Todd, Schenck & Co. v. Outlaw, 79 N.C. 235 (1878)

June 1878 · Supreme Court of North Carolina
79 N.C. 235


Mortgage — Defective Registration — Notiee—Praetiee—Plea of Lis Pendens — Mortgage to Secure Future Advancements.

1. Tlie registration of a mortgage deed executed without the State, the execution whereof is not proved according to law, (Bat. Rev. ch. 35, § § 7, 8,) is ineffectual to pass title against creditors or subsequent purchasers for value.

2. Such registration does not have the effect of actual or constructive notice of the existence of the mortgage deed, so as to affect a subsequent purchaser for value.

3. A mortgage deed, defectively registered, does not create an equity in the mortgagee which follows a deed from him and attaches itself to the legal estate in a subsequent purchaser from the mortgagor.

4. A party to an action who desires to claim the protection of a notice by Us pendens, must in his pleadirigs specifically set forth and claim the benefit of such plea.

■5. A mortgagee is a purchaser for value, and whether the consideration is adequate or not will not affect the legal title; Therefore, where the plaintiffs took a mortgage from A to secure future advancements, there being a prior mortgage to B, the defendant’s grantor, defectively registered ; It was held, that if after the execution of ■plaintiffs’ mortgage, and before they had made any part of or all the advancements stipulated, they had been fixed with notice of defendant’s equity, any advancements subsequently made by them would have been made at their peril; but if they were unaffected with notice before they paid out their money, their legal title must prevail as a security for re-payment.

(Williams v. Griffin, 4 Jones 31; Burnett v. Thompson, 3 Jones 113; Lambert v. Lambert, 11 Ire. 162; Carrier v. Hampton, Ib. 307; Robinson v. Willoughby, 70 N. C. 358; Flemming v. Burgin, 2 Ire. Eq. 584; Leggett v. Bullock, Busb. 283; Polk v. Gallant, 2 Dev. & Bat. Eq. 395; Winborn v. Gorrell, 3 Ire. Eq. 117; DeCourcy v. Barr, Busb. Eq. 181; Derr v. Dellinger, 75 N. C. 300; Baird v. Baird, Phil. Eq. 317; Badger v. Daniel, 77 N. C. 251; Rollins v. Henry, 78 N. C. 342; Small v. Small, 74 N. C. 16, cited, commented on and approved.)

*236Civil Action to recover Land, tried at Spring Term, 1877, of BeRtie Superior Court, before Eure, J.

The plaintiffs claim under a mortgage executed to them by one Vernoy, to secure advances for agricultural purposes-on the 2nd of March, 1874, and duly recorded on the 10th of that month. The defendant claims as a purchaser under a decree of foreclosure of a mortgage of the same land executed by said Vernoy and wife on the 16th of February, 1866, to one Bond (vendor and mortgagee) to secure the unpaid balance of the purchase money of the land. The execution of this latter mortgage was acknowledged before one John J. Hornbeck, a Justice of the Peace of Ulster county, New York, as certified by N. Williams, the clerk of said county. At the May Term, 1866, of the Court of Pleas and Quarter Sessions of Bertie county, North Carolina, where the land is located,.the following proceedings were had in relation to the mortgage:—

State oe North Caeolina, ) rn 1or,„ Bertie County. [ May Ierm’ 186b‘

This mortgage from Milford Vernoy and wife Martha, to Lewis T. Bond, was exhibited in open Court and ordered to be registered together with the certificate of John J. Horn-beck, a Justice of the Peace of Ulster county, New York, and- of N. Williams, clerk of Ulster county, New York.

(Signed) W. P. Gueley, Probate Judge.

Upon this certificate and order, the mortgage was registered in May, 1866.

It was insisted by the defendants, that- this registration, though not regular in form, was sufficient to pass the title, and that if the probate and registration were defective for that purpose, yet the registration was notice to all the world of the existence of the incumbrance, and that the plaintiffs therefore purchased subject to the lien.

His Honor being of opinion with defendant, gave judgment accoixlingly, and the plaintiffs appealed.

*237 Messrs. J). A. Barnes and J. B. Batchelor, for plaintiffs.

Messrs. P. H. 'Winston and Gilliam Gatling, for defendant. ;

Bykum, J.

