, and who has made no inquiry of the occupant, but, notwithstanding such possession of the owner at the time of his purchase, subsequently takes possession without consent of the owner and derives therefrom rents and profits sufficient to discharge the secured debt, the owner may by appropriate equitable pleadings sue for an accounting and recovery of the land, on the ground that such rents and profits were sufficient to discharge the debt. If on the trial it should appear that the debt has been partially but not wholly discharged, a verdict may be rendered declaring the amount of the debt remaining unpaid, and finding the property for the plaintiff on payment of such amount. Berry v. Williams, 141 Ga. 642 (3) (81 SE 881)." See also Simpson v. Ray, 180 Ga. 395 (178 SE 726); Pindar, Georgia Real Estate Law and Procedure, p. 733, § 20-16.
3. "Possession of property by the vendor after an absolute conveyance is prima facie evidence of fraud, which may be explained, and, after possession is proved, the burden of explaining it rests upon those claiming under the sale. Fleming v. Townsend, 6 Ga. 103 (1) (50 AD 318); Patterson Co. v. Peoples Loans &c. Co., 158 Ga. 503 (123 SE 704); Glenn v. Burgess, 160 Ga. 348 (127 SE 757); Simpson v. Ray, 180 Ga. 395 (178 SE 726); Chandler v. Ga. Chemical Works, 182 Ga. 419 (185 SE 787, 105 ALR 837)." Williamson v. Floyd County Wildlife Assn., 216 Ga. 760 (1) (119 SE2d 344).
4. "Although it is the statutory rule that `a deed or bill of sale, absolute on its face and accompanied with possession of the property, shall not be proved, at the instance of the parties, by parol evidence to be a mortgage only, unless fraud in its procurement shall be the issue to be tried' (Code § 67-104; Brown v. Carmichael, 149 Ga. 548 (2) (101 SE 124); Berry v. Royal, 152 Ga. 425, 427 (110 SE 167)), and this rule applies where it is sought `to show by parol that a deed absolute in form was in fact a deed to secure a debt' (Wilkes v. Carter, 149 Ga. 240 (2) (99 SE 860), and cit.), it is nevertheless true that the above stated restriction does not apply where the deed, though absolute in form, was not accompanied by possession on the part of the grantee. Askew v. Thompson, 129 Ga. 325 (59 SE 854); Mercer v. Morgan, 136 Ga. 632 (71 SE 775); Blankenship v. Cochran, 151 Ga. 581 (107 SE 770), and cit.; Simpson v. Ray, 180 Ga. 395 (178 SE 726); 19 RCL 248-251, 261." Hutchinson v. King, 192 Ga. 402 (1) (15 SE2d 523).
5. The trial court in granting the motion for summary judgment recognized that the evidence of the plaintiffs presented a question of fact as to whether the transaction was a loan or a sale, but then held that such testimony could not overcome the terms of the written instruments. Under the evidence adduced a fact question was presented as to whether the transaction was a sale or a loan. The plaintiffs never gave up possession of the premises, the third party who later purchased such land from Blackwell and Poole made no inquiry as to their interest in such land, and a fact question remained for the trier of fact as to the true nature of the transaction.
6. In view of the above ruling it was error to dismiss the complaint as to the other parties defendant.
Judgment reversed. All the Justices concur, except Gunter, J., who dissents..
- Code § 37-116 provides that notice sufficient to excite attention and put a party on inquiry shall be notice of everything to which it is afterwards found such inquiry might have led. Further, one claiming title to lands is chargeable with notice of every matter which appears in his deed, and of any matters which appear on the face of any deed, decree, or other instrument forming an essential link in the chain of instruments through which he deraigns title, and of whatever matters he would have learned by any inquiry which the recitals of those instruments made it his duty to pursue. 92 CJS 241, § 330; Harper v. Durden, 177 Ga. 216, 227 (170 SE 45, 89 ALR 625); Hancock v. Gumm, 151 Ga. 667 (107 SE 872, 16 ALR 1003); Carmichael v. C. & S. Bank, 162 Ga. 735, 736 (3) (134 SE 771).
Hence, when the defendants plead the 1944 and 1950 deeds, hereinbefore referred to, they divested themselves of an essential ingredient prerequisite to the status of a bona fide purchaser, i.e., notice, and it became incumbent on them to show diligent inquiry such as would be pursued by prudent men or that such diligent inquiry would not have uncovered either the rights under which the church claimed the land or that such two-acre parcel did constitute a portion of the land excluded from the acreage described in their deed. Dyal v. McLean, 188 Ga. 229, 231 (3 SE2d 571); Bell v. Bell, 178 Ga. 225 (5) (172 SE 566); Calhoun v. Ozburn, 186 Ga. 569, 572 (198 SE 706). See also Hall v. Turner, 198 Ga. 763, 769 (32 SE2d 829).
