Summary of Lewis v. Superior Court, CA Ct. of Appeal, 2nd District (1994)

Parties: Lewis challenges the Superior Court’s inclusion of them in a suit as a third party who took notice when they purchased property of a suit against the seller of their property.

Cause of action/remedy sought: The following is a legal action for SJ.

Procedural History: Trial court denied motion for SJ.  Court of Appeal held that the lis pendens was not properly recorded until it was indexed, which was the day after the title passed to PL’s.

Facts: PL’s purchase of property from Shipley in February 1992.  A few days before PL’s acquired title, Shipley was given notice (lis pendens) of a suit against it.  Closing took place February 28, the deed was recorded on that day, and indexed the day after.

Issue(s): Under CA property law, does a purchaser of property take constructive notice of a lis pendens action when the deed was indexed the day after title was acquired?

Holding: No.  The court held that where little of the purchase price remained unpaid, or where substantial improvements had been made prior to notice, equity demanded that petitioners retain the property and that the defrauded party be limited to money damages. The court further held that the claims against the seller all involved alleged fraud and conversion, not disputes over title, and that therefore the lis pendens was invalid.

Court’s Rationale/Reasoning:  The court balanced the equities based on previous case law, and found that it would be inequitable to force a purchaser to check the record after he has already acquired title and title insurance.  PL’s paid cash for such property, requiring no equitable interest to be held for them; they owned the land upon the conveyance of the deed.

Why does the suit with Fontana have anything to do with buyers? Because Fontana had pending litigation (lis pendens). This puts everyone on notice that there is an existing suit.  The doctrine of lis pendens is an application of the statute of Quia Emptores- it is a common law doctrine that existed long before recording statutes.  The problem was applying the doctrine with the recording statutes.  In order for a subsequent owner or purchaser to be bound by the doctrine, there had to be notice in the public records.

If it has been recorded the whole world has constructive notice, however in this case, although the notice was recorded, it was not indexed until after the buyers .  This shifts the burden from the buyer to the one doing the recording to not just record but record it early enough to make sure it is properly indexed.  This is a minor burden than for the buyer to see if there was an un-indexed document in the courthouse.  Since they paid off the note in cash after the indexing, the issue was whether they were still a bfp.  One does not need to pay cash to be a bfp

Rule: If a purchaser receives title, title insurance entitled under the purchase agreement, then constructive notice before payment would make the situation inequitable for a purchaser, as they would have to undertake a title search before each and every payment.

Did court avoid issues?: No, but it restricted the analysis of Jewitt and Davis to fit their needs.

Dicta: Interpretation of Jewitt v. Palmer to assess Davis v. Ward.