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347 of 470 DOCUMENTS WILLIS et ux, Respondents, v. STAGER et al, Appellants [NO NUMBER IN ORIGINAL] SUPREME COURT OF OREGON, Department Two 257 Ore. 608; 481 P.2d 78; 1971 Ore. LEXIS 501 September 15, 1970, Argued February 18, 1971 PRIOR HISTORY: [***1] Appeal from Circuit Court, Marion County. Alfred T. Sulmonetti, Judge.

DISPOSITION: Affirmed.

COUNSEL: Steve Anderson, Salem, argued the cause and filed briefs for appellants. William B. Wyllie, Salem, argued the cause for respondents. With him on the brief were Williams, Skopil, Miller, Beck & Wyllie, Salem. JUDGES: Tongue, Justice. O'Connell, Chief Justice, and Denecke, Justice. Howell, Justice, specially concurring. OPINION BY: TONGUE OPINION [*610] [**80] This is a suit to quiet title brought by the holders of an unrecorded deed against the holders of a subsequent deed from the same grantor. Plaintiff had also failed to pay any real property taxes on the property involved, resulting in a tax foreclosure decree. Defendants paid such taxes on the day before expiration of the one-year redemption period. Defendants appeal from a decree quieting title in plaintiffs, subject to a lien in favor of defendants for the amounts paid by them for their deed and for delinquent property taxes, with interest. In urging reversal of that decree defendants contend that the trial court erred (1) In failing to hold that defendants were bona fide purchasers, without notice or knowledge of [***2] plaintiffs' deed; (2) In failing to consider the effect of the tax foreclosure, under which plaintiffs [*611] would have lost all interest in the property; and (3) In failing to hold that plaintiffs' claim was barred by laches and estoppel for failure to record their deed and for failure to pay taxes on the property. The facts of the case are important in considering all three contentions. On February 1, 1960, plaintiffs entered into an installment contract with William H. and Hazel B. Lemire for purchase of a 4.8 acre tract of unimproved land north of Salem. A deed to plaintiffs was executed on the same date and placed in escrow with a bank for delivery upon completion of payments to the bank in the total sum of $ 1,200. The

Page 2 257 Ore. 608, *611; 481 P.2d 78, **80; 1971 Ore. LEXIS 501, ***2 record does not show the name of the realtor involved, if any. On October 11, 1961, payments were completed and the deed was delivered to plaintiffs, but was not recorded. Plaintiff Oliver M. Willis, an insurance salesman, testified that he relied on the bank to do "what was necessary to be done" and did not know that he should have recorded the deed, although he had purchased some property before. He offered no explanation why the real property [***3] taxes were not paid other than that bills such as tax bills were paid by his wife, who did not testify. On April 28, 1965, a tax foreclosure decree was entered for failure to pay real property taxes for the years 1960-61, 1961-62, 1962-63 and 1963-64. Defendant Alma G. Stager, the wife and secretary of defendant Floyd Stager, a Salem attorney, made a practice of examining tax records for property about to be foreclosed for delinquent real property taxes. In March 1966, she became interested in this property. The redemption period for payment of the delinquent taxes expired on April 28, 1966. Thus, she had over four weeks to investigate the title to the property. [*612] Upon checking the deed records Mrs. Stager found that Hazel B. Lemire was the record owner of the property. She then traced Mrs. Lemire to North Dakota and called her there by telephone. Mrs. Lemire told her that although "they had owned quite a large amount of property, * * * she thought that she had sold all the property they had in Oregon," but would check with her son. On Saturday [**81] morning, April 23, 1966, Mrs. Lemire called back and told Mrs. Stager that "they had turned all the property [***4] over to a realtor in Salem to be sold," and gave her the name of the realtor. On the same Saturday morning Mrs. Stager called the realtor (whose name she could not remember at the time of trial) and found that he was not at his office, but was at home getting ready to go fishing. The realtor told Mrs. Stager that he had sold the property, and said that he had sold it "to a certain man in Salem." She then called that man, who said that he had purchased property from Mrs. Lemire, but not in that location. By then Mrs. Stager had also talked with the purchasers of other property from Mrs. Lemire and had apparently checked the tax records, as well as the deed records, and had been unable to find the name of any owner other than Mrs. Lemire. She and her husband also drove by the property, which they found to be overgrown with brush, and inquired of one neighbor without success. They also saw no signs posted on the property with the name or telephone number of the owner. (Plaintiffs testified that such signs had been posted on the property in 1965.) On that same Saturday, and without waiting to check again with the realtor at his office, where further records might have been available, [***5] Mrs. Stager [*613] again called Mrs. Lemire and "told her it looked as though there had been a piece of property that had been missed in selling." Her husband then prepared a deed, which was mailed to Mrs. Lemire. On the same day she also sent $ 650 to Mrs. Lemire by telegram. At that time the property had an assessed value of $ 2,560, with approximately $ 230 in delinquent taxes, with interest. The assessed value later was increased to $ 5,260 by the time of trial in September 1969. On the following Monday, April 25, 1966, the deed was executed by Mrs. Lemire and was mailed back to Mrs. Stager. On Wednesday, April 27, 1966, the delinquent real property taxes and interest were paid and a "Sheriff's Certificate of Redemption" was issued to F. P. Stager, who apparently made that payment. On the following day, April 28, 1966, the one-year redemption period for payment of such taxes would have expired. One day later, on April 29, 1966, the deed from Mrs. Lemire to Mrs. Stager was recorded. Five weeks later, on June 3, 1966, Mrs. Stager conveyed an undivided one-half interest in the property to her husband, Floyd Stager. On the same date that deed was also recorded. Plaintiffs [***6] did not record their previous deed until May 3, 1968, and then offered to reimburse defendants for the payments made by them, in return for a further deed. On defendants' refusal to do so plaintiffs filed this suit to quiet title. Defendants were not bona fide purchasers.

Page 3 257 Ore. 608, *613; 481 P.2d 78, **81; 1971 Ore. LEXIS 501, ***6 ORS 93.640 (1) provides: "Every conveyance affecting the title of real property within this state which is not recorded as provided by law is void as against any subsequent [*614] purchaser of the same real property, or any portion thereof, in good faith and for a valuable consideration whose conveyance is first filed for record, * * *"

Findings of fact were made by the trial court that defendants "were aware of sufficient facts * * * to cause any reasonable person of comparable experience * * * to believe that she (Hazel B. Lemire) did not own the property" and that defendants were not bona fide purchasers. We agree. It may be that the possession of the property by plaintiffs was not sufficiently open and visible so as to give constructive notice of their claim of ownership. Cf Belcher v. La Grande Nat. Bank, 87 Or 665, 171 P 410 (1918), and Chaffin v. Solomon, 255 Or 141, [***7] 465 P2d 217 (1970). But in this case defendants had actual notice from the record owner that she did not claim to be the owner and understood [**82] that she had previously sold all of her interest in the property. As stated in Merrill on Notice 78, 71 (1952): "Clearly a statement by a grantor or mortgagor that the property is subject to an outstanding claim should be heeded. Similar credence should be given to a disclaimer of title by a grantor, or to any statement by the person with whom one is dealing concerning the business at hand. It is not necessary generally that the statement should refer to a particular claim, although there are some cases imposing such a requirement." and later, at p 82: "Many decisions hold that information of the existence of some sort of a claim to land constitutes notice though there is no specification of the nature of the claim."

To the same effect, see 8 Thompson on Real Property 415, 422, 458, 4321, 4323, 4326. [*615] In Belt v. Matson, 120 Or 313, 252 P 80 (1927), Moore made a contract to sell to Thompson all the timber on his land, to be removed in five years. Thompson paid the full [***8] purchase price, but did not record the contract. Moore later sold the land to plaintiff by a deed which reserved to Moore the timber and provided that such timber as was not removed within five years would "go with the said place." Plaintiff admitted that Moore told him that the timber had been sold, but testified that Moore did not mention the name of the purchaser. Plaintiff did not, however, inquire further by insisting upon production of the previous contract for examination. Instead, he proceeded with the purchase of the land on the assumption that the previous contract was a mere license, revocable at the pleasure of Moore, and that the sale of the land to him would revoke such a license to cut and remove the timber. This court rejected that contention and held, at p 324: "* * * the law is well settled in this state that the plaintiffs having been informed that the timber had been sold and that a contract existed, though unrecorded, evidencing this sale of the timber, the plaintiffs are charged with knowledge of the contents of that contract, unless they could show that such knowledge could not have been acquired by reasonable diligence." See also Paris [***9] v. Smith, 224 Or 95, 98, 355 P2d 635 (1960), and Merrill, supra, 423-4, 461. 1

Page 4 257 Ore. 608, *615; 481 P.2d 78, **82; 1971 Ore. LEXIS 501, ***9 1 Defendants cite Schroeder et ux v. Toedtmeier et al, 184 Or 561, 582, 200 P2d 606 (1948), as holding that "all that is required of a party who is put on inquiry is good faith and reasonable care in following up the inquiry." In that case, however, as in this case, defendants failed to sustain the burden of proving that they had discharged that duty. [*616] In this case defendants were told by Mrs. Lemire that she had sold all of her property in Oregon and were given the name of the realtor who did so on her behalf. That information constituted actual notice of a disclaimer of title by Mrs. Lemire. In addition, that information imposed upon defendants the duty to make a diligent inquiry to either determine the name of the actual owner or to show that his name could not have been discovered by reasonable diligence. That duty was not discharged by a single telephone call to the broker at his home, without office [***10] records, as he was preparing to go fishing on a Saturday morning. It may be true that little time remained before the expiration of the period for redemption by payment of the delinquent real property taxes. But that fact alone did not excuse defendants from the performance of their duty to make further inquiry, particularly since they had by then been interested in the property for more than three weeks. Defendants also offered no evidence to show that such a further inquiry of the realtor at his office would have been fruitless and would not have disclosed [**83] plaintiffs' name as the purchaser of the property. Thus, the trial court was correct in finding that defendants did not sustain the burden of proof to establish that they were bona fide purchasers, as alleged by them as an affirmative defense. Defendants cannot claim the benefit of the tax foreclosure. ORS 312.120 (2) provides that: "During the one year period any person having an interest in the property at the date of the judgment and decree of foreclosure, or any heir or devisee of such person, * * * may redeem the [*617] property by payment of the full amount applicable to the property [***11] under the judgment and decree, with interest thereon as provided by law, plus a penalty of two percent of the total amount applicable to the property under the judgment and decree * * *"

Thus, under ORS 312.120 (2), in order to redeem property following the entry of a tax foreclosure decree one must have an "interest" in the property. Conversely, payment of taxes by one who has no interest in the property redounds to the benefit of the owner of the property. Johnson v. Stein, 6 NY 2d 413, 189 NY S2d 915, 160 NE2d 659, 662 (1950); Ferguson v. Fields, 208 Ark 839, 188 SW2d 302, 304 (1945). If defendants had been bona fide purchasers upon receiving the deed from Mrs. Lemire they might have acquired her interest in the property so as to entitle them to pay the delinquent taxes and to claim the benefit of the tax foreclosure of plaintiffs' interest in the property. It is well established, however, that one who is not a bona fide purchaser for value can acquire no greater interest in property than the interest, if any, which the grantor had to convey and thus take subject to the rights of third persons, at least in the absence of estoppel or statute to the contrary, and [***12] that such a purchaser will be protected only to the extent of payments made prior to notice. See Sequin et al v. Maloney-Chambers Lumber Company, 198 Or 272, 285-6, 253 P2d 252, 256 P2d 514 (1953). Cf. Scott v. Nygaard, 241 Or 347, 403 P2d 15, 405 P2d 850 (1965). See also McGill v. Shugarts, 58 Wash 2d 203, 361 P2d 645, 646 (1961), and Pellerito v. Weber, 22 Mich App 242, 177 NW2d 236, 237 (1970). Thus, in the absence of estoppel, since Mrs. Lemire had no remaining interest in the property, it [*618] follows that defendants, not being bona fide purchasers for value, acquired no interest in the property as to entitle them to pay the delinquent taxes and claim the benefit of the tax foreclosure of plaintiffs' interest in the property. For the same reasons, it follows that the trial court did not err in "failing to give effect to the tax foreclosure" in the

Page 5 257 Ore. 608, *618; 481 P.2d 78, **83; 1971 Ore. LEXIS 501, ***12 manner claimed by defendants, but that on the contrary, payment of the delinquent taxes by defendants had the effect of clearing the tax foreclosure from the title to the property for the benefit of plaintiffs, as the owners of such property. 2 2 The only authorities cited by defendants to the contrary consist of statutes and cases recognizing the duty of the owner of property to pay such taxes and to keep the tax collector informed of his name and address ( ORS 312.216; ORS 312.120; ORS 311.555 and Hood River County v. Dabney, 246 Or 14, 28, 423 P2d 954 (1967)). While it may be true that if plaintiffs had performed such duties defendants would not have paid the taxes, it does not follow that defendants had an "interest in the property," so as to entitle them to make such a payment. [***13] Plaintiffs' claim not barred by laches or estoppel. First of all, there is a serious question whether the defense of laches has any possible application under the facts and circumstances of this case. Assuming, however, that laches may be a defense in such a case, it is well established that in order to constitute laches it is not sufficient to show that there was a prolonged delay, but there must have been full knowledge [**84] of all of the facts, concurring with a delay for an unreasonable length of time, and laches does not start to run until such knowledge is shown to exist. Wills v. Nehalem Coal Co., 52 Or 70, 89, 96 P 528 (1908); Kelly v. Tracy, 209 Or 153, 172, 305 P2d 411 (1956). In addition, the delay must result in substantial [*619] prejudice to the defendant to the extent that it would be inequitable to afford the relief sought against the party asserting laches as a defense. Dahlhammer and Roelfs v. Schneider Exec., 197 Or 478, 498, 252 P2d 807 (1953); Hanns v. Hanns, 246 Or 282, 305, 423 P2d 499 (1967). Thus, the doctrine of laches is not an inflexible rule, but its application depends upon the particular circumstances of each case. [***14] McIver v. Norman, 187 Or 516, 544, 205 P2d 137, 213 P2d 144 (1949).
3

3 The maxim that "equity ministers to the diligent and not to the negligent," as stated by plaintiffs, quoting from Churchill v. Meade, 92 Or 626, 637, 182 P 368 (1919), is an even less "inflexible rule" and that case is not in point on its facts. In this case, defendants failed to show when plaintiffs first acquired a full knowledge of all of the facts relating to failure to have their deed recorded and their duty to see that it was recorded. Furthermore, since the trial court provided by its decree that defendants have a lien for the amounts paid by them for their deed and for delinquent taxes, they have not shown that they will suffer any substantial prejudice or that inequity or injustice to them will result, other than loss of anticipated profits on the transaction. As for estoppel, it is well established that there can be no estoppel unless there was not only reliance, but a right of reliance, and that reliance is not justified [***15] where a party has knowledge to the contrary of the fact or representation allegedly relied upon. Bradford v. Western Oldsmobile, 222 Or 440, 452, 353 P2d 232 (1960). Thus, in order to establish an estoppel by failure to disclose a claim of title to real property, it must be shown that the party claiming the estoppel had no knowledge, actual or constructive, [*620] of the real condition of the title to the property in question. 50 ALR 725 (Anno) 4 4 Defendant quotes from 50 ALR at p 409 to the effect that in such a case the rights of "innocent parties" will be protected. One who is not a bona fide purchaser, however, as in this case, can hardly claim to be an "innocent party." In other words, a purchaser who is not a bona fide purchaser as the result of notice of defective title, as in this case, has no right to rely upon the failure of the owner of the property to either record his deed or to pay real property taxes. Thus, in Fidelity Lumber Co. v. Adams, 230 SW 177, 179 (Tex Civ App 1921), [***16] it was held in a suit to quiet title that the fact that defendant paid the taxes and that plaintiff did not record his deed and paid no taxes did not raise an estoppel against him where the defendants were not bona fide purchasers. See also Earnest v. First National Bank, 56 ND 309, 217 NW 169, 171 (1927); Boston & A.R.R. Co. v. Reardon, 226 Mass 286, 115 NE 408, 411 (1917); and

Page 6 257 Ore. 608, *620; 481 P.2d 78, **84; 1971 Ore. LEXIS 501, ***16 Wright v. Webb, 188 Ky 170, 221 SW 510, 511 (1920). Defendants have cited no cases to the contrary. For all of these reasons we hold that there was ample evidence to support the findings of the trial court in this case and that the trial court did not err in holding that plaintiffs were entitled to a decree quieting their title to the property, subject to a lien in favor of defendants for the amounts paid by them. There may be some question whether that lien should not have been limited by the trial court to the amounts paid by defendants for delinquent taxes and should not have included the $ 650 paid by defendants for their deed, since they were not bona fide purchasers. That question, however, was not raised by [*621] either party on this appeal. Thus, our decision affirming the decree [***17] of the trial court is not to be taken as a decision upon the merits of that question. [**85] Under the circumstances, however, no costs will be allowed to either party on this appeal. Affirmed. CONCUR BY: HOWELL CONCUR HOWELL, J. specially concurring. I concur in the result of the foregoing opinion and in all other aspects, except that I do not believe that the doctrine of laches could, under any circumstances, be applicable to the plaintiffs in this case.

Page 7

348 of 470 DOCUMENTS WEBB, Appellant, v. STEWART et al, Respondents [NO NUMBER IN ORIGINAL] SUPREME COURT OF OREGON 255 Ore. 523; 469 P.2d 609; 1970 Ore. LEXIS 428 December 11, 1969, Argued May 13, 1970 PRIOR HISTORY: [***1] Appeal from Circuit Court, Multnomah County. Robert E. Jones, Judge.

DISPOSITION: Decree modified.

COUNSEL: George H. Layman, Newberg, argued the cause and filed briefs for appellant. David J. Krieger, Portland, argued the cause for respondent Wilson. With him on the brief were Black, Kendall, Tremaine, Boothe & Higgins and James T. Duncan, Portland. JUDGES: O'Connell, Justice. Perry, * Chief Justice, and McAllister, Sloan, Denecke and Holman, Justices. * Perry, C.J., did not participate in this decision.

OPINION BY: O'CONNELL OPINION [*525] [**610] Plaintiff Jodie Webb brought this suit in equity to cancel a deed from plaintiff to defendant Myron J. Stewart covering plaintiff's residence property along with deeds subsequently made by Stewart to defendant Cascadia Development Incorporated, and also to cancel a trust deed which Cascadia executed to secure a loan from defendant Ethel M. Wilson. The trial court entered a decree cancelling the deeds to Stewart and Cascadia but held that the trust deed with Ethel M. Wilson as beneficiary was a prior lien and superior to plaintiff's claim of title. The effect of the trust deed is challenged by plaintiff on this appeal. In [***2] October, 1967 Webb was living alone following the death of his wife. He was 78 years old and retired. At his request, a contractor sent defendant Myron Stewart to plaintiff's residence to put a new roof on the house. Stewart noticed a "for sale" sign on the property and offered to purchase the property. Plaintiff accepted the offer and on October 26 Stewart gave plaintiff a note for $ 4,000 as earnest money in accordance with the terms of an earnest money receipt prepared by Stewart and which plaintiff signed. Stewart explained that he had considerable business experience and that there was no need to consult an attorney. Two days later, on October 28, Stewart returned with

Page 8 255 Ore. 523, *525; 469 P.2d 609, **610; 1970 Ore. LEXIS 428, ***2 additional papers for plaintiff to sign, explaining that these papers would be put in escrow. One of the papers was a deed which plaintiff signed in the presence of a notary public. Webb testified that he did not know what he was signing. Stewart took the deed with him. Sometime in November plaintiff received a $ 1,000 payment on the note, but he never saw [*526] Stewart after the day he signed the deed in the notary's office. When Stewart failed to return with the promised payments, plaintiff became [***3] impatient and finally on the advice of his son went to the courthouse where he discovered that he had signed a deed which Stewart had recorded on October 30. It later developed that Stewart had also executed and recorded a deed to Cascadia Development Incorporated. [**611] Before he obtained the deed from the plaintiff, Stewart had entered into negotiations with Rowley, a real estate loan broker with whom he had previously done business. They discussed a possible loan on the property in question (the recorded title then being in the name of Webb) and Rowley subsequently met Stewart at the Webb property where Rowley inspected the contemplated security and at that time had a conversation with plaintiff which, according to Rowley, indicated that plaintiff was proceeding on the assumption that the property had been sold. Thereafter, the deed to Stewart was recorded and Rowley arranged a loan of $ 8,500 which was secured by a trust deed. As Stewart had conveyed to the corporation, the trust deed was executed by Cascadia Development Incorporated as grantor, Transamerica Title Insurance as trustee, and Ethel Wilson as beneficiary. The trust deed was executed on November 7 and recorded [***4] that same day. Stewart signed the trust deed as president of Cascadia Development Incorporated. The trial court found that Stewart fraudulently induced the execution and delivery of the deed given by Webb. Accordingly, the deed to Stewart and the deed from Stewart to the corporation were held voidable and were cancelled as of December 6, 1967 (the date [*527] the suit was filed). However, the trial court found that Ethel Wilson had acted in good faith and without notice of Stewart's fraud when she accepted the trust deed as security for her loan. The trust deed was therefore held to be a prior and valid lien on plaintiff's property. The trial court also decreed that plaintiff was entitled to $ 5,500 held in escrow by the title insurance company (as trustee of the trust deed). Webb was also awarded judgment for $ 8,500 against Stewart and the corporation, subject to an offset of the sum held in escrow. Plaintiff assigned as error the cancellation of the deed to Stewart as of the filing date of the suit instead of the date of the instrument. He argues further that the court erred in finding Wilson's trust deed to be a prior lien. He contends that his deed to Stewart [***5] was void when it was given and therefore could not vest any rights in third parties. In the alternative, he contends that if the deed was merely voidable until the entry of a judicial decree, Wilson cannot claim as a bona fide purchaser because Webb was in possession during all the transactions and that his possession was sufficient to impart notice of his interests adverse to the record title. Plaintiff contends that there was no delivery of the deed because plaintiff assumed that the paper he was signing was a contract and not a conveyance, and further that even assuming plaintiff knew that the instrument was a deed it was handed to Stewart upon the express understanding that it would be placed in escrow and not delivered to the grantee until the purchase price was paid. [*528] The trial court, ruling from the bench, made the following finding: "I * * * make this fact finding, he did know it was a deed; but he thought it was to be held in escrow. He said * * * 'I didn't know what I was signing,' but I deduced that he, at least, had the gist that he was signing a paper that was to be held in escrow, and from that I deduce that he realized that he was * * * signing [***6] a paper that would convey title after the proper prerequisites were met." We make the same deductions as those made by the trial court. We have, then, a situation in which a grantor hands a

Page 9 255 Ore. 523, *528; 469 P.2d 609, **611; 1970 Ore. LEXIS 428, ***6 completely executed deed to the grantee with the intent that the title is not to pass until the purchase price is paid and the grantee then records the deed and thereafter purports to convey an interest in the property to a third person who is unaware of the fact that the purchase price has not been paid. Assuming that plaintiff's possession was not sufficient to put defendant Wilson on notice of plaintiff's interest in the property, we are of the opinion that plaintiff [**612] is estopped to assert a claim to the property against Wilson. It has been said that "[e]ven though a grantor has no intention to deliver, if he or his possessory agent permits the named grantee to secure possession of the instrument, the grantor will be estopped to deny delivery as against a subsequent innocent purchaser or encumbrancer for value and without notice. This rule is based upon the principle that, as between two innocent parties, the one who has made it possible to perpetrate a fraud should [***7] suffer the loss." 1 1 Burby on Real Property, p. 424 (2d ed 1954). Burby cites as authority, Tutt v. Smith, 201 Iowa 107, 204 NW 294, 48 ALR 394 (1925), a case closely in point with the case before us. The case is summarized in Burby, supra, as follows: "* * * An application of this rule is found in Tutt v. Smith, wherein the grantors handed a deed to their agent with directions that he take it to a named party who was to hold it in escrow. No escrow was in fact created. The named grantee secured possession of the deed and purported to convey to an innocent purchaser. The innocent purchaser was protected. Although the grantors were in possession of the land at the time the fraudulent grantee purported to convey title, it was held that possession by his grantors was not constructive notice of their claim."

[*529] The Oregon cases leave some doubt as to the circumstances under which the foregoing rule is applicable. It is quite clear that where the named grantee obtains the deed from [***8] an escrowee, the grantor prevails in the absence of an estoppel. 2 2 Zoharopulos v. Hamilton, 108 Or 201, 216 P 184 (1923) (chattel mortgagor who assumed vendor's obligations, placed mortgages and notes with escrowee, bank managing agent, with delivery contingent on testing of livestock for disease); Sabin v. Phoenix Stone Co., 60 Or 378, 118 P 494, 119 P 724 (1911) (trust company escrowee was instructed to deliver deed upon grantee's payment of promissory notes); Tyler v. Cate, 29 Or 515, 45 P 800 (1896) (escrowee, a real estate agent, was to deliver deed when corporate grantee executed mortgage). On the other hand, where the third person who is entrusted with the deed is the grantor's agent rather than an escrowee there are Oregon cases holding that a bona fide purchaser from the agent prevails as against the grantor. Harth v. Pollock, 97 Or 663, 193 P 202 (1920) is illustrative. A real estate broker informed the owner of a parcel of land that he had a purchaser for the property. At the broker's [***9] request the owner executed and acknowledged a deed with the name of the grantee left blank. The deed was handed to the broker upon the express condition that he would hold it until the conditions of the sale were met. The broker inserted [*530] his own name as grantee, recorded the deed and then executed a mortgage to a third person who had no knowledge of the transaction between the grantor and the broker. The court held that the mortgagee prevailed, reasoning as follows: "* * * When a man leaves with a stranger an instrument executed and acknowledged with every legal formality necessary to indicate that he has made a conveyance of the property, but with the name of the grantee left blank, he ought in common prudence to contemplate the possibility that the depositee, if dishonest, might make an improper use of such instrument, and if such use is made of it he, and not the person whom he has put it in the power of his agent to defraud, ought to suffer the loss." 97 Or at 678.

Page 10 255 Ore. 523, *530; 469 P.2d 609, **612; 1970 Ore. LEXIS 428, ***9 Other Oregon cases have applied the same principle. 3 3 Bechtel v. Bechtel, 162 Or 211, 91 P2d 529 (1939); Hansen v. Bellman, 161 Or 373, 88 P2d 295 (1939); Rohrbacher v. Wright, 99 Or 186, 195 P 343 (1921); Rohrbacher v. Strain, 95 Or 1, 176 P 990, 186 P 583 (1920). In some of the foregoing cases the agency is described as an "escrow." The confusion in language is noted by Lester D. Pederson in an excellent comment entitled Escrows -- Defalcation of Escrow Holder -Allocation of Loss to Vendor or Vendee -- Agency and Trust Theories, 31 Or L Rev 218, 226 (1952): "The Oregon cases which have considered the escrow holder as an agent have involved the question of an unauthorized delivery of a deed by the depositary. There are cases in which the court has referred to the terms of an escrow and in which the holding is based squarely on agency principles. [Harth v. Pollock, 97 Or 663, 193 P 202 (1920); Rohrbacher v. Wright, 99 Or 186, 195 P 343 (1921); Rohrbacher v. Strain, 95 Or 1, 176 P 990, 186 P 583 (1920).] In each such case, the grantee's name was not filled in in the deed delivered to the third party, who was to find a purchaser. A valid escrow was not created in these cases because of the absence of an underlying contract. However, the language in these cases does indicate a looseness of thought for the reason that the term 'escrow' was used when in fact a valid escrow could not be found and for the reason that an escrow problem was confused with an agency problem. A more recent case, Hansen v. Bellman, [161 Or 373, 88 P2d 295 (1939)] cited these cases for the proposition that, where a principal places it within the power of his agent to defraud innocent parties, he must suffer the loss. In this case the court was careful to establish that it was not confronted with an escrow and therefore the holding was based squarely on the law of agency."

