Case ID: nc_189/html/0684-01.html
Source: Caselaw Access Project
Author: {"author": "Adams, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

C. E. COWAN, Trustee, v. A. N. DALE, J. A. WHITENER, and THOMAS GARRISON.
    (Filed 20 May, 1925.)
    1. Sales — Merchandise in Bulk — Statutes.
    While the sale of merchandise in bulk of practically or nearly all of the seller’s property is void without compliance with O. S., 1611, it is necessary to effect this result to show the insolvency of the seller, and applies only between the purchaser and one holding- a debt, etc., preexisting the time of the sale.
    
      3. Deeds and Conveyances — Mortgages — Probate—Interest—Statutes—• Registration — Constructive Notice.
    The probate of a deed or mortgage is a judicial act and may not in case of a mortgage be taken by a probate officer who is likewise one of the mortgagees, and bis act in so doing is insufficient to pass the title against subsequent purchasers, etc., for value, and the registration of the mortgage when this is apparent is not constructive notice under the provisions of the statute, C. S., 3311.
    
    3. Same — Trusts—Trustee—Purchasers for Value.
    A trustee in a deed of general assignment for the benefit of creditors is a purchaser for value within the intent and meaning of our Registration Act, C. S., 3311.
    4. Chattel Mortgages — Registration—Constructive Notice — Possession.
    Where before making a deed of assignment the creditor had given a mortgage on his stock of merchandise (personal property), and the mortgagee was in peaceful possession thereof at the time the general assignment was made, the trustee under this deed takes with notice, notwithstanding the mortgage was ineffectual under our registration law -as constructive notice, and a temporary restraining order of sale under the mortgage is properly dissolved.
    Appeal by plaintiff from Harding, J., at September Term, 1924, of Bubee.
    On 30 January, 1924, D. E. Flowers bought from ~W. T. Oarswell a stock of goods kept in a store near Morganton. He paid part of the agreed price and secured the remainder ($1,200) by notes due in four, eight, and twelve months. These notes were endorsed by the defendants; and on the same day and as a part of one transaction Flowers executed and delivered to the defendants a chattel mortgage on the goods purchased from Carswell and acknowledged the execution thereof before A. N. Dale, one of the mortgagees, who was deputy clerk of the Superior Court. Upon Dale’s certificate the mortgage was filed for registration on 29 and registered on 31 March, 1924. Flowers retained possession of the goods and sold and replenished the stock under an agreement with the mortgagors that goods subsequently purchased to keep up the stock should take the place of those that had been sold, and that the notes should become due upon his failure to maintain the stock at its estimated value. The mortgagees did not file an inventory. Flowers made default in payment and the defendants brought suit on 1 'September, 1924, and under proceedings in claim and delivery acquired possession of the mortgaged property and gave public notice that it would be sold on 27 September, 1924.
    On 15 September, 1924, and prior to the advertised day of sale, D. E. Flowers, the mortgagor, executed and delivered to the plaintiff a deed of assignment for the benefit of his creditors, which was filed for registration on 20 and duly registered on 24 September, 1924. Tbe plaintiff instituted tbis action on 22 September to enjoin tbe sale and to recover possession of tbe property in tbe bands of tbe mortgagees.
    Upon tbe bearing it was adjudged that tbe restraining order be dissolved and tbe mortgagees be allowed to make sale under tbe terms of tbe mortgage. Tbe plaintiff excepted and appealed.
    
      G. E. Cowan and Spainhour & Mull for plaintiff.
    
    
      Avery & Hairfield for defendants.
    
   Adams, J.

Tbe chattel mortgage did not create a preference within tbe meaning of C. S., 1611; but tbe plaintiff asserts tbat in effect it was an assignment for tbe benefit of creditors and void because tbe trustees or mortgagees did not file an inventory as required by section 1610. It bas been beld tbat where one who is insolvent makes a mortgage of practically all bis property to secure one or more preexisting debts tbe instrument will be considered an assignment and tbe result will not be changed by tbe omission of a small part of bis property; but to apply tbis doctrine it is necessary to show tbat tbe grantor was insolvent, tbat tbe secured debts were preexistent, and tbat there were other creditors. Bank v. Gilmer, 116 N. C., 684, 707; S. c. 117 N. C., 416; Cooper v. McKinnon, 122 N. C., 447; Pearre v. Folb, 123 N. C., 237; Brown v. Nimocks, 124 N. C., 417; Taylor v. Lauer, 127 N. C., 157; Odom v. Clark, 146 N. C., 544; Powell v. Lumber Co., 153 N. C., 52; Williamson v. Bitting, 159 N. C., 322, 327; Wooten v. Taylor, ibid. 604; Eakes v. Bowman, 185 N. C., 174; Bank v. Tobacco Co., 188 N. C., 177. Under these decisions tbe chattel mortgage cannot be deemed an assignment for the benefit of tbe grantor’s creditors because tbe secured debt was not preexistent but contemporaneous with tbe contract of purchase from Carswell, constituting a part of one continuous transaction.

