Property II, Pages 750–753

Schwalm v. Deanhardt

Court of Appeals of Kansas, 1995

Facts:

Plaintiffs agreed to sell their rental home to Eddins in the name of a trust. The next day, plaintiffs signed a quitclaim deed in favor of the trust, and Eddins signed a mortgage as trustee. However Eddins filed only the deed and not the mortgage. The same day, he then invited defendant to invest in the property, representing that he owned it with no loans against it. Although defendant initially refused, Eddins offered to shorten the time on the loan, and defendant wrote Eddins a check for investment without any investigation into Eddins or the property. After receiving the check, Eddins recorded plaintiffs' and defendant's mortgages, with defendant's being recorded ⁷/₁₀ of a second earlier.

Plaintiffs later obtained a judgment against Eddins to reconvey the property back to them and then sought to quiet title against defendant.

Procedural History:

Trial court granted defendant's motion for dismissal.

Issue:

Did defendant have notice of plaintiffs' mortgage?

Rule:

LexisNexis IconGoogle Scholar LogoJustia LogoWestLaw LogoPage 751, Paragraph 2

"'[Notice] is implied when it consists of knowledge of facts so informing that a reasonably cautious person would be prompted to further inquiry, which further inquiry would inform him of the outstanding unrecorded conveyance.'"

Reasoning:

Since the property was occupied, defendant at least had a duty to inquire about the tenants' interest in the property.

In addition, the circumstances surrounding defendant's investment were suspicious:

  • Eddins recorded his quitclaim deed the same day of the offer
  • The extremely high rate of return, which was increased when defendant was not interested
  • Eddins's claim he did not like banks because they were too slow
  • Eddins's request for a personal check even though everything else was in the trust's name
These would have led a reasonable person to investigate, which defendant did not do. Had he done so, he would have discovered the plaintiffs and asked why they conveyed with only a quitclaim deed.

Holding:

Defendant did have inquiry notice of plaintiffs' mortgage. Reversed.