[***10] [*531] [**613] On the other hand, there are other Oregon cases holding in favor of the grantor where he has handed the deed to the grantee or the grantor's agent. Thus in Allen v. Ayer, 26 Or 589, 39 P 1 (1895) the court held that the grantor who remained in possession prevailed where his agent handed the deed to the grantee for inspection and the grantee then conveyed to a bona fide purchaser. In Burns v. Kennedy, 49 Or 588, 90 P 1102 (1907) the grantee obtained the deed on the representation that she wished to show it to her husband. She recorded the deed and then conveyed the property to a third person. The grantor was in possession of the property. The court held for the grantor, resting the case on the ground that there was no delivery to the grantee. The court did not discuss the principle of estoppel. In Telschow v. Quiggle, 74 Or 105, 109, 145 P 11 (1914) the grantor signed and acknowledged a deed leaving the name of the grantee blank. The grantor handed the deed to his agent authorizing him to trade the land for farm land of equal value. The agent filled in the name of a third person (who knew of the agent's instructions) and delivered the [***11] deed in exchange for residential property. The land was then conveyed to a purchaser who had no knowledge of the grantor's instructions. The grantor had remained in possession. The court held that the purchaser acquired no title for the reason that "[a] deed that is delivered to the [*532] grantee, without the express or implied consent of the grantor to the effect that the deed shall pass irrevocably from his control, conveys no title to the grantee. Such a deed would be of no more force than one with a forged signature." The court stressed the fact that the grantor remained in possession of the land, indicating that such possession may be sufficient to put third persons on notice of grantor's claim. These latter cases (Allen, Burns, and Telschow) can all be explained on the ground that the ultimate purchaser was put on notice of grantor's interest by his retention of possession. However, there is language in each of them which indicates that the court felt that even if the grantor does not remain in possession, the innocent purchaser does not acquire title because title does not pass from the owner for lack of delivery. If this is the principle which these [***12] cases purport to apply, they are implicitly overruled by the later

Page 11 255 Ore. 523, *532; 469 P.2d 609, **613; 1970 Ore. LEXIS 428, ***12 cases already mentioned where no delivery was effected and yet the grantor was held estopped to assert his title. It is of course possible to reconcile some of the earlier cases with the later pronouncements by distinguishing the circumstances under which the deed left the possession of the grantor, finding an estoppel [**614] where the grantor acts without due caution for the protection of those who might be misled. This was the manner in which Harth v. Pollock, supra distinguished Allen v. Ayer, supra. The court said: "While the case of Allen v. Ayer, 26 Or 589 (39 Pac 1), cited by counsel for appellant, has some features in common with the case at bar, there were other circumstances which distinguish it in principle. In that case the deed was not intrusted by the grantor to a stranger, but to a prominent and trustworthy [*533] member of the Oregon bar, and was obtained from him by false representations, he being guilty of no fraud upon the ultimate purchaser. Under all the circumstances the court held that the grantor was not negligent in depositing the instrument with Judge Chenoweth to [***13] abide the event of the proposed trade, and, possession of it having been obtained by trick, that there was no delivery to the alleged grantee. But in that case the grantor was in the actual possession of the property and it does not appear that the purchaser took any pains to discover the nature of his possession." 97 Or at 679.

Whether or not our previous cases can be reconciled, we are of the opinion that plaintiff's conduct in placing the fully executed deed in the hands of the grantee was unreasonable under the circumstances. Those who wish to enter into real estate transactions in which title is to be retained until certain conditions of the bargain are met have available to them the escrow device as a method of protecting themselves and others. There is, of course, the risk that the escrowee will violate the escrow instructions and surrender the deed prematurely, but this risk is minimal and if a grantor puts his deed with a reputable escrowee, he does all that he can reasonably do to protect third persons and should have his interest protected if the escrowee violates his trust. If the grantor fails to use this available means of minimizing the fraudulent use of [***14] his deed, he should bear the loss as against a purchaser who has no knowledge of the fraud or of facts which would put him on inquiry. It is argued that plaintiff was unfamiliar with property transactions and therefore did not understand what was necessary in handling the sale of his [*534] property to protect his interest or the interests of others. The standard of care required of those who undertake to sell their property must be measured by some objective standard. The adjustment of the rights of the parties in these cases cannot be made to rest upon the extent to which the particular grantor understands the mechanics of closing a real estate transaction. The need for an objective test of due care is as essential in these cases as it is in any other area of the law where reasonable inquiry and circumspection will help to prevent loss to others. We must next consider whether plaintiff's possession constituted constructive notice of his claim. There is a division of authority as to whether a grantor's possession puts third persons on inquiry where the grantor has fully executed a deed and permitted it to get into the hands of the grantee. 4 After noting this division [***15] of authority the court, in Exon v. Dancke, 24 Or 110, 32 P 1045 (1893), adopted the view that grantor's possession does not put third persons on notice of the grantor's claim. The court said: "We are of the opinion * * * that the reason, as well as the decided preponderance, of the authorities is to the effect that a purchaser from a vendee whose vendor remains in possession, is not bound to inquire further as to the title, when he finds on record a deed from such vendor, properly conveying the title to the person from whom he is about to purchase. Any inquiry suggested by such possession [**615] is fully answered by the record, and is prosecuted sufficiently far when the examination of the record discloses a deed from the person in possession to the person who offers to sell, and who is [*535] claiming and asserting title under such deed." 24 Or at 114-115.

Page 12 255 Ore. 523, *535; 469 P.2d 609, **615; 1970 Ore. LEXIS 428, ***15 4 Cases are collected in 105 ALR 845 (1936). See 1 Merrill on Notice, 126-128, pp. 153-156 (1952), noting the results in different jurisdictions. [***16] The view thus expressed was affirmed in La Forest v. Downer, 63 Or 176, 126 P 995 (1912). However, subsequent Oregon cases contain language indicating a view contrary to that expressed in the Exon and La Forest cases. Thus, in Telschow v. Quiggle, 74 Or 105, 111, 145 P 11 (1914), discussed above, the court after holding that there was no delivery of the deed, went on to consider the effect of grantor's continued possession: "The authorities are inharmonious as to the effect of a grantor's possession of the premises which he has conveyed after the execution of a deed, and whether his possession under these circumstances is such that a person contemplating the purchase or acquiring some interest in the land is compelled to take notice of the rights of such grantor which may exist dehors his deed." The court then concluded as follows: "* * * After careful examination of many authorities, we find in no case, where a deed executed and acknowledged with the name of the grantee left blank, and afterward fraudulently inserted, where the grantor has remained in the open and notorious possession of the premises, that a deed to a third person claiming [***17] to be an innocent purchaser has been upheld."

And in Harth v. Pollock, supra, holding that the grantor was estopped to assert his title against an innocent purchaser for value under the circumstances, the court distinguished Allen v. Ayer, supra, which held in favor of the grantor, by noting: "* * * But in that case the grantor was in the actual possession of the property and it does not [*536] appear that the purchaser took any pains to discover the nature of his possession." 97 Or at 680. 5

5 Note also Allen v. Ayer, 26 Or 589, 39 P 1 (1895) where the court, in holding that grantor was not estopped, mentions the fact that the grantor remained in possession. We think that the ambiguity created by the conflicting statements in our cases as noted above should now be resolved, and in resolving it we adopt the rule that grantor's continued possession after the execution of a deed by him puts third persons upon inquiry as to the grantor's interest. 6 6 It has been assumed by at least one writer that the rule we now adopt was previously adopted in this state. See Note, 2 Or L Rev 67, 68 (1922): "* * * Suppose the property owner remains in actual occupancy of the land throughout. Then the innocent purchaser should not be protected because the owner's occupancy should have put the purchaser on his guard. This has been held in Oregon and is the prevailing doctrine in other states."

[***18] It is well established that the possession of persons other than the grantor will put a purchaser upon inquiry as to the possessor's interest. 7 As the court in Groff v. State Bank of Minneapolis, 50 Minn 234, 238, 52 NW 651 (1892) observed: "there is no good reason for making a distinction between possession by a stranger to the record title and possession by a grantor after delivery of his deed. In either case the possession is a fact inconsistent with the record

Page 13 255 Ore. 523, *536; 469 P.2d 609, **615; 1970 Ore. LEXIS 428, ***18 title, and, [**616] if possession by the stranger is sufficient to make it obligatory upon a purchaser to ascertain his right, [*537] possession by the grantor is a circumstance entitled to equal consideration." 7 Randall v. Lingwall, 43 Or 383, 73 P 1 (1903) (possession of tenant notice of his landlord's title); Hawley v. Hawley, 43 Or 352, 73 P 3 (1903) (possession of wife notice of her equities upon husband's attempted assignment of joint contract to purchase the land); Cooper v. Thomason, 30 Or 161, 45 P 296 (1896) (possession of grantee under unrecorded deed notice of his interest); Petrain v. Kiernan, 23 Or 455, 32 P 158 (1893) (possession by cestui que trust notice to grantee from legal owner). [***19] Although there is more likelihood that the grantor's possession would be consistent with the unencumbered title in the grantee, there is still a sufficient possibility of the grantor retaining an interest in the property to warrant the imposition of a duty upon the purchaser to make inquiry. The fact that there are a substantial number of litigated cases in which the grantor in possession has a claim, indicates that inquiry will frequently disclose to the purchaser an adverse claim. 8 8 In addition to the cases already mentioned involving fraudulent inducement or the transfer of the instrument before the conditions are fulfilled are the frequently recurring situations where the deed is in fact a mortgage, or where there is a lien for the unpaid purchase price, or where grantor is a lessee, or where the grantee holds the legal title upon a resulting or constructive trust, etc. Some courts have reasoned that the grantor has by his deed, in effect, declared to the world that he has divested himself of all interest [***20] in the property and that subsequent purchasers may, therefore, assume that grantor retains possession for some reason consistent with an unqualified title in the grantee. The answer to this reasoning is well stated in 5 Tiffany, Real Property 1292, pp. 76-77 (3d ed 1939): "* * * One difficulty, however, with this view is that it imputes to a conveyance an effect as a declaration by the grantor, for the purpose of raising an estoppel against him, which is not necessarily in accord with the understanding of the parties or with the legal effect of the conveyance. One executing, for instance, a conveyance of a fee simple title, may perfectly well acquire, by the same or a subsequent transaction, an equity against the grantee or a lease for a limited period, and it is difficult to see why his conveyance should be regarded as a declaration that he has not acquired, [*538] or will not acquire, such an interest, or why a subsequent purchaser should be justified in assuming, for the purpose of being relieved from any duty of inquiry, that the grantor's continuance in possession is wrongful rather than rightful."

After a careful review of the competing rules we believe [***21] that the conclusion reached by 1 Merrill on Notice, 131, p. 160 (1952) is the most satisfactory and we adopt it: "Upon the whole, I believe the most desirable solution of the problem is to regard the grantor's continued possession as a fact provoking inquiry from those subsequently dealing with the land, regardless of its duration. This seems more in harmony with the general policy of the law that possession arouses inquiry. It seems hardly sufficient investigation to content one's self with learning from the records or from some other source that the possessor has purported to part with his title. Non constat that he may have gained another in some way. Inquiry from him will involve little effort or expense, and should be required ere one can attain to the ancient and honorable position of a bona fide purchaser."

Having concluded that defendant Wilson was put on inquiry, it is necessary to determine whether adequate inquiry was made. There is no evidence that Wilson herself attempted to ascertain whether anyone was in possession of the

Page 14 255 Ore. 523, *538; 469 P.2d 609, **616; 1970 Ore. LEXIS 428, ***21 property. Rowley visited the premises and observed that plaintiff was in possession. Rowley testified that he "kind of jokingly [***22] said" to plaintiff, "'Well, it looks like you've sold your house,'" and that plaintiff "confirmed that he had sold it." Rowley also asked plaintiff if he intended to sell any of his furniture or appliances when he moved and plaintiff responded that he would probably dispose of some of the items and would move "'about the first [**617] of the [*539] month.'" Rowley then said, "'Here's my card, and when you move, be sure and call me because there is some furniture or appliances that I would be interested in.'" The conversation Rowley had with plaintiff does not constitute a reasonable inquiry within the meaning of the rule. The questions put to plaintiff indicated only that Rowley was interested in purchasing plaintiff's household goods. Such questioning would not invite a grantor to explain the character of the "sale" transaction he had entered into thus revealing the conditions which the grantee was to meet before title would pass. If, in that conversation, Rowley had revealed his primary interest in viewing the property, plaintiff would then have had reason to warn Rowley of the tentative character of the "sale." We hold that the inquiry was inadequate. The cause is [***23] remanded to the trial court with directions to modify the decree consistent with this opinion.

Page 15

349 of 470 DOCUMENTS CHAFFIN, Respondent, v. SOLOMON, Appellant [NO NUMBER IN ORIGINAL] SUPREME COURT OF OREGON 255 Ore. 141; 465 P.2d 217; 1970 Ore. LEXIS 384 January 6, 1970, Argued February 11, 1970 PRIOR HISTORY: [***1] Appeal from Circuit Court, Lane County. Edward Leavy, Judge.

DISPOSITION: Affirmed.

COUNSEL: E. B. Sahlstrom, Eugene, argued the cause for appellant. With him on the brief were Sahlstrom & Starr, Eugene. M. C. Logan, Springfield, argued the cause for respondent. With him on the brief were Moore & Wurtz, Springfield. JUDGES: In Banc. Tongue, J. O'Connell, J., specially concurring. OPINION BY: TONGUE OPINION [*142] [**217] This is a suit to quiet plaintiff's title to real property. Defendant filed both a general denial and a cross-complaint to remove a cloud on defendant's title to the same property. The trial court entered a decree quieting title in plaintiff, from which defendant appeals. Defendant contends that as a judgment creditor of plaintiff's grantor he obtained and docketed his judgment before plaintiff recorded her deed, with the result that under ORS 18.370 plaintiff's unrecorded deed is void as against the lien of defendant's judgment. Plaintiff both denies that contention and also contends that by reason of her possession, improvements and payment of taxes upon the real property defendant had constructive notice of her claim of title, with the result that the [***2] lien of defendant's judgment [*143] was [**218] subject to plaintiff's claim of title, despite plaintiff's failure to record her deed. Execution of Deeds and Docketing of Judgment On October 16, 1965, plaintiff purchased three lots in Lane County from A. E. Barnum for the sum of $ 11,500 under a land sale contract, which was never recorded. On the same date, but without the knowledge of plaintiff, Barnum assigned his vendor's interest to Donna Timber, Inc., followed by deeds, which were recorded on November 12, 1965.

Page 16 255 Ore. 141, *143; 465 P.2d 217, **218; 1970 Ore. LEXIS 384, ***2 In February, 1966, defendant filed an action as a creditor of Donna Timber, Inc. On August 3, 1966, plaintiff paid off the contract balance and approximately three weeks later received warranty deeds from Donna Timber, Inc., as grantor. For some unexplained reason the deeds were not recorded at that time. On December 9, 1966, defendant obtained a judgment against Donna Timber, Inc., and docketed that judgment in Lane County on December 12, 1966. On January 23, 1967 (following the issuance of a writ of execution) a notice of sheriff's sale of the lots was issued. Shortly thereafter, on January 31, 1967, upon receiving notice of the sheriff's [***3] sale plaintiff recorded her deeds. On February 24, 1967, the three lots were sold to defendant at a sheriff's sale for $ 500 each, over objections by plaintiff, and certificates of sale were issued to defendant. On February 24, 1968, plaintiff's redemption period expired and sheriff's deeds were then delivered to defendant and recorded by him on February 29, 1968. Meanwhile, on October 23, 1967, plaintiff filed this suit. [*144] Possession, Use and Improvement of Property and Other Evidence of Constructive Notice The three lots, Lots 19, 20 and 24, are located on the shore of Collard Lake, near Florence, Oregon, with three other lots lying between Lots 19 and 20 and Lot 24. During the summer and fall of 1966 plaintiff's family and friends and church groups used the property "practically every week in the summertime" for picnics, swimming and boating. They also visited the property "from time to time" during the winter. During the summer a considerable amount of clearing work was done. This work included the clearing of the lake frontage of Lot 24, so as to provide a picnic and beach area. In addition, a possible cabin site and a forty foot strip was cleared [***4] along the shoreline of Lots 19 and 20. Trails were also cleared and cedar trees were cut for shakes on those lots. Plaintiff was assisted by friends and by a church group in this clearing work. Plaintiff's son, who lived nearby, also testified that he "went over there and cleared and burnt for week after week". He also cut wood on all three lots, some of which he removed for use at his own home, with the remainder left for use at picnics. The previously existing boat dock was repaired, improved, and extended by the installation of a new floating dock and brush was also cleared in that area. In addition, a previously existing sleeping shelter was relocated and rebuilt and some shrubbery was transplanted in the cleared area. The previously existing U-shaped roadway from the public road to the shelter was also improved. [*145] There was also uncontradicted evidence that a "For Sale" sign was posted on Lots 19 and 20, with the name "Chaffin" and with the plaintiff's telephone number. That sign was visible for some distance along the public road and was in existence during the summer of 1966 and continuing to the time of trial in 1968. Finally, on November 9, 1966, plaintiff's [***5] husband (since deceased) paid the 1966-67 real property taxes on the three lots. [**219] Decision by Trial Court After considering the foregoing facts, the trial court entered a decree quieting title in plaintiff, holding that "this case is controlled by the rule of law set forth in Thompson v. Hendricks, 118 Or 39, 245 P 724 (1926). The trial judge did not state, however, whether his decision was based (1) upon the interpretation of the judgment lien and recording statutes by this court in Thompson, or (2) upon the existence of facts sufficient to put defendant on constructive notice

Page 17 255 Ore. 141, *145; 465 P.2d 217, **219; 1970 Ore. LEXIS 384, ***5 of plaintiff's claim of ownership, as recognized in Thompson to constitute a separate and independent basis for the decision in that case. The Judgment Lien and Recording Statutes ORS 18.350(1) provides as follows: "From the time of docketing an original or renewed judgment or the transcript thereof, as provided in ORS 18.320, such judgment shall be a lien upon all the real property of the defendant within the county or counties where the same is docketed, or which he may afterwards acquire therein, during the time prescribed in ORS 18.360."

[*146] In addition, [***6] ORS 18.370 provides as follows: "Priority of lien over unrecorded conveyance. A conveyance of real property, or any portion thereof, or interest therein, shall be void as against the lien of a judgment, unless such conveyance be recorded at the time of docketing such judgment, or the transcript thereof, as the case may be."

Both of these statutes were originally adopted in 1862. In Meier v. Kelly, 22 Or 136, 29 P 265 (1892), a case involving the application of the judgment lien statute to an equitable interest in real property (no actual deed having been executed, as in this case), this court held that the conveyance of an equitable interest which is not capable of being recorded is not subject to the terms of Hill's Code 271 (now ORS 18.370) and that where, as a result of such a conveyance, the judgment debtor retains only the bare legal title, he has retained no "property" upon which the judgment lien under Hill's Code 269 (now ORS 18.350) may attach. Although not necessary to the result of that decision, this court nevertheless went on to state that Hill's Code 271 (now ORS 18.370) is to be literally applied in cases involving unrecorded deeds and other [***7] conveyances capable of being recorded (so as to invalidate any such unrecorded deeds), although not applicable to the conveyance of an equitable interest not capable of being recorded. Later, in Thompson v. Hendricks, 118 Or 39, 245 P 724 (1926), a case involving the application of the judgment liens statute to an unrecorded deed, as in this case, the court held, in effect, that when the grantee under such a deed had gone into possession of the property, the judgment creditor of his grantor was put on such notice as to prevent the lien of his [*147] judgment attaching to such property. This court also held that there was no reason why O.L. 205 (now ORS 18.350) "should be extended so as to exclude from its operation prior unrecorded conveyances creating equitable estates and include prior unrecorded conveyances creating legal estates where the latter were made in good faith for value". Instead, the court held that O.L. 205 (now ORS 18.350) and O.L. 207 (now ORS 18.370), when properly construed as parts of the same act, must be read to mean that 205 ( ORS 18.350) is a qualification of 207 ( ORS 18.370) and that when so construed "the statute means that any unrecorded [***8] conveyance of real property is void as against the lien of a judgment upon whatever real property, if any, the judgment debtor may have at the time the judgment is [**220] docketed", and that "under this construction * * * if the unrecorded conveyance was one which was made in good faith and for value, the lien would not attach * * *." (118 Or at 46) The foregoing interpretation of what is now ORS 18.350 and 18.370 in Thompson v. Hendricks, has been criticized upon the ground that it was "no better than dictum" and that "the legislature intended to do exactly what the court said there was no reason to do". See Note and Comment in 31 Or L.R. 330 at 344, in which the statutory interpretation as previously stated by this court in Meier v. Kelly was commended (at p 346) as "more closely following the statutory language employed". See also Brownley v. Lincoln County, 218 Or 7, 18, 343 P2d 529 (1959).

Page 18 255 Ore. 141, *147; 465 P.2d 217, **220; 1970 Ore. LEXIS 384, ***8 On the other hand, it may be contended, as stated in Thompson v. Hendricks, supra (at p 47) that: "By merely docketing his judgment, a judgment [*148] creditor parts with nothing, and does not become entitled to have the property of an innocent purchaser [***9] for value applied in satisfaction of a debt he does not owe. When properly construed, we think the statute did not so intend."

In this case it is contended by defendant that this court should now overrule what defendant refers to as dictum in Thompson v. Hendricks and that the court should now adopt and approve the rule as previously stated, (also by dictum) in Meier v. Kelly. Since, however, it is our view that the decision of the lower court must be affirmed on other grounds, any further statement on this subject at this time would only add further dictum on this subject. Requirements for Constructive Notice It has long been established in Oregon that since the purpose of the legislature was to give a judgment lien creditor the same standing as the purchaser of property, it follows that when a creditor who resorts to such proceedings is informed of an outstanding equity, or of facts sufficient to put him on inquiry by which he could ascertain the existence of such an equity, the lien he secures by the docketing of his judgment will be subject to it. Riddle v. Miller, 19 Or 468, 469-70, 23 P 807 (1890); Rayburn v. Davisson, 22 Or 242, 245, 29 P 738 [***10] (1892); Matsuda v. Noble et al, 184 Or 686, 703, 200 P2d 962 (1948). See also Thompson v. Hendricks, supra, at 41-3. Thus, appellant very properly concedes that "the application of ORS 18.370 can be defeated by showing that the judgment-creditor had actual knowledge of outstanding interests or actual notice of facts sufficient to put him on inquiry, i.e., constructive knowledge." It is also conceded by appellant that possession [*149] by the grantee may be sufficient to give such constructive notice to the judgment-creditor, at least where, as in Belcher v. La Grande Nat. Bank, 87 Or 665, 171 P 410 (1918), the grantee took immediate possession of the land and was in open, exclusive and notorious possession at all times. See also Marvin & Co. v. Piazza, 129 Or 128, 276 P 680 (1929); Petrain v. Kiernan, 23 Or 455, 32 P 158 (1893). And see Thompson v. Hendricks, supra, at 44-5. Appellant contends, however, that the "casual use and the alleged improvements the plaintiffs made upon the three lots at Collard Lake" are not sufficient for this purpose, citing adverse possession cases involving somewhat similar facts. Appellant also contends that there are [***11] no previous Oregon judgment lien cases in which similar facts have been held sufficient to constitute constructive notice. Obviously, the reason for the stringency of the requirements in adverse [**221] possession cases is that in such cases one who has no deed and has paid no consideration may nevertheless acquire title upon satisfying such requirements. But even in such cases it is now recognized that the nature and extent of the exercise of exclusive possession may depend somewhat upon the nature of the property involved, such as rough, brushy and uninhabited lands, at least when other factors are also present. See Knecht v. Spake, 218 Or 601, 611-12, 346 P2d 98 (1959); Springer v. Durrette, 217 Or 196, 200-01, 342 P2d 132 (1959). Thus, while it may be true that there are no previous Oregon judgment lien cases involving substantially similar facts, we hold that the facts of this case, when taken as a whole, including not only the facts relating to the nature and extent of the possession and [*150] improvements by plaintiff, as described above, but also the payment of taxes by plaintiff and the posting of a "For Sale" sign, with plaintiff's name and telephone [***12] number, were sufficient to give defendant constructive notice of plaintiff's claim of ownership. Duane v. Staley (Fla) 98 So 2d 74 (1957); Hatch v. Bigelow, 39 Ill 546 (1864); Gardom v. Chester, 60 N.J. Eq. 238, 46 A 602 (1900), and Merrill on Notice, 168, 170-71 and 175 140, 141, 142 and 146. It follows that defendant's judgment lien was subject to plaintiff's claim and that the decree of the lower court,

Page 19 255 Ore. 141, *150; 465 P.2d 217, **221; 1970 Ore. LEXIS 384, ***12 under which title was quieted in plaintiff, must be affirmed. CONCUR BY: O'CONNELL CONCUR O'CONNELL, J., specially concurring. Thompson v. Hendricks, 118 Or 39, 245 P 724 (1926) was wrong in interpreting ORS 18.350 and 18.370 for the reasons stated in a note by William E. Love in 31 Or L Rev 330 (1952). I think that we should take this opportunity to repudiate what was said in the Thompson case and thereby clarify our recording statutes.

Page 20

350 of 470 DOCUMENTS MARVIN & COMPANY v. JOE PIAZZA. MARVIN & COMPANY v. ANTONINO PIAZZA. [NO NUMBER IN ORIGINAL] SUPREME COURT OF OREGON 129 Ore. 128; 276 P. 680; 1929 Ore. LEXIS 112 February 6, 1929, Argued April 16, 1929, Decided PRIOR HISTORY: Department 1. AFFIRMED. DISPOSITION: AFFIRMED. [***1] From Multnomah: WALTER H. EVANS, Judge.

HEADNOTES Homestead--Homestead Right is Exemption or Privilege in Owner. 1. A homestead right is not an estate in land, but a mere privilege or exemption of such estate as holder has in land; the term "owner," as used in Section 221, Ore. L., having no reference to the character or extent of estate. 1 Homestead--Homestead Right Exists in Property Held in Common. 2. A tenant in common may acquire homestead exemption in lands of which he is cotenant, if land claimed as homestead is occupied by him as his actual abode and place of residence. Homestead--Facts Held to Establish Homestead Right. 3. Possession and occupancy for residence purposes, by respective cotenants of the several tracts pursuant to division or partition, held sufficient to establish the homestead character of each cotenant exempting such homestead from execution sale. Homestead--Proper Assertion of Homestead Right Prevents Confirmation of Sale on Execution. 4. Execution sale of defendants' undivided interests as tenants in common of real estate must be confirmed, or rejected as a whole, and, where such undivided interests were affected by homestead exemption properly asserted by defendants, confirmation must be refused.

