A contract to convey legal title to real property on payment of the purchase price creates an equitable interest in the purchaser. Beneficial ownership passes to the purchaser while the seller retains mere naked legal title. Subsequent successors to the legal title take such title burdened with the equitable interests of which they have either actual or constructive notice.
Appellant insurance company entered into a written purchase agreement with a condominium developer for one condominium unit. Appellant occupied, fully furnished, and paid for maintenance of the unit. Developer later executed two promissory notes and mortgages in favor of appellee bank. Appellant’s unit was one of the condominium units the mortgages secured. Developer then executed a quitclaim deed to appellant’s unit and considered the purchase price paid in full in return for appellant extinguishing a debt owed by developer. Appellee brought a foreclosure action. The trial court granted a foreclosure judgment in favor of appellee. On appeal, appellant sought review of the trial court’s judgment. The appellate court reversed the trial court’s judgment and remanded the case for entry of judgment.
Was appellant insurance company’s occupancy, together with the purchase agreement, sufficient notice to make appellant’s interest superior to appellee bank’s interest?
Appellee bank's interest was subordinate to appellant insurance company's equitable interest received upon the initial purchase agreement. Appellant had actual possession of the unit, which placed appellee on constructive notice of appellant's interest. Even though appellant wrongfully took a bad debt tax deduction after cancelling developer's debt, developer's relief from debt constituted valuable consideration for the quitclaim deed.