Wood v. Sparks
59 S.W.2d 361 (1933)
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Rule of Law:
The priority of competing assignments of a lien on real property is governed by the law of notice and recording statutes, not by the law of negotiable instruments. A prior assignee who duly records their assignment has a superior claim to the lien over a subsequent assignee, even if the subsequent assignee possesses the genuine, non-negotiable instrument secured by the lien.
Facts:
- Texas Mortgage & Investment Company entered into a mechanic's lien contract with W. P. Sparks to secure a $4,000 debt for improvements on real property.
- The contract and an accompanying instrument, referred to as a 'promissory note', both expressly stated that the company had no personal liability and that the holder could only look to the property for payment, rendering the instrument non-negotiable.
- Sparks assigned the lien contract and the non-negotiable note to Davis Lumber Company.
- Davis Lumber Company executed a written assignment of the lien and note to N. Wood, which Wood duly recorded.
- At the time of the assignment, Davis Lumber Company delivered a forged copy of the non-negotiable note to Wood, who accepted it in good faith, while the company secretly retained the original.
- Subsequently, Davis Lumber Company executed a second assignment of the same lien to T. E. Hubby.
- At the time of the second assignment, Davis Lumber Company endorsed and delivered the genuine non-negotiable note to Hubby, who had constructive (record) notice of the prior assignment to Wood.
Procedural Posture:
- N. Wood sued T. E. Hubby and others in the district court of McLennan County, Texas, to determine ownership of a mechanic's lien.
- The district court, acting as the trial court without a jury, entered a judgment in favor of Hubby, ordering a foreclosure of the lien.
- Wood, as appellant, appealed the judgment to the Court of Civil Appeals.
- The Court of Civil Appeals, an intermediate appellate court, affirmed the trial court's judgment in favor of Hubby, the appellee.
- Wood, as plaintiff in error, brought the case to the Commission of Appeals/Supreme Court of Texas for final review.
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Issue:
Does a prior, duly recorded written assignment of a mechanic's lien give the first assignee superior title over a subsequent assignee who takes possession of the genuine, but non-negotiable, instrument secured by the lien?
Opinions:
Majority - Critz, Judge
Yes. A prior, duly recorded assignment of a lien on real property provides constructive notice to all subsequent purchasers, giving the first assignee superior title. The court determined that the instrument in question was not a negotiable promissory note because it disclaimed personal liability, making the law of negotiable instruments inapplicable. Instead, the controlling legal principle for determining rights to a lien on land is the law of notice, as established by recording statutes. Wood's assignment was recorded first, which served as constructive notice to the entire world, including Hubby, that Davis Lumber Company had already conveyed its interest in the lien. Therefore, when Hubby later purchased the same lien, he was legally charged with knowledge of Wood's prior claim. Because Davis Lumber Company had already transferred its title to Wood, it had nothing left to convey to Hubby, making Wood's claim superior regardless of the fact that Hubby possessed the genuine physical instrument.
Analysis:
This case firmly establishes that in Texas, the rules governing real property transactions (specifically, the recording statutes and the law of notice) take precedence over the rules for commercial paper when determining the priority of claims to a lien securing a non-negotiable instrument. It clarifies that possession of the debt instrument is secondary to the record of title for the lien itself. This decision reinforces the importance for any purchaser of a real estate lien to conduct a thorough title search to verify ownership, as they will be bound by any prior, properly recorded conveyances, regardless of what physical documents they receive.
