In Porto Rico, a cautionary notice must be filed in accordance
with the local law in order to render an innocent third party
liable to dismemberment of ownership by reason of purchase during
pendency of a suit to set aside a simulated sale.
Romeu v.
Todd, 206 U. S. 358.
The right to file a cautionary notice in Porto Rico under the
existing mortgage law is not absolute in all cases; in certain
classes of cases,
Page 217 U. S. 151
the right but depends on an express permissive order of the
court, and one having knowledge of a suit to dismember title of his
grantor in which such order is not a matter of right and no such
order is applied for or granted is not bound because he had general
knowledge of the pendency of the suit.
Quaere whether one buying property in Porto Rico with
actual knowledge of pendency of a suit to dismember title for fraud
in which the law gives an absolute right to a cautionary notice
without the prerequisite of judicial permission would be liable for
the ultimate result of the suit even if no cautionary notice were
registered.
The facts are stated in the opinion.
Page 217 U. S. 152
MR. JUSTICE WHITE delivered the opinion of the Court.
Todd, a judgment creditor of Pedro and Juan Agostini, sued Anna
Merle to subject property registered in her name to the payment of
the judgment on the ground that she was a mere interposed person,
resulting from simulated conveyances to
Page 217 U. S. 153
her made by the Agostinis. To enforce a decree in his favor,
Todd advertised the property for sale. Romeu, alleging himself to
be an innocent third person who had bought the property pending the
suit, filed a bill to enjoin. A demurrer on behalf of Todd having
been sustained, and a final decree entered against Romeu, he
brought the cause to this Court. The judgment was reversed, and the
case remanded.
Romeu v. Todd, 206 U.
S. 358.
In virtue of leave given him by the court below, Todd answered,
and alleged that Romeu was not an innocent third person, because he
had bought with notice of the pendency of the suit. A demurrer on
the ground that this answer stated no defense was sustained, and a
final decree was rendered enjoining Todd from proceeding against
the property. This appeal is prosecuted by Todd, and the question
for decision is thus stated in the brief filed on his behalf:
"What is the law of Porto Rico as to the effect of bringing home
to an intending purchaser of real estate knowledge or notice of a
defect in the title to, or of a lien upon, such real estate in
favor of some person other than the vendor, where such knowledge or
notice is not required [acquired?] from the registry of properties,
such defect or lien not being recorded?"
Under the assumption that the pending suit, by operation of law,
dismembered the ownership of Merle in the property to which the
suit related pending the same, or operated, from the fact of its
pendency, to create a lien upon the property, decisions of the
supreme courts, both of Porto Rico and of Spain, are referred to as
establishing that one who acquires a right in or to property, with
knowledge of a defective title or of an existing lien is not a
third party, and therefore is not entitled to rights which depend
for their existence upon that relation. Conceding, for the sake of
the argument, that the decisions relied on announce the principle
which it attributed to them, we think they are here inapposite. We
say this because their applicability depends upon the erroneous
assumption upon which the entire argument necessarily proceeds --
that is to say, upon the theory
Page 217 U. S. 154
that, by operation of law, the effect of the pending suit
against Merle was either to create a defect in the title of the
property standing in her name or to engender a lien on the
same.
When the case was previously here we held: (a) that, differing
from the ancient Spanish law, the modern Spanish law did not
deprive an owner of property of the right, because a suit was
brought against him concerning the same, to dispose of the property
pendente lite. Pp. 363, 364. But while this was the case,
the modern law, in order to prevent this right from depriving
suitors of the ultimate benefit to result from the successful
prosecution of suits, and to protect the public, provided for a
system of cautionary notices by means of which suitors in the cases
provided for could put upon the public record a notice concerning
the pendency of their suits, thus protecting those who dealt with
property upon the faith of the recorded title, leaving the owner
the power to dispose of his property pending a suit, and at the
same time, saving to those who sued the enjoyment of their ultimate
rights if they recorded a cautionary notice. (b) As these
requirements of the local law were incompatible and in conflict
with the doctrine of lis pendens prevailing in the courts of the
United States, it was held that that doctrine did not obtain in
Porto Rico, because the legislation of Congress concerning that
island contemplated the fostering, and not the overthrow, of the
local laws, especially those governing the title to real estate. P.
364. (c) Applying these rulings, it was decided that as Todd had
not availed of the privilege of the local law by applying for and
recording a cautionary notice, the court below had erroneously
decided that the property in the hands of Romeu, an innocent third
person, who had bought from Merle on the faith of the record title,
was liable to Todd as the result of the decree ultimately rendered
in his favor.