A thorough review of the record evinces no inquiry whatsoever by the defendants, or attempt to explain why such inquiry would have been futile. Thus it will be presumed that due inquiry would have disclosed the existent facts. Parker v. Gortatowsky, 127 Ga. 560, 563 (56 SE 846); Austin v. Southern Home Bldg. &c. Assn., 122 Ga. 439 (50 SE 382).
Editor's Note: This case involved possession as notice in the context of an equitable mortgage.
- This is an ejectment case, in which the defendant in ejectment alleges that an absolute deed, executed by him to the predecessor in title of the plaintiff, was in fact a deed to secure debt with the right to cut timber to pay off the indebtedness, and that sufficient timber to pay off the indebtedness has been cut by the plaintiff.
This is the second appearance of this case in this court. In Williamson v. Floyd County Wildlife Association, 215 Ga. 789 (113 S. E. 2d 626), this court reversed the lower court's direction of the verdict in favor of the plaintiff. After the remittitur of this court became the judgment of the lower court, a new trial resulted in a verdict by the jury in favor of 761*761 the plaintiff. A motion for new trial was filed, amended, heard and overruled, and the exception is to that judgment. Except for the general grounds, all of the grounds complain of portions of the charge. Held:
1. Possession of property by the vendor after an absolute conveyance is prima facie evidence of fraud, which may be explained, and, after possession is proved, the burden of explaining it rests upon those claiming under the sale. Fleming v. Townsend, 6 Ga. 103 (1) (50 Am. Dec. 318); Patterson Co. v. Peoples Loan &c. Co., 158 Ga. 503 (123 S. E. 704); Glenn v. Burgess, 160 Ga. 348 (127 S. E. 757); Simpson v. Ray, 180 Ga. 395 (178 S. E. 726); Chandler v. Ga. Chemical Works, 182 Ga. 419 (185 S. E. 787, 105 A. L. R. 837). The court gave several instructions in the charge as to the burden of proving fraud, thus placing the burden of proving fraud upon defendant, who is the movant and the plaintiff in error.
But the above rule of law, instead of placing the burden upon the grantor, places the burden of explaining the transaction to be an outright sale upon the grantee after it is proved that the defendant remained in possession after the deed was executed. Special grounds 5, 6, and 7, complaining of excepts from the charge on fraud which placed the burden of proving it upon the defendant, when in fact a prima facie case of fraud was made by possession, are all meritorious, since the burden was upon the plaintiff to overcome this prima facie evidence. It follows that the court erred in failing to grant the motion for new trial, as amended, upon these grounds.
2. Special ground 2 complains of a charge in terms of Code § 105-304, that one who stands idly by and permits another to purchase his property without disclosing his title is guilty of such fraud as will estop him from subsequently setting up such title against the purchaser, because it was not applicable to the issues and the law gives no protection to one who has notice. The law, Code § 85-408, states that possession is notice of whatever right or title the occupant has, and the purchaser is charged with knowledge that the defendant occupied the land.
Code § 85-408 operates only in favor of a bona fide purchaser without notice, and the plaintiff had notice of possession here. See Brown v. Tucker, 47 Ga. 485; Patterson v. Esterling, 27 Ga. 205; McCune v. McMichael, 29 Ga. 312; Stonecipher v. Kear, 131 Ga. 688 (63 S. E. 215, 127 Am. St. Rep. 248). While there was evidence that the plaintiff made inquiry as to the occupancy of the defendant, which the plaintiff's evidence shows to have been as tenant instead of as owner, this evidence was denied by the defendant, thus making a question for the jury to decide as to whether or not the defendant was in possession as tenant or as owner, nevertheless, the court was not authorized to charge that by the defendant's silence he would be estopped to set up his title to the property, and this special ground of the motion is also meritorious.
Editor's Note: This case involved possession as notice in the context of an equitable mortgage.
- 1. Code § 85-408 states that possession of land is notice of whatever right or title the occupant may have, and a deed absolute in form may be shown by parol evidence to have been made to secure a debt where the maker remains in possession of the land. Luke v. Crumley, 214 Ga. 638, 643 (106 S. E. 2d 776); Sims v. Sims, 162 Ga. 523 (1) (134 S. E. 308); Hand v. Matthews, 153 Ga. 75 (1) (111 S. E. 408); Askew v. Thompson, 129 Ga. 325 (2), 328 (58 S. E. 854); Jay v. Whelchel, 78 Ga. 786 (3) (3 S. E. 906).
