Opinion
No. 34401
Decided March 21, 1956.
Mortgages — Priority of liens — Defectively executed mortgage — Not entitled to record — Section 5301.25, Revised Code — Effect of recording — Defective execution proved, how — Not properly executed, when — Lack of witnesses — Not acknowledged by one grantor — Section 5301.01, Revised Code.
1. Under the provisions of Section 5301.25, Revised Code, a defectively executed mortgage, although recorded, does not establish a lien with priority over a properly executed mortgage which is recorded subsequently; and the defective execution may be proved by evidence of defects which are not apparent on the face of the instrument.
2. A mortgage by two persons is not properly executed in accordance with the provisions of Section 5301.01, Revised Code, and is not entitled to record under Section 5301.25, Revised Code, and the recording thereof does not constitute constructive notice to subsequent mortgagees, where there is a failure to follow the statutory requirements in that the mortgage is not signed and acknowledged by either mortgagor in the presence of two witnesses, and the signing by one mortgagor is not in fact acknowledged before a notary public.
APPEAL from the Court of Appeals for Muskingum County.
This cause originated in the Court of Common Pleas of Muskingum County when the plaintiff, the Citizens National Bank in Zanesville, a corporation, filed its petition to marshal liens on certain real estate located in South Zanesville, Ohio. The defendants are Bertha G. Denison and Ralph E. Denison, the grantors of a mortgage to the bank of record in said county, and the Citizens Budget Company of Zanesville, Ohio, Inc., and Ernest B. Graham, who claim liens by reason of mortgages on the same premises.
The cause is before this court on the pleadings in the lower court and a stipulation filed in this court that "the facts as found by the trial court in its journal entry rendering judgment in this cause are the facts of the case and are the facts upon which the appeal herein is predicated."
The petition of the bank is in the usual form where foreclosure of a mortgage is sought and alleges that the budget company and Graham "have or claim to have some lien or interest in said real property, but that the same is subsequent and subordinate to plaintiff's claim herein."
The petition alleges that the mortgage on which the action is predicated was executed by the Denisons on August 16, 1952, and filed on the same day for record in said county; and that this mortgage and note were given to refinance a certain mortgage and note given by the Denisons to the bank in the sum of $3,600, dated October 28, 1948, which mortgage was released on the records of the recorder's office of Muskingum County, Ohio, on August 16, 1952, the date of filing of the mortgage on which this action is predicated. The prayer of the petition is for judgment against the Denisons in the sum of $3,267.52, with interest; that the mortgage be foreclosed, the liens marshalled and the property sold; and that the budget company and Graham be required to set up their liens upon or interests in said property or be barred.
An answer and cross-petition was filed by the budget company, setting up its mortgage which was dated March 22, 1950, filed March 23, 1950, and recorded April 5, 1950. This mortgage was given to secure four promissory notes totalling $1,402.96, and included among the properties therein described are the premises owned by the Denisons in South Zanesville, Ohio, on which the bank claims its lien, and other real estate.
The prayer of the cross-petition is for judgment against Ralph G. Denison, for foreclosure of the mortgage, for a declaration that it is the first and best lien on the premises, that the liens be marshalled, and that the property be sold and the proceeds applied according to law.
An answer and cross-petition was filed by Graham, setting up a claim on a note executed by the Denisons and secured by mortgage on the same real estate, which was recorded in Muskingum County December 31, 1952.
The Graham cross-petition alleges that "the mortgage executed by Ralph and Bertha Denison in favor of the cross-petitioner The Citizens Budget Company, was never witnessed or acknowledged, but the notary [who] had placed his signature upon said mortgage, never took the acknowledgment of Ralph or Bertha Denison, and did not see their signatures placed upon said instrument, and that said purported mortgage instrument is not a valid mortgage as far as this cross-petitioner is concerned." He prays that his mortgage be held the second best lien on the premises, subject only to the bank's lien.
An answer was filed by the Denisons to the bank's petition, budget company's cross-petition and Graham's cross-petition. The answer admits the allegations in the bank's petition; admits the allegations set forth in Graham's cross-petition; admits the execution of the notes and mortgage as set forth in the cross-petition of the budget company; and denies that the mortgage instrument set forth in the cross-petition of the budget company was ever witnessed by two witnesses or acknowledged by them.