(After stating the case as above) 1. Tbe 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 the donor, bargainor or mortgagor, but from the registration of such deed of trust or mortgage in the county where the land lieth.” Bat. Rev. ch. 35, § 12. How mort-. gages executed without the State, for lands lying within the State, shall be proved without the State before they can be duly registered, is prescribed by statute, Bat. Rev. ch. 85, §§ 7, 8, and it is sufficient to say the mortgage from Yernoy to Bond has not been probated as the law directs, and that upon such probate it was not entitled to registration. Until a deed is proved in the manner prescribed by the statute, the public register has'no authority to put it on his book ;' the probate is his warrant -aild his only warrant fordoing, so. Williams v. Griffin, 4 Jones 31; Burnett v. Thompson, 3 Jones 113; 11 Ire. 162; Carrier v. Hampton, 11 Ire. 307. Not having .been duly .proved,'the registration was ineffectual to pass, the-title as against creditors or purchasers. Robinson v. Willoughby, 70 N. C. 358; 2 Ire. Eq. 584; Busb. Eq. 283.

• 2. Does such a registration as this have the effect of notice to the world of the mortgage from'■Yernoy to Bond,'so as to .affect a subsequent purchaser

- The mortgage -from Yernoy-tothe plaintiffs' had the effect of passing the legal title, and-if the.registration of tire-mortgage to ■ Bond did not-impart notice'to the plaintiffs, they will hold the land discharged of any prior equity; Polk v. Gallant, 2 Dev. & Bat. Eq. 395; Winborn v. Gorrell, 3 Ire. Eq. 117. It is in cases-where-actual notice is so "clearly es*238tablished as to make it fraudulent in the purchaser to take and register a conveyance in prejudice of the known title of another, that the registered deed will be permitted to be-affected. With this limitation it is only a duly registered mortgage that will affect the, subsequent purchaser with, notice. Flemming v. Burgin, 2 Ire. Eq. 584; Leggett v. Bullock, Busb. 283; Robinson v. Willoughby, 70 N. C. 358. It is not pretended tha’t the plaintiffs. had any such, or other notice than that which might have been derived from the imperfect registration of the prior mortgage. That a mortgage-registered in a manner not authorized by law is neither actual nor constructive notice, is decided in DeCourcy v. Barr, Busb. Eq. 181. Barr executed three mortgages. "The third mortgagee sought to redeem the first and avoid the second mortgage upon the ground that though registered prior to-his own, it was upon an insufficient probate, and therefore inoperative ás to him. The defect of probate, consisted only, in this, that though.- taken in regular form before a duly appointed commissioner for the State, resident in New York, the deed proved, was the deed of a .resident of this.State, for land in this State, whereas the statute only authorized- the commissioner to take probate of deeds of non-residents. It was insisted in that case, as it has been here, that this mortgage was spread upon the record, and for all useful purposes had the same notoriety as if it had been duly proven, so that it was urged the objection was merely technical. But the Court, said that what was not done in due fo'rm was not done at all in contemplation, and that, the.plaintiff there-, fore might stand on legal rights and seize, a, planlc in a,ship, wreck. It was also held that-the adjudication of the clerk, that the deed was duly-proved, .will.not ..aid, where.(¡he cer-. tificate of the-commissioner is annexed to . the deed- and. shows, that he was incompetent' to take the probate. The same" rule as to- actual and constructive notice prevails, in those States where registry laws are similar to ours; their' *239Courts bolding that express notice of an unrecorded mortgage will not invalidate one which is duly recorded. Stansell v. Roberts, 13 Ohio, 148; Mayham v. Coombs, 14 Ohio, 428; LeNeve v. LeNeve, 1 S. L. C. American notes. Coot’s Law of Mortgages 370, and notes to page 384.

3. The defendant insists that the instrument reconveying the land from Yernoy to Bond by its registration, though it may be defectively registered, had the effect of creating an equity in Bond, the vendor, which followed the deed and attached to the legal estate transmitted to the plaintiffs,, and will be protected and enforced, and for this position he cites Derr v. Dellinger, 75 N. C., 300. That was not the case of a mortgage, and it stands altogether upon different, grounds. Derr purchased and acquired the legal title-with express notice of an outstanding bond for title to-another party who had contracted to. purchase the same; land. A contract to sell land is not required to be registered and take effect only from registration like a mortgage, but like a deed when registered it relates back to the date of the contract. Bat. Rev. ch. 35, § 24. Derr therefore having had notice of the bond for title took the legal estate subject to the prior equity. Had he purchased without notice the: Court clearly intimate that the equitable estate would have-been annihiliated. We are not called upon to say how that would be. Derr purchased with, while the plaintiffs purchased without notice.