Page 21 129 Ore. 128, *; 276 P. 680, **; 1929 Ore. LEXIS 112, ***1 Partition--Evidence Held to Establish Partition and Residence by Cotenants. 5. Evidence held to show voluntary partition of cotenancy lands, pursuant to which each cotenant took possession of the part apportioned him and resided thereon, claiming same as his homestead, particularly in view of permanent repairs and improvements by one of such cotenants. Frauds, Statute of--Possession and Expenditures for Improvements Held to Take Parol Partition Out of Statute of Frauds. 6. Individual expenditure for permanent repairs and improvements by cotenant, when coupled with the taking of possession and holding in severalty by respective cotenants, constituted sufficient part performance of parol agreement of partition to take case out of statute of frauds, and to vest in tenants equitable title to parts allotted them which would entitle them to specific performance. 6 Homestead--Equitable Title to Land Sufficient to Support Homestead Claim. 7. An equitable title to land is sufficient to support homestead claim. 7 Attachment--Purchaser in Good Faith--Notice by Possession of Debtor Claiming Homestead Exemption. 8. Under Sections 301, 302, Ore. L., providing that plaintiff in attachment may be deemed purchaser in good faith, and for valuable consideration, attaching creditor held not entitled to be regarded as good faith purchaser, where premises attached were in possession of debtor claiming homestead exemption. 1 Scope and import of term "owner," in homestead exemption statutes, see note in 2 A. L. R. 793. See, also, 13 R. C. L. 566. 6 See 20 R. C. L. 721. 7 See 13 R. C. L. 569. COUNSEL: For appellant there was a brief over the name of Mr. Bert S. Gooding, with an oral argument by Mr. Robert R. Rankin. For respondents there was a brief over the name of Messrs. Lord & Moulton, with an oral argument by Mr. Arthur I. Moulton. JUDGES: RAND, J. COSHOW, C. J., and McBRIDE and ROSSMAN, JJ., concur. OPINION BY: RAND OPINION [*130] [**680] RAND, J.--Plaintiff commenced two actions in the Circuit Court for Multnomah County, one against Joe Piazza, the other against Antonino Piazza, each seeking to recover a money judgment. A writ of attachment in each case was issued and the alleged interests of defendants as tenants in common in two lots in the City of Portland were attached. Defendants made default and plaintiff had judgment and order for the sale of the attached property in each action. Execution was thereafter issued and the property sold but before the sale thereof the defendants notified the sheriff that the two lots had been partitioned under a parole agreement of the owners and that each defendant claimed the part allotted to him as a homestead and exempt from execution. After the [***2] receipt of the notice, the sheriff refused to proceed further in the sale of the property until he had been indemnified by an undertaking executed by plaintiff. The property was then sold and after the expiration of the time provided by law, plaintiff applied to the court for an order confirming the sales. Defendants objected thereto and, after a hearing thereon, the court refused to confirm either sale. From these orders plaintiff has appealed and the two cases on appeal have been consolidated by stipulation

Page 22 129 Ore. 128, *130; 276 P. 680, **680; 1929 Ore. LEXIS 112, ***2 of the parties. Except for the difference in the description of the properties claimed as exempt, the facts are substantially identical in each case. The lots in question, parts of which are claimed as homesteads, are lots 5 and 6, block 19, [**681] Tibbitt's Addition in the City of Portland, and comprise a tract of [*131] land one hundred feet square located on the corner of the block fronting on East 17th and Clinton Streets. There are four dwelling-houses on said lots, two of which are in the separate occupancy of the defendants. These lots, together with the four dwelling-houses, were purchased many years ago by defendants' deceased father and his brother, Ignazio [***3] Piazza. The father died on December 2, 1918, leaving a widow, Marina Piazza, a daughter, Dorothy Piazza, and the two defendants as his sole heirs at law, who, upon his death, became vested with an undivided one-half interest in the property by operation of law. Subsequently and about January, 1923, Ignazio Piazza conveyed the other undivided one-half interest in the lots to the four Piazzas. Shortly thereafter, the mother and her three children entered into a parol agreement to partition the property among themselves and carried said agreement into execution by allotting to the mother the house which fronts on East 17th Street, together with a strip of ground 100 feet in depth and 37 feet in width along the south boundary of the tract, and allotting to Joe Piazza the corner house facing on Clinton Street together with a tract of land 33 1/3 feet in width and 63 feet in depth, and to Antonino Piazza the middle house fronting on Clinton Street, together with a strip of land 33 1/3 feet in width and 63 feet in depth, and to Dorothy Piazza the remainder of the tract together with the dwelling-house thereon. The evidence shows that each of said allottees took possession of the particular [***4] house and premises allotted to him, and has ever since remained in the possession thereof and exercised exclusive dominion thereover, and that both defendants are residing with their families upon the respective premises allotted [*132] to them and have been so residing and using the same as their actual place of abode since long prior to the commencement of the actions referred to and that ever since said parole partition they have been holding their respective premises in severalty. The evidence further showed that one of said defendants had expended money in the permanent repair and improvement of the house which had been allotted to him. It is not contended that the premises allotted to either of the defendants or to the mother or daughter exceeds in value the sum of $ 3,000 or that the premises allotted to defendants are not the actual abodes of defendants and their families, but it is contended that the entering into by the Piazzas of a parol agreement to partition the land, even though followed by a part performance sufficient to take the case out of the statute of frauds, was not sufficient to change defendants' legal title as tenants in common in the entire tract into [***5] a several ownership of a part and it is also claimed that a tenancy in common in lands is not a sufficient estate or interest in the land to support a homestead and from this it is argued that defendants' interest or estate in the two lots as tenants in common was not exempt from execution. We think that this contention cannot be sustained. 1, 2. A homestead right is not an estate in land but a mere privilege or exemption of such an estate as the holder has in the land: Mansfield v. Hill, 56 Ore. 400 (107 P. 471, 108 P. 1007). Our statute, Section 221, Ore. L., uses the term "owner" in defining the person who shall be entitled to a homestead exemption but it does not define the word "owner" or require that the homestead claimant shall be the [*133] absolute owner in fee of the land. There is abundant authority for holding, and we think that the rule is supported by the great weight of authority, that under a statute as broad as ours a tenant in common may acquire a homestead exemption in lands of which he is a cotenant only if the land claimed as a homestead is occupied by him as his actual abode and place of residence and that his homestead right does not [***6] depend upon the character or extent of the estate owned by him, provided he is not a mere intruder: 29 C. J., p. 848, 164, and authorities there cited; 13 R. C. L., p. 566, 30; Freeman on Cotenancy and Partition (2 ed.), 54; Thompson on Homesteads and Exemptions, 1878 ed., 180. 3, 4. That defendants were in the several possession and occupancy of the parts allotted to them as the actual abodes of themselves and families prior to the commencement of the actions in question was not disputed. Such possession and occupancy was sufficient to make the premises so possessed and occupied a homestead, and, being homesteads, such parts were exempt from execution. The sales in question were defendants' undivided interests as tenants in common in

Page 23 129 Ore. 128, *133; 276 P. 680, **681; 1929 Ore. LEXIS 112, ***6 all or both lots and hence, include their homesteads. It could not have been confirmed without including the parts of the two lots which constituted the homesteads of the defendants. When application was made to the court to confirm the sales, the only action the court could have taken was either to reject or confirm the sales. It could not modify the terms of the sale or confirm the sales as to a part and reject it as to the remainder. It [***7] was obliged either to accept and confirm as a whole or to reject as a whole and if vacated to direct that another [*134] sale be made. See 2 Freeman on Executions (2 ed.), 311. 5. But we do not base our decision upon those grounds alone for we are satisfied from the evidence that a voluntary parol contract to partition the land was actually entered into and that, in pursuance thereof, the land was partitioned and each of the owners, with the full knowledge and consent [**682] of the others, entered into possession of the parts allotted to him and has ever since held the same in severalty and that, in reliance upon said parol partition, one of such allottees has expended money in making permanent repairs and improvements upon the dwelling-house which had been allotted to him. 6. While it is true that the parties to this contract were near relatives, a mother and her children, and that his relationship in the absence of a contract of the character claimed might be sufficient to explain a separate occupancy by the parties to the contract of the parts of the joint property, it is not sufficient to explain an individual expenditure made by one without a charge being made against [***8] the others in the permanent improvement and repair of one of the buildings if the same was held in joint ownership. Such an individual expenditure is inconsistent with a joint ownership and is referable only to a contract of the kind and character claimed and, when coupled with the taking of possession and a holding in severalty by the parties, it constitutes we think a sufficient part performance of the parol agreement to take the case out of the operation of the statute of frauds and to vest in the allottees the equitable title to the parts allotted to them and would entitle them to a specific performance of the contract. In deciding the rights growing out of a parol partition of land, [*135] the court, in Tomlin v. Hilyard, 43 Ill. 300 (92 Am. Dec. 118, 119), said: "A parol partition between tenants in common, when followed by a possession in conformity therewith, will so far bind the possession as to give to each co-tenant the rights and incidents of an exclusive possession of his property: 1 Washburn on Real Property, 2d ed., 450; Jackson v. Harder, 4 Johns. [N.Y.] 202 (4 Am. Dec. 262); Jackson v. Vosburgh, 9 Johns. [N.Y.] 276 (6 Am. Dec. 276); [***9] Slice v. Derrick, 2 Rich. 627; Coles v. Wooding, 2 Pat. & H. [Va.] 189; Wildey v. Bonney, 31 Miss. 644; Manly v. Pettee, 38 Ill. 128. While the legal title might not perhaps be considered as passing by such parol partition, unless after a possession sufficiently long to justify the presumption of a deed, yet the parol partition followed by a several possession would leave each co-tenant seized of the legal title of one-half of his allotment, and the equitable title to the other half, and by a bill in chancery he could compel from his co-tenant a conveyance of the legal title, according to the terms of the partition. The homestead law protects a possession held under an equitable as well as a legal title: Blue v. Blue, 38 Ill. 9 (87 Am. Dec. 267). If, then, in the case before us, there has been a parol partition before the judgment lien attached, and a several possession in conformity thereto, the homestead right can be claimed by Hilyard, even if the legal title to one-half of his allotment is still in his co-tenant. He has held it since the partition merely as trustee for Hilyard. [***10] " 7, 8. It follows from what has been said that not only are the defendants the equitable owners of the parts allotted to them but also that Marino Piazza, the mother, and Dorothy Piazza, the daughter, are likewise equitable owners of the parts allotted to them and are entitled, as against the others, to a conveyance of the legal title. Under such circumstances none of the Piazzas had any beneficial ownership in [*136] any part of the two lots except in the particular part allotted to him. That an equitable title to land is sufficient to support a homestead seems to be settled with but little, if any, conflict of authority. It was held in Tomlin v. Hilyard, supra, Blue v. Blue, 38 Ill. 9 (87 Am. Dec. 267), and Perry v. Adams, 179 Iowa 1215 (162 N.W. 817), that the homestead law protects a possession held under an equitable as well as a legal title. To the same effect see 13 R. C. L., p. 569, 32; 29 C. J., p. 843, 147, and cases there cited; Thompson on Homesteads and Exemptions, 170-173; Freeman on Cotenancy, 255. Hence, no part of these two lots, whether in the possession of the defendants or otherwise, was [***11] subject to attachment unless the plaintiff, at the time of the attachment, would have been an innocent purchaser for value and without notice if he had bought the property outright instead of attaching the same. Under Section 301, Ore. L., from the date of the attachment until it be discharged and the

Page 24 129 Ore. 128, *136; 276 P. 680, **682; 1929 Ore. LEXIS 112, ***11 writ executed, the plaintiff as against third persons shall be deemed a purchaser in good faith and for a valuable consideration of the property attached, subject to the conditions prescribed in Section 302, Ore. L. While, as we have stated, there was nothing of record to give notice that the Piazzas were holding the property in severalty, yet under the circumstances shown the plaintiff could not have been a purchaser in good faith and for value at the time the attachment was made for the very occupancy of the premises was constructive notice of the rights and equities of the parties, and the simplest inquiry upon the part of either the sheriff or plaintiff of the persons in possession of the premises would have disclosed the separate equitable ownership of each. The Piazzas [*137] at the time were in the actual, open, visible and exclusive possession of their respective parts of [***12] the two lots in question and were at the time rightfully in possession and this possession was constructive notice to plaintiff of whatever estate or interest in the land the occupants had to the parts they were occupying. Under such circumstances, the rule is: "* * Whenever a party, dealing as purchaser or encumbrancer with respect to a parcel of land, is informed or knows, or is in a condition which prevents him from denying that he knows, [**683] 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 Pomeroy's Equity Jurisprudence (3 ed.), 615. But independently of constructive notice, the evidence very strongly shows that plaintiff had actual knowledge before the commencement of the actions of defendants' several possession and occupancy of the premises as well as that of their mother and sister for the evidence shows that one of plaintiff's officers and managing agents was a frequent visitor in the homes of the [***13] Piazzas and that he had been informed that the two lots had been partitioned and that these lots were being held in severalty by the Piazzas. For these reasons, the orders appealed from must be affirmed. AFFIRMED. COSHOW, C. J., and McBRIDE and ROSSMAN, JJ., concur.

Page 25

351 of 470 DOCUMENTS TELSCHOW v. QUIGGLE. * * As to the necessity and sufficiency of delivery of a deed, see note in 10 L. Ed. (U.S.) 903.For the title of a bona fide purchaser from a fraudulent grantee, see note in 67 L. R. A. 891, 898.The authorities passing upon possession of land as notice of title are reviewed in a note in 13 L. R. A. (N. S.) 49. REPORTER. [NO NUMBER IN ORIGINAL] SUPREME COURT OF OREGON 74 Ore. 105; 145 P. 11; 1914 Ore. LEXIS 405 December 4, 1914, Argued December 29, 1914, Decided PRIOR HISTORY: [***1] From Lane: LAWRENCE T. HARRIS, Judge.

Department 2. Statement by MR. JUSTICE BEAN. This is a suit by August Telschow against George E. Quiggle, F. L. Kelly and Carl Tucker, to set aside two deeds of a quarter section of land in Lane County, for the reason that the one from plaintiff was obtained and delivered by means of a fraudulent scheme, and was void, and the other to defendant Kelly passed no title. From a decree rendered in favor of plaintiff, and against defendants, George E. Quiggle, F. L. Kelly and Carl Tucker, defendant Kelly appeals. AFFIRMED. DISPOSITION: AFFIRMED.

HEADNOTES Vendor and Purchaser--Bona Fide Purchaser--Notice. 1. Where a grantor, executing a deed with the grantee in blank, remained in possession of the property, and a third person, obtaining the deed without authority to fill in the name of the grantee, except on specified conditions, inserted the name of the grantee without the performance of the conditions, and the grantee conveyed the property to another, who relied on the grantee's representations, the latter was not a bona fide purchaser, and acquired no title as against the grantor. Vendor and Purchaser--Bona Fide Purchaser--Who is. 2. Where a deed executed by a grantor, with a blank for the grantee, is surreptitiously and fraudulently taken from the grantor's house and the blank filled up, no title passes, and a bona fide purchaser for a valuable consideration from

Page 26 74 Ore. 105, *; 145 P. 11, **; 1914 Ore. LEXIS 405, ***1 the grantee in the deed acquires no title, especially if the grantor remains in possession of the property. [As to what constitutes delivery of deed, see notes in 16 Am. Dec. 35; 58 Am. Rep. 289; 53 Am. St. Rep. 537. As to validity of deed to blank grantee, see note in Ann. Cas. 1912A, 538.] Deeds--Delivery--Effect. 3. A deed delivered to the grantee without the express or implied consent of the grantor that the deed shall pass irrevocably from his control conveys no title to the grantee. Deeds--Delivery--Effect. 4. A deed with a blank for a grantee is a conveyance only where the blank is filled by one authorized to fill it, before or at the time of delivery to the grantee, and on compliance with the conditions imposed by the grantor. Deeds--Mutual Assent of Parties. 5. The force of a deed depends on the mutual assent of the parties to it, without which there can be no delivery. Vendor and Purchaser--Bona Fide Purchaser--Notice. 6. One contemplating the purchase of land from a grantee while the grantor remains in possession must take notice of the rights of the grantor which may exist outside the deed. COUNSEL: For appellants there was a brief over the name of Messrs. Jeffrey & Lenon, with an oral argument by Mr. Charles E. Lenon. For respondent there was a grief over the names of Mr. Richard S. Smith and Messrs. Woodcock & Bryson, with an oral argument by Mr. Smith. JUDGES: MR. JUSTICE BEAN. MR. CHIEF JUSTICE McBRIDE, MR. JUSTICE EAKIN and MR. JUSTICE McNARY concur. OPINION BY: BEAN OPINION [*107] [**12] MR. JUSTICE BEAN delivered the opinion of the court. It appears that the plaintiff, August Telschow, was a man of advanced years, uneducated and ignorant of business ways. He obtained title under the homestead [***2] laws to a quarter section of land in a remote part of Lane County. He had been living on this place for a long time, when the defendant Carl Tucker and wife came to live with him. As time went on the plaintiff gained confidence in Tucker, and there was some talk between them in regard to trading the former's land for a farm in the Willamette Valley. Pursuant to this talk, on the 18th of June, 1912, plaintiff and Tucker went to Florence, where Telschow executed and acknowledged a deed of the land with the name of the grantee in blank, the possession of which was retained by plaintiff for some time. When Tucker started for the Willamette Valley, Telschow permitted him to take the deed with authority to trade the land for a farm of equal worth in the valley. Tucker had no authority to insert the name of the grantee in the deed or deliver the same, except upon the conditions stated by the plaintiff. Tucker went to Portland, Oregon, retained the deed until August, and wrote the plaintiff that he [*108] had not been able to trade the land. About the last of August he met defendant Quiggle, whom, he states, he informed in regard to the conditions of the deed, and with whom he exchanged [***3] the land, pursuant to Quiggle's advice, for two residence lots in Portland, subject to a mortgage, and 40 acres of land in Clark County, Washington, also subject to

Page 27 74 Ore. 105, *108; 145 P. 11, **12; 1914 Ore. LEXIS 405, ***3 a mortgage. These properties were deeded directly to Tucker by Quiggle, whose name was inserted in the deed by a stenographer. The instrument was then recorded, September 3, 1912, in the records of deeds of Lane County, Oregon. Tucker soon traded the property for two second-hand automobiles, which he sold. The Circuit Court found, and the evidence shows, that Quiggle knew of the conditions attached to the authority conferred upon Tucker by plaintiff, knew that Tucker had no authority to make the exchange, and that Quiggle was a party to the fraud practiced in the transaction. Quiggle had never seen the Lane County land, and had no knowledge of the same, except such as he received from Tucker. The trial court found that the manner in which the deed was obtained was a species of larceny. About four days after Quiggle obtained the deed, he traded the land to defendant Kelly for the furnishings and lease of a rooming-house in Portland, known as the "Otis Rooming-house," and received a bill of sale therefor. Quiggle, as a witness [***4] for defendants, testified that he gave Kelly all the information, in regard to the land in question, that he received from Tucker. After the execution of the deed, June 18, 1912, Telschow resided upon the land, and was in the exclusive, open and notorious possession thereof, and knew nothing about the pretended transfer to Quiggle until about the 15th of October of that year, when he immediately commenced this suit. [*109] 1. Kelly obtained an abstract of title, but did not examine the land, nor make any further inquiry to ascertain the true condition of the possession or title, except such as was given him by Quiggle. It is contended upon the part of the defendant Kelly that he is an innocent purchaser of the land for value, and that as to him the deed is valid. By the conveyance from Quiggle, the grantee named in the deed executed in blank by Telschow, who thereafter retained exclusive, open, and notorious possession of the land, defendant Kelly acquired no title as against Telschow, the grantor named in the original deed, for the reason that there had been no valid delivery of such deed to Quiggle, who never obtained lawful possession of it: Allen v. Ayer, 26 Ore. 589 (39 P. 1). [***5] The holding in the case cited has ever since been followed. 2, 3. On the question of the sufficiency of facts to excite inquiry and to put a person upon notice, each case depends upon its own facts: Knapp v. Bailey, 79 Me. 195 (9 A. 122, 1 Am. St. Rep. 295); note to Garbutt v. Mayo (Ga.), 13 L.R.A. 60. If a deed which has been executed and acknowledged by the grantor, with a blank for the grantee's name, be surreptitiously and fraudulently taken from the grantor's house, and the blank filled up, no title passes thereby, and a bona fide purchaser for a valuable consideration from the person holding the deed stands in no better situation than such fraudulent holder, especially if the original grantor remains in possession of the property: 39 Cyc. 1692. A deed that is delivered to the grantee, without the express or implied consent of the grantor to the effect that the deed shall pass irrevocably from his control, conveys no title to the grantee. Such a deed would be of no more force than one with a forged signature: Tyler v. Cate, 29 Ore. 515 (45 P. 800); [*110] Gaston v. Portland, 16 Ore. 255 (19 P. 127); [***6] Burns v. Kennedy, 49 Ore. 588 (90 P. 1102); De Bow v. Wollenberg, 52 Ore. 404 (96 P. 535, 97 P. 717); Bradford v. Durham, 54 Ore. 1 (101 P. 897, 135 Am. St. Rep. 807); Hilgar v. Miller, 42 Ore. 552 (72 P. 319); Everts v. Agnes, 4 Wis. 343 (65 Am. Dec. 314). 4. There are two conditions requisite to make a deed, executed with the name of the grantee left blank, that operate as a conveyance of the real estate described: The blank must be filled by the party authorized to fill [**13] it, and this must be done before or at the time of delivery of the deed to the grantee: Cribben v. Deal, 21 Ore. 211 (27 P. 1046, 28 Am. St. Rep. 746); Allen v. Withrow, 110 U.S. 119 (3 S. Ct. 517, 28 L. Ed. 90). Tucker had no authority to fill in the name of Quiggle as grantee in the deed, or any other person's name, except on the condition named by Telschow, to wit, upon the conveyance to the plaintiff of a farm in the Willamette Valley. The whole transaction between Tucker and Quiggle was a farce, and we think, if Kelly had exercised the care of an ordinarily [***7] prudent man, he could have ascertained the facts. Quiggle obtained legal advice, and was informed that the deed executed in blank would be good with the name of the grantee inserted, provided Tucker had authority to fill in the name. Under the circumstances shown by the record, Tucker never had any authority to insert Quiggle's name in the deed. Telschow at all times had full right to its control. 5. The binding force and effectiveness of a deed must necessarily depend upon the mutual assent of the parties to it, without which there can be no delivery: De Bow v. Wollenberg, 52 Ore. 404 (96 P. 536). In Sharp v. Kilborn, 64 Ore.

Page 28 74 Ore. 105, *110; 145 P. 11, **13; 1914 Ore. LEXIS 405, ***7 371 (130 P. 735), we find the law stated that, where a grantor delivered a deed [*111] to a third person, with instructions not to deliver it to the grantee unless the purchase price was paid, a delivery contrary to such directions passed no title, whether the third person was an agent of the grantor or whether he was an escrow. It appears that Kelly not only failed to take notice of plaintiff's possession, but was at least careless and negligent in regard to making inquiry either as to the value or possession of [***8] the land. As stated by the trial court: "The most that can be said for Kelly is that the transaction was a 'sight and unseen' trade so far as concerned the Lane County property; and certainly the exercise of ordinary prudence, based upon the information possessed by Kelly and the aforesaid circumstances, would have betrayed the fact that plaintiff had been wickedly defrauded." 6. The authorities are inharmonious as to the effect of a grantor's possession of the premises which he has conveyed after the execution of a deed, and whether his possession under these circumstances is such that a person contemplating the purchase or acquiring some interest in the land is compelled to take notice of the rights of such grantor which may exist dehors his deed: 2 Devlin, Real Estate, 761. After careful examination of many authorities, we find in no case, where a deed executed and acknowledged with the name of the grantee left blank, and afterward fraudulently inserted, where the grantor has remained in the open and notorious possession of the premises, that a deed to a third person claiming to be an innocent purchaser has been upheld: Tyler v. Cate, 29 Ore. 515 (45 P. 800); [***9] Randall v. Lingwall, 43 Ore. 383 (73 P. 1); Bumpas v. Zachary (Tex. Civ. App.), 34 S.W. 672; 2 Devlin Real Estate 762. [*112] It appears from the record that Kelly relied upon defendant Quiggle as to the value of the plaintiff's land, the condition of the title, except as shown by the abstract, and the possession thereof. For his damages, if any, he should look to defendant Quiggle. The decree of the lower court is right, and should be affirmed; and it is so ordered. AFFIRMED. MR. CHIEF JUSTICE McBRIDE, MR. JUSTICE EAKIN and MR. JUSTICE McNARY concur.

Page 29

352 of 470 DOCUMENTS RANDALL v. LINGWALL. [NO NUMBER IN ORIGINAL] SUPREME COURT OF OREGON 43 Ore. 383; 73 P. 1; 1903 Ore. LEXIS 69

July 20, 1903, Decided SUBSEQUENT HISTORY: PRIOR HISTORY: [***1] Rehearing Denied October 15, 1903.

From Marion: REUBEN P. BOISE, Judge.

Suit by Bessie Randall and Bessie O. Randall, a minor, by Bessie Randall, her general guardian, against C. G. Lingwall. Decree for plaintiffs. Defendant appeals. AFFIRMED. DISPOSITION: AFFIRMED.