The cross-petition of Graham and the answer of the Denisons were put in issue by replies by the budget company.
The matter was submitted to the trial court on the question of law as to whether the effect of the purported mortgage of the Denisons to the budget company is any different than appears of record, as disclosed by the pleadings and the mortgage itself which constitutes an exhibit in the cause.
The trial court found that the bank's existing mortgage from the Denisons is entitled to priority as the first lien by subrogation to its mortgage of October 28, 1948, in the amount of $2,556.02, being the amount secured by said prior mortgage at the time of refinancing by the bank's current note and mortgage debt; and finally that Graham is entitled to be paid from the bank has the next lien for the balance of its existing mortgage debt; and finally that Graham is entitled to be paid from the remaining funds.
An appeal on questions of law was perfected to the Court of Appeals, and that court affirmed the judgment of the Court of Common Pleas for the reasons stated in its opinion.
The cause is before this court upon the allowance of a motion to certify the record filed by the bank and Graham.
Messrs. Graham, Graham, Gottlieb Johnston, for appellants.
Mr. D.H. Crossland, for appellee Citizens Budget Company of Zanesville, Ohio, Inc.
The bank and Graham assign as error the judgment of the Court of Appeals affirming the judgment of the Court of Common Pleas which decided that the improperly executed mortgage of the budget company is a valid lien on the real estate of Mrs. Denison as against the mortgage held by Graham and as against that portion of the bank's subsequent mortgage which exceeds the unpaid balance on its original mortgage. The evidence as stipulated by the parties and disclosed by the finding of facts of the Court of Common Pleas may be summarized as follows:
The two Denisons each separately signed an instrument intended by them as a mortgage deed against real estate then in the name of Mrs. Denison, in order to secure credit for Denison from the budget company. No misrepresentation was made nor fraud practiced upon either of them by the mortgagee in obtaining their separate signatures on said instrument. The notary public did not actually witness the signing by Mrs. Denison of her name nor did she acknowledge her signature or signing to him either in person or otherwise then or afterwards. Denison executed the instrument after he saw and recognized that it had been signed by his wife, delivered it to an actual witness of his and her signatures and thereafter acknowledged his signature over the telephone to the notary public who thereupon affixed his name both as witness and acknowledging officer. Neither the bank nor Graham was misled by the facts underlying the execution and acknowledgment of the mortgage deed.
The bank and Graham in their appeal to this court urge that, under the facts set forth, the mortgage of the budget company when recorded did not constitute a lien on the premises as against mortgages properly executed and recorded subsequent thereto. The budget company urges that, where the mortgage is apparently regular, with witnesses to the signatures and acknowledgment before a notary public, and is properly recorded, it can not be challenged by contradictory testimony of the parties and the notary public.
This controversy involves rights among creditors with mortgage liens executed and properly recorded and does not involve any controversy between the mortgagees and the makers of these mortgages; therefore, the court is referred by the parties to the statutes applicable to the execution of mortgages and the recording thereof. These sections are as follows:
Section 8510, General Code (Section 5301.01, Revised Code). "A deed, mortgage, or lease of any estate or interest in real property, must be signed by the grantor, mortgagor, or lessor, and such signing be acknowledged by the grantor, mortgagor, or lessor in the presence of two witnesses, who shall attest the signing and subscribe their names to the attestation. Such signing also must be acknowledged by the grantor, mortgagor, or lessor before a judge of a court of record in this state, or a clerk thereof, a county auditor, county engineer, notary public, mayor, or justice of the peace, who shall certify the acknowledgment and subscribe his name to the certificate of such acknowledgment."
Section 8543, General Code (Section 5301.25, Revised Code). "All other deeds and instruments of writing for the conveyance or encumbrance of lands, tenements, or hereditaments, executed agreeably to the provisions of this chapter shall be recorded in the office of the recorder of the county in which the premises are situated, and until so recorded or filed for record, they shall be deemed fraudulent, so far as relates to a subsequent bona fide purchaser having, at the time of purchase, no knowledge of the existence of such former deed or instrument."