And the occupant may assert his equity against the grantee and a bona fide purchaser of the land from the grantee who has no actual notice of the occupant's equity and who makes no inquiry of the occupant. Code § 37-115; Ray v. Etheridge, 195 Ga. 787 (2) (25 S. E. 2d 570); Chandler v. Georgia Chemical Works, 182 Ga. 419 (1) (185 S. E. 787, 105 A. L. R. 837); Simpson v. Ray, 180 Ga. 395 (178 S. E. 726); Berry v. Williams, 141 Ga. 642 (81 S. E. 881)..
- "While it is the general rule that a bona fide purchaser of land without actual or constructive notice of the existence of an easement takes the title free of such a burden, and one buying land may ordinarily assume that there is no easement except such as may be shown of record or by open and visible indication on the land itself, yet a purchaser will be charged with notice of an easement where an inspection of the premises would have readily revealed such physical facts as would have put him upon inquiry in the exercise of ordinary diligence." Calhoun v. Ozburn, 186 Ga. 569, 572 (5) (198 S. E. 706). See also Rome Gas-Light Co. v. Meyerhardt, 61 Ga. 287 (1).
The evidence shows that the house now owned and occupied by the plaintiffs is located at the corner of the Clayton-Tallulah Falls public road and the alleged private way in question and that the entrance to the back yard at this house is on the alleged private way, and is used as a means of ingress and egress to the rear of the house. These facts are sufficient to have put the defendant upon inquiry as to what rights the owners of the house had in the road.
- At the time of the separation on April 14, 1952, the husband left the wife and children in possession of the home place, the subject matter of the deed, which he at that time owned. A few days thereafter he employed Graham, an attorney at law, to represent him in any action for divorce by him or his wife, paying him $10 as a retainer. A fee of $500 was agreed on between the parties for services to be rendered by Graham in bringing a divorce action against the wife.
The husband told Graham he had no money, and would have to pay him in property. They agreed that for a consideration of $1,200, $500 of which would represent payment of the divorce suit fee, and a purchase-money note of $700, and the assumption of a loan against the property, the husband would deed the home place to Graham. The deed was executed according to the terms of this agreement on May 28, 1952, and was recorded on the following day.***
As to whether the defendant Graham knew or had reasonable ground to suspect the alleged fraudulent intention of the husband — this issue likewise was one for the jury. The execution of the deed grew out of the confidential relationship of attorney and client. The fact that the conveyance was one from a client to his attorney does not of itself show that the transaction was fraudulent, but such transaction was subject to a more careful scrutiny than one between strangers. The existence of such relationship may be considered by the jury on the question of fraud and lack of good faith. See Stubinger v. Frey, 116 Ga. 396 (42 S. E. 713); Summers v. Taylor, 80 Ky. 429. Graham, as an attorney at law, knew that the husband was under a legal duty to support his wife and children, that a divorce action between the parties was imminent, and that, if the jury awarded alimony, they would have the right to award the home place or its possession as a part of the alimony for the support of the wife and children.
He also knew that the wife and children had possession of the home place, but made no effort to ascertain from her what claim or right she might assert to the property. The actual possession of the home place by the wife and children was sufficient to put Graham on inquiry as to the claim under which she held possession. Code § 85-408; Mercer v. Morgan, 136 Ga. 632 (2) (71 S. E. 1075); Yancey v. Montgomery, 173 Ga. 178 (2) (159 S. E. 571); Dyal v. McLean, 188 Ga. 229 (1, 2) (3 S. E. 2d 571).
Graham took the deed without making an examination of the premises or making an independent examination of the value of the husband's equity. All of these facts and circumstances were for the jury to consider on the question of whether he took with notice of the husband's intention, or whether they were sufficient to raise a reasonable suspicion in his mind as to the intention of the husband. Even though the deed was made upon a valuable consideration, if the jury believed that Graham had knowledge that it was made by the husband with intent to delay or defraud the wife's claim for alimony, or had reasonable ground to suspect it, they would be authorized to cancel the deed. Conley v. Buck, 100 Ga. 187 (28 S. E. 97); Sullivan v. Ginsberg, 180 Ga. 840 (1a) (181 S. E. 163); Dickson v. Citizens Bank & Trust Co., 184 Ga. 398 (2) (191 S. E. 379).
- The plaintiff, however, could not rely solely on the knowledge which he may have been able to gather from the
records at the courthouse.