It thus becomes apparent that the assumption as to dismemberment
of ownership and consequent defective title, or a lien on the
property arising solely by the pendency of the Todd suit, upon
which the case before us primarily depends, is
Page 217 U. S. 155
without foundation, and was expressly decided to be so by our
previous ruling. The case, then, if it has any foundation at all,
can only rest upon the hypothesis that as, by the pendency of the
suit, the law gave the right to obtain a cautionary notice and put
the same upon the public records, so that, if the suit ultimated in
favor of the complainant, the person buying the property or dealing
concerning the same pending the suit would do so subject to rights
finally established in favor of the complainant, therefore the
knowledge of the suit and of the rights arising from it as a result
of the privilege of registering a cautionary notice deprived the
person having such knowledge of the attitude of an innocent third
party, and subjected the property in his hands to a responsibility
for the result of the suit to the extent which would have been the
case had the notice been recorded. But this also depends upon an
erroneous assumption as to the operation and effect of the local
law as to cautionary notice. In that law, as expressly held in the
previous opinion, the provision as to cautionary notices which was
applicable to the suit of
Todd v. Merle was embraced in
the mortgage law, and was as follows (Article 42):
"Cautionary notices of their respective interests in the
corresponding public registries may be demanded by: 1. The person
who enters suit for the ownership of the real property, or for the
creation, declaration, modification, or extinction of any property
right."
This provision is followed by nine other paragraphs, specifying
particular cases in which a cautionary notice is authorized, none,
however, or these paragraphs, having any relation to the case in
hand. But the right to have a cautionary notice and to record it in
order to cause the pendency of the suit to be operative against
property involved in the suit, against persons buying, pending the
suit, on the faith of the registered title, was not an absolute one
arising in and by the effect of the pendency of the suit, but was
contingent -- that is to say, could only arise as the result of an
application made to the court to grant the cautionary notice, and
by a judgment of the court awarding the same. This
Page 217 U. S. 156
clearly follows from a subsequent provision of the mortgage law,
saying (Art. 43):
"In the case of No. 1 of the preceding article, no cautionary
notice may be made unless it is so ordered by a judicial decree
issued at the instance of a person having a right thereto, and by
virtue of a document sufficient in the opinion of the judge."
In other words, the right in the case specified to the
cautionary notice was not absolute, but relative. That is to say,
the law, considering the right of an owner to dispose of his
property and the injustice which would arise from limiting such
right in every case merely because a suit was brought against him
concerning the property, gives the right to the cautionary notice
in such case not merely because of the commencement of the suit,
but makes it depend upon an express order of the court granting the
cautionary notice. As therefore the right to a cautionary notice
did not arise in and by virtue of the pendency of the suit, and
could only have come from a judicial decree which was never applied
for and never rendered, it must follow that the assumption that
there was an existing dismemberment of ownership, or lien, arising
from the conception that there was the absolute right to the
cautionary notice has no foundation upon which to rest. It results
that the contention reduces itself to this -- that Romeu, the
purchaser, who bought the property on the faith of the recorded
title, and in the absence of a cautionary notice, was bound because
he had knowledge of the suit, although, by operation of law, the
suit had no effect whatever upon the right of the owner to dispose
of the property during its pendency, since the steps which the law
provided as necessary to limit the right of the owner had not been
taken. Thus, to bring the proposition relied upon to establish that
error was committed by the court below to its ultimate conclusion
is to demonstrate its want of merit.
Of course, our ruling is confined to the case before us, and we
do not therefore intimate an opinion as to whether the
Page 217 U. S. 157
doctrine that notice is equivalent to registry is or not
compatible with the public policy manifested by the requirements of
the mortgage law prevailing in Porto Rico. And upon the hypothesis
that the doctrine that notice is equivalent to registry is not
incompatible with the requirements of the mortgage law, we must not
be understood as deciding that one who bought where no cautionary
notice had been registered, but with knowledge of a pending suit
from which, owing to its character, the law gave an absolute right,
without the prerequisite of judicial action, to the cautionary
notice, would not be liable to the extent of the property acquired
pendente lite for the ultimate results of the suit.
See, among others, paragraph 2 of Article 42 of the
mortgage law, in connection with the second paragraph of Article 43
of the same law.
Affirmed.