HEADNOTES VENDOR AND PURCHASER--POSSESSION OF TENANT AS NOTICE. 1. The possession of a tenant of real property is of itself sufficient to put an intending purchaser from a third person upon inquiry as to the landlord's title, and to charge him with constructive notice of such facts as might have been discovered by reasonable diligence. EVIDENCE AS TO EXISTENCE OF TENANCY. 2. Decedent deeded land to his brother, who later reconveyed to decedent. The latter deed was not recorded, but decedent took possession, and later leased the land to a third person. The tenant paid the rent to decedent until the latter's death, after which the brother, having learned that his deed to decedent was not of record, notified the tenant that he owned the land, and demanded payment of rent, which the tenant accordingly paid to him for two months in order to avoid controversy, and without informing the decedent's representatives. Held, that the tenant still remained tenant of decedent, so that his possession was sufficient to put an intending purchaser of the property on inquiry as to decedent's rights. EFFECT OF NOT INQUIRING OF STRANGER IN POSSESSION. 3. A purchaser of property, failing to make inquiry of a stranger in possession, is in law chargeable with bad faith,

Page 30 43 Ore. 383, *; 73 P. 1, **; 1903 Ore. LEXIS 69, ***1 and cannot claim the rights of a bona fide purchaser: Crossen v. Oliver, 37 Ore. 514, distinguished. [As to possession of real property as notice of occupant's rights, see note in 104 Am. St. Rep. 331.] EFFECT OF NOT INQUIRING OF STRANGER IN POSSESSION. 4. A purchaser from one apparently holding the legal title, who has not made any inquiry of the tenant in possession, is not in a position to urge that the inquiry, if made, would probably not have disclosed the rights of equitable claimants. RULE WHERE GRANTOR RETAINS POSSESSION. 5. The rule that the continued possession of land by the grantor in a conveyance thereof is not notice to a bona fide purchaser from the grantee of any rights of such grantor, is not applicable where such grantor has not personally retained possession. COUNSEL: For appellant there was an oral argument and a brief by Mr. John H. Hall to this effect: I. A court of equity acts upon the conscience, and it is upon the ground of mala fides that a purchaser for value is affected with notice of a prior claim. The notice must be more than would excite the suspicion of a cautious and wary person; it must be so clear and undoubted with respect to the existence of a prior right as to make it fraudulent in him afterwards to take and hold the property: Raymond v. Flavel, 27 Ore. 219-246 (40 P. 158); Bowman v. Metzger, 27 Ore. 23 (39 P. 3); Crossen v. Oliver, 37 Ore. 514-521 (61 P. 885); Lyons v. Leahy, 15 Ore. 8-11 (3 Am. St. Rep. 133, note, 13 P. 643); Laubridg v. Bowland, 52 Miss. 546-553; Vest v. Michie, 31 Gratt. 149 (31 Am. Rep. 722); Garnier v. Wheeler, 40 Ore. 198 (66 P. 812); Advance Thresher Co. v. Esteb, 41 Ore. 469 (69 P. 447); Hall v. Livingston, 3 Del. Ch. 348. II. A purchaser [***2] from a vendee whose vendor remains in possession is not bound to inquire further as to the title when he finds on record a deed from such vendor, properly conveying the title to the person from whom he is about to purchase: Exon v. Dancke, 24 Ore. 110-115 (32 P. 1045), and cases cited. III. The possession of a tenant is not notice of his landlord's title: McCleerey v. Wakefield, 76 Iowa 529 (2 L. R. A. 529, 41 N.W. 210); Smith v. Dall, 13 Cal. 510-511; 2 Sugden, Vendors, 558; Wade, Notice, 273. IV. General rumor of a fact is not sufficient to place a party on inquiry; there must be some act or declaration from an authenticated source: Raymond v. Flavel, 27 Ore. 219-245 (40 P. 158); Maul and Wife v. Rider, 59 Pa. St. 167; Kerns v. Swope, 2 Watts (Pa.), 75; Jackson v. Given, 8 Johns. 137 (5 Am. Dec. 328); Church v. Guernsey, 39 Pa. St. 84-86; Satterfield v. Malone, 35 F. 445 (1 L. R. A. 35). V. The payment of rent by the tenant to one holding the record title constitutes a valid attornment: Leitch v. Boyington, 84 Ill. 179; Flagg v. Gillmacher, 98 Ill. 293; Hayes v. Lawver, 83 Ill. 182. For respondents there was a brief over the names of Woodson T. Slater, William M. Kaiser, [***3] and Tilmon Ford, with an oral argument by Mr. Slater and Mr. Ford. JUDGES: MR. JUSTICE BEAN. OPINION BY: BEAN OPINION [*385] [**1] MR. JUSTICE BEAN delivered the opinion.

Page 31 43 Ore. 383, *385; 73 P. 1, **1; 1903 Ore. LEXIS 69, ***3 This is a suit to quiet title. The plaintiffs are the widow and daughter of O. P. Randall, who died in February, 1898. In March, 1888, O. P. Randall purchased the property in controversy, conveying it soon after by warranty deed to his brother, T. J. Randall, which deed was duly recorded. Some time in 1891, the latter reconveyed the property to O. P. Randall. This deed was not recorded, but the grantee took possession, and, in 1893, leased the property to G. G. Gans, who continued in possession until the commencement of this suit, and who paid the rent under his lease to O. P. Randall until the latter's death. T. J. Randall, ascertaining that his deed to his brother was not of record, then notified Gans that he owned the property, and demanded payment of the rent, which Gans accordingly paid him for the months of March and April, 1898, in order to avoid any controversy about his right to the possession, but without informing any of the representatives of O. P. Randall. On April 12, 1898, T. J. Randall sold and conveyed [***4] the property [*386] to the defendant, who, before making the purchase, examined it, saw that Gans was in possession, but made no inquiry of him or of any member of his family as to the character of such possession, or his right thereto, but relied entirely upon an abstract of the title. In December, 1898, the deed from T. J. to O. P. Randall was found, and placed of record. Thereafter this suit was brought. Upon this state of facts, it is apparent that the plaintiffs must prevail unless the defendant is entitled to the rights of a bona fide purchaser. This depends upon whether his knowledge of Gans' possession was, under the circumstances, sufficient to put him upon inquiry, and to charge him with notice of the rights and equities of the plaintiffs. The inquiry thus presented is twofold: First, is the possession of a tenant notice of the title of his landlord, or perhaps, more accurately speaking, is it sufficient to put an intending purchaser upon inquiry, and to charge him with notice of the landlord's title where he makes no inquiry? Second, was Gans the tenant of O. P. or T. J. Randall at the time of the defendant's purchase? 1. It seems to be well settled that [***5] the open, exclusive, and notorious possession of property by a stranger to the title is sufficient to put those who deal with it upon inquiry concerning the rights and equities of the party [**2] in possession, and to charge them with knowledge thereof when no inquiry is made: Bohlman v. Coffin, 4 Ore. 313; Rayburn v. Davisson, 22 Ore. 242 (29 P. 738); Petrain v. Kiernan, 23 Ore. 455 (32 P. 158); Ambrose v. Huntington, 34 Ore. 484 (56 P. 513). But whether such notice is confined to the rights and equities of the party in possession, or extends to those under whom he holds if he is a tenant, is a disputed question. Mr. Sugden, in his work on Vendors, says: "Notice of a tenancy will not, it seems, affect a purchaser with constructive notice of a lessor's title. Therefore, if a person equitably entitled to an estate let it to a tenant who takes possession, and then the person [*387] having the legal estate sells to a person who purchases bona fide and without notice of the equitable claim, the purchaser will hold against the equitable owner, although he had notice of the tenant being in possession": [***6] 2 Sugden, Vendors, 560. The doctrine of Mr. Sugden was followed by Mr. Justice STORY, in Flagg v. Mann, 2 Sumn. 486, 530, 9 F. Cas. 202 (Fed. Cas. No. 4,847), wherein he held that constructive notice from possession does not extend beyond the title of the party in possession, although the learned justice substantially admitted that the rule is supported only by the ability of the author. Upon the dictum of Mr. Sugden, and the decision of Flagg v. Mann, the rule is taken for granted in Beatie v. Butler, 21 Mo. 313 (64 Am. Dec. 234), and Smith v. Dall, 13 Cal. 510. The latter case, however, was subsequently overruled in Dutton v. Warschauer, 21 Cal. 609 (82 Am. Dec. 765), and the opposite doctrine is the law in Iowa Illinois, New York, Nebraska, North Carolina, Wisconsin, Pennsylvania, Minnesota, and California: Dickey v. Lyon, 19 Iowa 544; Mallett v. Kaehler, 141 Ill. 70 (30 N.E. 549); Bank of Orleans v. Flagg, 3 Barb. Ch. 316; Conlee v. McDowell, 15 Neb. 184 (18 N.W. 60); Edwards v. Thompson, 71 N.C. 177; [***7] Wickes v. Lake, 25 Wis. 71; Wright v. Wood, 23 Pa. 120; Woods v. Farmere, 7 Watts 382 (32 Am. Dec. 772); Morrison v. March, 4 Minn. 422; Thompson v. Pioche, 44 Cal. 508; Fair v. Stevenot, 29 Cal. 486. The question was considered by Mr. Justice COLE in Dickey v. Lyon, 19 Iowa 544, and reference is made to the opinion in that case for an able and exhaustive discussion of the subject, in the light of both principle and authority. The conclusion reached by him was that "a person who purchases an estate in the possession of another than his vendor is in equity, that is, in good faith, bound to inquire of such possessor what right he has in the estate. If he fails to make such inquiry, which ordinary good faith requires of him, equity [*388] charges him with notice of all the facts that such inquiry would disclose. Suppose the possessor is a tenant holding under a lease; an inquiry of such tenant would advise the purchaser, not only of the length of time and terms of tenancy, but also of the landlord, and hence that some other person than [***8] his proposed vendor claimed a right to the estate, and was

Page 32 43 Ore. 383, *388; 73 P. 1, **2; 1903 Ore. LEXIS 69, ***8 holding possession thereof by his tenant. Being thus advised, equity, in vindication of ordinary good faith, requires him to ascertain the extent of right of such landlord in the estate." This doctrine is supported by the overwhelming weight of authority, and it may, we think, be regarded as practically settled, in this country, that the possession of a tenant of real property is sufficient to put an intending purchaser on inquiry. From that fact alone he will be charged with notice of the landlord's title, unless it be shown that he pursued the inquiry with reasonable diligence, and failed to acquire knowledge of such title. Indeed, as said by Mr. Chief Justice FIELD, in Dutton v. Warschauer, 21 Cal. 609 (92 Am. Dec. 765): "It is not easy to give to the fact of possession any influence as notice without making it notice of all such matters as a prudent man, desirous of purchasing the property, would naturally inquire about respecting the title. Ascertaining that the possession of the occupant is that of a tenant, he would, in the ordinary course of things, proceed to inquire as to the title of the landlord. [***9] " The possession of Gans was therefore sufficient to put the defendant upon inquiry, and to charge him with notice of the title under which Gans was holding at the time of his purchase. 2. This brings us to an examination of the second branch of the question. If the relation of landlord and tenant between O. P. Randall and Gans had ceased, and such a relationship had been established between T. J. Randall and Gans prior to the time of defendant's purchase, the latter's possession would have been notice only [*389] of the title under which he was then holding, and not of the rights of his previous landlord. It is therefore important to ascertain whether he had ceased to be the tenant of O. P. Randall. From the facts it appears that Gans did not surrender possession to T. J. Randall, or make a new lease with him, nor did he notify the successors in interest of O. P. Randall of the demand made upon him for rent, or of an intention to attorn to T. J. Randall. All he did was to pay the latter rent for March and April. The mere payment of rent, however, is not of itself sufficient to establish the relation of landlord and tenant. It is but evidence of such a relationship, and often [***10] satisfactory as such. But where one in possession of property under a lease from one person agrees to and does pay the rent to another, such payment, if made under a misconception of the facts, does not create the relation of landlord and tenant between him and the payee. In order for mere payment of rent to constitute a tenancy, it must be paid in the capacity of a tenant. If paid in any other capacity, it does not have that effect: Wood, Landl. & Ten. 4; 1 Taylor, Landl. & Ten. (8 ed.) 23; Strahan v. Smith, 4 Bing. 90; Gregory v. Doidge, 3 Bing. 473; [**3] Doe d. Higginbotham v. Barten, 11 Adolph. & Ell. 307. It is therefore doubtful, under the facts, whether the payment of rent by Gans to T. J. Randall operated as an attornment, or estopped him from denying Randall's title. But if it be assumed that such was the effect of the arrangement between them, it still did not destroy the relation of landlord and tenant between Gans and O. P. Randall. A tenant must respect his landlord's title. He cannot attorn to a person who is not in privity with such title, and if he attempts to do so it has no validity as against [***11] the landlord or his representative or grantee: Wood, Landl. & Ten. 541, p. 929; 1 Taylor, Landl. & Ten. (8 ed.) 180. Indeed, Mr. Justice CAMPBELL thinks that an agreement by a lessee to pay rent to a third person who has no title is invalid for want of a [*390] consideration. He says, in Fuller v. Sweet, 30 Mich. 237 (18 Am. Rep. 122): "Where a person in possession agrees by parol to pay money to a person out of possession, and who has no title, it is impossible to find any sensible ground for sustaining such a promise which would not sustain any other promise made without consideration. Where there is an indenture, there is, at common law, a presumed consideration. Where there is possession given, there is an actual consideration, which may render it also reasonable enough, under ordinary circumstances, to require the landlord to be put back in statu quo. But a person who never had or gave up possession to the tenant is left in statu quo by the tenant's remaining in possession, and in reason should have no further claim. If he has, it must be by some peculiar and anomalous rule, for which we have found no support." If, however, it be conceded [***12] that one in possession of land under a lease may attorn to a third person, it would seem that the only effect would be to estop him from denying the title either of his landlord or such third person: Hamilton v. Pittock, 158 Pa. 457 (27 A. 1079); Carter v. Marshall, 72 Ill. 609; Lyon v. Washburn, 3 Colo. 201. Whatever, therefore, the legal relationship of Gans and T. J. Randall may have been at the time of the defendant's purchase, Gans was, notwithstanding, the tenant of O. P. Randall, to the extent that the defendant was chargeable by his possession with knowledge of the plaintiff's equities in the property, as an inquiry of Gans would have naturally disclosed the true state of affairs. 3. It is argued that in cases of this character the court acts upon conscience, and that it is only upon the ground of mala fides that a purchaser for value is affected with the notice of a prior claim. Such is undoubtedly the rule where it is

Page 33 43 Ore. 383, *390; 73 P. 1, **3; 1903 Ore. LEXIS 69, ***12 sought to charge him with notice on account of rumors or reports concerning the title: Raymond v. Flavel, 27 Ore. 219 (40 P. 158); [*391] Bowman v. Metzger, 27 Ore. 23 (39 P. 3, 44 P. 1090); [***13] Crossen v. Oliver, 37 Ore. 514 (61 P. 885). But where the property at the time of the purchase is in possession of a stranger, the physical facts are such as to put the purchaser upon inquiry, and, if he fail to make such inquiry, he is in law chargeable with bad faith, and cannot claim the rights of a bona fide purchaser. 4. Again, it is said that if the defendant had acted upon the notice imputed by Gans' possession, and made inquiry of him concerning the title, he would not have been able to ascertain the true state of facts, as Gans did not know of the unrecorded deed. An inquiry, if made, would have disclosed the fact that Gans was and had been for many years holding possession of the property as the tenant of O. P. Randall, and that would have been notice of some claim or right in his landlord, the nature and character of which the defendant was in duty bound to endeavor to ascertain. However, he made no inquiry, and he is therefore chargeable with knowledge of the actual condition of the title. If he had exercised due diligence in attempting to ascertain the outstanding title, and had been unable to do so, a different question would have been presented; [***14] but as he made no attempt of the kind, he is not in a position to urge that such inquiry would probably have been unavailing. 5. And, finally, it is argued that the possession of Gans was not notice to the defendant of the title of O. P. Randall, because of the rule announced in Exon v. Dancke, 24 Ore. 110 (32 P. 1045), that the continued possession of land by the grantor is not notice to a bona fide purchaser from the grantee of any claim to the property by the grantor. There is authority for holding that this rule does not apply where a grantor remains in continuous possession long after the recording of the deed: Bennett v. Robinson, 27 Mich. 26; Stevens v. Hulin, 53 Mich. 93 (18 N.W. 569). [*392] But whatever the rule may be upon that point, the doctrine can have no application here, because the grantor himself did not remain in possession of the property. Gans' possession was sufficient to put the defendant upon inquiry as to the rights under which he was holding, and as such inquiry, if prosecuted, would presumably have disclosed his landlord's title, the defendant is chargeable with notice thereof. We [***15] are of the opinion, therefore, that the plaintiffs are entitled to the relief demanded, and the decree of the court below must be affirmed. AFFIRMED.

Page 34

353 of 470 DOCUMENTS McDOUGAL v. LAME. [NO NUMBER IN ORIGINAL] SUPREME COURT OF OREGON 39 Ore. 212; 64 P. 864; 1901 Ore. LEXIS 62 February 20, 1901, Argued May 4, 1901, Decided PRIOR HISTORY: [***1] From Jackson: HIERO K. HANNA, Judge.

Bill by James McDougal and another against Joseph H. Lame, to enjoin the defendant from interfering with a ditch. The facts are that the plaintiffs own a ditch in Jackson County, which conducts water from Lane's Creek to their land, where it is used in operating a placer mine. About 1877 one V. S. Ralls caused a ditch to be dug for about two hundred and fifty feet across the land now owned by the defendant, but then the property of Ralls, whereby the water of Bummer Gulch was conducted into the Lane's Creek ditch, and ever since that time the gulch water so diverted has been used every winter in operating the mine on the land now owned by the plaintiffs. The defendant, on July 20, 1895, secured a title to his land by mesne conveyances from Ralls, but in none of the muniments in the chain of title thereto was any reservation made of a right to conduct water across it from said gulch. It is alleged in the complaint, in substance, that for more than fifteen years prior to the commencement of this suit the plaintiffs and their grantors have constantly used the water of said gulch by means of the ditch constructed by Ralls in operating their placer [***2] mine, until the defendant, on December 7, 1897, unlawfully and wrongfully filled said ditch with brush and other material, thereby obstructing the flow of water therein, causing debris from the gulch to spread over plaintiffs' land, and depriving them of the use of the water. The answer denies the material allegations of the complaint and avers that when the defendant purchased his land no ditch existed where plaintiffs now assert the right to maintain one, and that he had no notice that any one had or claimed the right to conduct water across his land from Bummer Gulch. The reply having put in issue the allegations of new matter in the answer, a trial was had, resulting in a decree for plaintiffs as prayed for, and the defendant appeals. AFFIRMED. DISPOSITION: AFFIRMED.

HEADNOTES NOTICE OF UNDISCLOSED EQUITIES--DUTY OF INQUIRY. 1. Whatever is sufficient to cause a reasonably prudent purchaser of real property to inquire concerning the rights of a stranger to the title, is sufficient to charge him with notice of all facts that could be ascertained by ordinarily diligent inquiry.

Page 35 39 Ore. 212, *; 64 P. 864, **; 1901 Ore. LEXIS 62, ***2 EASEMENT--DITCH--CONTINUITY OF ADVERSE USE. 2. To render an adverse use of an easement continuous it need not necessarily be daily or regular, but it will be a continuous adverse use if the right is exercised as the needs of the claimant require. EASEMENT. 3. Where plaintiffs claimed an easement for mining purposes in the water of a stream which contained water only during the winter season, and plaintiffs used it whenever available, the fact that they did not use the water the entire year did not prevent their adverse use from being continuous. COUNSEL: For appellant there was a brief over the names of Austin S. Hammond and Wm. I. Vawter, with an oral argument by Mr. Hammond. For respondents there was a brief over the name of Colvig & Reames, with an oral argument by Mr. A. Evan Reames. JUDGES: MR. JUSTICE MOORE. OPINION BY: MOORE OPINION [*214] [**864] MR. JUSTICE MOORE, after stating the facts, delivered the opinion of the court. 1. The only question presented by [***3] this appeal is whether the defendant, at the time he purchased his land, had such knowledge of the existence of plaintiffs' right to maintain the ditch across his premises as would amount to notice thereof. The rule is well settled in this state that whatever fact is sufficient to direct the attention of a reasonably prudent man to the prior rights and superior equities of a third party, who is a stranger to the title, so as to cause him to make inquiry in respect thereto, which, if prosecuted with ordinary diligence, must necessarily result in knowledge thereof, will be sufficient to charge a purchaser of real property, under these circumstances, with implied notice of the right and equity with which he would be affected: Stannis v. Nicholson, 2 Ore. 332; Bohlman v. Coffin, 4 Ore. 313; Carter v. Portland, 4 Ore. 339; Musgrove v. Bonser, 5 Ore. 313 (20 Am. Rep. 737); Lyons v. Leahy, 15 Ore. 8 (3 Am. St. Rep. 133, 13 P. 643); Tucker v. Constable, 16 Ore. 407 (19 P. 13); Wood v. Rayburn, 18 Ore. 3 (22 P. 521); Petrain v. Kiernan, 23 Ore. 455 (32 P. 158); [***4] Exon v. Dancke, 24 Ore. 110 (32 P. 1045); Jones v. Gates, 24 Ore. 411 (33 P. 989); Cooper v. Thomason, 30 Ore. 161 (45 P. 296); Ambrose v. Huntington, 34 Ore. 484 (56 P. 513). In the light of this rule, we will examine the testimony as to such knowledge on the part of the defendant. It clearly shows that the ditch in question taps Bummer Gulch at a point near his house, runs in a southwesterly direction, and, after crossing the county road, passes through his orchard, and connects with the Lane's Creek ditch. The defendant, as a witness in his own behalf, testified that on July 20, 1895, when he purchased his land, no water was flowing in [**865] the gulch, and that there [*215] was no ditch leading therefrom through the premises. In answer to the question, "Was there any evidence of any ditch whatever?" he replied, "No ditch inside the orchard, sure." It is quite probable that at the time the defendant purchased his land the debris from Bummer Gulch had nearly filled the ditch in places through the orchard; for he testified that at that time grass was growing where it is now insisted the [***5] ditch had been constructed, and that he thereafter cut the hay which grew thereon. His testimony in respect to the ditch through the orchard being filled is corroborated by that of Clara E. Lame, his witness, and by Fred Straub, G. W. Roland, and Augustus Penning, who were called by the plaintiffs. Straub testified that the ditch was plainly marked on the ground, and that every person passing along the highway must notice it from the bridge which spanned the same. The testimony of this witness is corroborated by that of several others, and we think it is inferentially admitted by the defendant himself, in his answer hereinbefore quoted, to the effect that, while there was no appearance of a ditch through the orchard, its existence was plainly marked upon the ground across and above the county road.

Page 36 39 Ore. 212, *215; 64 P. 864, **865; 1901 Ore. LEXIS 62, ***5 2. The plaintiffs' right to maintain the ditch is predicated upon an adverse user, exercised each mining season for more than ten years. While the rule is well settled that the title to an easement by prescription must rest upon a continuity of the use, yet, where it appears that water from a stream has been and can only be used during certain intervals occurring periodically, a right by [***6] adverse user may thus be established to continue the use: Jones, Easem. 801. Thus, in Hesperia Water Co. v. Rogers, 83 Cal. 10 (17 Am. St. Rep. 209, 23 P. 196), Mr. Justice THORNTON, commenting upon this principle, says: "The [*216] correct rule as to continuity of user, to give a presumptive right to an easement, and what shall constitute such continuity, can be stated only with reference to the nature and character of the right claimed. The right is not abandoned to the use of a ditch to convey water for purposes of irrigation, because water does not flow in it every day in the year. The party claimant does not need the ditch every day in the year, and the law does not require him, to constitute continuity of use, to use the water when he does not need it. If he has used the ditch at such times as he needed it, it is regarded by the law as a continuous use. If a right of way over another's land has been used for more than five years, it is not necessary, to make good such use, that the claimant has used it every day. He uses it every day, or once in every week, or twice a month, as his needs require. He is not required to go over it when he does not need [***7] it, to make his use of the way continuous. The claimant is required to make such reasonable use of the way as his needs require. So it is with the ditch. If, whenever the claimant needs it from time to time, he makes use of it, this is a continuous use." 3. The evidence shows that no water flowed in the gulch in the summer, and not continuously in the winter; but, whenever there was a sufficient quantity to be used by the plaintiffs in mining, they have each year enjoyed the benefit thereof, under a claim of right hostile to all others, and by this means have acquired a title by adverse user; for, as was said by Mr. Chief Justice BEATTY in Chollar-Potosi Min. Co. v. Kennedy, 3 Nev. 361 (93 Am. Dec. 409): "Whenever a party assumes and exercises a right of way openly, notoriously, and continuously, without asking the consent of the owner of the land, and without in any way manifesting, by word or deed, that he is exercising the right as a favor or license given him [*217] by the owner of the soil, it must be considered as exercised adversely to the owner of the land." To the same effect, see, also, Johnson v. Knott, 13 Ore. 308 (10 P. 418); [***8] Tolman v. Casey, 15 Ore. 83 (13 P. 669); Coventon v. Seufert, 23 Ore. 548 (32 P. 508). The fact that the ditch was filled with debris through the orchard, if it were cleaned out and used during the mining season, would not destroy the adverse character of the use; for, the right being predicated upon the use of the water when there was sufficient quantity in the gulch, the filling of the ditch by debris at other times would not necessarily destroy the use. It might, however, tend to defeat the plaintiffs' right if, at the time of the defendant's purchase of the land, no such evidence of the right existed as would cause him to make inquiry in respect thereto. "The open use and possession of a right of way," says Mr. Jones in his work on Easements (section 122), "is sufficient to put a purchaser of the estate over which the way exists upon inquiry. Means of knowledge is equivalent to knowledge. If a road in which an easement of way is created by deed is visible and open, the easement is binding upon a subsequent purchaser of the servient estate, although the deed creating the easement was never recorded." It may be conceded that the defendant [***9] was an innocent purchaser, and paid a valuable consideration for his land. But we think the evidence shows that the bridge on the highway, and the existence of a ditch above the county road, was of such character as to cause a prudent person to make inquiry which would have ultimately led to the fact of the existence of the plaintiffs' adverse right: 2 Pomeroy, Eq. Jur. (2 ed.), 754; Kyle v. Ward, 81 Ala. 120 (1 So. 468); Stokes v. Riley, 121 Ill. 166 (11 N.E. 877). Believing that the preponderance of the testimony supports the findings of the trial court, its decree is affirmed. AFFIRMED.

Page 37

354 of 470 DOCUMENTS LOOMIS v. ROSENTHAL. [NO NUMBER IN ORIGINAL] SUPREME COURT OF OREGON 34 Ore. 585; 57 P. 55; 1899 Ore. LEXIS 47 March 27, 1899, Argued April 24, 1899, Decided PRIOR HISTORY: [***1] From Multnomah: LOYAL B. STEARNS, Judge.

