Catalina S. Wells, Individually, and As Attorney in Fact for Everett Roy Wells, Appellant, v. Francisco S. Lizama et al., Appellees, 396 F.2d 877 (9th Cir. 1968)

This is an appeal from a judgment of dismissal as to all defendants in an action to declare three deeds, absolute on their face, to be mortgages.

The court found that plaintiff's husband in 1964 was the owner of record of two lots located in Asan, Guam, improved with two two-room apartments, wherein plaintiff, her husband and her eight children lived. The property was mortgaged to the Bank of America for $5,800. Plaintiff's husband originally met the payments due to the Bank of America, but then ceased making them. Plaintiff borrowed from one Vicente Cruz $537.27 to bring the overdue mortgage payments current, but plaintiff subsequently defaulted on such payments. Next plaintiff borrowed $1,000 from defendant Lizama in December 1964, at which time plaintiff executed a quitclaim deed of the property to Lizama, though title was still in her husband. The Bank of America mortgage was paid off, though the mortgage was not released of record. In January 1965, Mrs. Wells, as attorney in fact for her husband, executed a deed to Lizama.

Guam adopted in 1933 the Land Title Registration Act — section 1157 of the Guam Civil Code.¹  In accordance with that Act, the grantee Lizama caused his titles to be registered, and as of January 6, 1955, new certificates of title were issued to him. Regarding subsequent events, the district court made the following supported findings:

"These certificates of title show that he took title subject to the mortgage of $5,800.00. It then appears that Lizama wanted his money from plaintiff and that plaintiff got in touch with Vicente T. Cruz. Mr. Cruz in turn contacted Woodrow W. Gaspard, who is engaged in the real estate business among other activities. He is president of First American Title Insurance and Escrow Company of Guam; Gaspard & Company, and later, when it was incorporated in 1966, defendant Marianas Star Press, Inc. Woodrow W. Gaspard directed that a title search be made of the property. He went to the premises and examined them and learned that they were occupied but was unable to contact the occupants because no one was at home. Mr. Gaspard did not inquire as to the balance, if any, owed on the Bank of America mortgage which the title search revealed had not been released of record. Woodrow W. Gaspard advanced $500.00 to Mr. Cruz on a commission he was to earn and advised his wife, the defendant Claudia L. Gaspard, an experienced businesswoman and whose agent he was, to invest $500.00. These sums were paid into First American Title Insurance and Escrow Company. Francisco S. Lizama received a check from First American for $1,000.00 and executed a deed on April 9, 1965 unto Vicente T. Cruz. On April 9, 1965, Vicente T. Cruz conveyed the property unto himself and Claudia L. Gaspard. Both of these deeds were acknowledged by Claudia L. Gaspard, a notary public. Both were recorded on April 9, 1965, and new certificates of title issued on that date; first to Vicente T. Cruz, and then to Vicente T. Cruz and Claudia L. Gaspard. The certificates showed a mortgage to the Bank of America in the amount of $5,800.00.

"* * * Subsequently Cruz deeded his undivided one-half of the property to Claudia L. Gaspard, and certificates of title were issued to her under date of February 23, 1966; these certificates to Mrs. Gaspard showed a release of the mortgage to Bank of America and therefore showed the property free and clear of any encumbrances. Mrs. Gaspard then deeded the property to Marianas Star Press, Inc., which corporation is controlled by her husband and herself subject to some outstanding stock, and new certificates of title were issued to that corporation. Marianas Star Press, Inc., a Guam corporation, borrowed from the Bank of Hawaii $67,575, being a 100% loan to pay for printing equipment and freight, and under date of May 17, 1966, the property was mortgaged to the Bank of Hawaii along with the printing equipment.

"* * * While Mr. Vicente T. Cruz had title, plaintiff admits that she was indebted to him for approximately $1,900.00, including the $1,000.00 paid to Lizama by him. There was other testimony that the amount was, as claimed by Mr. Cruz, $2,500.00.

"* * * There is no evidence that Mrs. Gaspard was on notice of any adverse claim by plaintiff at the time she obtained title, except the smallness of the consideration, probably less than ten per cent (10%) of the value of the property. After these transactions had been consummated, and not earlier than January, 1966, Mr. Gaspard contacted plaintiff to determine when she would give up possession of the property. Mr. Gaspard told her he would pay the costs of moving, approximately $100.00 to $150.00. Plaintiff was in possession of the property at the time of the trial.

"* * * Concerning the transactions between plaintiff and Francisco S. Lizama, the testimony of Mr. Lizama is not materially inconsistent with that of the plaintiff, and plaintiff's counsel stated that no affirmative relief was sought against Lizama and that there was no objection to dismissal as to him." Record, at 34-37.

In the suit instituted below, plaintiff sought to have the deeds in question declared mortgages, and to be permitted to exercise her equity of redemption. In accord with the above findings of fact, however, the district court granted dismissals as to all defendants.

Two claims of error are now made:

One: That plaintiff's possession of the real property gave the Bank of Hawaii constructive notice of her claim, after it loaned money to Marianas Star Press, Inc., and that the Bank could not rely solely on the certificate of title held by the mortgagor.² 

Two: That Marianas Star Press, Inc., having knowledge (a) of possession in another person, and (b) of the gross inadequacy of the consideration paid for the property, is not protected by the Act.

We find both claims without merit, and we affirm.