If, in fact, the defendant had been in such "adverse, open, visible, exclusive, unambiguous, uninterrupted and peaceable possession" as to put the plaintiff on inquiry as to the defendant's interest, and the plaintiff had failed or refused to make such inquiry, he would not now be heard to say that he did not have notice of her claim.
"Knowledge chargeable to a party who is put on inquiry is not limited to such knowledge only as would be gained from an examination of the public records." Dyal v. McLean, 188 Ga. 232 (3 S. E. 2d, 571).
But there is another rule of law of equal application to the facts in this case, which is that, "The protection which the registration law gives to one taking title to lands upon the faith of the record title should not be destroyed except upon clear and satisfactory evidence showing a clear equity in him who seeks to establish a right in hostility to the record title. Such possession must be actual, open, visible, exclusive, and unambiguous." McDonald v. Dabney, 161 Ga. 714 (8-c, d) (132 S. E. 547).
And in such a case, "Prior possession of land is not notice to a purchaser. Possession of real property which will charge a purchaser with notice is possession at the time the purchaser obtains his title." Wood v. Bowden, 182 Ga. 329 (6) (185 S. E. 516).***
In Bell v. Bell, 178 Ga. 226 (172 S. E. 566), it was held: "Possession of land is generally notice of whatever right or title the occupant has. Civil Code, § 4528 [now 85-408]. To have this effect the possession must have some element in it indicative that the occupancy is exclusive in its nature. Manning v. Manning, 135 Ga. 597 (3) (69 S. E. 1126).
Such 'possession must be open, visible, exclusive, and unambiguous, not liable to be misconstrued or misunderstood. It must not be a mixed or ambiguous possession.
So it has been held that possession of land by the grantee, holding under an unrecorded deed, together with the grantor, is not constructive notice of the unrecorded deed to a subsequent purchaser.' McDonald v. Dabney, supra." See also Durham v. Holeman, 30 Ga. 619; Walker v. Hughes, 90 Ga. 52 (15 S. E. 912); Yundt v. Davison, 186 Ga. 179 (197 S. E. 248); Martin v. Clark, 190 Ga. 274 (9 S. E. 2d, 54).
Editor's Note: The property involved here was agricultural acreage. Dispute was between one who purchased from a grantor, under a deed in which a portion of the acreage was inadvertently excluded from the legal description, and a subsequent purchaser who purchased the excluded portion of the acreage some six years later from one claiming under grantor, and where there was no evidence of the first purchaser's possession of the excluded portion at the time the subsequent purchaser obtained his deed. Court ruling in favor of second purchaser.
The court applied the following rules of possession under Georgia law to reach its conclusion.
- "The purchase of land, full payment of the purchase-money, and possession, create a
perfect equity, which is good against the vendor, his heirs and those claiming under him with notice." Sikes v. Seckinger, 164 Ga. 96, 102 (137 S. E. 833). See also Grace v. Means, 129 Ga. 638 (59 S. E. 811); Lee v. Pearson, 138
Ga. 646 (5) (75 S. E. 1051); Wall v. L. & N. Railroad Co., 143 Ga. 417, 420 (1) (85 S. E. 325); Elrod v. Bagley, 154 Ga.
670 (115 S. E. 3). "A perfect equity is the equivalent of legal title." Bank of Arlington v. Sasser, 182 Ga. 474 (3) (185 S.
E. 826); Chapman v. Faughnan, 183 Ga. 114, 115 (3) (187 S. E. 634); Sikes v. Seckinger, supra.
"Possession of land is notice of whatever right or title the occupant has." Code, § 85-408; Baldwin v. Sherwood, 117 Ga. 827 (45 S. E. 216); Dix v. Wilkinson, 149 Ga. 103 (2) (99 S. E. 437); McDonald v. Dobney, 161 Ga. 711 (8) (132 S. E. 547); Chandler v. Georgia Chemical Works, 182 Ga. 419 (1-a) (185 S. E. 787, 105 A. L. R. 837); Hicks v. Hicks, 193 Ga. 382, 383 (18 S. E. 2d, 763).
"He who takes with notice of an equity takes subject to that equity." Code, § 37-115; Elrod v. Bagley, supra. The notice which the law in this State presumes from adverse possession is actual notice and not merely constructive notice. Walker v. Neil, 117 Ga. 733, 748 (45 S. E. 387); Dyal v. McLean, 188 Ga. 229, 231 (3 S. E. 2d, 571). Of course, the possession which would amount to notice is not simply possession at some time prior to the acquisition of a deed by the contestant, but possession at the time such deed is obtained. Webster v. Black, 142 Ga. 806 (3) (83 S. E. 941); Wood v. Bowden, 182 Ga. 329 (6) (185 S. E. 516).