This is a suit by Katie J. Loomis and Olive F. Swafford against Lewis and Caroline Rosenthal to establish a trust in real property, to set aside certain conveyances thereof, and to recover the rents and profits arising therefrom. The material facts are that on February 21, 1860, one J. V. Clary, being the owner in fee simple of the northwest 1/4 of section 33, in township 1 north, of range 2 east of the Willamette Meridian, in Multnomah County, executed with his wife, Barbara A., a mortgage thereof to Messrs. Ladd & Tilton, bankers, to secure the payment of the sum of $ 300, payable six months from that date, with interest thereon, after maturity, at the rate of five per cent. per month, which was duly recorded in the records of mortgages of said county. Clary and his wife having moved off the premises, the latter, on October 21, 1861, for the expressed consideration of $ 135, executed to the defendant Lewis Rosenthal what purported to be a bargain and sale deed thereof, in pursuance of which he moved thereon in 1862, remaining in possession only a few months, but returned thereto in 1865, since which time he has been constantly in the possession [***2] thereof. J. V. Clary died intestate March 12, 1862, leaving the said Barbara A., now the wife of H. C. Baugher, and three daughters, who, since the death of their father, have married, and whose names and date of birth are as follows: Olive Swafford, May 15, 1856; Lola Lane, April 16, 1859; and Katie J. Loomis, February 6, 1861,--who still survive. Rosenthal and wife, on November 3, 1863, executed to one H. F. Bloch a mortgage of said land to secure the payment of a promissory note, purporting to have been executed May 12, 1862, for the sum of $ 1,500, with interest thereon at the rate of two per cent. per month, and Ladd & Tilton executed to Bloch, on November 5, 1863, an assignment of the said Clary mortgage, and the same was recorded in the records of mortgages of said county. On April 6, 1871, Rosenthal and wife, for the expressed consideration of $ 800, executed to one B. Goldsmith a quitclaim deed of said land, reciting therein that the interest intended to be conveyed thereby was the dower right of Barbara A. Clary. Rosenthal, having been appointed administrator of the estate of J. V. Clary, deceased, obtained an order of the county court of said county, in pursuance of [***3] which he, on March 18, 1871, sold said land for the sum of $ 1,800 to Bloch, and, said sale having been confirmed by an order of the county court, the administrator, on April 14, 1871, executed to the purchaser a deed to the premises. Bloch and wife, on April 18, 1871, for the expressed consideration of $ 1,800, executed a quitclaim deed to Goldsmith, who, with his wife, on April 26, 1876, in consideration of $ 1, conveyed said premises by a like deed to Rosenthal. The tax levied upon said land for the year 1873 becoming delinquent, the premises were sold to satisfy the same to one William Barnes, who, on September 18, 1890, conveyed to Rosenthal all the interest that he thereby acquired. Barbara A. Baugher and Lola Lane having conveyed their respective interests in said premises to Katie J. Loomis, she, with her sister Olive Swafford, instituted this suit, alleging in their complaint the facts, in substance, as hereinbefore detailed, and that Rosenthal, as a part of the

Page 38 34 Ore. 585, *; 57 P. 55, **; 1899 Ore. LEXIS 47, ***3 consideration for Barbara A. Clary's deed, agreed to satisfy the Ladd & Tilton mortgage, but that he neglected to do so, and, in order to defraud the heirs of J. V. Clary, procured said mortgage to be assigned to Bloch, [***4] to be held in trust for him; that he secured the appointment of administrator of Clary's estate, and had Bloch present said mortgage as a claim against the estate, and, notwithstanding the statute of limitations had run against the lien, he allowed the claim, amounting to the sum of $ 1,800; and that each of said deeds was executed in pursuance of a plan whereby the several grantees held the title to said real property in trust for Rosenthal, who, without having been discharged as administrator, caused said premises to be conveyed to him, seeking thereby to defraud the cestuis que trustent of their estate therein; and that the reasonable value of the rent of said land for a period of six years immediately preceding the commencement of this suit is $ 6,000. As an excuse for the delay in commencing this suit it is averred as follows: "That the plaintiffs and said Lola Lane during said times were minors, and wholly unacquainted with the business affairs of their father's estate, and without any knowledge that he had left an estate for them, or that they were entitled thereto; and they knew nothing of the said fraudulent acts and conduct of the defendant Lewis Rosenthal, or of his [***5] fraudulent intent and purpose towards them; that the said defendant carefully concealed all of his said acts and conduct from them, and covered up his fraudulent purpose and intent by deeds and proceedings of record which appeared to be regular on their face, and which diverted all suspicion from said defendant, and were intended by him to be, and were, misleading; and the plaintiffs and said Lola Lane were without any knowledge or any information of said fraudulent acts, purpose, and intent of said defendant until on or about the first day of September, 1891, when they were informed thereof by their attorneys; that up to said time they were totally ignorant of all said fraudulent acts and conduct by the defendant, and of his intent to defraud them, and were without means of knowledge or information respecting the same; that, as soon as they were informed thereof, they began legal proceedings against said defendant Lewis Rosenthal in the Circuit Court of the United States for the District of Oregon, which they prosecuted to final trial, but their bill of complaint was dismissed on the twenty-seventh day of March, 1895, by said court, because said court found and held that the plaintiff [***6] Katie J. Loomis was a resident of the State of Oregon when said cause was commenced." The defendants, having denied the material allegations of the complaint, averred that all said conveyances were executed and said probate proceedings were had in good faith; that Bloch purchased said land at the administrator's sale thereof for himself, and that there never was any agreement or understanding, directly or indirectly, either before, at, or after said sale, whereby the title to said land should be held in trust for the defendants, or either of them; and that Rosenthal, for more than fifteen years prior to the commencement of this suit, had been in the open, notorious, continuous, adverse possession of all of said land, claiming to own the same in his own right; that he had cleared said lands, set out orchards and erected buildings thereon, and contributed the sum of $ 5,000 towards the construction of an electric railway from the City of Portland thereto. The reply having put in issue the allegations of new matter contained in the answer, a trial was had, and from the evidence taken before a referee the court found the facts in substance as hereinbefore stated, and as alleged in the [***7] answer, and that the plaintiffs had been guilty of gross laches in the commencement of their suit, and that they had not established any facts tending to justify such long delay, and thereupon dismissed the suit, and plaintiffs appeal. AFFIRMED. DISPOSITION: AFFIRMED.

HEADNOTES LIMITATION OF ACTIONS--LACHES--EQUITY.--While the statute of limitations is not a defense in equity, still the claimant must have exercised reasonable diligence in asserting his claim after ascertaining the fraud complained of, or after learning of facts which would put a person of ordinary intelligence on inquiry: Raymond v. Flavel, 27 Ore. 219, and Sedlak v. Sedlak, 14 Ore. 540, cited. LACHES--STALE DEMAND.--The purchaser of land at an administrator's sale held notorious and exclusive possession of it nineteen years, and fifteen years after the youngest heir became of age. The heirs lived in the same

Page 39 34 Ore. 585, *; 57 P. 55, **; 1899 Ore. LEXIS 47, ***7 neighborhood, knew their father had owned the land, and visited the purchaser's family, and were notified of the administrator's sale. The purchaser cut the timber, erected costly buildings, and contributed a large sum towards bringing an electric railway from the city to the premises, and the land rapidly increased in value. The deeds showing the transactions were of record. Held, that the heirs were guilty of laches preventing their recovery of the land, notwithstanding no notice of the appointment of the administrator was served on them. [As to when equity will refuse relief because of laches, see notes in 54 Am. Dec. 130; 2 Am. St. Rep. 795; 23 Am. St. Rep. 148. As to enforcement in equity of stale claims, see note in Ann. Cas. 1914B, 314.] COUNSEL: For appellants there was a brief over the name of Thayer & St. Rayner, with an oral argument by Mr. Henry St. Rayner and Mrs. Mary Leonard. For respondents there was a brief over the names of Dolph, Mallory & Simon, McDougall & Jones, and Snow & McCamant, with an oral argument by Mr. Joseph Simon and Mr. Wallace M. McCamant. JUDGES: MR. JUSTICE MOORE. OPINION BY: MOORE OPINION [*590] [**56] MR. JUSTICE MOORE, after making the foregoing statement of the facts, delivered the opinion of the court. It is contended by plaintiffs' counsel that the petition for the appointment of an administrator of the estate of J. V. Clary, deceased, did not state facts sufficient to confer upon the County [**57] Court of Multnomah County jurisdiction of the subject-matter; that Clary's heirs were not served with a citation to appear, and show why their ancestor's real property should not be sold to satisfy his debts, and hence said court [***8] never acquired jurisdiction of their persons, in consequence of which it was powerless to order a sale of the premises, thereby rendering any attempted sale thereof void. Defendants' counsel maintain, however, that, inasmuch as the complaint nowhere charges that Rosenthal was improperly appointed administrator, the question sought to be presented is not in issue; that, if it were conceded that such sale was void,--which is denied,--the plaintiffs were never devested of their legal estate in the premises, and their proper remedy would have been an action in ejectment, but, having commenced a suit in equity to have Rosenthal declared a trustee, who, by reason of the alleged fraudulent sale of the premises as administrator to himself, holds the title to the land in trust for them, they thereby admit the jurisdiction of the county court, and the legality of its proceedings in the matter of said [*591] estate, and the sale of said property, and hence are precluded from questioning such proceedings. The argument adduced by defendants' counsel seems logically to support the legal principle for which they contend, but we do not deem it necessary to a decision of the case to consider the [***9] questions thus presented by either party, for, if Rosenthal, as administrator, conveyed the premises to any person under an agreement or understanding that the latter would hold the legal title thereto in trust for him, in pursuance of which the land was thereafter conveyed to him, a court of equity would not permit him to take advantage of his own wrong, but would treat him as a trustee for the heirs, whom he had tried to defraud. If, however, Rosenthal, as such administrator, made a bona fide sale of the land to Bloch, and thereafter, in good faith, purchased it in his individual capacity obtaining a deed therefor, in pursuance of which he made valuable improvements thereon, and has been in the open, notorious, and adverse possession thereof, to plaintiffs' knowledge of their rights, for such a period of time as to render it inequitable to restore the land to them, the deed which Rosenthal obtained being a colorable title to the whole premises, the jurisdiction of the county court and the legality of its proceedings, so far as the administrator's sale is concerned, would be rendered wholly immaterial. The fraud charged in the complaint as a basis for the relief demanded is that [***10] Rosenthal bought the land from Mrs. Clary under an agreement to pay off the Ladd & Tilton mortgage; that, instead of keeping his engagement in

Page 40 34 Ore. 585, *591; 57 P. 55, **57; 1899 Ore. LEXIS 47, ***10 this respect, he procured the mortgage to be assigned to Bloch, who undertook to enforce it for his benefit; and, being the equitable owner of this mortgage, he fraudulently sought and secured the appointment [*592] as administrator of Clary's estate, in pursuance of which he sold the land to Bloch, who held the title thereto in trust for him. Mrs. Baugher, as a witness for plaintiffs, in speaking of what her brother-in-law said to her about Rosenthal's alleged agreement to procure the discharge of the lien upon the premises, says: "Mr. Kerns told me at the time of the sale that he would pay the mortgage off, and pay me a little besides; and I got $ 135, I think." Mrs. Rebecca Wells, formerly Mrs. Kerns, in speaking upon this subject, says: "As I remember, Mr. Rosenthal met my husband, and told him he wanted to get his property or Mrs. Clary's. Mr. Kerns then wrote to Mrs. Clary. When she came down, they talked it over at our house, and my understanding was that Mr. Rosenthal was to pay off the mortgage that was on the place, and was to [***11] pay her a certain amount of money, if she would sign away her dower, or whatever right she had in the place." Rosenthal testifies that he never agreed to pay off the mortgage, and that he did not know of its existence until informed thereof by Bloch some time after 1865. It will be observed that the testimony of Mrs. Baugher and of Mrs. Wells relating to Rosenthal's alleged agreement is wholly hearsay, and refers exclusively to what Mr. Kerns said to his wife and her sister concerning the purchase price of the land. The evidence tends to show that when Rosenthal secured Mrs. Clary's deed the land in question was covered with heavy timber, except about three or four acres, which was partially cleared, and a small board house built thereon; that at the time vacant school land in the vicinity, of equal or greater value, could have been obtained by any citizen of the State of Oregon for the sum of $ 1.25 per acre, and that Rosenthal paid the full value of the land. The books of Ladd & Tilton in relation to the mortgage [*593] loan, being offered in evidence, show that on February 21, 1860, J. V. Clary executed to the bank a note, No. 284, for which a credit is claimed on account of [***12] cash in the sum of $ 277.98, and on March 1, 1860, the bank is charged, on account of bills receivable, with note No. 284 in the sum of $ 300. The books also show the following payments on account of said note: June 9, 1862, $ 10; August 9--probably the same year--$ 7.98; and November 3, 1863, $ 260, in full payment thereof. It is fairly inferable from an inspection of these books that, since Clary's note did not provide for the payment of any interest until after maturity, six months' interest thereon was deducted from the face of the note, and that the maker received the remainder, which was $ 277.98, the amount charged to cash on account of said note. The books of the bank also show that it received this sum only in full settlement of the note, thus conclusively showing that no interest whatever was paid thereon, notwithstanding the note, at the time it was surrendered to Bloch, amounted to the sum of $ 678. If the land, in 1863, had been worth more than $ 277.98, and the costs and expenses of the mortgage foreclosure and the [**58] sale of the premises thereunder, it is not at all reasonable to suppose that the bank would have assigned the note for the amount received, and [***13] thereby lost the interest on the money loaned for the term of three years, eight months, and twelve days. During this period of time the country about Portland probably improved somewhat, in consequence of which the value of this tract, together with all other lands in the vicinity of that city, must necessarily have appreciated in some degree; and it is a circumstance tending to show that the land was not probably worth as much at the time Rosenthal secured Mrs. Clary's deed as it was when the note and mortgage were assigned to Bloch. [*594] Nor is this inference dispelled because Ladd & Tilton loaned that amount of money upon the land in question, for the evidence shows that Clary at that time owned another tract of land in the same neighborhood. It is very evident, we think, that Rosenthal never agreed, as a part of the consideration for Mrs. Clary's deed, to pay off the Ladd & Tilton mortgage. He testifies that he understood Mrs. Clary, at the time he obtained her deed, was a widow, which led him to believe that she thereby conveyed her dower right in the premises, and he is corroborated in this respect by the testimony of Mrs. Wells, hereinbefore quoted, and also by the [***14] recital contained in his deed of April 6, 1871, executed to Goldsmith. Rosenthal having exchanged a yoke of oxen and a span of horses with Mrs. Clary for her interest in the land, his wife testifies that he gave this stock for a house on the place; thus showing, it would seem, that, while Rosenthal obtained no title whatever by reason of Mrs. Clary's being a married woman, he expected to receive an estate in the land for her life. That Rosenthal never undertook to discharge the Ladd & Tilton mortgage, there is left, in our judgment, but little room for doubt. The next inquiry is whether Rosenthal procured this mortgage to be assigned to Bloch, who held the lien thereby created in trust for him. The evidence tends to show that in 1861 Rosenthal was very poor, and, with his family, was

Page 41 34 Ore. 585, *594; 57 P. 55, **58; 1899 Ore. LEXIS 47, ***14 living on leased land, keeping a few cows, and supplying milk to his customers in Portland; that about that time he became acquainted with Bloch, who was then wealthy, and engaged in the wholesale grocery business in Portland, and, being Jews, a strong friendship sprang up and existed between them, so much so that Bloch loaned him money to buy cows, and also furnished him groceries on credit for his family, [***15] and feed for his stock; and on May 12, 1862, being indebted on account thereof in about the sum of $ 500 or $ 600, for which, and [*595] future advances expected, he gave Bloch a promissory note for $ 1,500, to secure the payment of which he and his wife, on November 3, 1863, executed to Bloch a mortgage of said land. This mortgage was executed the same day that J. V. Clary's note was settled at the bank, though the formal assignment of the Clary mortgage was not executed until two days thereafter. That Rosenthal should have executed his mortgage the same day the remainder of the money was paid to the bank, might seem to raise an inference that Bloch was acting in this matter in his behalf. But Rosenthal testified that he never knew of the existence of the Clary mortgage until some time after 1865, and the record contains no testimony tending to contradict him in this respect. When it is remembered that Rosenthal was very poor at that time, and indebted to Bloch in quite a sum, it is but reasonable to suppose that Bloch, believing Rosenthal had a life estate only in the premises, would seek to protect his own interests, and thus secure from Rosenthal the payment of the amount [***16] due him, which could best be accomplished by obtaining the legal title to the land, which he knew he could secure by the assignment of the Clary mortgage, which then amounted to more than the value of the land. Bloch being thus obliged to procure an assignment of the Clary mortgage, it is but reasonable to suppose that he did so after obtaining Rosenthal's mortgage; and the circumstance that the Clary note was paid off and the latter mortgage executed on the same day is explainable on a reasonable hypothesis, and does not, in our judgment, tend to show that Bloch was acting in the matter as trustee for Rosenthal, or that he informed the latter about the method he had adopted to secure his debt. [*596] The most important question to be considered is whether Rosenthal, as administrator, sold the land belonging to Clary's estate under any agreement or understanding that the title should be held in trust for him. Rosenthal testifies that, having made payments to Bloch until he owed him about $ 800, the latter, anticipating financial difficulties, demanded the amount so due, to settle which he, at Bloch's request, executed a conveyance of all his interest in the land to Goldsmith, [***17] who took the title to protect and to hold in trust for Bloch; that, having conveyed his interest in said land, he thereupon leased other lands, and made preparations to move off the premises, but Bloch, having purchased the land at administrator's sale, requested him to remain thereon until he could find a purchaser thereof, agreeing to pay him for clearing the same the sum of $ 100 per acre, and that the only rent he would demand was to keep the fences in repair; that he accepted this offer, and after remaining on the land as a tenant for about one year, he then for the first time tried to purchase it from Bloch, but did not succeed in consummating a bargain therefor until 1873 or 1874, when it was agreed that he might have the land for the sum of $ 3,000; that he thereupon sold his cows, realizing therefrom the sum of $ 700, and, having sold a crop of potatoes to good advantage, he paid the proceeds thereof to Bloch, and on April 26, 1876, having paid the full purchase price, Goldsmith conveyed the land to him. Goldsmith, as [**59] a witness for plaintiffs, testified that he had an indistinct recollection that in 1871 Bloch and Rosenthal had a conversation with him regarding [***18] some land, and in answer to the direction, "Just state what that recollection is in full and in detail," says: "So far as I remember, Mr. Bloch and Mr. Rosenthal came to me, and asked me to take a deed for some property that was in Bloch's name, and hold it until Bloch would tell me to make a deed for it to Rosenthal. [*597] They asked me whether I would do it and I told them yes, and they made a deed to me to certain property. I don't remember what it was, but it was some property on the other side of the river; and at the proper time, I suppose, when Bloch told me, I conveyed it to Rosenthal again." On cross-examination this witness says, in substance, that he never looked upon or regarded Rosenthal as an intimate friend, but that Bloch and he were at one time rather intimate, and quite friendly, in consequence of which he took the title to said property on Bloch's account, rather than as Rosenthal's friend; that he did not know there was any agreement or understanding between Bloch and Rosenthal concerning this land, and that the impression that he was to convey the land to Rosenthal might have been based upon the fact that Rosenthal and Bloch came to see him at the same time. [***19] Mrs. Bloch, appearing as a witness for plaintiffs, testified that in consequence of her illness her husband never told her anything about his business affairs, but that on one occasion, in referring to the purchase of the Clary land at the administrator's sale, he said that it had not cost him anything. This witness, in answer to the question propounded

Page 42 34 Ore. 585, *597; 57 P. 55, **59; 1899 Ore. LEXIS 47, ***19 on her direct examination, as to when a certain transaction occurred, said: "I don't know. I can't remember. I have no memory any more." Thomas Trengrove, being called as a witness for plaintiffs, in speaking of what Rosenthal told him about his difficulty in keeping the Clary land, says: "And he was talking about it, and he was finally congratulating himself to me that his friends--his Jewish friends--had come to his relief, and he would not be injured on his place; he would still retain it; and they were holding it over for him until such time as he [*598] could recover it, as I understood him, from them." Rosenthal's wife and several of their children corroborate his testimony to the effect that when they knew that Bloch was in failing circumstances, necessitating a sale of their interest in the land to pay him the amount due, [***20] they made arrangements to move off the premises, and with that in view they rented land in another neighborhood, to which they intended to move with their stock; but that, after the land was sold by the administrator, and purchased by Bloch, they remained thereon at his request under an agreement with him to keep up the repairs for the rent of the land until he could find a purchaser; that, after having been in possession of the land two or three years, an arrangement was consummated by the terms of which it was agreed that it should be conveyed to Rosenthal upon the payment of the sum of $ 3,000, which was fully paid when Goldsmith executed his deed therefor. Trengrove is not certain as to the time when Rosenthal made the declaration attributed to him, which, in all probability occurred after he had effected an agreement to repurchase the land; and an admission made at such time is perfectly compatible with the testimony so given by the defendants. Mrs. Bloch's testimony is of little value by reason of her defective memory, and because her husband, in consequence of her sickness, tried to avoid worrying her with his business cares; and knowing, as she probably did, that he was financially [***21] embarrassed, he might say that the purchase of the land had not cost him anything, meaning thereby that he had not paid out any additional consideration therefor. Mr. Goldsmith's testimony shows how indistinct his recollection of the transaction is, and that he took the title to the property on Bloch's account, and not by reason of any friendship he entertained for Rosenthal. A consideration of the attending circumstances leads us to believe that the time Bloch and Rosenthal [*599] visited Goldsmith, as testified to by him, must have been after the agreement to repurchase the land had been effected between Bloch and Rosenthal. C. O. Hosford, a witness called by plaintiffs, testified on cross-examination that in 1872 or 1873 he tried to buy the Clary land from Bloch, but that they could not agree upon the purchase price, and in answer to the question, "Do I understand you to say that your present impression is that Mr. Bloch offered to sell that property to you at a certain figure, but he stated the title was in Mr. Goldsmith?" the witness said, "I think so." Certified copies of certain portions of the tax rolls of Multnomah County were offered in evidence, and show that the land [***22] was assessed in 1871 and 1872 to "Owners unknown;" that the tax roll of that county for the year 1873 could not be found, but that the land was sold for the payment of the delinquent tax of that year to one William Barnes, from whom Rosenthal obtained a quitclaim deed; and that in 1874, 1875, and 1876 the land was assessed to Rosenthal--thus tending to show that Rosenthal effected the agreement to repurchase the land in 1873 or 1874. Every witness who testifies on the subject admits that in 1871 Rosenthal was so poor that he could not have obtained the means necessary to have purchased the land. Senators Dolph and Mitchell were attorneys for the administrator in the settlement of the Clary estate, and each testified, in substance, that he had every reason to believe that Bloch's claim against the estate was just, and that Rosenthal acted in all these matters in good faith. Mr. Benton Killin was appointed and acted as guardian ad litem for the plaintiffs, who were then [**60] minors, and his testimony is substantially to the same effect. The testimony of these witnesses serves to dispel any doubt that might arise from the consideration of Mr. Goldsmith's testimony, and leads [***23] us to believe that Rosenthal was not guilty of any fraud [*600] in the management of said estate, or in the sale of the property belonging thereto. Assuming, without deciding, that the administrator's deed is void by reason of the lack of jurisdiction of the County Court of Multnomah County to order a sale of the land, can it not be said that plaintiff's claim to the premises is a stale equity, which is barred by their laches, when it is remembered that Rosenthal, for a period of nineteen years prior to the commencement of this suit, and for more than fifteen years after the youngest heir became of age, has been in the open, notorious, and exclusive possession of the land, claiming a right thereto under Goldsmith's deed? In Badger v. Badger, 69 U.S. (2 Wall.) 87, it is held that courts of equity, acting on their own inherent doctrine of discharging, for the peace of society, antiquated demands, refuse to interfere in attempts to establish a stale trust, except where (1) the trust is clearly established, and (2) the facts have been fraudulently and successfully concealed by the trustee from the

Page 43 34 Ore. 585, *600; 57 P. 55, **60; 1899 Ore. LEXIS 47, ***23 knowledge of the cestui que trust. "In order," says Mr. Justice [***24] WOLVERTON, in Raymond v. Flavel, 27 Ore. 219 (40 P. 158), "to call into activity a court of equity, there must be an exercise of good conscience, good faith, and reasonable diligence; and, where time and long acquiescence have obscured the nature and character of the trust, or the acts of the parties, or other circumstances give rise to presumptions unfavorable to its continuance, the court is passive, and does nothing, because of its inability to do complete justice." To the same effect, see also, Sedlak v. Sedlak, 14 Ore. 540 (13 P. 452); Teall v. Slaven, 40 F. 774; Naddo v. Bardon, 2 C.C.A. 335, 51 F. 493; Pratt v. California Mining Co., 9 Sawy. 354, 24 F. 869; Marsh v. Whitmore, 88 U.S. (21 Wall.) 178; Brown v. County of Buena Vista, 95 U.S. 157; [*601] Mackall v. Casilear, 137 U.S. 556 (11 S. Ct. 178); Hanner v. Moulton, 138 U.S. 486 (11 S. Ct. 408); Felix v. Patrick, 145 U.S. 317 (12 S. Ct. 862); Galliher v. Cadwell, 145 U.S. 368 (12 S. Ct. 873); [***25] Johnston v. Standard Mining Co., 148 U.S. 360 (13 S. Ct. 585); Abraham v. Ordway, 158 U.S. 416 (15 S. Ct. 894). Assuming that plaintiffs' complaint, hereinbefore quoted, complies with the rule prescribed in Badger v. Badger, 69 U.S. (2 Wall.) 87, that "the party who makes such appeal should set forth in his bill specifically what were the impediments to an earlier prosecution of his claim; how he came to be so long ignorant of his rights, and the means used by the respondent to fraudulently keep him in ignorance; and how and when he first came to a knowledge of the matters alleged in his bill; otherwise the chancellor may justly refuse to consider his case, on his own showing, without inquiring whether there was a demurrer or formal plea of the statute of limitations contained in the answer,"--nevertheless, to entitle them to recover thereon, they must show that by the exercise of reasonable diligence they would have failed to discover the fraud of which they aver they were ignorant. In Johnston v. Standard Mining Co., 148 U.S. 360 (13 S. Ct. 585), it is held that, where a question of laches is in [***26] issue, the plaintiff is chargeable with such knowledge as he might have obtained upon inquiry, provided the facts already known to him were such as to put the duty of inquiry upon a man of ordinary intelligence. In Bacon v. Chase, 83 Iowa 521 (50 N.W. 23), the facts were that a man, having died in Iowa seised of certain lands in that state, left surviving him several minor children, who resided in Massachusetts. These lands, without notice to them, were sold by order of the Probate Court of Woodbury County, Iowa to pay the debts of the estate. [*602] Ten years after the youngest heir became of age suit was instituted to recover such lands from the purchasers under the administrator's sale, and, it appearing at the trial that the heirs had known for many years that their ancestor died seised of these lands, but they had made no inquiries as to their rights until a short time prior to the commencement of the suit, it was held that they were guilty of such laches as to preclude their right of recovery. To the same effect, see Teall v. Slaven, 40 F. 774; Naddo v. Bardon, 51 F. 493 (2 C.C.A. 335); Hayward v. Elliott National Bank, 96 U.S. 611; [***27] New Albany v. Burke, 78 U.S. (11 Wall.) 96; Hardt v. Heidweyer, 152 U.S. 547 (14 S. Ct. 671). When the property forming the subject of the suit is speculative in character, thereby rendering it liable to great and rapid fluctuations in value, prompt action by the party claiming to have been defrauded by its transfer is necessary to repel the imputation of laches which a court of equity invokes from any unreasonable delay in applying to it for relief: Hammond v. Hopkins, 143 U.S. 224 (12 S. Ct. 418); Twin Lick Oil Co. v. Marbury, 91 U.S. 587; Pratt v. California Mining Co., 24 F. 869, 9 Sawy. 354; Hayward v. Elliott National Bank, 96 U.S. 611. Rosenthal cut and removed the heavy timber which grew upon the land, rendering it arable. He set out orchards, erected costly buildings, and made other valuable improvements. He laid out a part of the tract into lots and blocks, many of which he has sold and conveyed; and he contributed the sum of $ 5,000 to secure the building of an electric railway from the City of Portland to the premises, of which he has had the exclusive [***28] possession until the land is worth, as plaintiffs allege, the sum of $ 100,000. The great and rapid increase in the value of this land imposed upon plaintiffs the duty of acting promptly in seeking to recover it, unless they could not, by the exercise of reasonable [*603] diligence, have discovered the fraud of which they complain, for, as was said by Mr. Chief Justice LORD in Sedlak v. Sedlak, 14 Ore. 540 (13 P. 452); "The general rule, without doubt, is that no lapse of time or delay in bringing the suit will be a [**61] bar to the remedy in equity, providing the injured party during the interval was ignorant of the fraud. But the ignorance of such party must not have been negligent, for if, by reasonable diligence, the fraud could have been discovered, or ought to have been known, he will be deemed guilty of laches, or of acquiescence, and equity will refuse to interfere." The plaintiffs were, on January 23, 1871, personally cited to appear in the county court of said county, and show why an order should not be made to sell the real property of which their father died seised, and at that time Olive was fifteen,

Page 44 34 Ore. 585, *603; 57 P. 55, **61; 1899 Ore. LEXIS 47, ***28 Lola twelve, and Katie ten years old, [***29] and each must have known that her father, at his death, was the owner of the property. The evidence tends to show that Olive, after her marriage, lived for several months just across the county road from this land, and that she frequently called at Rosenthal's, and that her sisters, then living in Portland, visited her at this place, and also called upon Rosenthal's daughters. An examination of the records of deeds of said county would have disclosed that the administrator's and Goldsmith's deeds of said land were duly recorded April 18, 1871, and April 29, 1876, respectively, and knowing, as they must, that their father died seised of this land, their failure to examine such record renders their laches so gross as to preclude their recovery of the land, and hence the decree is affirmed. AFFIRMED.