The purpose and effect of acknowledgments in general are well stated as follows in 7 Thompson on Real Property (Perm. Ed.), 416:
"The acknowledgment of a deed is required by statute chiefly for the purpose of affording proof of the due execution of the deed by the grantor, sufficient to authorize the register of deeds to record it. The statutes in general declare that a deed shall not be admitted of record unless it is acknowledged or proved by attesting witnesses in the mode prescribed. A deed without acknowledgment, or defectively acknowledged, passes the title equally with one acknowledged, as against the grantor and his heirs; but without an effectual acknowledgment a deed can not be recorded so as to afford notice of the conveyance to all the world. Acknowledgment has reference, therefore, to the proof of execution, and not to the force, effect, or validity of the instrument. A defect in the instrument is not cured by acknowledgment. Acknowledgment is a prerequisite to recording the deed and making it constructive notice of all the facts set forth in it. The record of a deed without acknowledgment or proof as prescribed by statute does not afford constructive notice of it. In like manner, the record of a deed defectively acknowledged by the parties does not impart constructive notice. The validity of a deed at common law did not depend on its acknowledgment; and where acknowledgment is required, its object is the protection of creditors and purchasers."
The rule explained in Thompson has been applied in the cases decided by this court. Where the acknowledgment or execution of the deed is defective, it has been held ineffective as against subsequent creditors. See White v. Denman, 1 Ohio St. 110; Erwin v. Shuey, 8 Ohio St. 509; Amick v. Woodworth, 58 Ohio St. 86, 50 N.E. 437; and Straman, Admr., v. Rechtine, 58 Ohio St. 443, 51 N.E. 44.
A defectively executed conveyance of an interest in land is valid as between the parties thereto, in the absence of fraud. Logan Gas Co. v. Keith, 117 Ohio St. 206, 158 N.E. 184, and Baldwin v. Snowden, 11 Ohio St. 203, 78 Am. Dec., 303.
However, as between the parties to the mortgage, where the deed is executed as the result of fraud, such instrument is ineffective to convey the land. See Williamson v. Carskadden, 36 Ohio St. 664.
The effect of the recording of a defective deed is stated in the case of Amick v. Woodworth, supra, paragraph two of the syllabus of which is as follows:
"A mortgage with but one attesting witness beside the mortgagee, or the acknowledgment of which was taken by him as a notary public, is not entitled to record, nor valid, though admitted to record, as against a subsequent properly executed and recorded mortgage."
Under the provisions of Section 8543, General Code, and the above-cited cases, a defectively executed mortgage when recorded does not establish a lien with priority over subsequently recorded mortgages properly executed. This general rule is not confined only to instances in which on its face the instrument is defective but is applicable also to other situations in which, by evidence, the defective condition of the conveyance is disclosed.
It certainly must be evident that the duties of a notary public in connection with the execution of instruments requiring acknowledgments or affidavits are not merely casual. There are many conveyances today which require recording to establish liens, as for example certificates of title to automobiles, chattel mortgages and other mortgages. A notary public who affixes his name and seal to an acknowledgment or affidavit which states that the parties appeared before him when in effect they did not so appear is himself making an untrue statement, which may be followed by both civil and criminal liability. See Section 131-1, General Code (Sections 147.14 and 147.99, Revised Code).
Until the General Assembly removes the requirement of the acknowledgment of signatures to instruments which must be recorded for the protection of liens, such acknowledgments must be executed lawfully, and the situation which developed in this case is a good example of the injury and loss which result from the failure of a notary public to recognize the seriousness and importance of his duties.
For the reasons stated, the judgment of the Court of Appeals, affirming the judgment of the Court of Common Pleas that the mortgage of the budget company was entitled to record and is a valid lien superior to those of the bank and Graham, is erroneous.
The judgment of the Court of Appeals is, therefore, reversed and the cause remanded.
Judgment reversed and cause remanded.
WEYGANDT, C.J., HART, ZIMMERMAN STEWART, BELL, and TAFT, JJ., concur.