Mary Osin v. Robert H. Johnson
100 U.S. App. D.C. 230, 1957 U.S. App. LEXIS 2976, 243 F.2d 653 (1957)
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Rule of Law:
An unrecorded equitable interest arising by operation of law, such as a constructive trust, has priority over the lien of a subsequent judgment creditor who did not extend credit in reliance on the record title. However, such an interest is subordinate to the claim of a subsequent bona fide purchaser for value who relied on the record title without notice of the prior equity.
Facts:
- An appellant woman, Osin, agreed to sell a parcel of real estate to Johnson for $30,000.
- Osin executed and delivered a deed to Johnson, taking back a promissory note for the full purchase price with no down payment.
- Johnson represented to Osin that he would prepare, execute, and record a deed of trust to secure his purchase money note.
- After receiving the deed, Johnson recorded it but fraudulently failed to prepare and record the deed of trust as promised.
- Johnson then borrowed $11,000 from Perpetual Building Association, securing the loan with a first deed of trust on the property.
- Subsequently, Johnson borrowed an additional $3,300 from Glorius, securing it with a second deed of trust.
- Thereafter, other creditors of Johnson, including Hakim and Umbricht, obtained money judgments against him, which became statutory liens on the property.
Procedural Posture:
- Osin filed a suit for equitable relief in the U.S. District Court for the District of Columbia against Johnson and the trust holders.
- Johnson's judgment creditors, Hakim and Umbricht, intervened in the lawsuit.
- The trial court found that Osin knowingly conveyed the property to Johnson.
- The trial court ruled that the interests of the appellee trust holders and judgment creditors were superior to Osin's unrecorded claim.
- Osin (appellant) appealed the trial court's judgment to the U.S. Court of Appeals for the D.C. Circuit.
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Issue:
Does a grantor's unrecorded equitable interest, arising from the grantee's fraud, have priority over the liens of subsequent bona fide purchasers and judgment creditors of that fraudulent grantee?
Opinions:
Majority - Burger, Circuit Judge
No, as to the bona fide purchasers; Yes, as to the judgment creditors. A grantor's unrecorded equitable interest is subordinate to the claims of subsequent bona fide purchasers for value but is superior to the liens of subsequent judgment creditors who did not rely on the record title. The holders of the deeds of trust (Perpetual and Glorius) are bona fide purchasers for value who innocently relied on the state of the public record which Osin's actions allowed to exist. Both recording statutes and general principles of equity protect such purchasers, placing the loss on the party whose negligence enabled the fraud. In contrast, judgment creditors are not in the same position. Under common law, a creditor's lien attaches only to the debtor's actual interest in the property, subject to any existing equities. While the D.C. recording statute elevates judgment creditors to the level of bona fide purchasers, this protection only applies to interests that are required to be recorded. A constructive trust, which arises by operation of law to remedy fraud, is inherently incapable of being recorded and thus falls outside the scope of the recording act. Therefore, Osin's unrecorded constructive trust retains its common law priority over the liens of Johnson's judgment creditors, unless those creditors can prove they affirmatively extended credit in reliance on Johnson's record title.
Analysis:
This decision clarifies a critical limitation on the power of recording statutes, establishing that they do not defeat prior equitable interests that are inherently unrecordable. The court distinguishes between bona fide purchasers, who actively rely on the record title, and general judgment creditors, who typically do not. By protecting the victim of fraud against non-relying judgment creditors, the ruling reinforces the equitable principle that a creditor's lien should only attach to the debtor's true, beneficial interest in a property. This creates a significant precedent for cases involving fraud and competing claims, carving out an exception to the statutory priority often granted to judgment creditors.