"Notice sufficient to excite attention and put a party on inquiry shall be notice of everything to which it is afterwards found such inquiry might have led. Ignorance of a fact, due to negligence, shall be equivalent to knowledge, in fixing the rights of parties." Code, § 37-116; Walker v. Neil, supra; Georgia R. Bank &c. Co. v. Liberty Bank &c. Co., 180 Ga. 4 (4-c) (177 S. E. 803); Hall v. Turner, 198 Ga. 763, 769 (32 S. E. 2d, 829).
"The knowledge chargeable to a party after he is put on inquiry is not limited to such knowledge only as would be gained by an examination of the public records." Dyal v. McLean, supra.
If no inquiry is made as to adverse possession, the presumption is that inquiry would have developed the right or title under which the possessor held. Austin v. Southern Home Asso., 122 Ga. 439 (1) (50 S. E. 382); Parker v. Gortatowsky, 127 Ga. 560, 563 (56 S. E. 846).***
"Actual possession of lands is evidenced by inclosure, cultivation, or any use and occupation thereof which is so notorious as to attract the attention of every adverse claimant, and so exclusive as to prevent actual occupation by another." Code, § 85-403.***
[I]n Cook v. Long, 27 Ga. 280, this court did deal with the question as to the extent of possession of an occupant possessio pedis under a parol purchase of land with money fully paid, and it was held that "one going into possession of land, under a parol purchase, can hold only to the extent of his actual possession." That decision has never been criticized or disapproved and is controlling here, and requires us to rule, as we do, that the petitioner's right or title was limited to the portion of the premises actually occupied.
- "Possession of land is notice of whatever right or title the occupant has." Code, § 85-408. "Notice sufficient to excite attention and put a party on inquiry shall be notice of everything to which it is
after-wards found such inquiry might have led. Ignorance of a fact, due to negligence, shall be equivalent to
knowledge, in fixing the rights of parties." § 37-116. The notice which the law in this State presumes from
adverse possession of land is actual, not constructive, notice. Walker v. Neil, 117 Ga. 733, 748 (45 S. E. 387).
Possession by a tenant is notice of the title of the landlord, as well as of the actual interest of the tenant and the whole extent thereof. 1 Warvelle on Vendors, 332, § 272.
A purchaser is bound to exercise due diligence in the prosecution of all inquiries that may be suggested by any fact brought to his knowledge, and in the discharge of such duty must make inquiry in pais as well as examine the records. 1 Warvelle on Vendors, 327, § 267.
Adverse possession of land is notice of whatever facts in reference to the title would be developed by inquiry of the person in possession, the presumption being that inquiry of him will disclose how and under what right he holds possession; and in the absence of such inquiry the presumption is that, had such inquiry been made, the right, title, or interest under which the possessor held would have been discovered. Austin v. Southern Home Building & Loan Association, 122 Ga. 439 (50 S. E. 382).
The working of timber for turpentine purposes is an act of such nature that it may amount to adverse possession, and thus constitute notice. Royall v. Lisle, 15 Ga. 545 (60 Am. D. 712); Flannery v. Hightower, 97 Ga. 592 (3) (25 S. E. 371); Roberson v. Downing, 126 Ga. 175 (54 S.E. 1020); Booth v. Young, 149 Ga. 276, 278 (99 S. E. 886). Whether turpentine operations are so carried on as to show adverse possession is generally a question of fact to be determined by a jury. Walker v. Steffes, 139 Ga. 520 (7) (77 S. E. 580); Brown v. Wells, 161 Ga. 413 (2) (131 S. E. 159).***
Possession of land is notice, not only of whatever title the occupant has, but of whatever right he may have in the property. Code, § 85-408. The defendant is not relieved merely because from an examination of the public records she might have learned that the recorded leases in favor of the plaintiff would, according to their terms, expire on December 31, 1934. If this were not true, the plaintiff would have been in better position if he had failed to record his original leases, as well as the extension agreements. In that event, personal inquiry would doubtless have disclosed all of the facts, including the extension agreements; and manifestly the plaintiff's right to claim notice from possession should not be circumscribed merely because he was diligent in having his original leases recorded.
Knowledge chargeable to a party who is put on inquiry is not limited to such knowledge only as would be gained from an examination of the public records. Bell v. Bell, 178 Ga. 225 (5), 227 (172 S. E. 566).
Editor's Note: This case involves the effect of possession as notice in the context of an equitable mortgage.