Tbe chief controversy grows out of tbe question whether the rights of tbe mortgagees are not subordinated to those of tbe plaintiff as trustee under tbe deed of assignment. Tbe plaintiff contends tbat while tbe chattel mortgage may be good inter partes its registration is insufficient as notice because tbe probate is defective; tbe defendants contend tbat ¡the probate is defective, if defective at all, only as to tbe mortgagee who took tbe grantor’s acknowledgment, not as to tbe others, and in any event tbat they bad actual possession of tbe litigated property at tbe time tbe assignment was- executed- and registered and tbat such possession gave them a right of foreclosure which is paramount to tbe plaintiff’s claim of title.

Tbe probate of a deed or mortgage is a judicial act; bence if tbe probate or tbe grantor’s acknowledgment be taken by an officer wbo is disqualified tbe probate or certificate of acknowledgment will be void and tbe registration of tbe instrument will be ineffective to pass title and may be regarded a nullity as to subsequent purchasers or encumbrancers. Nemo debet esse judex in propria sua causa. Todd v. Outlaw, 79 N. C., 235; White v. Connelly, 105 N. C., 65; Blanton v. Bostic, 126 N. C., 418; Allen v. Burch, 142 N. C., 524; S. v. Knight, 169 N. C., 333, 342. A. N. Dale, tbe deputy clerk wbo probated tbe chattel mortgage, was one of tbe grantees therein and by reason of'his interest was not qualified to exercise this particular judicial function. An officer wbo has a pecuniary interest in a'deed or mortgage as a party, trustee, or cestui que trust is disqualified to probate it or to take tbe acknowledgment of its execution. Long v. Crews, 113 N. C., 256; Lance v. Tainter, 137 N. C., 249; Holmes v. Carr, 163 N. C., 122.

In tbe circumstances tbe registration of tbe mortgage in tbe office of tbe register of deeds did not amount to constructive notice. Formerly tbe law was otherwise; certainly so under the act of 1715. Tbe professed design of this act was “to prevent frauds by double mortgages, which design was accomplished by giving priority to a subsequent mortgage, if registered before'a prior one, unless tbe latter was registered within fifty days. . . . Tbe law was designed to give notice to persons so situated; but if it was clearly established in proof that a subsequent mortgagee bad notice of a prior mortgage, although not registered, in equity be was bound by it, although be bad obtained a priority at law; for having this notice be could protect himself from barm by’forbearing to proceed.” Pike v. Armstead, 16 N. C., 110. But this was changed by tbe act of 1829, tbe substance of which is incorporated in C. S., sec. 3311. This statute provides that no deed of trust or mortgage for real or personal estate shall be valid at law to pass any.property as against creditors or purchasers for a valuable consideration from tbe donor, bargainor, or mortgagor, but from tbe registration of such deed of trust or mortgage, etc.; and as held in a number of our decisions tbe statute implies that no actual notice of a prior unrecorded mortgage, however clear and formal, will supply tbe notice which is given by registration of tbe instrument in question. Fleming v. Burgin, 37 N. C., 584; Robinson v. Willoughby, 70 N. C., 358; Blevins v. Barker, 75 N. C., 436; Brem v. Lockhart, 93 N. C., 191; Bank v. Mfg. Co., 96 N. C., 298; Hinton v. Leigh, 102 N. C., 28; Wood v. Lewey, 153 N. C., 401; Fertilizer Co. v. Lane, 173 N. C., 184.

Tbe plaintiff occupies tbe position of a trustee under tbe deed of assignment and is therefore a purchaser for value. In Potts v. Blackwell, 57 N. C., 58, it is said that whatever distinction may formerly have been supposed to exist between present and antecedent debts may “be regarded as now exploded,” and that a deed in trust executed in good faith for the security of actual creditors, whether for debts old or new, must be treated as a conveyance for value. Brem v. Lockhart, supra. Also in Starr v. Wharton, 177 N. C., 323: “A trustee in a general assignment for the benefit of creditors is a purchaser for value within the meaning of the statute, some of the decisions being directly to the effect that such a trustee when the instrument under which he acts is first registered, will take precedence over the rights of a vendor whose interests are protected and embodied in a conditional sale prior in date but subsequently registered.”

