## Facts

- Crosstown Bell, Inc. (controlled by Alfred M. Teien) sold commercial property to George and Dorothy Chergosky by a 1977 contract for deed, giving the Chergoskys equitable ownership while Crosstown retained legal title pending payment.
- The contract for deed was not recorded until 1985.
- In 1978, Crosstown granted Summit State Bank a second mortgage; the bank lacked notice of the unrecorded contract for deed and recorded its mortgage.
- In 1982, a long-term tenant exercised an option to purchase the property, prompting litigation that ultimately awarded ownership to the tenant in 1985.
- In 1983, Robert T. Griffith loaned money to Crosstown and received a majority ownership interest in the property; at that time, Griffith had actual knowledge of the Chergoskys’ unrecorded contract for deed and assumed a substantial share of Crosstown’s obligations under it.
- In 1985, Griffith acquired by assignment the previously recorded 1978 second mortgage from the mortgagee’s successor and recorded the assignment.
- A dispute arose over whether Griffith’s assigned mortgage interest had priority over the Chergoskys’ earlier but unrecorded contract for deed.

## Issues

1. Whether a party who acquired an ownership interest with actual knowledge of an unrecorded contract for deed and assumed obligations under it may later assert priority over that contract by purchasing and recording an assignment of a mortgage originally held by a bona fide mortgagee without notice.

## Decision

- The Minnesota Supreme Court reversed the court of appeals on the priority question.
- The court held that the Chergoskys’ contract for deed interest was prior and superior to Griffith’s assigned mortgage interest.
- The court reinstated the trial court’s determination of priority.
- The damages award against Crosstown and veil-piercing imposing personal liability on Teien were not before the court and were left undisturbed.

## Legal Principles

- A contract for deed gives the vendee an equitable ownership interest, even before recording, subject to recording-act rules governing priority against later purchasers or mortgagees.
- Minnesota’s recording statute generally protects a later bona fide purchaser or mortgagee for value without notice who records first, and downstream transferees may sometimes claim that protection through their transferor.
- An exception applies when the later claimant, at the time of acquiring an interest in the property, had actual notice of the unrecorded contract for deed and assumed obligations under it; such a party cannot later use an assigned, BFP-originated mortgage to defeat the contract for deed.
- Equity prevents a party from improving its position by relying on a default in obligations it undertook to perform, where doing so would extinguish the prior unrecorded interest it agreed to honor.

## Conclusion

The court held that Griffith could not obtain mortgage priority over the Chergoskys by acquiring an assignment of a mortgage that was initially valid against the unrecorded contract for deed, because Griffith had earlier taken his property interest with actual notice and assumed obligations under that contract, placing the case outside the general rule that permits BFP-derived priority to pass to a transferee with notice.


Chergosky v. Crosstown Bell, Inc., 463 N.W.2d 522 (Minn. 1990)