Page 45

355 of 470 DOCUMENTS AMBROSE v. HUNTINGTON. [NO NUMBER IN ORIGINAL] SUPREME COURT OF OREGON 34 Ore. 484; 56 P. 513; 1899 Ore. LEXIS 35 February 13, 1899, Argued March 27, 1899, Decided PRIOR HISTORY: [***1] From Douglas: J. C. FULLERTON, Judge.

Suit by A. T. Ambrose against Benjamin Huntington to quiet title to certain lands. Plaintiff appeals from a decree against him. REVERSED. DISPOSITION: REVERSED.

HEADNOTES 1. SUFFICIENCY AND EFFECT OF ADVERSE POSSESSION.--Enclosing a tract of land and continually using it under color of title and claim of right constitute such an adverse possession as will start the statute of limitations, and, if continuous for the required time, will confer title, at least as between individuals: Joy v. Stump, 14 Ore. 361, cited. [As to adverse possession against the state or United States, see notes in 76 Am. St. Rep. 479; 87 Am. St. Rep. 775. 2. PUBLIC LANDS--RATIFICATION OF AGENT'S ACT.--County school superintendents are not the agents of the state to execute deeds to its school lands, but the state ratifies and becomes bound by their contracts to convey such lands when it accepts and retains the purchase price. 3. STATUTE OF LIMITATIONS--ADVERSE POSSESSION--BOND FOR DEED.--Where a vendee has gone into possession of land under a contract to purchase, his holding is adverse to the vendor from the time he complies with his part of the agreement, and the same rule applies to the state as to a natural person: Hill's Ann. Laws, 13, and Anderson v. McCormick, 18 Ore. 301, cited. 4. STATUTE OF LIMITATIONS.--A deed to land as to which an adverse possession against the grantor has ripened into title is ineffectual for any purpose. 5. REAL PROPERTY--EFFECT OF NOTICE BY OCCUPATION.--The open, notorious and exclusive possession and occupancy of real property by a stranger to the title puts a purchaser from a third person upon notice

Page 46 34 Ore. 484, *; 56 P. 513, **; 1899 Ore. LEXIS 35, ***1 and inquiry concerning the rights and equities of the party in possession, and charges him with all the knowledge that he might have obtained upon reasonable inquiry: Exon v. Dancke, 24 Ore. 110, followed. [As to possession of real property as notice of the rights of the occupant, see note in 104 Am. St. Rep. 331.] COUNSEL: For appellant there was a brief and an oral argument by Messrs. Wm. R. Willis and Andrew M. Crawford. For respondent there was a brief over the name of J. W. Hamilton, with an oral argument by Mr. Frank W. Benson. JUDGES: MR. CHIEF JUSTICE WOLVERTON. OPINION BY: WOLVERTON OPINION [*485] [**513] MR. CHIEF JUSTICE WOLVERTON delivered the opinion. This is a suit to quiet title to the west 1/2 of the southwest 1/4 of section 16, township 23 south, range 5 west, in Douglas County, Oregon. After denying the material allegations of the complaint, which are in the usual form, the defendant alleges ownership and possession of the [*486] premises, and set up his muniments of title thereto--in effect, that the State of Oregon conveyed the same to Joseph Durbin on March 15, 1892, and he to the defendant on May 20, 1895. He further alleges that at the time of his purchase from Durbin he had no notice or knowledge as to plaintiff's claim of title, and was, therefore, an innocent purchaser for [***2] value. The decree of the court below was for defendant, and plaintiff appeals. It is shown by the testimony that on February 8, 1866, E. A. Lathrop, County School Superintendent of Douglas County, Oregon, sold the land in question to plaintiff for the consideration of $ 160, of which he paid one-fourth down, and executed and delivered to that officer his three promissory notes, for $ 40 each, for the balance of the purchase price, payable in one, two, and three years after date, with interest at ten per cent. per annum, payable semi-annually. The two notes payable latest in time were written upon one sheet of paper, and indorsed as follows: "June 17, 1867. Received payment in full on within notes. Andrew Jones, County Treasurer." These notes were given in evidence by the plaintiff, who says he believes he paid the other note, but does not remember distinctly. He further testifies, in substance, that he procured a bond for a deed to the land, and sent the same, with some deeds which had been executed and delivered to him by the county school superintendent of said county, to a party in Salem by the name of John Godell, for the purpose of obtaining a confirmatory deed from the state [***3] for the lands described therein; that he soon after received a deed from the state, bearing date March 22, 1881, which he had recorded September 18, 1883, but the premises conveyed thereby are described as "the northeast quarter of southwest quarter, the northwest quarter of southeast quarter, and lots four, five, six, eight, and nine, of said section sixteen," and, of course, do not include the land in dispute; that he did not become [*487] fully aware of the error until defendant began to claim the land; and that he never believed the deed from the state described all the land purchased by him. It is further shown that the plaintiff went into possession in 1866; that he inclosed the land in dispute, with his other lands, in 1868; and that he has maintained the inclosure ever since, with some few intermissions, when portions of the fencing broke down through decay or were destroyed by fire. The evidence upon the subject is somewhat voluminous and not a little conflicting; but it sufficiently appears therefrom that the land in question lies in a mountainous region, fit only for pasturage; that the plaintiff entirely inclosed it in 1868, with other lands of his, by a substantial [***4] fence consisting of rails, logs, and brush, and, it may be, at some parts it was joined to natural obstructions ordinarily sufficient to turn stock; and that, considered as a whole, the fencing was of the nature usually employed in districts of that character. At some points it was constructed somewhat off the line, and included some three acres of railroad land, and five or six acres of land belonging to Mr. Long. This fact, however, is not material, as the other land inclosed was inconsiderable, [**514] and the fencing may be said to have been placed substantially upon boundary lines, except

Page 47 34 Ore. 484, *487; 56 P. 513, **514; 1899 Ore. LEXIS 35, ***4 where it was built entirely upon and through plaintiff's land. Plaintiff thereafter used and employed the land thus inclosed for pasturing his sheep and other stock, and has had it in possession and use for that purpose ever since. The fencing may have been maintained indifferently at periods, but the plaintiff has renewed it from time to time, and practically kept it in such a condition as to form a substantial inclosure, up to the time that defendant asserted title thereto; and during all the while plaintiff claimed the entire ownership and title to the land, and so occupied it, in exclusion [***5] of all others. The defendant, to prove [*488] his title, introduced a deed from the State of Oregon to Joseph Durbin, bearing date March 15, 1892, and one from Durbin to himself, of date May 20, 1895. Further than this, it is shown, practically, that plaintiff paid the taxes upon the land until 1892, and thereafter defendant paid them. Several questions of legal import are presented by the record. It is insisted that plaintiff was not in possession at the commencement of the suit, and, of course, if such was the case, he could not maintain it; but, in our view, the testimony is quite sufficient to establish actual possession on his part at the time. The defendant claims to have been in possession, but the only act shown which would indicate it is that he went upon the land a short time before suit was begun, and posted notices thereon warning people to keep off the same, and notifying them that he was the owner of the property. Otherwise, he had neither actual nor constructive possession. 1. Another contention is that plaintiff's possession was not of such a nature as to render it adverse. We think otherwise. It was, from its inception, actual and under color of title. The maintenance [***6] of a substantial inclosure, and the continued use and occupation of the land for pasturage of stock (the only purpose for which it was adapted), under claim of right and title, constituted such a visible, open, notorious, distinct, exclusive, and hostile possession as to set the statute of limitations running, and, if continuous during the full period contemplated by the statute, would operate to confer title, at least as between individuals, where the state is not concerned: Joy v. Stump, 14 Ore. 361 (12 P. 929); Worthley v. Burbanks, 146 Ind. 534 (45 N.E. 779). 2. It may be observed, in passing, that the county school superintendent was not the agent of the state, with power to execute a deed to its school lands; but, as he had contracted to convey the same, and the state [*489] had received, accepted, and retained the purchase price, it thereby became bound to the observance of his contracts regarding the land, as it operated as a ratification of his acts in the premises (Mechem, Agency, 148, 149), so that there was substantially a contract on the part of the state with plaintiff to convey to him the premises in dispute. 3. But [***7] the question of vital importance is whether the statute of limitations began to run in favor of plaintiff and against the state at any time while it held and retained the legal title. The testimony is a little meager touching the bond and its terms relative to the time when the plaintiff became entitled to his deed; but it may be inferred that he became entitled thereto at the time when the purchase price was fully paid, or, at any rate, at the time he sent the bond to Salem for the purpose of obtaining a confirmatory deed. It may be said that its obligation to make this conveyance became matured and fixed, by full performance on plaintiff's part, not later than March 22, 1881, which was the date of his deed from the state containing the wrong description. It is a rule of law, now uncontroverted, that where the vendee, under a contract or agreement to purchase land, has executed or performed the agreement on his part by full payment of the purchase money, his possession from that time becomes adverse to that of the vendor, having gone into possession primarily under the agreement: Anderson v. McCormick, 18 Ore. 301 (22 P. 1062); 2 Wood, Lim. 260; Ridgeway v. Holliday, 59 Mo. 444; [***8] School District v. Blakeslee, 13 Conn. 227; Catlin v. Decker, 38 Conn. 262. There was here, then, a subsisting and binding contract on the part of the state to convey to the plaintiff the land in dispute; and it would seem that, if it had brought an action to recover possession, the contract would have been a complete defense on the part of Mr. Ambrose. Such being the case, there [*490] was such a possession and claim of title as set the statute of limitations running against the state: Hill's Ann. Laws, 13; Richards v. Griffith, 1 Kan. App. 518 (41 P. 196). 4. The continuous maintenance of such adverse possession under claim of title from 1881 until the time suit was instituted (a period of time much longer than ten years), in view of the contractual relations alluded to, operated to invest the plaintiff with a perfect title, even prior to the execution and delivery of the deed by the state to Durbin; and the latter, therefore, acquired no title to the land in dispute by virtue of such deed.

Page 48 34 Ore. 484, *490; 56 P. 513, **514; 1899 Ore. LEXIS 35, ***8 5. Touching the question of good faith, it is settled that an open, notorious, and exclusive possession and occupancy of [***9] real property by a stranger to the title is sufficient to put a purchaser from another upon notice and inquiry concerning the rights and equities of the party in possession, and will charge him with all the knowledge that he might have obtained upon reasonable inquiry: Petrain v. Kiernan, 23 Ore. 455 (32 P. 158); Bohlman v. Coffin, 4 Ore. 313; Exon v. Dancke, 24 Ore. 110 (32 P. 1045). We are impelled, therefore, under the facts pertaining to this controversy, to impute to the defendant full notice and knowledge of the plaintiff's right and title to the land at the time he purchased of Durbin, and hence conclude that he could not have been an innocent purchaser for value. He was fully aware of the plaintiff's [**515] possession, and of his claim of right and title to the premises long prior to the time he obtained the deed from Mr. Durbin. This is manifested from the fact that some eight years prior to the commencement of this suit he was employed and paid by the plaintiff for his services in building a fence along the west boundary line of the land in dispute and upon the line between it and the lands now owned by [***10] him. He has lived in the neighborhood [*491] for a number of years, and was fully cognizant of plaintiff's claim of ownership of the premises. It seems to have been common reputation among persons living in the neighborhood that plaintiff was the owner and in full and complete possession of the land for many years. In pursuance of these considerations, the decree of the court will be reversed, and one here entered in accordance with the prayer of the complaint. REVERSED.

Page 49

356 of 470 DOCUMENTS COOPER v. THOMASON. [NO NUMBER IN ORIGINAL] SUPREME COURT OF OREGON 30 Ore. 161; 45 P. 296; 1896 Ore. LEXIS 113 February 25, 1896, Argued June 15, 1896, Decided PRIOR HISTORY: [***1] From Polk: GEO. H. BURNETT, Judge.

This is a suit by J. S. Cooper and others against W. J. Thomason and others, to compel the specific performance of a contract for the purchase of land, and to have a deed therefor declared void and cancelled. The material facts are that on March 3, 1893, the defendant H. Christian, being the owner in fee of a tract of land in Polk County, executed, with his wife, Emily Christian, and delivered to the plaintiff J. S. Cooper, as trustee, a warranty deed therefor. On the 25th of the next month, in consideration of the payment of $ 1,000, and the execution of a note for $ 6,100, payable in ninety days, Cooper, as trustee, by the advice and with the consent of Christian, executed a warranty deed of said premises to the defendant W. J. Thomason, who immediately entered into and retained the possession thereof. The deed and note were deposited with one W. H. Hawley, the cashier of the plaintiff the First National Bank of Independence, to be delivered to Thomason upon the payment of said note. At the date of the execution of the deed by Christian, he was indebted to said bank on his own account, and as a member of the firm of Klemsen & Christian, and [***2] on April 26, 1893, he had a partial settlement with the bank, and, upon being credited with the $ 1,000 so paid by Thomason, gave his note for $ 2,250, and took up some of his matured notes, but left in the bank several other notes on which he was liable as maker or indorser, amounting to $ 1,981.22. On the next day the said firm settled their account with the bank by giving it their note for $ 2,368.11. On May 2, 1893, Christian and wife executed to the defendant H. Hirschberg a quitclaim deed to said premises, which was recorded prior to the deed to Cooper. Thomason having made default in the payment of his note, this suit was instituted, and, the issues being joined, a trial was had by the court, which, having found for the plaintiff, rendered a decree granting the relief prayed for, from which the defendants Christian and wife and Hirschberg appeal. AFFIRMED. DISPOSITION: AFFIRMED.

HEADNOTES 1. TRUSTS--STATUTE OF FRAUDS--CODE, 781.--Though a trust in real estate cannot be created by parol, the same rule does not apply to personal property; and if a grantee sells land under a parol agreement to convert it into money and pay the grantor's debts, his subsequent acknowledgment of the trust will bind him.

Page 50 30 Ore. 161, *; 45 P. 296, **; 1896 Ore. LEXIS 113, ***2 2. PAROL EVIDENCE--EXPRESS TRUST.--In a suit to enforce a trust in personal property which is the proceeds of land held in trust, parol evidence is admissible to prove the original agreement under which the premises were held, as a consideration for a subsequent declaration of the trust by the trustee. 3. VENDOR AND PURCHASER--POSSESSION AS NOTICE.--Possession of land by a third person is constructive notice of such person's legal and equitable rights: Petrain v. Kiernan, 23 Or. 455, and Exon v. Dancke, 24 Or. 110, applied and followed. 4. VERBAL CONTRACT CONCERNING LAND--STATUTE OF FRAUDS--MEMORANDUM *--PART PERFORMANCE.--A deed deposited in escrow is insufficient to take an oral contract for the sale of land out of the statute of frauds, unless such deed contains a memorandum of the agreement; nor is payment of the purchase price such a part performance as to overcome the plea of the statute; but taking possession in pursuance of the terms of the contract, and making improvements, is sufficient for that purpose. 5. SPECIFIC PERFORMANCE.--The vendor in a parol contract for the sale of lands may enforce specific performance thereof, where he has delivered possession to the purchaser, who has held such possession and made improvements entitling him to the enforcement of the contract as against the vendor. 6. DEFECT OF PARTIES--DEMURRER--CODE, 71.--Where an objection for defect of parties is apparent on the face of the pleadings, the objection must be made by demurrer (section 71, Hill's Code), or it will be deemed waived. 7. PRESUMPTION--CROSS APPEAL.--A party who does not appeal from a judgment or decree is presumably satisfied, and his interests will not be considered on appeal. * For an interesting note on the essentials of a memorandum of agreement to sustain specific performance see Mentz v. Newwitter, 11 L. R. A. 97 (19 Am. St. Rep. 514). Many authorities showing that an undelivered deed is not a sufficient memorandum to satisfy the statute of frauds are appended to the case Kopp v. Reiter, 37 Am. St. Rep. 163 (22 L. R. A. 273). When possession is such an act of part performance as to take the case from under the statute of frauds, and authorize compulsory specific performance, is fully considered in notes to the following cases: Emmel v. Hayes, 22 Am. St. Rep. 777 (11 L. R. A. 323); Cutler v. Babcock, 29 Am. St. Rep. 890-91; Peek v. Peek, 11 Am. St. Rep. 250; Grant v. Grant, 38 Am. St. Rep. 393 (1 L. R. A. 185).--REPORTER. COUNSEL: For appellants there was an oral argument by Messrs. Martin L. Pipes and J. J. Daly, with a brief by Messrs. Reuben S. Strahan and Martin L. Pipes, urging these points: The parol evidence admitted to prove the terms and conditions of the trust of which specific performance is asked is incompetent and [***3] in violation of the statute of frauds. The contention of respondents is that the statute of frauds is answered in this case by the mere fact that the trust deed from H. Christian and wife to J. S. Cooper designates the grantee as trustee. That the word trustee is deemed potent to satisfy the statute of frauds, and is in effect the conveyance or instrument in writing referred to in the statute. We contend that not only must it appear that a trust has been created or declared, but the writing itself must show the trust so created; that is to say, it must specify distinctly all the terms and conditions of the trust. It is true that a resulting trust, or one that arises by operation of law, can be proved by parol. A trustee ex maleficio cannot protect himself under the statute of frauds, but that is a very different case from one where an express trust is sought to be specifically enforced by a court of equity. Counsel for the respondents has fallen into the error of applying the law that relates to trusts of the former kind to this case, and that is shown by the authorities he cites in his brief. An examination of these authorities will show that in every one of them it was the trustee [***4] who sought to retain the property against the terms of the trust, and a resulting trust was in fact proven. It has been held in numerous cases that a deed absolute on its face cannot be shown by parol evidence to have been

Page 51 30 Ore. 161, *; 45 P. 296, **; 1896 Ore. LEXIS 113, ***4 made in trust for the grantor, and for the good reason that to permit this to be done would be to allow the written instrument to be contradicted by parol evidence. But in the cases cited by respondents, the court held that the trust relationship between the parties was sufficiently shown by the designation of the grantee as trustee. As soon as that relationship is established, then parol evidence is competent, not for the purpose of establishing the trust, but for the purpose of showing that, the express trust having failed, a trust results in favor of the grantor. It arises by operation of law. But no case has been cited where a parol trust has been specifically enforced by the court, either in favor of the trustor or the trustee. On the other hand, the cases are numerous which hold that any contract concerning land must have all its terms reduced to writing before it can be specifically performed: Irvin v. Ivers, 63 Am. Dec. 420; Ratliff v. Ellis, 63 Am. Dec. [***5] 471; May v. Cavendor, 29 S. C. 598; 2 Story's Equity Jurisprudence, 764; Pitkin v. James, 1 Humph. 327 (34 Am Dec. 654); Atwood v. Cobb, 16 Pick. 227 (26 Am. Dec. 657); Mentz v. Nowwitter, 11 L. R. A. 97, and extended notes. And the contract cannot rest partly in parol and partly in writing: Frink v. Green, 5 Barb. 456; Stevens v. Cooper, 1st Johns. Ch. 429; Watt v. Wisconsin Cranberry Co., 63 Iowa 730; Sharp v. Rogers, 12 Minn. 185; Whitaker v. Vanschoiack, 5 Or. 113. For respondents there was an oral argument by Mr. George E. Chamberlain, and a brief by Messrs. Starr, Thomas & Chamberlain, urging these points: The deed executed by Christian and wife to J. S. Cooper, trustee, is a sufficient declaration of the trust to take the case out of the statute of frauds, and a sufficient compliance with section 781 of Hill's Code, which provides that "no estate or interest in real property, other than a lease for a term not exceeding one year, nor any trust or power concerning such property, can be created, transferred or declared otherwise than by operation of law, or by a conveyance or other instrument in writing, subscribed by the party creating, transferring or declaring the [***6] same, or by his lawful agent under written authority and executed with such formalities as are required by law." Waterbury v. Fisher, 38 P. 847; Calnan v. Johnson, 34 P. 907; Hall v. Linn, 5 P. 645; Union Pacific R. R. Co. v. Durant, 95 U.S. 576; Duncan v. Jaudon, 82 U.S. 142; Shaw v. Spencer, 100 Mass. 382; 3 Pomeroy's Equity Jurisprudence, 1409, 103; Browne on the Statute of Frauds (3d Ed.), 111; Hill on Trustees, 61; 2 Sugden on Vendors (14th Ed.), 437; 1 Perry on Trusts and Trustees, 78. But even if the insertion of the word "trustee" in the instrument under which it is claimed the trust was created is not a sufficient declaration of the trust under the statute of frauds, so as to admit parol proof in explanation of the objects and purposes thereof (which we deny), the mere fact that the trust was fully executed and assented to by the parties removes the statutory bar. The rule is, that where the oral agreement has been in good faith so far performed that it is impossible to put the parties in statu quo, or to compensate the doer in damages for the breach of the agreement, and where certain specific acts of part performance have been done, the statute no longer applies, [***7] and equity will grant specific performance or give compensation in damages: Hall v. Linn, 5 P. 645; Browne on the Statute of Frauds, 483; 3 Pomeroy's Equity Jurisprudence, 1409, note; Meach v. Perry, 1 D. Chip. (Vt.), 191; W. Va. Oil Co. v. Vinal, 14 West Va. 637; Plymale v. Comstock, 9 Or. 321; Phillips v. Thompson, 1 Johns. Ch. 131; Parkhurst v. Van Cortland, 14 Johns. 15; German v. Machin, 6 Paige, 288; Colson v. Thompson, 2 Wheat. 266; Blum v. Robertson, 24 Cal. 142; Wagonblast v. Whitney, 12 Or. 83; Brown v. Lord, 7 Or. 302; Wallace v. Scoggins, 18 Or. 505; Arnello v. Edinger, 10 Cal. 150; Hotchkiss v. Downey, 2 Day, 225; Rosenblatt v. Perkins, 18 Or. 156; Wilde v. Fox, 1 Rand. 165; Kidder v. Barr, 35 N.H. 235; Hawkins v. Hart, 14 Ill. 42; Eyre v. Eyre, 19 N. J. Eq. 102; Putnam v. Hatty, 24 Iowa 425; Kay v. Watson, 17 Ohio, 27. The evidence clearly shows that Hirschberg had full and complete notice of the transactions between Christian and Cooper, and between Cooper and Hirschberg, as well as of Thomason's possession of the lands in controversy. But, conceding that he did not have, he was in possession of facts sufficient to put a reasonably prudent business man upon inquiry. [***8] With the knowledge, as he admits, that Cooper had some sort of writing from Christian with reference to the land, and of Thomason's possession, the only effort he made to find out the true status of the land alleged to have been purchased by him was to telephone to Dallas about the title and send Christian to the plaintiffs to ascertain the

Page 52 30 Ore. 161, *; 45 P. 296, **; 1896 Ore. LEXIS 113, ***8 amount of his indebtedness. Under Hirschberg's testimony Christian was his agent, and he was bound by the knowledge which Christian had with reference to the matter: Baker v. Woodard, 12 Or. 10; Whitney v. Burr, 115 Ill. 293; The Distilled Spirits, 11 Wall. 336; Hart v. Farmers' Bank, 33 Vt. 252; Haywood v. Nat. Ins. Co., 52 Mo. 181; Choteau v. Allen, 70 Mo. 290; Hovey v. Blanchard, 13 N.H. 145; Patton v. Ins. Co., 40 N.H. 375; Mullin v. Mut. F. Ins. Co., 58 Vt. 113; Lebanon Sav. Bk. v. Hallenbeck, 29 Minn. 322; Fuller v. Atwood, 14 R. I. 293; VanSchoick v. Niagara F. Ins. Co., 68 N. Y. 434; Ingalls v. Morgan, 10 N. Y. 178; Flower v. Elwood, 60 Ill. 438; Williams v. Tatnall, 29 Ind. 553; Wiley v. Knight, 27 Ala. 336; Dunlap v. Wilson, 32 Ill. 517. Thomason's possession was such notice as to put Hirschberg upon inquiry. By the slightest effort he [***9] could have ascertained the exact status of the title to the land he now pretends to have purchased, and it was his duty to have inquired: Blain v. Stewart, 2 Iowa 378; Manavdas v. Heilner, 14 Or. 451; Musgrove v. Bonser, 5 Or. 313; Goodnough v. Warren, 5 Sawy. 494. Though the vendee's duty in these contracts generally consists in nothing beyond the payment of money, for which the law would seem to afford a sufficient remedy, yet the vendor has a right in a court of equity to compel him to comply with his agreement by accepting the land and paying for it. And this the vendor may do even though he may have an action at law for the purchase money, where he has shown a full performance on his part according to the spirit and intent of his obligation: Baumann v. Pinckney, 118 N. Y. 604; Burger v. Potter, 32 Ill. 70; Andrews v. Sullivan, 2 Gilman (Ill.), 328; Haven v. Lowell, 5 Met. 35; Old Colony R. Co. v. Scruggs, 50 Miss. 284; Paris v. Haley, 61 Mo. 453; Stone v. Lord, 80 N. Y. 60; Ridge v. Baker, 57 N. Y. 219; Craig v. Martin, 19 Am. Dec. 157; Willard v. Fayloe, 8 Wall. 557. The rule with reference to the necessary parties is, that all parties directly interested in the performance [***10] of the contract must be, and all directly and specifically interested in the subject-matter may be, joined as parties: Gibbs v. Blackwell, 37 Ill. 191; Chesman v. Cummings, 7 N. E. 13; Bragg v. Olson, 21 N. E. 519; 22 Am. & Eng. Enc. Law, 1066, n. 6; Heaviner v. Morgan, 30 W. Va. 335; Pomeroy's Specific Performance of Contracts, 483; Hennington v. Hubbard, 33 Am. Dec. 426 n.; Anderson v. Shilling, 27 Tex. 450; Morris v. Hoyt, 11 Mich. 16; Mfg. Co. v. Wire Fence Co., 109 Ill. 73; Schwoerer v. Boylston M. Ass'n, 99 Mass. 285; Willard v. Tayloe, 8 Wall. 557. The connection of Hawley with the subject-matter of the suit appears affirmatively in the complaint, and the objection that he was not made a party was waived by failing to demur: Hill's Code, 67, subd. 4, note, and authorities cited. All who are directly interested in the performance of the contract in this suit were made parties plaintiff or defendant. The deed delivered to Hawley was in escrow, and did not become absolute or effective as a conveyance until the performance of Thomason of his part of the contract. The only recourse of plaintiffs was a suit to compel Thomason to specifically perform: Gaston v. City of Portland, [***11] 16 Or. 255; Cannon v. Handley, 13 P. 315. JUDGES: MR. JUSTICE MOORE. Mr. Justice WOLVERTON, having been of counsel in the trial in the court below, took no part in the trial or decision here. OPINION BY: MOORE OPINION [**297] [*169] MR. JUSTICE MOORE, after stating the facts in the foregoing language, delivered the opinion of the court: 1. It is contended by counsel for the appellants that this is a suit to enforce a parol trust in lands, that the deed from Christian and wife to Cooper, "as trustee," failed to declare an express trust, and that parol evidence was inadmissible to explain the nature and purposes of the instrument; while counsel for the respondents maintain that the trust has been executed by the trustee with the consent of the beneficiaries, and, this being so, the bar of the statute of frauds is

