Micklethwait v. Fulton

MICKLETHWAIT ET AL. v. FULTON, SUPT. OF BANKS

129 Ohio St. 488, 196 N.E. 166

No. 24917

Decided May 22, 1935.

Real property — Innocent purchaser for value — Third person, extending credit to record owner, acquires valid judgment lien, when — Escrow deed wrongfully recorded — Deed absolute as to innocent purchasers and judgment creditors, when.

1. A third person, extending credit to a record owner of real estate in reliance upon the latter's record title thereto, and without any notice or knowledge of any defect in the conveyance, occupies the position of an innocent purchaser for value, and where such third person reduces his claim to judgment during the former's record ownership of the property he acquires a valid judgment lien thereon.

2. Where an owner of real estate executes a deed of conveyance, complete and absolute in form, and deposits same with a person of his own choice for delivery to grantee upon the death of the grantor, such deposit will be deemed to have been made at the grantor's own risk, as to innocent purchasers for value without notice and as to subsequent judgment creditors of grantee who have extended credit in reliance upon the latter's record title to the property, if such deed is thereafter wrongfully recorded, and the conveyance will be deemed valid and absolute.

ERROR to the Court of Appeals of Scioto county.

This is an action to set aside a deed of conveyance given by plaintiff in error, Abigail Micklethwait, to her daughter, Louise M. Marshall.

On September 5, 1928, Abigail Micklethwait, a woman seventy-eight years of age, signed a warranty deed prepared by her son, Joseph Micklethwait, an attorney, now deceased, conveying to her married daughter, Louise M. Marshall, the real property which was then and thereafter used and occupied jointly by mother and daughter. The deed was absolute and regular in form, properly witnessed and acknowledged. The warranty clause contained the following provision: "Excepting taxes due and payable in December, 1928, and street and municipal assessments, which the grantee assumes and agrees to pay."

Sometime after its execution said deed came into the possession of Leon G. Marshall, husband of grantee, and was recorded by him on July 23, 1930. The grantor claims that the deed was to have been held in escrow by her son, Doctor O.R. Micklethwait, until her decease, and that her son-in-law wrongfully filed the deed of record.

About eight days after the deed was recorded a financial statement, purporting to be signed by Louise M. Marshall and Leon G. Marshall, was presented to the Ohio Valley Bank, listing said property as that of Louise M. Marshall. On the strength of said financial statement, credit was renewed and extended to them by the bank, and promissory notes for the amount thus loaned were executed by them. About a year later Leon G. Marshall disappeared, and subsequently the Superintendent of Banks in charge of liquidation of said bank procured judgment on the notes and levied execution against the property described in said deed. Plaintiff in error, Abigail Micklethwait, claimed title to said property, free from the judgment lien of defendant in error, and prayed that the conveyance from her to Louise be ordered cancelled of record, contending that title thereto never passed to her said daughter and that there was no effective delivery of the deed, first, because the conditions of the escrow had not been performed, and, second, because there was no acceptance of the conveyance by the grantee, grantee having had no knowledge of the execution or recording of said deed.

Defendant in error contends that the bank was an innocent party and, in equity, should not be made to suffer even if there were no delivery; that the bank relied upon the record ownership of the property and upon the financial statement furnished by grantee and husband wherein grantee represented herself to be the owner of the property in question.

Plaintiff in error recovered a judgment in the Court of Common Pleas, which was reversed by the Court of Appeals of Scioto county, and the matter is now in this court on the allowance of a motion to certify.

Mr. A.R. Johnson and Mr. Ernest G. Littleton, for plaintiffs in error.

Mr. John W. Bricker, attorney general, Mr. Harry W. Miller and Mr. Sherrard M. Johnson, for defendant in error.

DAY, J.

The dominant question presented for our determination is whether an escrow deed, which was wrongfully delivered and recorded before performance of the conditions of the escrow, is a valid deed of conveyance as to third persons who innocently renew or extend credit to the grantee on the strength of and in reliance upon his record ownership of the property therein described.

A third person, extending credit to a record owner of real estate in reliance upon the latter's record title thereto, and without any notice or knowledge of any defect in the conveyance, occupies the position of an innocent purchaser for value, and if such third person reduces his claim to judgment during the former's record ownership of the property he acquires a valid judgment lien thereon.

Where an owner of real estate executes a deed of conveyance, complete and absolute in form, and deposits same with a person of his own choice for delivery to grantee upon the death of the grantor, such deposit will be deemed to have been made at the grantor's own risk, as to innocent purchasers for value without notice and as to subsequent judgment creditors of grantee who have extended credit in reliance upon the latter's record title to the property, if such deed is thereafter wrongfully recorded, and conveyance will be deemed valid and absolute. For wrongful delivery, grantor's remedy is against his escrow agent and against the grantee. As between the grantor and a subsequent innocent judgment creditor of grantee, the latter has the superior equity. This is especially so where such deed is wrongfully recorded by reason of culpable negligence of grantor and agents to whom custody of the deed was entrusted. We are satisfied from the testimony in the record that plaintiff in error, Abigail Micklethwait, exercised no reasonable precautions to prevent the deed from falling into the wrong hands. Though Doctor O.R. Micklethwait is said to have been designated as the escrow agent, or depositary, the grantor nevertheless at no time so informed him, and from the date of the execution of the deed to the date of the disappearance of Leon G. Marshall the two had not discussed the execution, custody, delivery or recording of the deed. To permit grantor, under such circumstances, to relieve herself of the consequences of her own negligence at the expense of defendant in error, who was an innocent judgment creditor of grantee, would be the height of injustice.

"It is a general and just rule, that when a loss has happened which must fall on one of two innocent persons, it shall be borne by him who is the occasion of the loss, even without any positive fault committed by him, but more especially if there has been any carelessness on his part which caused or contributed to the misfortune." Somes v. Brewer, 2 Pick. (19 Mass.), 184, 202, 13 Am. Dec., 406, 418.

Conditions of escrow are, in their nature, private communications between grantor and escrow agent and are not matters of public record. To hold an innocent subsequent judgment creditor of grantee, or an innocent purchaser for value, bound by such instructions, of which he has neither notice nor knowledge, would give legal sanction to fraud and unfair dealings.

The record of the deed in the instant case imports every appearance of validity. It purports to be a conveyance in praesenti. Nothing appears anywhere in the deed to indicate a contrary intention. The words of conveyance are in the present tense. The warranty clause of the deed contains a provision for the assumption of taxes by the grantee, due at the time of its execution and thereafter. Innocent third parties dealing with the record owner of such property have a right to be guided by the terms and provisions of the recorded deed. For they have a right to presume "that the records of the county are not intended to mislead but to speak the truth; that the acts and declarations of the grantor are such as they purport to be." 4 Thompson on Real Property, 1039, Section 3954.

Violation of confidences reposed by grantors in their escrow agents are not things usually manifested in the records of deeds. Those who deal with the property and extend credit to the apparent owner thereof on the faith of record ownership, without knowledge or notice of any defects in the conveyance, are by law protected.

Holding as we do, the judgment of the Court of Appeals is hereby affirmed.

Judgment affirmed.

WEYGANDT, C.J., STEPHENSON, WILLIAMS, MATTHIAS and ZIMMERMAN, JJ., concur.

JONES J., not participating.