James Bennerson and Vivian Bennerson v. Beresford and Marie Small v. Frank Weisner Real Estate Company and as Agent for William Ephraim and Frank Weisner, Personally and Eileen Morris Real Estate and Eileen Morris Personally and as Agent for William Ephraim and William Ephraim. Appeal of James Bennerson and Vivian Bennerson
Docket: 87-3105
Court: Court of Appeals for the Third Circuit; March 29, 1988; Federal Appellate Court
The United States Court of Appeals for the Third Circuit heard the case of James and Vivian Bennerson v. Beresford and Marie Small regarding the title to a property, Plot 63-R, in Estate Whim, St. Croix. The Bennersons claimed ownership, while a recent deed recorded to the Smalls contested this claim. In a prior appeal, the court had remanded the case to determine which properties had been fraudulently transferred, establishing that good title could pass when the property owner was estopped from asserting the Statute of Frauds, whereas other transfers were void due to forgery.
In this ruling, the court concluded that the Smalls could not hold legal title through a forged deed, rendering their title void. Furthermore, the Smalls were aware of a pending lawsuit concerning the true title, disqualifying them from the protections of bona fide purchasers. Despite this, the court acknowledged the Smalls' equitable claims and permitted them to seek recovery for unjust enrichment against the true owners of the property.
The historical context reveals that Eugene and Antoinette Bennerson owned the property, which passed to Antoinette after Eugene's death in 1965. Henry Joseph, raised by the Bennersons, sold parcels of Antoinette's land without her authorization, leading to a lawsuit by her to invalidate those sales. A special master initially found that Antoinette had appointed Joseph as her agent, thus estopping her from claiming fraud. However, the appeals court later reversed this decision, mandating a thorough evidentiary hearing to clarify the estoppel issue for each individual grantee.
On July 2, 1981, the district court concluded that some conveyances by Joseph were void while others were valid, determining that Antoinette had represented Joseph as her 'man of business,' akin to a power of attorney. This led to the court finding that Joseph had the authority to sell land on her behalf, and Antoinette was estopped from invoking the Statute of Frauds defense for those transactions. A key conveyance involved Joseph's sale of Plot 63-R to William Ephraim on May 19, 1972, where Ephraim did not respond to the Joseph lawsuit despite being served.
In August 1977, Beresford and Marie Small entered into a land purchase contract for Plot 63-R, believing Ephraim was the landowner. After making a down payment, they were to make monthly payments without receiving a deed until full payment. During construction in August 1978, a notice was placed on the property indicating it was under litigation.
Upon discovering the notice, the Smalls sought clarification from the real estate agency, which found no litigation affecting the title. Further inquiries to the recorder of deeds and the Bennersons yielded limited information about the ongoing litigation, as the attorney for Antoinette refused to discuss the matter with them. Despite a notation in August 1978 indicating they would not continue payments due to claims in court, the Smalls paid the remaining balance on the contract in October 1978. A deed was sent to Ephraim for signature, which he returned after not responding to the initial request. Records show Ephraim was notified of the Bennerson v. Joseph lawsuit on December 11, 1978, and the deed to the Smalls was recorded on February 13, 1979.
On July 2, 1981, a default judgment was entered against William Ephraim in the case of Bennerson v. Joseph. The district court noted that there could be subsequent purchasers of the subplots who were not part of the litigation, indicating that the default judgment applied solely to the named defendants. The court acknowledged that bona fide purchasers could exist who had bought plots without knowledge of the action, necessitating a separate lawsuit to address their interests. Following the judgment, the Bennersons sought either rent payments or eviction from the Smalls, who failed to pay. The Smalls responded by asserting their status as bona fide purchasers and counterclaimed for quiet title or unjust enrichment due to their improvements on the property.
After a bench trial, the territorial court ruled that the Smalls had notice of the ongoing action prior to their purchase and granted the Bennersons possession of the premises but denied back rent, finding it inequitable. The court also rejected the Smalls' quiet title claim but permitted recovery for unjust enrichment based on taxes and improvements made. On appeal, the appellate division reversed the decision, determining that the Smalls were bona fide purchasers and remanded the case for judgment in their favor on the counterclaim.
The review centers on legal interpretations and whether the Smalls were bona fide purchasers, applying different standards for factual and legal components. The discussion also emphasizes that a forged deed cannot confer valid title, even to a bona fide purchaser, unless the grantor is estopped from claiming its invalidity.