Page 53 30 Ore. 161, *169; 45 P. 296, **297; 1896 Ore. LEXIS 113, ***11 removed, and the door is opened for the admission of parol evidence to establish the material terms of the trust. The parol evidence admitted at the trial, of which the defendants complain, clearly shows that Christian, being indebted to the First National Bank of Independence on his own account, and as a member of the firm of Klemsen & Christian, entered into a contract with Cooper, [***12] who was the president of said bank, by the terms of which he agreed to convey said premises to Cooper, who was to sell the same, and out of the proceeds arising therefrom discharge the obligations of Christian and the firm of which he was a member, including any advances that might be made, and pay the remainder, if any, to Christian; that, in pursuance of this agreement, Christian and wife executed to Cooper, "as trustee," the [*170] said deed, without specifying therein the nature of the trust; that Cooper, with the consent of Christian, entered into a verbal contract with Thomason for the sale of said land; that, in accordance therewith, he, as trustee, made to him a deed thereof, which was deposited with Hawley, and accounted with Christian for the payment made by Thomason; and that the bank, on the faith of the conveyance to Cooper, and the sale by him to Thomason, advanced money to Christian and the firm of Klemsen & Christian. The principal question for consideration is whether this evidence was admissible. If it be conceded that this is a suit to establish a parol trust in lands, it must be admitted that its introduction was in contravention of the statute of frauds, which [***13] provides that no trust or power concerning real [**298] property can be created, transferred, or declared otherwise than by operation of law, or by a conveyance or other instrument in writing, subscribed by the party creating, transferring, or declaring the same, or by his lawful agent, under written authority, and executed with such formalities as are required by law: Section 781, Hill's Code. The rule is universal that a parol declaration of a trust will not affect the land, and for this reason parol evidence is inadmissible to establish such a trust. In Fairchild v. Rasdall, 9 Wis. 379, the court, speaking of the universality of this rule, say: "We do not feel called upon to cite authorities to show that, in the absence of fraud, accident, or mistake, parol evidence cannot be received to prove that a deed, absolute on its face, was given in trust for the benefit of the grantor." But if it be agreed that the land shall be sold and converted into money, and in pursuance thereof a sale is made, the subsequent declaration of the trust by the trustee will bind the proceeds or the money: 1 Perry on Trusts and Trustees, 86. The reason assigned for the existence [***14] of this rule is that a trust in personal [*171] property may be declared by parol, and a sale of the land by the trustee of a parol trust under an agreement to convert it into money changes the land into personal property, and the subsequent declaration of the trust by the trustee, being supported by the prior agreement to hold the premises in trust, furnishes a sufficient consideration for the enforcement of the declaration: Hon v Hon, 70 Ind. 135; Mohn v. Mohn, 112 Ind. 285 (13 N.E. 859); Maffitt's Admr. v. Rynd, 69 Pa. 380; Wiseman v. Baylor, 69 Tex. 63 (6 S.W. 743). In Karr v. Washburn, 56 Wis. 303 (14 N.W. 189), it is held that a parol trust in land is not absolutely void, but void only at the election of the trustee. The court, speaking of the power and duty of the trustee under a parol trust in lands, say: "He may execute it or not, as he chooses, and the courts will not interfere to compel him to execute it, or to restrain him from doing so. If he refuses to execute it, from thenceforth the trust, which rests only upon a moral obligation, is a nullity." Tested by this [***15] rule, it appears that the land in question was converted into personal property by Cooper under a parol agreement to apply the proceeds to the satisfaction of Christian's debts, and that, having executed the trust, he subsequently declared his liability to Christian, and accounted with him for the money received from Thomason. Such a declaration of the trust in personal property rendered Cooper liable to Christian for any balance that might be left after the satisfaction of his debts, and an action could be maintained for its recovery. 2. In such an action parol evidence would be admissible to show the parol declarations of a trust in personal property, and such evidence must be admissible, also, in equity to prove a parol declaration of the trust in land, as a consideration for the subsequent declaration. The deed to Cooper having recited a consideration of $ 7,000, the conveyance of the land was either absolute or in trust, [*172] and, if the latter, the trust has been fully executed, and the subsequent declaration must take the case out of the statute; but, if the deed was absolute, Cooper would be liable to Christian for the balance of the fund, after the satisfaction of [***16] the debts agreed to be paid out of it; and in either case the facts, in our judgment, show a sufficient consideration, as between Cooper and Christian, to support the deed. 3. The conveyance to Cooper transferred the legal title, which must prevail unless defeated by the prior record of

Page 54 30 Ore. 161, *172; 45 P. 296, **298; 1896 Ore. LEXIS 113, ***16 Hirschberg's deed. If Hirschberg, for a valuable consideration, acquired his deed without notice or knowledge of the execution of the prior deed, it must be conceded that he has the paramount legal title. His deed recites a consideration of $ 6,100, but it is difficult to ascertain from the evidence what amount he has actually paid on account of the purchase. He assumed, however, the payment of a portion of Christian's indebtedness, and agreed to pay him the balance of the purchase price, and this would furnish a valuable consideration for the conveyance. Before Hirschberg accepted the deed, he sent Christian to the First National Bank for a statement of its demand against him, and was furnished a written memorandum showing that the amount thereof was $ 2,482.47. Concerning this transaction, the cashier of the bank testifies that Christian demanded, and he furnished him, a statement of his individual [***17] indebtedness, but that no request was made for a statement of the firm or other notes on which Christian was liable. This statement cannot become the foundation of an equitable estoppel against the bank, so as to preclude it from recovering more than the amount stated in the written memorandum, because it was furnished upon a request for a statement of Christian's individual indebtedness, and not for a statement of the whole demand against him. Nor is Hirschberg in a position to [*173] invoke such an estoppel, for the reason that his agreement with Christian was to pay $ 6,100 only on account of the purchase of the premises, and hence the amount of Christian's indebtedness to the bank was immaterial. Hirschberg caused the records of Polk County to be searched, and, finding that they showed the title to the property to be in Christian, he accepted the deed; and this want of notice by the record would give him a perfect title, if it were not for the existence of certain facts of which he had knowledge. Christian testifies that he told Hirschberg he had given Cooper some writing concerning the property, but he did not know the nature or character of the instrument, and, on cross [***18] examination, further testifies that Hirschberg knew he had given Cooper a deed of trust. Klemsen, the partner [**299] of Christian, says he heard Christian tell Hirschberg he had given Cooper a deed to the land. It also appears that Hirschberg, at the time he was negotiating for the purchase, knew that Thomason was in possession of the premises, and had a conversation with him about the payment of his note, but made no inquiry of him in relation to his right of possession. Such possession was sufficient to put a person of ordinary prudence upon inquiry concerning Thomason's right thereto, and was constructive notice of everything to which that inquiry might lead: Shaw v. Spencer, 100 Mass. 382; Bohlman v. Coffin, 4 Ore. 313; Petrain v. Kiernan, 23 Ore. 455 (32 P. 158). "As a general rule," says BEAN, J., in Exon v. Dancke, 24 Ore. 110 (32 P. 1045), "the authorities declare that open, notorious, and exclusive possession and occupation of real estate by a stranger to the title is sufficient to put a purchaser from a vendor out of possession upon inquiry as to the legal and equitable rights of the [***19] party in possession." In Pell v. McElroy, 36 Cal. 268, the court, discussing this question, says: "He cannot be regarded as a purchaser [*174] in good faith who negligently or willfully closes his eyes to visible, pertinent facts, indicating adverse interest or incumbrances upon the estate he seeks to acquire, and indulges in possibilities or probabilities, and acts upon doubtful presumptions, when, by the exercise of prudent, reasonable diligence, he could fully inform himself of the real facts of the case." We must, therefore, conclude that Hirschberg, at the time of his purchase, had constructive notice of the unrecorded deed to Cooper, if not actual knowledge of the fact, and that his title must be subordinate to the equities created by the prior deed. We are strengthened in this conclusion by the fact that Hirschberg's deed recites a consideration equivalent to the amount evidenced by Thomason's note, and the further fact that Hirschberg, soon after obtaining his deed, served on Thomason a written notice that this note was payable to him at its maturity. These circumstances tend in no small degree to show that Hirschberg knew of and acquiesced in the [***20] sale made by Cooper. 4. The next question for consideration is whether a court of equity can compel Thomason to specifically perform his oral contract of purchase. In discussing this question. it may be well to consider whether Thomason could compel a specific performance of the contract. The deed executed by Cooper, as trustee, to Thomason, and deposited with Hawley, did not contain the terms of the verbal agreement to convey the premises, and in such case it has been held that a deed deposited in escrow, unless it contained a memorandum of the agreement, was inoperative to take the case out of the statute of frauds: Kopp v. Reiter, 146 Ill. 437 (34 N.E. 942). The payment of the purchase price is not such a part performance of an oral contract to convey land as to overcome the plea of the statute, but possession in pursuance of the terms of the contract, and improvements made upon land, are sufficient for that [*175] purpose. When possession, in pursuance of the terms of a verbal agreement to convey land, has been taken by the purchaser, he thereby acquires an

Page 55 30 Ore. 161, *175; 45 P. 296, **299; 1896 Ore. LEXIS 113, ***20 equitable estate in the premises; and his notorious occupation thereof is such evidence of his [***21] equitable title as to overcome the statute, and renders parol proof admissible to establish the terms of the verbal contract upon the faith of which he has acted. Applying this rule to the case at bar, the evidence shows that Thomason, relying upon the validity of the contract made with Cooper, took and retained the possession of the land, and has made valuable improvements thereon. He alleges that he has been damaged in the sum of $ 1,000, but the evidence fails to show the value of the improvements made by him. It is the universal rule that courts of equity will enforce a parol contract relating to land within the statute of frauds when the refusal to execute it would amount to practicing a fraud: Browne on the Statute of Frauds, 438. Where one party has done acts in part execution or upon the faith of the contract, with the knowledge and consent of the other, this will take the case out of the statute: Brown v. Lord, 7 Ore. 302; Plymale v. Comstock, 9 Ore. 318; Wagonblast v. Whitney, 12 Ore. 83 (6 P. 399); Wallace v. Scoggins, 18 Ore. 502 (17 Am. St. Rep. 749, 21 P. 558). 5. It is the equitable [***22] estoppel created by force of the acts, or silent acquiescence of the party who would plead the statute of frauds, that prevents him from doing so. There is no doubt that Thomason in a court of equity could have compelled the specific performance of the contract, had he instituted a suit for that purpose; and, this being so, can the plaintiffs enforce the contract against him? To entitle a party to invoke the aid of equity for the enforcement of a verbal contract to convey real property the acts relied upon as part performance to take the case out of the statute must have been done by the [*176] plaintiff himself: Browne on the Statute of Frauds, 453. It is the possession by the purchaser, in pursuance of the terms of the contract, that entitles him to the specific performance, and, upon the theory of the mutuality of the contract, it is held that the owner should have a right to enforce its terms when he has delivered possession: Pugh v. Good, 3 Watts & Serg. 56; Waterman's Specific Performance of Contracts, 15; Browne on the Statute of Frauds, 471. The deed to Cooper transferred the legal title which drew after it the possession ( Swift v. Mulkey, 14 Ore. 59, 12 P. 76), [***23] and this Cooper, with the consent of Christian, delivered to Thomason. The bank also, relying on the faith of the agreement, advanced money to Christian and to the firm of which he was a member, and, while the payment of the money is not such part performance of a verbal contract as to take the case out of the statute, yet, taken in connection [**300] with the delivery of the possession by Cooper as agent for the bank, it was in execution and amounted to a part performance of the terms of the contract on the part of all the parties to and interested in it, and, as Thomason could compel a specific performance of the contract to convey, the plaintiffs for like reasons are entitled to a mutuality of remedies, and can invoke and obtain the aid of a court of equity to compel the specific performance of the agreement to purchase. 6. It is contended that the decree is inoperative in that it requires Cooper to cause Hawley, who is not a party to this suit, to deliver the deed deposited with him to Thomason upon the payment of said note, or, upon the failure of Hawley to so deliver it within thirty days, that Cooper execute to Thomason a new deed, or, if Cooper neglect or refuse to do [***24] either within thirty days from the default of Hawley, that the decree operate as and for a deed to Thomason. It is alleged in the complaint that Hawley had offered and was ready and willing to deliver [*177] the deed to Thomason upon the payment of the note, and this fact is not denied in the answer. The objection to this part of the decree must prove unavailing, for the defendants, knowing that Hawley was not a party, did not demur for defect of parties. This defect was apparent upon the face of the pleading, and the defendants, by failing to demur, have waived their objection to the nonjoinder: Section 71, Hill's Code. 7. Besides, Thomason is the real party in interest, who is affected by this portion of the decree, and, not having appealed therefrom, it must be presumed he is satisfied therewith. It follows that the decree is correct. AFFIRMED. Mr. Justice WOLVERTON, having been of counsel in the trial in the court below, took no part in the trial or decision here.

Page 56

357 of 470 DOCUMENTS ALEXANDER WOOD, APPELLANT, v. S. RAYBURN, RESPONDENT. [NO NUMBER IN ORIGINAL] SUPREME COURT OF OREGON 18 Ore. 3; 22 P. 521; 1889 Ore. LEXIS 66

April 24, 1889, Filed PRIOR HISTORY: [***1] APPEAL from Benton county.

DISPOSITION: Decree reversed.

HEADNOTES DEFECTIVE DEED--POWER TO CONVEY--SPECIFIC PERFORMANCE.--Where a party to a deed labors under no disability, and by reason of some defect or technical informality his deed fails to pass title according to the intent of the parties, in a proper case, a court of equity will treat such defective or irregular deed as an agreement to convey and enforce it specifically on the same terms and conditions that other agreements in writing to convey real property are enforced. This is the general rule. COMPLAINT--ALTERNATIVE RELIEF.--Where a complaint is framed with a view to alternative relief, and upon the trial in this court the plaintiff presents only one aspect of his case, the other will be treated as waived and will not be passed upon or considered. NOTICE--BONA FIDE PURCHASER--WHAT WILL PUT A PARTY ON INQUIRY.--Where a party has notice of such facts as ought to put an ordinarily prudent man on inquiry, a failure to make inquiry is visited with all of the consequences of actual notice. NOTICE--AGENT.--It is a general rule that notice to an agent is notice to the principal. The test is whether the information was of a character which it was the duty of the agent to communicate. If so, it binds the principal. BONA FIDE PURCHASER FOR VALUE--PLEADING--PROOF.--To give a defendant the status of a bona fide purchaser of land for value and without notice, it must be alleged and proven, amongst other things, that the person who conveyed to the defendant was seized in fee or pretended to be so seized and was in possession if the conveyance purported an immediate transfer of the possession when he executed the deed to such purchaser. BONA FIDE PURCHASER FOR VALUE--PAYMENT OF PURCHASE MONEY--NOTICE OF CLAIM.--To constitute one a bona fide purchaser, he must actually have paid the purchase money before he received notice of the claim.

Page 57 18 Ore. 3, *; 22 P. 521, **; 1889 Ore. LEXIS 66, ***1 RECITAL IN THE DEED--CONSIDERATION.--It must be proved independently of the recital in the deed that the consideration was paid before receiving notice, and it is not enough to show that it was secured to be paid by mortgage or otherwise. COUNSEL: John Burnett, John Kelsay, and W. S. McFadden, for Appellant. J. W. Rayburn, for Respondent. JUDGES: STRAHAN, J. OPINION BY: STRAHAN OPINION [**522] [*4] STRAHAN, J.--This is a suit in equity. Its object is either to have a certain deed dated in July, 1881, made by one Mary E. Huffman to the plaintiff, enforced as an agreement to convey certain real property situated in Benton county, or to charge the purchase price of said land with interest upon it, and to have a decree for the sale of said real property to pay the amount. The purchase price is $ 592.50, with interest since July, 1881. It appears that prior to the ninth day of July, 1881, Mary E. Huffman was the wife of one W. H. Huffman, and that she was the owner in fee of the real property in controversy; that on the twenty-seventh day of March, 1879, Huffman and his wife executed to the plaintiff Wood a mortgage on the property in controversy to secure the payment of $ 427 and interest; that said mortgage was duly recorded in Benton county; that on the eighteenth of November, 1880, there was a decree foreclosing said mortgage entered in the circuit court of Benton county, Oregon, [***2] for the sum of $ 511, with costs and disbursements; that about the month of July, 1881, the plaintiff and W. H. and Mary E. Huffman entered into an agreement whereby it was agreed that, in consideration of the amount then due on said mortgage, and as payment, and in satisfaction of said debt, they sold said premises to said Wood and agreed to convey the same to him by deed; that on the ninth day of July, 1881, Mary E. Huffman, being still the wife of W. H., undertook to convey said premises to the plaintiff in pursuance of said agreement, and for that purpose signed and delivered to him the following writing:-[*5] "Know all men by these presents: "That I, Mary E. Huffman, of Nez Perce county, Idaho Territory, party of the first part, for and in consideration of $ 1,250, to me paid by Alexander Wood, of Benton county, and State of Oregon, do hereby grant, bargain, sell and convey to said Alexander Wood, to his heirs and assigns forever, the following described parcel of real estate, to-wit: [Here follows the description of the lands as set out in the complaint.] Together with the tenements, hereditaments and appurtenances thereunto belonging or in any wise appertaining, and [***3] also all her estate right, title and interest at law and equity therein or thereto, including dower and right of dower, to have and to hold the same to the said Alexander Wood, his heirs and his assigns forever. "And I, Mary E. Huffman, do covenant with the said Alexander Wood and his legal representatives forever that the said real estate is free from all incumbrances, and that she will, and her heirs, executors, administrators shall warrant and defend the same to the said Alexander Wood, and to his heirs and assigns forever, against the lawful claims and demands of all persons whatsoever. "In witness whereof, I have hereunto set my hand and seal this ninth day of July, A. D. 1881. "MARY E. HUFFMAN. [SEAL.] "Signed, sealed and delivered in presence of:

Page 58 18 Ore. 3, *5; 22 P. 521, **522; 1889 Ore. LEXIS 66, ***3 "R. H. BARTON. "TERRITORY OF IDAHO, County of Nez Perce. "This certifies that on this ninth day of July, 1881, before me, the undersigned, a justice of the peace in and for the said county and said Territory, appeared the within-named Mary E. Huffman, who is known to me to be the identical person described in and who executed the within instrument, and acknowledged to me that she executed the same freely and voluntarily [***4] for the uses and purposes therein mentioned. [*6] "In witness whereof, I have hereunto set my hand and seal, the day and year last above mentioned. "R. H. BARTON, justice of the peace. "TERRITORY OF IDAHO, County of Nez Perce. "I, , clerk of the court in and for said county and State, the same being a court of record, having a clerk and seal, do hereby certify that R. H. Barton, whose name is subscribed to the certificate of acknowledgment to this deed, was at the date thereof, to-wit, July 9, 1881, a duly-commissioned, qualified and acting justice of the peace in and for said county of Nez Perce; that he is authorized by the laws of Idaho Territory to take the acknowledgment of deeds; that I believe his signature subscribed thereto to be genuine signature, and that said deed is executed and acknowledged according to the laws of Idaho Territory. "In witness whereof, I have hereunto set my hand and the seal of said court this twenty-first day of December, 1881. [SEAL.] "JOHN H. EVANS, county clerk. "This deed received for record and recorded December 24, 1881, and the certificate of the court was received and recorded December 24, 1881. "B. W. WILSON, [***5] county clerk." The defendant's answer contains specific denials of each and every allegation of the complaint, and then follows with a separate defense, to-wit: "Defendant for another and a separate defense to the matters alleged in plaintiff's complaint herein, alleges the following facts, to-wit: "That on the day of October, 1886, one Mary [**523] E. Huffman was the owner in fee simple of the real property mentioned in the complaint in this suit; that on said last-mentioned day the said Mary E. Huffman, for a valuable consideration, sold, by a good and sufficient deed, with the usual covenants of warranty, executed under her hand and seal, to the said Ed. L. Rayburn every portion of said real property; that at the time of the execution of the deed by the said Mary E. Huffman to the said Ed. L. Rayburn, [*7] as above stated, the said Ed. L. Rayburn had no notice of the matters alleged in plaintiff's complaint; that on or about the day of November, 1886, the said Ed. L. Rayburn made and the said S. Rayburn made and entered into an agreement wherein and whereby the said Ed. L. Rayburn for the price and sum of $ 1,000 promised and agreed to sell and convey [***6] to the said S. Rayburn the real property mentioned and described in the complaint; that on said last-mentioned day the said S. Rayburn paid to the said Ed. L. Rayburn the sum of $ 1,000; and the said Ed. L. Rayburn, on the said day, under his hand and seal, made, executed and delivered to the said S. Rayburn a good and sufficient deed, with the usual covenants of warranty, wherein and whereby he conveyed to the said S. Rayburn the whole of the real property mentioned and described in complaint; that in said deed the said Ed. L. Rayburn covenanted to and with this defendant that he was the owner in fee-simple of said real property and every part thereof, and that he would warrant and defend

Page 59 18 Ore. 3, *7; 22 P. 521, **523; 1889 Ore. LEXIS 66, ***6 the same from the claims of all persons whatsoever; that at the time this defendant paid to said Ed. L. Rayburn the said $ 1,000 and took said deed, he did not have any notice whatever of any of the pretended rights or equities of plaintiff or of the matters and things alleged in plaintiff's complaint; that soon after paying the said sum of $ 1,000 to and receiving from the said Ed. L. Rayburn said deed or conveyance, this defendant went into and ever since said time has been and now is in the actual, [***7] open, notorious and adverse possession of said real property and every part thereof, and has since said time made valuable and permanent improvements thereon of the value of $ 100; that at and during all the times stated in said complaint the said Mary E. Huffman was a married woman, she being at all of said times the wife of one W. H. Huffman, who was then and is now alive; that on the day of July, 1881, and at the time of the making the pretended agreement mentioned in complaint, the said Mary E. Huffman resided at or near Moscow in Idaho Territory; that the laws of Idaho [*8] Territory relating to the execution of deeds by married women in force at said time was and is as follows: [Here defendant sets out what he claims to be the laws of the said Territory as relates to married women]; that this defendant is the owner in fee-simple of every part of said real property." The reply denied the new matter in the answer. The cause was referred and the evidence taken in writing. The court below found for the defendant and dismissed the suit, from which decree the plaintiff has appealed. It further appears from the evidence that the plaintiff entered into the possession [***8] of said premises in the latter part of July, 1881, and then placed Doc. Ross in possession, who was to keep up the fencing and improvements for the use of the place. Next Mr. Stewart rented the place and kept it up for about two years. The rent was $ 50 a year, one-half payable in improvements on the place; next came Mr. Felger, who had the place for about two years on the same terms as Mr. Stewart. Ross and Stewart occupied the house on the premises during their terms, and Felger during a portion of the first year, perhaps to the month of April. 1. As against Mary E. Huffman or any person claiming under her who is not a bona fide purchaser for value and without notice, equity has the power to charge the amount of the purchase price of this land upon it. When a party to a deed labors under no disability, and by reason of some defect or technical informality his deed fails to pass title according to the intention of the parties, in a proper case, a court of equity will treat such irregular or defective deed as an agreement to convey, and enforce it specifically on the same terms and conditions that other agreements in writing to convey real property are enforced. This is the general [***9] rule. In Frarey v. Wheeler, 4 Ore. 190, it was held, in substance, that a married woman's deed would not be treated as an agreement to convey nor would she be required by the decree of the court to convey the real property described in such deed. This doctrine depended entirely [*9] upon the disability of coverture. Mrs. Huffman at the time she made the deed to the plaintiff was a married woman. The deed was executed in the Territory of Idaho, but not in accordance with the laws of that Territory. The complaint is framed with a view to either enforce the deed as an agreement to convey or to obtain a decree charging the purchase money upon the lands. The plaintiff's right to a specific performance in such case as against the defendant Rayburn was not discussed or insisted upon at the trial. For that reason we do not consider or pass upon that aspect of the case. It may be proper to remark, however, that the statute of 1878 and possibly of 1880 have wrought very radical changes in the law relating to the capacity of married women to contract and their power to dispose of their real property. But as the appellant did not present this part of his case we treat [***10] it as waived. 2. The next question presented is, whether or not the plaintiff is entitled to the alternative relief which he prays, namely, to make the purchase price of said land which was paid to Mrs. Huffman and her husband a charge upon it. In disposing of this part of the case, it will be most convenient to consider, first, whether the plaintiff would be entitled to that relief as against Mary E. Huffman, and then to determine whether or not the defendant Rayburn stands in such a relation to the transaction as would require the application of a different rule to him. The facts of this case bring it within the second point decided in Frarey v. Wheeler, supra. The principle there announced is not new to equity jurisprudence, and its application [**524] to this class of cases sometimes becomes necessary to prevent a failure of justice. In passing upon that case, Bonham, J., said: "The exempting a married woman from liability on her covenants to convey her real estate, was adopted for her better security and protection, and we do not think it would be equitable or in harmony with public policy or good morals for courts of equity, in protecting the rights [***11] of persons, to encourage the perpetration of an actual fraud by them." The purchase money in that case was accordingly [*10]

