Case Name: THE OBSERVER COMPANY and S. J. HOLLAND v. J. H. LITTLE et al., Receivers for REID LIVERY COMPANY
Court: Supreme Court of North Carolina
Jurisdiction: North Carolina
Decision Date: 1917-12-12
Citations: 175 N.C. 42
Docket Number: 
Parties: THE OBSERVER COMPANY and S. J. HOLLAND v. J. H. LITTLE et al., Receivers for REID LIVERY COMPANY.
Judges: 
Reporter: North Carolina Reports
Volume: 175
Pages: 42–46

Head Matter:
THE OBSERVER COMPANY and S. J. HOLLAND v. J. H. LITTLE et al., Receivers for REID LIVERY COMPANY.
(Filed 12 December, 1917.)
1. Deeds and Conveyances — Conditional Sales — Statutes—Registration.
By Revisal, see. 983, conditional sales reserving title in the bargainor are required to be in writing and registered in tbe same manner, and have tbe same legal effect as provided for chattel mortgages (Revisal, sec. 982),. and by tbe latter section “No deed in trust nor mortgage for real and personal estate shall be valid at law to pass any property as against creditors or purchasers for a valuable consideration from tbe donor, bar-gainor,” etc., “but from tbe registration of tbe same”; therefore such conditional sales are regarded as chattel mortgages and void as to creditors and purchasers, except from registration.
2. Corporations — Receivers—Title—Creditors—Statutes.
Upon tbe insolvency of a corporation and tbe appointment of a receiver under tbe provisions of Revisal, sec. 1224, tbe corporate property vests in tbe receiver from bis appointment, and tbe receiver represents tbe creditors as well as tbe owner, excluding tbe general creditor from taking any separate or effective step on bis own account in furtherance of bis claim; and tbe proceedings for tbe receivership is in tbe nature of judicial process by which tbe rights of tbe general creditors are “fastened upon tbe property.”
3. Same — Conditional Sales.
Where tbe bargainor under a conditional sale to a corporation has not recorded tbe instrument, as required by Revisal, secs. 982, 983, and a receiver has been appointed under tbe provisions of Revisal, sec. 1224, bis right to a preferential lien has been lost by bis failure to register tbe instrument, tbe receiver representing tbe rights of tbe other creditors, and be is only entitled as' any other general distributee of tbe funds.
Civil actioN beard on case agreed before Cline, J., at May Term, 1917, of MeckleNbuRG.
On tbe bearing it was made to appear tbat in August, 1916, S. J. Holland sold to tbe Reid Livery Company a pair of borses for $390 and no part of same bad been paid; tbat in January, 1917, tbe plaintiff, Tbe Charlotte Observer, sold to Reid Livery Company an auto truck for $650, and there bad been paid thereon the sum of $136.15, leaving a balance due of $513.85; tbat tbe property was passed to tbe Reid Livery Company by written agreement in which title was retained in tbe respective vendors till tbe entire purchase price was paid; tbat subsequently, tbe Reid Livery Company being insolvent, on proceedings properly instituted, tbe defendants were appointed receivers of said company for tbe purpose of converting its assets into cash, paying same to creditors, and winding up tbe affairs of tbe corporation; tbat, by order of court, said property bad been sold by receivers and proceeds passed over to tbe clerk of tbe court to be held subject to liens and equities of all parties in interest. On these facts, it was adjudged by the court as follows:
“It is, therefore, considered, adjudged, and decreed that neither petitioners be allowed a specific and prior lien on the property claimed by them, respectively, as against the receivers. It is further ordered that the claim of the Observer Company for $513.85 be accepted, and the receivers are directed to pay the same pro rata with other creditors. It is also considered and adjudged that the claim of S.. J. Holland for $390 is accepted, and the receivers are directed to pay the same pro rata with other creditors.”
From this judgment plaintiffs appealed.
Morrison & Dockery for plaintiff.
McNinch & Justice for defendant.

Opinion:
Hoke, J.,
after stating the case: Our statute, Revisal, sec. 982, provides, in effect, that "no deed of trust nor 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 the donor, bargainor or mortgagor, but from the registration of the same," etc. And section 983, "That all conditional sales of personal property in which the title is. retained by the bargainor shall be reduced to writing and registered in the same manner, for the same fees and with the same legal effect as is provided for chattel mortgages," etc.
By the express terms of the law, therefore, and under various decisions construing the same, these conditional sales are to be regarded in this jurisdiction as chattel mortgages and void as to creditors and purchasers except from registration. Clark v. Hill, 117 N. C., 11; Butts v. Screws, 95 N. C., 215; Brem v. Lockhart, 93 N. C., 191.
In order for a creditor to avail himself of these registration statutes, it is very generally understood that he must by some judicial process or ¡method take steps to fasten his claim upon the property. In one or more of the decisions on the subject, it is said that'he should be "armed with legal process" for the purpose. Considering the case in recognition of the principle, we are of opinion that the title of defendant is in full compliance with the requirement, they having been duly appointed receivers in a statutory proceeding instituted for the purpose of winding up the affairs of an insolvent corporation and distributing the assets among its creditors.
Under this statute, section 1224, it is provided: "That all the real and personal property of an insolvent corporation, wheresoever situated, and all of its rights, franchises, and privileges, shall, upon appointment of a receiver, immediately vest in him and the corporation shall be divested of the title thereto." In section 1207: "That after payment of all allowances, expenses, costs and the satisfaction of all special and general liens upon the funds of the corporation, to the extent of their lawful priority, the creditors shall be paid proportionally to the amount of their respective debts," etc. .