* Appellant's first contention rests principally upon the two California cases of Follette v. Pacific Light & Power Corp., 189 Cal. 193, 208 P. 295, 23 A.L.R. 965 (1922), and J. R. Garrett Co. v. States, 3 Cal. 2d 379, 4 P.2d 538 (1935).

The Follette case involved a situation in which an original decree of ownership under the California Torrens Act³  was attacked by the corporate holder of an easement. Although in possession at the time of the decree proceedings, the corporation had received no notification of those proceedings and consequently the easement was not recognized in the registration. The court held that the failure to notify represented fraud on the part of the original owner and a denial of due process to the holder of the easement, and that parties claiming through the former could not, as against the latter, rely upon a certificate of title originally based on such proceedings. The attack on the title was termed "direct," and not "collateral."

Insofar as its effect on Guam law is concerned, we take Follette as being limited to defects in an original Torrens Act registration. Those jurisdictions which have passed upon the question have generally refused to extend the Follette principle to situations involving "subsequent" Torrens registrations (that is, registrations following one or more transfers of title). Sterling Nat'l Bank v. Fischer, 75 Colo. 371, 226 P. 146 (1924); In re Juran, 178 Minn. 55, 226 N.W. 201 (1929); Abrahamson v. Sundman, 174 Minn. 22, 218 N.W. 246 (1928); see Pae v. Stevens, 256 F.2d 208, 215 (9th Cir. 1958).⁴  The Juran decision, supra, stated:

"Respondents stress the fact that the Frieds were in possession under their contract and cite numerous authorities to the effect that a person dealing with land is chargeable with notice of the rights of the one in possession. This is the unquestioned rule here and elsewhere as to unregistered land; but the Torrens Law has changed this rule as to registered land, and under that law possession of registered land is not notice of any rights under an unregistered deed or contract for deed. Abrahamson v. Sundman, 174 Minn. 22, 218 N.W. 246. That act abrogates the doctrine of constructive notice except as to matters noted on the certificate of title." 226 N.W. at 202.

And the Annotation at 42 A.L.R.2d 1387, 1389 (1955), summarizes the pertinent holdings as follows:

"Although the right of a claimant in possession of the land is protected under most land title acts so far as the initial registration of the title is concerned unless he is given actual notice of the application and an opportunity to present his claim, a purchaser for value and in good faith may acquire a good title in reliance upon the certificate of title regardless of the fact that someone in actual possession of the land may present an adverse claim."

The second case cited in support of the appellant's initial contention, J. R. Garrett Co. v. States, does not appear to have involved Torrens Act registration. It referred to the "general [non-Torrens] rule" cited by the California Supreme Court in Follette at 189 Cal. 205, 3 Cal. 2d at 381. The case is consequently of no aid to appellant here.

II

We turn to appellant's second point. The question for decision is whether, under the Guam Act, it is fatal to the status of appellee Marianas Star Press, Inc., as a bona fide purchaser, that it had knowledge (a) that appellant was in possession of the property in question, and (b) that an extremely small sum had been paid for the property.

Appellant relies upon Warden v. Wyandotte Sav. Bank, 47 Cal. App. 2d 352, 117 P.2d 910 (1941), as well as upon the Follette case, supra. Our previous discussion of Follette, and our reference to the general rule that the "constructive notice" effect of possession is inapplicable in Torrens Act cases, may be incorporated by reference here. As to the Warden case, it is true that the plaintiff there was seeking the protection of the Torrens Act of California, and that certain language in the opinion, taken alone, supports appellant's position here. The facts of that case, however, render it inapplicable.

The defendant bank in Warden claimed title through a deed delivered in 1934 by a trustee in bankruptcy for one Koploy, Koploy being at that time the registered owner of the property under the Torrens Act. The 1934 deed was not registered pursuant to the Act. In 1938 Koploy gave a quitclaim deed⁵  to the plaintiff Warden, describing himself therein as a "former owner." Previously, however, in 1937, "the certificate of title showing Koploy as the owner of the property [had been] cancelled * * *, title having been transferred to the state of California pursuant to a tax collector's deed for delinquent taxes." 47 Cal. App. 2d at 353-354, 117 P.2d at 911 (emphasis added).

Title was quieted in the defendant, the California court stating that

"there was sufficient evidence from which the trial court might have inferred that plaintiff purchased the property with actual knowledge of the prior conveyance to defendant. In any event, the evidence would support a finding that the circumstances were such as to put plaintiff upon notice of the prior conveyance. Moreover, the evidence indicates that the consideration [ten dollars] for the deed from Koploy to plaintiff was inadequate, when viewed in the light of the evidence as to the value of the property." 47 Cal. App. 2d at 355, 117 P.2d at 912.

But because Koploy's certificate of title had been canceled prior to the sale in question, this comment — and the court's holding — applied to a situation in which the vendor was not at the time of sale the registered owner of the land in question. The strong provisions of the Act thus could not be relied upon by the purchaser, and the case ought not to determine our decision here.⁶ 

We believe the essential purpose of the Guam Land Title Registration Act — to allow confident reliance upon record title under the Act — would be defeated if plaintiff were to prevail here in spite of the fact that Marianas Star Press, Inc., had no actual knowledge of her unregistered claim. Considerations of equity buttress this conclusion, since plaintiff, by her own execution of deeds subject to registration under the Act — conduct conveniently suiting her own purposes — permitted the subsequent transfers now at issue to be consummated.

The judgment of the district court is affirmed.