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21. The court should rule for
The recording act of the jurisdiction provides: «No unrecorded conveyance or mortgage of real property shall be good against subsequent purchasers for value without notice, who shall first record.»
The bank discovered that the instrument of release had been altered and brought an appropriate action against the woman and the purchaser to set aside the release as it applied to Lot 5. The woman did not defend against the action, but the purchaser did.
Upon payment of $10,000, the woman obtained a release of Lot 2 duly executed by the bank. She altered the instrument of release to include Lot 5 as well as Lot 2 and recorded it. The woman thereafter sold Lot 5 to an innocent purchaser for value.
A woman owned several vacant lots in a subdivision. She obtained a $50,000 loan from a bank and executed and delivered to the bank a promissory note and mortgage describing Lots 1, 2, 3, 4, and 5. The mortgage was promptly and properly recorded.
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Under a notice statute, a subsequent bona fide purchaser (i.e., a person who gives valuable consideration and has no notice of the prior instrument) prevails over a prior grantee who failed to record. The important fact under a notice statute is that the subsequent purchaser had no actual or constructive notice at the time of the conveyance.
Under a race-notice statute, a subsequent BFP is protected only if she records before the prior grantee. The operative words in a race-notice statute are «without notice» and «first recorded.»
Under a pure race statute, whoever records first wins, which means actual notice is irrelevant.
Only BFPs are entitled to prevail against a prior transferee under notice and race-notice statutes. To attain this status, a person must satisfy three requirements: (i) be a purchaser; (ii) taking without notice of the prior instrument; and (iii) pay valuable consideration. If these requirements are not met, the person is not protected by the recording acts.
D is correct. The recording act quoted in this question is a race-notice act. Recording, however, is performed for the purpose of providing notice. It has no effect on the validity or invalidity of a deed.
In this case, an invalid (forged) deed was recorded by the woman. The innocent purchaser's lack of notice of the forgery and of any earlier purchasers is irrelevant to the validity of the deed. The invalid deed containing the forged release is ineffective.
A is incorrect. While recording gives a subsequent purchaser notice of a conveyance, a purchaser cannot be expected to inspect each deed the record contains for forgery or other bad faith.
B is incorrect. If fraud is committed by either the grantor or grantee, a deed can be declared invalid. An invalid deed cannot be relied on.
C is incorrect. As explained above, The purchaser is only required to search the record, not to inspect each deed the record contains for forgery, or contact each previous grantor and grantee listed in the index to ensure the recordings were legitimate.