The Smalls argue that the issue of whether Joseph was a forger in the transaction with their grantor, Ephraim, was either undecided or resolved in their favor, as the district court stated that the default judgment applied only to Ephraim and not to subsequent purchasers. The district court ruled that Joseph's conveyance of Plot 63 was void due to his admission of signing another's name on the deed, and it determined that no estoppel applied to Antoinette regarding this transaction. Although the district court intended to limit the rejection of the Statute of Frauds defense to certain grantees, it could not enhance the Smalls' standing beyond that of Ephraim, who was part of a flawed title chain due to the forged deed. Consequently, the Smalls could not secure valid title from this illicit deed.
Additionally, the Smalls’ property rights hinged on the outcome of the Bennerson v. Joseph litigation. The appellate court previously noted that many grantees, including Ephraim, did not participate in the special master's proceedings, stating that the rights of remote grantees depend on the circumstances surrounding the immediate grantees. The conditional language used by the district court added complexity, prompting the Smalls to assert their status as subsequent grantees without notice, which would exempt them from the default judgment's effects.
The Bennersons contended that the appellate division misapplied the legal standard in evaluating the territorial court's finding that the Smalls had notice of the lawsuit regarding Plot 63. They referenced the Krasnov v. Dinan case, which underscores that an appellate court must uphold the factfinder's ultimate factual determinations unless they lack evidentiary support or logical relation to the evidence. The Bennersons argued that the territorial court correctly found the Smalls were not bona fide purchasers without notice and that the appellate division lacked the authority to overturn this conclusion.
The central issue pertains to whether the Smalls had notice of a pending lawsuit that would affect their bona fide purchaser status. This matter is characterized as a mixed question of law and fact. The appellate division maintained the territorial court's factual findings but reached a different legal conclusion regarding the notice issue. The legal inquiry focuses on whether the Smalls had "actual implied" notice that would have alerted a reasonably prudent purchaser to potential title defects.
The territorial court determined that to qualify as bona fide purchasers, the Smalls needed to show they were unaware of any facts that would alert them to the Bennersons' claim at the time of purchase. It held that if the Smalls had knowledge of circumstances that would prompt a prudent inquiry, they would be presumed to have made such an inquiry and would bear the consequences of any undiscovered facts.
The court indicated there is no uniform standard of diligence; rather, diligence must be tailored to the specific situation. It concluded that the Smalls should have inquired at the district court office and sought more information from the Bennersons. Their failure to do so was deemed inadequate, resulting in the denial of their bona fide purchaser status.
Conversely, the appellate division found substantial evidence indicating that the Smalls undertook a good faith inquiry and that their inability to uncover the relevant facts stemmed from misleading information received. However, it was determined that the appellate division misapplied the law regarding due diligence to the established facts. According to precedent, a purchaser who is put on inquiry is presumed to follow through diligently, and if they can convincingly demonstrate that they acted with due care but still failed to uncover conflicting claims, the presumption against them can be overcome.
The appellate division's due diligence finding regarding the Smalls' title inquiry was deemed inappropriate because the investigation did not yield sufficient information to assure a prudent person of a defect-free title. While the Smalls actively sought information, they ultimately uncovered more questions, particularly about a conflicting interest that indicated potential issues with the title. Their awareness of ongoing litigation and subsequent refusal to make payments further demonstrated their concern about finalizing the purchase, leading to the conclusion that they lacked the bona fide purchaser status. The appellate division's ruling was reversed based on the Smalls' actual implied notice of a potential title defect, making it unnecessary to evaluate additional arguments from the Bennersons, including claims related to actual express notice and the principles of lis pendens. Although the Smalls were entitled to partial recovery for their counterclaim regarding Plot 63-R, their request for quiet title was denied by the territorial court. The appellate division's reversal of the territorial court's decision regarding unjust enrichment was also noted. In the Bennersons' appeal, they sought reinstatement of the territorial court's judgment, which was granted, reversing the appellate division's decision while not contesting the unjust enrichment award. The document also referenced a previous third-party complaint against an agency that was dismissed and indicated that the Smalls did not demonstrate an estoppel against the Bennersons regarding the conveyance to Ephraim. The requirements for bona fide purchaser status were aligned with general common law, as no specific Virgin Islands law or Restatement provisions were cited.