Under decisions apposite, it has been held here and elsewhere that the receivers in such case are to be considered as representing creditors as well as the owner, enabling him in their favor to avoid fraudulent conveyances by the debtor and otherwise insist on their rights. Pender v. Mallet, 123 N. C., 57; Porter v. Williams, 9 N. Y., 142. A position that prevails in this jurisdiction both as to trustees and in assignments for the benefit of creditors. Taylor v. Lauer, 127 N. C., 157; Bank v. Adrian & Vollers, 116 N. C., 537. And it is held further with us that after proceedings instituted and receivers appointed, no general creditor can, on his own account, take any separate or effective steps in furtherance of his claim. Odell Hardware Co. v. Holt-Morgan Mills, 173 N. C., 308.
Under these conditions, it is in accord with right reason that .a proceeding of this character and the appointment of receivers thereunder shall be considered in the nature of judicial process by which the rights of general creditors are "fastened upon the property," within the meaning of the principle, and avoiding all claims for specific liens which have not obtained legal priority by having the same duly registered as provided and required by law; and well-considered authority is in full support of the position. Harrison v. Warren Co., etc., 183 Mass., 123; American Machinery Co. v. New England Buck Co., 87 Cam., 369; Duplex Printing Co. v. Clipper, etc., Co., 213 Pa. St., 207; Receiver of Graham Button Co. v. Charles Spielman et al., 50 N. J. E., 120; Smith v. Orr, 224 Fed., 71; Farmers' Loan & Trust Co. v. Minneapolis Engine Co., 35 Minn., 543.
On the questions presented, it was held in the New 'Jersey case: "A creditor of a mortgagor, to be in position to contest the validity of a chattel mortgage, must have his debt fastened on the mortgagor's property. By an adjudication of insolvency and the appointment of a receiver, the debts of creditors at large of an insolvent corporation are fastened on its property. A deed or other instrument which is void as against creditors is void also against those who represent creditors. The receiver of an insolvent corporation is the representative of its creditors, and as such may, by suit or defense, avoi4 any instrument which is void as against them. To successfully contest the validity of a chattel mortgage, the receiver of an insolvent corporation is not required to show that it is fraudulent as to creditors, but all he need do is to show such facts as, under the statute, render it void as against the creditors of the corporation."
And speaking to tbe reason and justice of tbe position, interpreting a Missouri statute not dissimilar, Sandborn, J., said: "At tbe time tbis receiver was appointed, tbe creditors of tbe furnace company bad tbe right to procure and levy attachments or executions on tbe property here in controversy. Tbe appointment of tbe receiver and bis seizure of tbe same thenceforth prevented them from exercising that right. It is just and equitable that tbe receiver whose appointment prevented tbe creditors from exercising their right to avoid tbe condition should exercise that right for them. Tbe Courts of Missouri declare that a creditor armed with process may avoid or disregard tbe condition of bis debtor's unrecorded contract of sale, and they have held a creditor who has sued out an attachment or execution against tbe property of such a debtor, placed it in tbe bands of tbe sheriff and caused him to levy it upon tbe property sold, is such a creditor. A creditor who has sued out an order of tbe court of equity that a receiver be appointed, and that be take possession of all tbe property of tbe debtor for tbe purpose of its administration, sale and distribution among tbe creditors, who has placed tbe order in tbe bands of tbe sheriff and has caused him to seize tbe property is not less armed with process. Indeed, be is armed with a more comprehensive and effective process — a process by which all tbe property of tbe debtor may be seized, administered, sold and distributed.,
"In view of these considerations, tbe conclusion is that a receiver 'appointed in a suit in equity instituted by a creditor against bis insolvent debtor to administer and convert into money tbe property of tbe debtor and distribute tbe proceeds among creditors has tbe power of creditors armed with process to disregard or avoid, under tbe statutes, section 2889, Revisal, 1909, tbe unrecorded condition in a contract of conditional sale," etc.
And to like effect, Gilfülan, G. J., in the Minnesota case, supra, said: "Tbe pendency of tbe proceedings disables tbe creditors to go on, each in bis own behalf, to enforce bis claim by action, judgment, execution and levy. So that unless alii tbe rights of tbe creditors can be enforced in tbis proceeding, unless their rights -to avoid transfers can be made available by means of it, then it is to some extent an obstruction rather than a remedy to them. It is evident that it was intended to facilitate and not binder a complete remedy; and tbis it will not do unless its scope is to apply to satisfaction of tbe creditors all tbe property of tbe corporation applicable to that purpose, that is, all tbe property which, but for tbe proceeding, they could have so applied.- For these reasons, we decide that tbe receiver may avoid any transfers void as to creditors."
We are aware that there are numerous decisions in other States which uphold tbe contrary view, and the Supreme Court of tbe United States, in York Mfg. Co. v. Cassel, 201 U. S., 344, in construing tbe former bankruptcy statute, has approved this position in reference to tbe title of tbe assignee, a position tbat was later changed by legislative amendment. Some of these opposing decisions were in States where contracts of conditional sale were not required to be registered. In others, such contracts were only avoided as against judgment or attaching creditors, etc. But in any event, and notwithstanding the high respect always due these eminent Courts, their decisions on the questions presented here and the principle they support may not be recognized in this jurisdiction where the statute, as stated, confers the title of the insolvent on the receivers from the time of their appointment such receiver' is held to represent creditors, and his appointment serves to restrict the general creditors from any resort to other judicial process in special protection of their interests.
We find no error in the disposition of the cause, and the judgment of the Superior Court must be
Affirmed.