But the defendants urge the further argument that they took actual possession of the mortgaged property for the purpose 'of enforcing their lien before the plaintiff’s rights attached and that their possession for this purpose is good against the plaintiff. In our opinion this argument is sound. A written instrument is not required for the transfer of personal property as it is for the conveyance of land; so Wood v. Tinsley, 138 N. C., 507, is not applicable here. At common law, as between the parties the delivery of personal property to the mortgagee was not essential to the validity of the mortgage, but to give such mortgage validity against creditors and purchasers it was necessary that the custody and possession of the property be delivered. McCoy v. Lassiter, 95 N. C., 88. Our registration laws were intended in part to take the place of such notice by possession; for the record of a chattel mortgage “is a mere substitute for a delivery and change of possession.” 5 R. C. L., 455, sec. 90. It is generally held that such possession is notice. The doctrine is thus stated in Jones on Chattel Mortgages, sec. 178: “If a mortgagee take possession of the mortgaged chattels before any other right or lien attaches, his title under the mortgage is good against everybody, if it was previously valid between the parties, although it be not acknowledged and recorded, or the record be ineffectual by reason of any irregularity.”

To the same effect is a uniform line of decisions. “The object of requiring a mortgage of personal property to be filed or recorded is to give creditors and subsequent purchasers notice of its existence when the mortgagor retains possession of the property. If the actual possession of the property is changed, then the necessity for recording or filing the chattel mortgage fails. And the same may be said in respect to an imperfect or insufficient description of the mortgaged property. If the mortgagee takes possession of the mortgaged property, that is sufficient. That is an identification and appropriation of the specific property to tbe mortgagee.” Morrow v. Reed, 30 Wis., 81. “If a mortgagee or pledgee takes possession of tbe mortgaged or pledged chattels before any other lien attaches thereto, his title is valid as against subsequent attachment or execution creditors, there being no fraud in fact, although the mortgage was not filed or the chattels delivered when the contract of pledge was made.” Prouty v. Barlow, 76 N. W., (Minn.), 946. “If a mortgagee take possession of mortgaged chattels before any other right or lien attaches, his title under the mortgage is good against everybody, although it be not acknowledged and recorded, or the record be ineffectual by reason of any irregularity. Chipron v. Feikert, 68 Ill., 284; Frank v. Miner, 50 Ill., 444; McTaggart v. Rose, 14 Ind., 230; Brown v. Webb, 20 Ohio, 389. Subsequent possession cures all such defects. Morrow v. Reed, 30 Wis., 81. No particular mode of taking or retaining possession is required. It is not necessary that the property be delivered to the mortgagee in person; delivery to his agent is equally effectual.” Bank v. Commission Co., 64 N. E. (Ill.), 1097, 1104. See, also, Ogden v. Minter, 91 Ill. App., 11; Bank v. Gilbert, 174 Ill., 485. “In case of a mortgage (of personal property) the right of property is conveyed to the mortgagee, by a perfect title, which title is liable to be defeated by the payment of the mortgage debt, and if the mortgagee takes possession of the property, he takes it as his own, and not as the mortgagor’s.” Janvrin v. Fogg, 49 N. H., 310, 351. “Such a lien (mortgage) is good between the parties, without a change of possession, even though void as against subsequent ptu’chasers in good faith without notice, and creditors levying executions or attachments; and if followed by a delivery of possession, before the rights of third persons have intervened, it is good absolutely.” Hauselt v. Harrison, 105 U. S., 401, 26 Law Ed., 1075. See, also, 11 C. J., 587, sec. 281.

Upon reason and authority therefore we are of opinion that the plaintiff is not entitled to a continuance of the restraining order. This con-elusion does not impair the validity of our statutes regulating the registration of written instruments or modify the force and effect of the decisions which hold that no actual notice of a prior unrecorded mortgage will supply the place of registration; but it upholds the principle that where a mortgagee takes possession of mortgaged property in good faith for the purpose of foreclosing a chattel mortgage which secures his debt before any other right or lien attaches, his title under the mortgage is good and a subsequent encumbrancer takes subject to the mortgagee’s lien.

The judgment is

Affirmed.