Waldorff Insurance and Bonding, Inc. v. Eglin National Bank

Brief Fact Summary. The Defendant, Waldorff Insurance and Bonding (Defendant), took physical possession of a condominium unit it had contracted to purchase. Subsequent to this physical possession, the owner of the condominium complex mortgaged Defendant’s unit to the Plaintiff, Eglin National Bank (Plaintiff). Plaintiff sued to foreclose on Defendant’s unit.

Synopsis of Rule of Law. Physical possession is constructive notice to all the world and anyone having knowledge of said possession. When possession is open, visible and exclusive, it will put upon an inquiry responsibility to those wishing to acquire interest in the property.

Facts. The Defendant entered into a written purchase agreement for a property contained in a condominium unit. On three separate occasion: 1973, 1974 and 1975, the owner of the condominium unit executed mortgages with Plaintiff, which included Defendant’s property. In 1975, after Defendants mortgage had been recorded, the owner of the condominium complex executed a quitclaim deed for the Defendant, which was recorded. To finalize the purchase of the unit, Defendant ‘wrote off’ a debt owed to it by the owner of the condominium complex. This write-off was treated as payment by the Defendant of the final amount due on the purchase price of the unit. In 1976, the Plaintiff brought a foreclosure action against the owner and Defendant. The trial court found for the Plaintiff and ruled that the Defendant did not have an interest in the unit superior to that of the Plaintiff. Defendant appealed.

Issue. Whether Plaintiff had constructive notice of Defendant’s interest in the unit when it agreed to each separate mortgage when Defendant was in physical possession of the unit.

Held. Reversed and Remanded. Plaintiff had a duty to inquire because Defendant by physically occupying the premises was constructive notice of Defendant’s interest.
Actual possession is constructive notice to all the world, or anyone having knowledge of said possession. When possession is open, visible and exclusive, it will put upon an inquiry responsibility to those wishing to acquire interest in the property.

Discussion. The court discussed that it is difficult for a purchaser or lien holder to inquire about every unit in a complex, but it must do so if it would like to effectively protect its interest. Further, once a purchaser is in actual possession, it is a fact that becomes legally operative as constructive notice.