Buttz v. James

Bruce, J.

(after stating the facts as above). The main question for determination in this case is whether the proof shows an unlawful preference-under § 60a of the national bankruptcy act, and, as incident thereto, whether a deed which is executed more than four months prior to the filing of a petition in bankruptcy but which is not recorded until a date which comes within such four months’ period, is an unlawful preference under the provisions of § 60a of the national bankruptcy act.

In the case at bar the deed was dated and delivered on April 6, 1908, but was not recorded until July, 1908. The adjudication in bankruptcy was on August 2, 1908, and this date was some four months .after the date of the delivery and execution of the deed but less than four months after the time of the recording of the instrument.

Section 60a of the national bankruptcy act reads as follows: “A person shall be deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition, or after the filing of the petition and before the adjudication, procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property, and the effect of the enforcement of such judgment, or transfer, will be to enable anyone ■of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class. Where the preference consists in a transfer, such period of four months shall not expire until four months after the date of the recording or registering of the transfer, if by law such recording or registering is required[32 Stat. at L. 799, chap. 487, Comp. Stat. 1913, § 9644.]

There is some conflict in the authorities as to whether the period of four months begins to run at the time of the actual recording in cases where, though the grantee has' not recorded his deed, he has nevertheless entered into open, notorious, and hostile possession of the premises, so that the creditors of the estate and the public generally have adequate notice of his occupancy. Compare Re Hunt, 139 Fed. 283; Re Chadwick, 140 Fed. 674; Meyer Bros. Drug Co. v. Pipkin Drug Co. 69 C. C. A. 240, 136 Fed. 396, with Benner v. Scandinavian-American Bank, 73 Wash. 488, 131 Pac. 1149, Ann. Cas. 1914D, 702; Telford v. Hendrickson, 120 Minn. 427, 139 N. W. 941. It is not necessary, however, for us to pass upon this question, and we prefer not to do so, as it is one which must ultimately be determined by the Federal courts. It is sufficient to say that, even though we hold that the running of the lour months’ period is not required by the statute in all cases to begin with the recording of the instrument, and that, if due notice is given of the conveyance, such recording is not necessary, we must nevertheless hold that the giving of the notice must be clearly established, and that ■the burden of proof of showing the same is on the grantee, who seeks to take advantage thereof. If such notice is based upon the theory of the possession of the grantee under the deed, such possession must be open, notorious, and hostile. There is no such proof in the case at bar. All that we find in the record on the subject is the testimony of the witness Kitsie G. Burdick, who, in answer to the leading question, “She has been in possession of that land ever since ?” — answered, “Yes, sir,” and the testimony of the defendant, Jessie James, the grantee of the deed, who testified as follows: “Q. You farmed the land in 1908 ? A. Which land? Q. This 520 acres that is in question in this lawsuit? A. A part of it. Q. Who farmed the rest of it? A. I guess August Piper had part of it.” This evidence falls far short of showing an ■open, notorious, and hostile possession, and it is to be noticed that to .all of these questions counsel for the defendant strenuously objected, in place of opening up the question and doing all that he could to show the nature of the possession. The evidence shows clearly that the land was situated in different tracts and some distance from the home of the defendant, Jessie James, and there is no evidence whatever of any open and notorious possession thereof which would be notice to the world at large.

“The words ‘open and notorious possession’ as applied to the adverse holding of land by another, mean that the disseisor’s claim of ownership must be evidenced by such acts and conduct as are sufficient to put a man of ordinary prudence on notice of the fact that the land in question is held by tbe claimant as bis own. Tbe mere possession of tbe land is not enough for tbis purpose. An adverse possession entirely excludes the idea of a bolding under tbe true owner. It is tbe knowledge, either actual or imputable, of tbe possession of bis lands by another, claiming to own them bona fide and openly, that affects tbe legal owner thereof” (see 1 R. C. L. 700) ; and tbe same measure of proof of notice of possession which is necessary to acquire title by adverse occupancy as against tbe original owner should, in our opinion and in tbe case of an unrecorded deed, be required of tbe grantee to avoid tbe provisions of tbe bankruptcy act as against tbe trustee in bankruptcy and tbe creditors of tbe bankrupt. A distinction, too-, must be made between acts of possession which would be notice to tbe owner of property and those which would be notice to tbe world at large or totbe creditors of a bankrupt estate.

Constructive notice has been defined in § 7290 of tbe Compiled Laws-of 1913, which reads as follows: “Every person who has actual notice of circumstances sufficient to put a prudent man upon inquiry as to a particular fact and who omits to make such inquiry with reasonable diligence is deemed to have constructive notice of tbe fact itself.” Although it may be true that tbe owner of land which is lying at some distance from bis residence might be deemed to have constructive notice of tbe claims and occupancy of a third person who has plowed or cultivated such land, and tbis from tbe very fact of seeing tbe land after cultivation and knowing that be himself has not done tbe work, yet we can hardly bold that tbis would be true of a third party or of a creditor, especially in a state like North Dakota where large areas of land are cultivated, through agents, by nonresidents, and by merely putting teams-upon them in tbe springtime and in tbe fall, and without any tenancy dr occupancy whatever being involved. Section 5594 of tbe Compiled Laws of 1913, being § 5038 of the Devised Codes of 1905, amends § 3594 of tbe Devised Codes of 1899, § 671, Civil Code 1877, and places attachment creditors in tbe same position as good-faith purchasers, so that tbe recording of tbe deed is as necessary to cut off their rights as-it is to cut off those of tbe latter, and in tbis respect tbe statute overthrows tbe ruling of tbis court in Leonard v. Fleming, 13 N. D. 629, 102 N. W. 308, in which it was beld that “a purchaser of real estate at a sheriff’s sale under attachment proceedings acquires no title as against a deed delivered before the levy of the attachment, but recorded after the attachment and before the judgment.” Mott v. Holbrook, 28 N. D. 251, 148 N. W. 1061. It is perfectly clear to us, therefore, that although the bankruptcy act may possibly not require recording as an absolute prerequisite to the validity of a deed as against a creditor, where such creditor has actual or constructive notice of the execution and delivery of the same, and on this point we express no opinion, it •does require that such recording shall be necessary in all cases where it would have been necessary to cut off the rights of a subsequent purchaser or of an attachment creditor. Under the holdings of this court an unrecorded deed is of no value against a purchaser or attachment creditor who purchases or levies in good faith and without knowledge, actual or constructive, of a prior deed; and, as we have before said, the record in this case does not show any possession on the part of the defendant which would amount to constructive notice to such persons nor any actual notice to them of the real facts in the case. The deed, therefore, is entirely inoperative as far as the trustee in bankruptcy is concerned.

Such being the case, it is not necessary for us to determine whether the evidence in this case justifies a holding that the transfer was in fraud of the rights of creditors under the laws of North Dakota. It is well, however, to say that the court is unanimous in the opinion that the subsequent transfer to Aaker was in fraud of creditors, and to also add that, in the opinion of the majority of the court, though not in the opinion of the writer of this opinion, the evidence is such as to warrant the holding that the transfers of the 520 acres of land to the defendant and of the 240 acres of land to Aaker were part of the same fraudulent scheme, and that fraud was at the base of and invalidated both transfers.

The judgment of the DistricDOourt is therefore reversed, with directions to the trial court to enter a judgment adjudging to be null and void the conveyances of the said 520 acres of land to the said Jessie James, and quieting the title in the plaintiff as against the claims of the said defendant, Jessie James, and awarding the possession of the said premises to the said trustee. The costs and disbursements of this appeal will also be taxed against the defendant and respondent.