Chergosky v. Crosstown Bell, Inc.
463 N.W.2d 522, 1990 WL 192861, 1990 Minn. LEXIS 376 (1990)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A party who assumes the obligations of a prior, unrecorded interest in a property is not protected by the bona fide purchaser 'filter rule' and cannot gain priority over that interest by subsequently acquiring a recorded mortgage from a bona fide purchaser.
Facts:
- In 1977, Crosstown Bell, Inc. (Crosstown) entered into a contract for deed to sell a property to George and Dorothy Chergosky, which the Chergoskys did not record at that time.
- On December 7, 1978, Crosstown gave a mortgage on the same property to Summit State Bank (Summit), which had no notice of the Chergoskys' unrecorded contract. Summit recorded its mortgage on December 18, 1978.
- On March 31, 1983, Robert Griffith acquired a 70% interest in the property from Crosstown. The agreement explicitly stated that Griffith was assuming 70% of Crosstown's 'rights and/or obligations' under the Chergoskys' contract for deed, of which Griffith had actual knowledge.
- On August 19, 1985, the Chergoskys recorded their contract for deed.
- On August 22, 1985, Griffith purchased the 1978 mortgage that Crosstown had given to Summit, acquiring it from Summit's assignee, Metropolitan Bank.
- In November 1985, Griffith recorded the assignment of the mortgage.
Procedural Posture:
- George and Dorothy Chergosky sued Crosstown Bell, Inc., Alfred Teien, and Robert Griffith in district court (trial court) to determine the priority of their respective interests in the property.
- On cross-motions for summary judgment, the district court ruled in favor of the Chergoskys, holding that their claim under the contract for deed was superior to Griffith's mortgage.
- Griffith, Crosstown, and Teien appealed to the Minnesota Court of Appeals (intermediate appellate court), with Griffith as the appellant on the priority issue.
- The Court of Appeals reversed the trial court on the priority issue, holding that Griffith's mortgage was superior to the Chergoskys' contract for deed.
- The Chergoskys, as appellants, petitioned the Minnesota Supreme Court (highest court) for further review, which the court granted.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a party who assumes the obligations of a prior, unrecorded contract for deed lose the ability to assert priority over that contract by later acquiring a recorded mortgage on the same property from a bona fide purchaser?
Opinions:
Majority - Keith, Justice
Yes. A party who assumes the obligations of a prior, unrecorded interest in a property cannot use the bona fide purchaser 'filter rule' to defeat that interest. The general filter rule allows a bona fide purchaser (like Summit Bank) to transfer their superior title to a subsequent purchaser, even one with notice of a prior unrecorded claim. However, a well-recognized exception prevents a party from cleansing their own defective title by using a bona fide purchaser as a filter. In this case, when Griffith acquired his 70% interest in the property in 1983, he contractually assumed the obligations of the vendor under the Chergoskys' contract for deed. By doing so, he took his interest subject to the Chergoskys' rights and could not subsequently 'build up a title upon his own default' by purchasing the senior mortgage. To allow Griffith to assert priority would be to allow him to use the recording act to circumvent his own contractual duties, which equity forbids.
Analysis:
This case establishes a significant equitable exception to the bona fide purchaser 'filter rule' under recording acts. The decision demonstrates that a party's personal contractual obligations can override the protections typically afforded by the recording statutes. By preventing Griffith from using the filter rule, the court reinforced the principle that one cannot use a legal mechanism to escape a known and accepted duty to another party regarding the same property. This precedent impacts real estate transactions by holding parties accountable for the obligations they assume, even if those obligations stem from an initially unrecorded instrument, and limits the ability of sophisticated parties to 'cleanse' a title of known equitable interests.