Page 60 18 Ore. 3, *10; 22 P. 521, **524; 1889 Ore. LEXIS 66, ***11 charged upon the land. In this case, as has been shown, the land was under mortgage at the time of the attempted conveyance. Mrs. Huffman and her husband agreed with the plaintiff, that in consideration of the satisfaction of the amount of said decree, they would convey him the land. Mrs. Huffman, in whom the title was vested, undertook and attempted to perform this agreement, but by reason of informality in the execution of the deed, she failed to do so. What further was done under this agreement has been already shown. Under these facts, to turn a party out of court without relief would be contrary to the first principles of equity and a reproach to the jurisprudence of the State. It would be a case where technical quibbles without merit had gained a complete mastery over the plainest principles of justice. I think therefore that we ought to hold that the plaintiff is entitled to the alternative relief prayed for unless there is something in the facts and circumstances of Mr. Rayburn's claim which gives him a right superior to that of the plaintiff, and [***12] to that our attention will now be directed. 3. It is conceded that some time prior to the month of October, 1886, Mary E. Huffman had procured a divorce from her husband, and some time during that month she conveyed the premises in controversy to Edward L. Rayburn. It is alleged in the answer that said deed was for a valuable consideration, and that it contained the usual covenants of warranty, and that he had no notice of the matters alleged in the plaintiff's complaint, and that S. Rayburn thereafter purchased said premises from Ed. L. Rayburn and received a deed with the usual covenants of warranty. It is also claimed that when the defendant took the deed from Ed. L. Rayburn he did not have any notice whatever of any of the pretended rights or equities of the plaintiff, or of the matters and things alleged in plaintiff's complaint. It is claimed that this deed to the defendant was followed by possession soon afterward, which has been maintained ever since. An equity that was good against Huffman and wife must prevail against those who succeed [*11] to the estate affected by such equity, unless the same is barred or cut off by reason of such successor being a bona fide [***13] purchaser for value of such estate without notice of such equity. If Ed. L. Rayburn occupied that position the equity is gone; if S. Rayburn is such bona fide purchaser, the same result follows. An examination of the facts and circumstances touching all of these alleged purchases is therefore necessary. Before proceeding to this examination, it is proper to premise that S. Rayburn is the father of Ed. L. Rayburn and J. W. Rayburn, who took a prominent part in conducting these negotiations. There is one fact which has not been as yet referred to, which it now becomes necessary to mention. It appears from the evidence, and is not disputed, that the plaintiff was the owner of a mortgage for $ 200 on the premises in controversy, made by one Banks, which was prior to the mortgage Huffman and wife had executed to him, and that he negotiated a loan of $ 200 of Jacob Modie and aimed to assign this Banks mortgage to Modie for security; but in some manner, which is not fully explained, he assigned to Modie his own decree against the Huffmans, foreclosing his junior mortgage. This was clearly a mistake. Neither party seems to have understood just what was assigned. Modie seems to have been [***14] wholly unconscious that the decree foreclosing Wood's mortgage had been assigned to him. Mr. J. W. Rayburn narrates his connection with this transaction as follows: "Mr. F. B. Dunn obtained a judgment in 1877 against W. H. Huffman, husband of Mary E. Huffman. In 1884 an execution was issued on this judgment and the premises mentioned in this deposition by me were levied upon and advertised for sale to satisfy that execution, whereupon Mr. Wood, the plaintiff herein, commenced a suit in the circuit court of this county to enjoin said sale. The suit was against F. B. Dunn and Sol. King. I was the attorney for Mr. Dunn in these matters during all this time. I think it was in August, 1886, and while this suit was pending, that I discovered that Mr. Jacob [*12] Modie appeared to be the owner of a decree that had been rendered in the circuit court of Benton county in a suit wherein Alexander Wood was plaintiff and W. H. and Mary E. Huffman were defendants. From some source I learned that this decree had been paid, but I cannot now say from whom I learned it. The decree had not been canceled of record. I wrote to Mr. Modie, who then resided in Lane county, Oregon, enclosing a self-addressed [***15] postal card, asking him when he would be at Corvallis, and requesting him to call at my office when he came. A few days afterward I received the postal card I sent him, on which he stated that he would be here on a certain day, naming the day. He did not come on the day named, but came on the eleventh day of October, 1886. I then asked him about this decree, and, as I understood him, he told me that it was paid. I told him that the records did not so show, and asked him if he would go to the court house and satisfy this decree, which he agreed to do; and together we went to the court house, and he entered full satisfaction of

Page 61 18 Ore. 3, *12; 22 P. 521, **524; 1889 Ore. LEXIS 66, ***15 this decree, as I now remember. Wood's name was not mentioned by either of us at that time. I thought at that time that Jacob Modie was the absolute owner of that decree, and I did not know to the contrary till long afterwards. This decree was satisfied before Ed. L. Rayburn bought these lands and before S. Rayburn had any interest in them, and as far as I know neither Ed. L. Rayburn nor S. Rayburn contemplated buying these lands at that time. Whatever I did in the matter [**525] I did in the interest of my client, F. B. Dunn." The witness continues: "On [***16] the twenty-third day of October, 1886, Ed. L. Rayburn became the owner of these premises; he, on said day, having received Mrs. Huffman's deed for the same." Mr. Jacob Modie, a witness for the plaintiff, gave the following account of the same transaction: "In August, 1886, I received a letter from J. W. Rayburn asking me when I would be in Corvallis, requesting that when I came to Corvallis, I would call at his office. I answered that I [*13] would be down soon and would call. I did not come as soon as I anticipated. In September I received another letter of the same import, each containing a self-addressed envelope. In October I came to Corvallis,--met Mr. Rayburn. He asked me to go to the clerk's office with him. He told me he wanted my signature to a satisfaction of claim I held against Mr. Wood as security for money loaned Mr. Wood. I told him if it was right and proper I would place my signature to said satisfaction, and did so on being assured by him that it was right and proper." The witness also added in substance that when he signed his name to the satisfaction of date of October 11, 1886, he intended to release Mr. Wood from any obligation to him, he having paid witness [***17] in full, and that he had no interest in the decree and did not know that he owned said decree. Mr. Modie further testified that the security he was to get from Mr. Wood for the money was a mortgage made to L. I. Banks, and that by mistake the decree in favor of Wood and against Huffmans was assigned to him. He further says that by mistake he satisfied the decree,--that he should have assigned it back to Mr. Wood,--and that it was by the request of J. W. Rayburn that he signed it satisfied. Twelve days after this mistake was entered on the records in the clerk's office at Corvallis, Mr. J. W. Rayburn called on Mrs. Mary E. Huffman at her father's residence near Philomath, and she relates what occurred during that visit substantially as follows:-"Mr. J. W. Rayburn came to father's about the last of November, 1886, Philomath, Oregon, and asked me to sign a paper that he had. I asked him what it was. He said it was in the form of a deed--a scheme of his; did not know that it would amount to anything. I told him I did not like to sign it, for I was afraid it would get me into trouble. He said, no, it would not. He said he would take all the responsibility off of my shoulders in this [***18] Wood case and he would fight the battle for me. My mother came into the room--Mrs. Ross--and said: 'Mr. Rayburn, I'm [*14] afraid you will get my daughter into trouble.' He says, no, Mrs. Ross, I will stand between her and all trouble. The paper he called a deed was a blank except the printed part at the top. Mr. Ed. Rayburn's name was not mentioned to me. He wanted me to go before Mr. Brownson to have it filled out, but I could not leave, as we had a sick man to take care of. I signed the blank; did not know that I had made a deed to Ed. Rayburn till I saw it in the Benton Leader." She further says in substance that she made no acknowledgment to any officer that I had made a deed to Edward L. or Ed. L. Rayburn. "The signing of that blank is the only time I signed a deed except to Mr. Wood, and I didn't know at that time that it was to Ed. L. Rayburn, as his name was not mentioned. I never acknowledged before J. W. Rayburn at any time that I had made out a deed to Ed. L. Rayburn. I received nothing from either of the Rayburns for the lands mentioned in this suit." "Question 18. State fully what, if anything, you may know about the $ 200 consideration mentioned in the deed [***19] of Mary E. Huffman to one Ed. L. Rayburn in this suit? "Answer. I never received any money from Ed. L. Rayburn or any other Rayburn; only witness fees from J. W. Rayburn." There is much more to the same purport, and this witness fully and explicitly denies that she ever received any

Page 62 18 Ore. 3, *14; 22 P. 521, **525; 1889 Ore. LEXIS 66, ***19 money from J. W. Rayburn except $ 20 as witness fees, and she denies that she owed him any sum whatever as attorneys fees or otherwise. Mrs. Ross, the mother of Mary E. Emmerson, late Huffman, corroborates what her daughter says occurred at the interview at the time the deed was signed. Mr. J. W. Rayburn testified in substance that the consideration of the deed to Ed. L. Rayburn was $ 200. Mr. Rayburn's account of this transaction and of the consideration is more particularly stated in his evidence as follows: * * * "During the pendency of the suit between A. Wood, Sol. King and F. B. Dunn, I became of the opinion that [*15] a certain paper purporting to be * * * and told Mrs. Huffman as much. I told her in what particular this deed was void. My recollection is that I explained everything to her fully. She at that time owed me whatever my services were worth for advice concerning these divorce [***20] suits in Washington Territory; and I asked Mrs. Huffman then and there upon what terms she would deed this place to me. Whether we agreed upon terms then and there, I don't now remember, but afterwards we did, and they were as follows: She would deed me or any persons I might name the lands, or whatever interest she had in them, for forty dollars in money, my bill against her at that time, and I agreed to defend any suit which Huffman might bring in this State for a divorce and the children, or for the children alone; or, if she wanted a divorce, I promised and agreed to obtain a divorce for her as her attorney, if I could do it. The whole of this consideration on my part was estimated by us at $ 200. This arrangement was in part made at Corvallis, but subsequently carried out at Philomath. I filled up the deed made by her to Ed. L. Rayburn * * * on, I think, the twenty-third day of October, 1886. I then went to Philomath, where she then was; found her at her father's; talked with her about the matter and * * * asked her to go with me before Mr. Brownson, justice of the peace, to acknowledge the same. At that time to my knowledge there was no other person residing at Philomath before [***21] whom a deed could be executed. She made some excuse about not being able to go, which, as I now remember, she was not fixed up,--dressed up to her notion to go down the street. I told her I would go and get Brownson and bring him there. I went to Brownson's house but found that he was out of town. I [**526] went back to Ross', where Mrs. Huffman was; told her that Mr. Brownson was not at home; told her that I would take the acknowledgment myself, and she then and there signed that deed and executed it as deeds are usually executed in this State. It was acknowledged regularly. Mr. George Mason, I think his name was, along with myself, witnessed [*16] it. The deed she signed there that day was an ordinary blank deed,--an ordinary printed deed,--and had every word written in it above the name that now appears there. When she says that this was a blank deed she states that which is positively and absolutely false. In addition to what I paid her then and before, and what I agreed to do by way of defending suits, for which we estimated at $ 200, I told her that I would have, if I succeeded in holding it,--that I would have to pay Mr. Dunn's claim, which then amounted to something [***22] over $ 350." This witness further says in substance that at the time the deed was executed he paid Mrs. Huffman the remainder of the $ 40 that he was to give her, which amount he thought was $ 20, but would not be sure. In relation to the consideration, he says further in his deposition: "She got $ 40 in money, the services that I rendered her, and the promise on my part to defend any suit against her for a divorce or her children; or in event she desired a divorce, I agreed to bring the suit for her." This witness, in explanation of how it happened that he had the deed to this land made to his brother Ed. L. Rayburn, says: "He is my brother and was expecting to get married at that time and thought he would like to live on the place, and he and I arranged that I would try and get him the place. He afterwards changed his mind about going on the place and accepted employment in the O. R. & N. Co.'s office in Portland, where he has been ever since and is now." Mr. S. Rayburn, the defendant, was called as a witness in his own behalf and says substantially: "I am the owner in fee-simple of the property in controversy. I purchased it of Ed. L. Rayburn in the fall of 1886, I believe it [***23] was. I paid him $ 1,000 in a note and mortgage as security. I have since paid of this note $ 300. At the time I obtained the deed from Ed. L. Rayburn, Ben. Felger had some stock on the place. He was not then living in the dwelling-house, and there was no one residing on the place at the time I obtained the deed. I did not know before the commencement [*17]

Page 63 18 Ore. 3, *17; 22 P. 521, **526; 1889 Ore. LEXIS 66, ***23 of this suit that Wood claimed an interest in these lands. I took possession about the fifteenth or sixteenth of February, 1888, of the home and garden land. I served a notice on Felger to leave the premises. I served notice on him to get rid of his stock. The stock was on the pasture. Felger paid rent to me the last year he pastured his stock there. I purchased these premises in good faith and with the intention to make it my future home. I can't give any date when I first learned that the plaintiff claimed to have some interest in these lands, but I think it was last March." Mr. J. W. Rayburn being re-called as a witness for the defendant, testified, in substance, among other things: "S. Rayburn paid Ed. L. Rayburn $ 1,000 for these premises. He gave his note payable in two years' installments, secured by a mortgage on these [***24] same premises; the note is an ordinary negotiable note, and I to-day own that note. S. Rayburn has paid $ 300 on that note, which payment was made about the first day of February, 1888." In another part of his evidence, Mr. J. W. Rayburn, speaking of this same subject: "When Ed. Rayburn determined to go to Portland I purchased of him the note and mortgage. After I bought a piece of property from J. R. Bayley, where I now live, I determined to repair the house thereon, and I determined also to build a new one on the north portion of this property, near the O. & C. R. R. track. S. Rayburn is a practical carpenter and joiner, and he did nearly all the carpenter work in repairing my house and building this new one. The whole of this work was done by him in the year 1887. When we settled, about the middle of January, or at the farthest the first of February, 1888, I owed him a balance of $ 300, which, as agreed then and there by us, to be applied on this note and mortgage. The house that he built is still on the premises and is occupied by a renter of mine for a yearly rental of one hundred dollars. The defendant has never been paid for the work he did for me in any other way than as above [***25] stated." These I believe to be all the main or essential facts testified [*18] to by any of the witnesses. Conceding as proven every fact which this evidence tends to prove, the question remains, is this property put beyond the reach of the plaintiff's equity, or is it protected from the plaintiff's equity by reason of any or all of those facts? In other words, was either Ed. L. Rayburn or S. Rayburn a bona fide purchaser of this property for value and without notice, within the equity rule on that subject? I can see no escape from the conclusion that this question must be answered in the negative. It was scarcely claimed upon the argument here that Ed. L. Rayburn was such purchaser, nor could the claim be sustained if made. If Ed. L. Rayburn can be regarded as in any sense a purchaser, he simply acquired and held the legal title through the agency of his brother, J. W. Rayburn. Whatever consideration there was for the deed, passed from J. W. Rayburn to Mrs. Huffman, and not from Ed. L. J. W. had knowledge of the deed from Mrs. Huffman to the plaintiff at the very time he was engaged in these negotiations, and it is manifest that it was because he believed the deed to be [***26] void that he engaged in them. Notice of the fact was of such a nature as ought to have put an ordinarily prudent man on inquiry, and in such case a failure to make inquiry is visited with all of the consequences of actual notice. ( Meier v. Blume, 80 Mo. 179.) But it was suggested upon the argument here that notice to J. W. Rayburn would not affect those for whom he was acting in making the purchase. It is a general rule that notice to the agent is notice to the principal. In procuring the deed from Mrs. Huffman to Ed. L. Rayburn, J. W. Rayburn was either Ed. L.'s agent or he was a mere volunteer; in either event, if Ed. L. accepted his work or the proceeds of his contract, he would be [**527] affected by whatever was notice to J. W. R. Perhaps no better statement of the principle can be found than is contained in Wharton's Agency and Agents, 178. He says: "The better opinion is, that whenever the agent, acting in the scope of his duties for his principal, receives notice in a matter in [*19] which he represents the principal, such notice is notice to the principal, although the notice is not received in the identical transaction to which the notice [***27] relates. The test is, whether the information was of a character which it was the duty of the agent to communicate. If so, it binds the principal." And it was held in Whitney v. Burr, 115 Ill. 289, 3 N.E. 434, that if an agent has notice at the time of his purchase for his principal of the equitable rights of another, and of the claim of the latter to have previously purchased the subject matter of the sale, this will be notice to the principal. (Am. & Eng. Ency. of L., v. 7, p. 419, and cases cited.) But there is another objection to the defendant's claim that he is a bona fide purchaser for value and without notice, which applies equally to Ed. L. as well as to S. Rayburn, and that is, it is neither alleged nor proven that Mary E. Huffman, at the time of her deed to Ed. L., was in the possession of the premises, and the same omission occurs in respect to the conveyance from Ed. L. to S. Rayburn. These are omissions, not of form but of substance. Storey's Eq. Pl., 805, states the principle. He says: "Such a plea must aver that the person who conveyed a mortgage to the

Page 64 18 Ore. 3, *19; 22 P. 521, **527; 1889 Ore. LEXIS 66, ***27 defendant, was seized in fee, or pretended to be so seized, and was in possession, if [***28] the conveyance purported an immediate transfer of the possession at the time when he executed the purchase or mortgage deed." And the learned author of the notes to 2 Leading Cases in Equity, part 1, p. 63, states the rule in the same language, and I have been unable to find any authorities that hold otherwise. No witness testifies that Mary E. Huffman was in possession of these premises at the time she made the deed to Ed. L. Rayburn, nor is it pretended that S. Rayburn obtained possession until sometime in the month of March, 1888, and it does not appear anywhere in this record that Ed. L. was in possession of said premises at any time. At some time prior to the month of March, 1888, Ben. Felger, the plaintiff's tenant, had leased the premises of the plaintiff, and he says that he had possession of the field [*20] and a part of the pasture, and about that time the defendant entered the house by force or by breaking into it. There is another objection to the defendant's claim which seems almost as serious, and that is the payment of the purchase money. There is a conflict in the evidence as to the amount of purchase money paid by J. W. Rayburn, and how it was paid, and we [***29] do not find it necessary to pass on that question; but there is no conflict as to the alleged consideration from S. to Ed. L. Rayburn. He gave his note to Ed. L. in 1886 for $ 1,000, secured by a mortgage on the same premises; at some time thereafter the same was transferred to J. W. R., who was the owner of it at the time he testified. In 1887 S. Rayburn did some work for him, and in January or February, 1888, upon a settlement between father and son, there was found to be due S. Rayburn $ 300, which was credited on the note. The authorities are that to constitute one a bona fide purchaser he must have actually paid the purchase money before he received notice of the claim. ( Jackson v. McChesney, 7 Cow. 360; Jewitt v. Palmer, 7 Johns. Ch. 65.) And it is laid down in Union Canal Co. v. Young, 30 Am. Dec. 212, that it must be proved independently of the recital in the deed that the consideration was paid before receiving notice, and is not enough to show that it was secured to be paid by mortgage or otherwise. ( Dugan v. Vattin, 25 Am. Dec. 105; Blight v. Banks, 17 Id. 136; Donaldson v. [***30] Bank of Cape Fear, 18 Id. 577, and Nantz v. McPherson, 18 Id. 216, held the same doctrine.) So also in 2 Leading Cases in Eq., part 1, pp. 75, 76, holds that to entitle one to protection as a bona fide purchaser he must have paid the full price before notice. But these authorities must not be confounded with another class defining the rights of a bona fide holder of a negotiable promissory note secured by mortgage upon land affected by an equity where such note was negotiated before due and for value without notice. The facts of this case do not require us to consider or decide that question. There are other questions affecting the defense in this [*21] case, but I cannot think it is necessary to enter upon their decision. One of them is the nature and character of the plaintiff's possession through his tenant Ben. Felger and Felger's attempt to attorn to the defendant as his landlord. If Felger entered under Wood he was Wood's tenant, and his attornment to another would be without effect. (1 Taylor's L. & T., 180.) The zeal and earnestness with which this defense has been pressed upon the attention of the court have induced us to examine this case with [***31] more than ordinary care and attention; but with all the research and examination we have been able to bestow upon it, we find ourselves unable to accede to the positions of the defendant's counsel. It follows from what has been said that the decree in the court below must be reversed, and a decree entered here for the plaintiff for his purchase money and lawful interest from March, 1888, the time when his possession was disturbed by the defendant, and that the premises in question be sold to satisfy the same with costs.

Page 65

358 of 470 DOCUMENTS STEVEN M. HAUGEN and ELIZABETH HAUGEN, Plaintiffs, v. DEPARTMENT OF REVENUE, STATE OF OREGON, Defendant. TC-MD 021102F OREGON TAX COURT 2003 Ore. Tax LEXIS 105

July 17, 2003, Decided July 17, 2003, Filed DISPOSITION: [*1] Plaintiffs' appeal denied.

HEADNOTES Income Tax JUDGES: SALLY L. KIMSEY, MAGISTRATE. OPINION BY: SALLY L. KIMSEY OPINION

DECISION Plaintiffs appeal from Notices of Deficiency issued by Defendant for tax years 1998, 1999, and 2000. Oral argument was held on January 15, 2003. STATEMENT OF FACTS Plaintiffs, Steven Haugen and Elizabeth Haugen, purchased real property from Elizabeth Haugen's mother, Cecelia Lux, in May 1997 via a land sale contract. The property consists of a 60-acre farm and their personal residence. Plaintiffs lived at the property in excess of 15 years prior to their purchase. The land sale contract required interest-only payments for 15 years. A warranty deed was prepared in March 1998. Lux's attorney stores the warranty in his office safe; he has been directed to record the deed upon satisfaction on the contract. The land sale contract was recorded at the Washington County Assessor's Office in July 2001. For the tax years 1998, 1999, and 2000, Plaintiffs, on Schedule A, claimed a deduction for the home mortgage interest paid to Lux pursuant to the terms of the land sale contract. Defendant disallowed the claimed mortgage interest deduction because the land sale contract was not recorded [*2] during the relevant tax years. The parties agree that Plaintiffs hold equitable title to the property.

Page 66 2003 Ore. Tax LEXIS 105, *2 1889 Ore. LEXIS 66, ***31 ANALYSIS Generally, personal interest is not allowed as a deduction on a taxpayer's income tax return. IRC 163(h)(1) (1994). However, qualified residence interest is an exception to the general rule. IRC 163(h)(2)(D) (1994). Qualified residence interest is defined as: "any interest which is paid or accrued during the taxable year on "(i) acquisition indebtedness with respect to any qualified residence of the taxpayer * * *. "* * * * "For purposes of the preceding sentence, the determination of whether any property is a qualified residence of the taxpayer shall be made as of the time the interest is accrued." IRC 163(h)(3)(A) (1994). Acquisition indebtedness is defined as "any indebtedness which - (I) is incurred in acquiring * * * any qualified residence of the taxpayer, and (II) is secured by such residence." IRC 163(h)(3)(B)(i) (1994). The parties disagree on whether the moneys paid to Lux represent acquisition indebtedness within the meaning of the Internal Revenue Code and its attendant regulations. For purposes of qualified residence [*3] interest, secured debt is defined as: "a debt that is on the security of any instrument (such as a mortgage, deed of trust, or land contract)-"(i) That makes the interest of the debtor in the qualified residence specific security for the payment of the debt, "(ii) Under which, in the event of default, the residence could be subjected to the satisfaction of the debt with the same priority as a mortgage or deed of trust in the jurisdiction in which the property is situated, and "(iii) That is recorded, where permitted, or is otherwise perfected in accordance with applicable State law." Temp Treas Reg 1.163-10T(o)(1) (1987). A debt is considered secured: "as of the date on which each of the requirements of paragraph (o)(1) of this section are satisfied, regardless of when amounts are actually borrowed with respect to the debt. For purposes of this paragraph (o)(3), if the instrument is recorded within a commercially reasonable time after the security interest is granted, the instrument will be treated as recorded on the date that the security interest was granted." 1 Temp Treas Reg 1.163-10T(o)(3) (1987). 1 Neither party argued that the instrument was recorded within a commercially reasonable time after the security interest was granted. [*4] Plaintiffs first argue that Temporary Treasury Regulation section 1.163-10T(o) (1987) does not apply to the case at bar because Plaintiffs do not hold legal title. They suggest that a land sale contract could be within the purview of the regulation "but only if the taxpayer is placed in legal title." (Ptfs' Statement of Points and Authorities in Support

Page 67 2003 Ore. Tax LEXIS 105, *4 1889 Ore. LEXIS 66, ***31 of Ptfs' Appeal at 9.) The court disagrees. The regulation specifically names land sale contracts. Additionally, the purpose of a land sale contract is so the seller can retain legal title as security for performance of the contract. See Newman v. Randall, 90 Ore. App. 629, 633, 753 P.2d 435 (1988). To argue a taxpayer buying property using a land sale contract could also hold legal title to the property would render the land sale contract nugatory. Plaintiffs' argument is not persuasive. As noted earlier, one of the criteria for secured debt is that the instrument, in this case a land sale contract, "is recorded, where permitted, or is otherwise perfected in accordance with applicable State law." Temp Treas Reg 1.163-10T(o)(1)(iii) (1987). The parties agree that the land sale contract was not recorded at any time [*5] during the tax years at issue. Thus, in order to be qualified residence interest, the land sale contract must be "otherwise perfected in accordance with [Oregon] law." Id. With certain exceptions, not relevant here: "All instruments contracting to convey fee title to any real property, at a time more than 12 months from the date that the instrument is executed and the parties are bound, shall be acknowledged, in the manner provided for acknowledgment of deeds, by the conveyor of the title to be conveyed. Except for those instruments listed in subsection (2) of this section, all such instruments, or a memorandum thereof, shall be recorded by the conveyor not later than 15 days after the instrument is executed and the parties are bound thereby." ORS 93.635(1). 2 Land sale contracts are among those instruments included within the reach of the statute. Braunstein v. Trottier, 54 Ore. App. 687, 690, 635 P.2d 1379 2. Further, without recordation the land sale contract would be "void as against any subsequent purchaser in good faith and for a valuable consideration of the same real property * * * whose conveyance [*6] * * * is first filed for record * * *." ORS 93.640. 2 All references to the Oregon Revised Statutes (ORS) are to 1995. The question becomes whether a land sale contract may be "otherwise perfected in accordance with [Oregon] law" even though not recorded as required by ORS 93.635. See Temp Treas Reg 1.163-10T(o)(1)(iii) (1987). Plaintiffs argue that in Oregon perfection can be achieved by three types of notice: actual notice, record notice, and inquiry notice. (Ptfs' Statement of Points and Authorities in Support of Ptfs' Appeal at 9.) Inquiry notice is when the existence of a claimed interest in real property may be determined through investigation based on facts available to the claimant that would cause a reasonable person to make such inquiry. Akins v. Vermast, 150 Ore. App. 236, 242, 945 P.2d 640 (1997). Plaintiffs contend that they achieved inquiry notice by having actual and open possession of the property. Plaintiffs also contend [*7] that in this case inquiry notice is encompassed by constructive notice under ORS 93.643. Thus, they claim that the debt is secured through a land sale contract perfected by inquiry notice. Plaintiffs are in error. Constructive notice is defined as "documentation of the interest [in real property] recorded in the indices * * * in the county where the property is located. Such recordation, and no other record [with certain exceptions not relevant here], constitutes constructive notice * * *." ORS 93.643(1) (emphasis added). 3 3 The court notes that under common law, Plaintiffs' view of inquiry notice would be correct. High v. Davis, 283 Ore.315, 333 584 P.2d 725 (1978) ("Constructive notice encompasses both notice chargeable under the recording statute, ORS 93.710, and 'inquiry notice.' See Belt et ux v. Matson et al, 120 Ore. 313, 321, 252 P. 80 (1927).). None of the cases cited above dealt with a statutory definition of constructive notice. In the present case, ORS 93.643(1) precludes the use of the common law definition of constructive notice. [*8] Plaintiffs might have a valid point if ORS 93.635 permitted rather than required land sale contracts to be recorded. However, the requirement that land sale contracts be recorded implicitly excludes other means of perfecting those instruments under Oregon law. This analysis is further buttressed by looking at Temporary Treasury Regulation section 1.163-10T(o)(1)(ii) (1987) which defines secured debt as, among other requirements, "a debt that is on the

Page 68 2003 Ore. Tax LEXIS 105, *8 1889 Ore. LEXIS 66, ***31 security of any instrument * * * (ii) under which, in the event of default, the residence could be subjected to the satisfaction of the debt with the same priority as a mortgage or deed of trust in the jurisdiction in which the property is situated * * *." A land sale contract that has not been recorded will not have the same priority as a mortgage or deed of trust. This is consistent with ORS 93.640 where an unrecorded land sale contract is void against a subsequent purchaser in good faith whose conveyance is recorded first in time. CONCLUSION Plaintiffs and Lux accepted the benefits and burdens of their decision when, for whatever reason, they chose not to record [*9] the land sale contract. Unfortunately for Plaintiffs, one consequence of that decision was that the unrecorded land sale contract was not perfected under Oregon law. As a result, the moneys paid by Plaintiffs to Lux on that contract are not qualified residence interest within the meaning of IRC section 163(h)(2)(D) (1994). Defendant acted appropriately in disallowing the claimed mortgage interest deductions. Now, therefore, IT IS THE DECISION OF THIS COURT that Plaintiffs' appeal is denied Dated this ___ day of July, 2003. SALLY L. KIMSEY MAGISTRATE