4, The defendant again insists that the plaintiffs had notice by Us pendens, in that, they purchased during the pendency of an action by Bond against Yernoy to foreclose: the mortgage upon the land now in controversy. The principle of lis pendens is that the specific property must be so pointed .out by the proceedings as. to warn the whole world ■ that they meddle with it at their peril, and the pendency of such suit, duly prosecuted is notice to a purchaser so as . to bind his. interest. Adams Eq. 157,. and-notes. As tho *240law was prior to the adoption of our Code, and as it was in England prior to 2 Victoria, an action for land so prosecuted and pending would have been notice to the world, and the purchase of the land by the plaintiffs after the institution of the action and before the decree of sale, would have been disregarded and treated as a nullity. Baird v. Baird, Phil. Eq. 317; 2 Vict. ch. 11, § 7; 3 Sugd. V. & P. 458; Adams Eq. 157. But the law of lis pendens has been greatly modified and restricted by C. C. P. § 90. That section provides that in an action affecting the title to real' property, the plaintiff at the time of filing his complaint or at any time afterwards, or a defendant when he sets up affirmative relief at the time of filing his answer, or at any time afterwards, may file with the clerk of each county in which the property is situated, a notice of the pendency of the action,'containing the names of the parties, the object of the action, and the description of the property affected thereby; and if the action shall be for the foreclosure of a mortgage, such notice must be filed twenty days before judgment, and must c&n'tain the date of the mortgage, the parties thereto, and the time and place of recording the same. • ,

" ' Erbm the-time of filing-only shall the pendency of the action be constructive notice to a purchaser or incum-brancer of the property affected .thereby ; and every person whose conveyance or incumbrance is subsequently executed : or recorded, shall be deemed a' subsequent purchaser or incumbrancer, and shall be bound by all proceedings taken after the filing of such notice to the same extent as if he were’ made a party to the action.

■ This statute is in substance a oppy of 2 Victoria, which 'has received a construction by the English Courts. It is there held that no Us lindens, of which a purchaser has not express notice, will how bind him unless it be duly registered. Before that statute, a purchaser pendente lite, though *241. for a valuable consideration and without express notice, was bound by the decree whether interlocutory or final. And such was the law here. But since that statute, Us pendens does not affect a purchaser or mortgagee without express notice, until a memorandum containing the particulars described in the act, is left to be registered with the senior master of the Common Pleas. Coot’s. Law of Mortgages, 383, Adams Eq., 157. The provision of the New York Code (§ 132) for the filing of Us pendens, is similar to ours, .and has received there the same construction as the English statute. Lamont v. Cheshire, 65 N. Y., 30.

It would seem that the purpose of our statute was to assimilate the law of Us pendens to the registration laws and the docketing of judgments, and to produce consistency and certainty in the doctrine of constructive notice. There is certainly a great incongruity in the law where the pendency -of an action binds a party dealing with the property, though he have no actual notice of the suit, while the same party is unaffected by express notice of an unregistered mortgage, or one defectively registered. While therefore I am of opinion that the policy of the statute would be the better carried out by following the English and New York construction, and holding that lis pendens is constructive notice only where the notice has been duly registered in every county where the benefit of it is claimed, a different construction has been put upon C. C. P., § 90, by two recent decisions of this Court, from which I do not fell at liberty to dissent. Badger v. Daniel, 77 N. C., 251; Rollins v. Henry, 78 N. C., 342.

It is there held that when the action is pending in the county where the property is situate, it has the force and •effect of lis pendens, and dispenses with the statute re•quirement, or rather, that the statute does not apply to such case. It remains to be seen then whether the defendant has placed himself in the condition to claim the *242protection of lis'pendens. He certainly has not, unless be-, lias in the pleadings specifically set iortli and claimed the-benefit of such a ¡ilea, That ho has not done. All that is said in the answer bearing upon this 'matter is in these-words: “ That the said Vernoy failed to pay the purchase-money secured by said mortgage as it becarfie due, and on the — day of-, 187-, the said lands wei'eby judgment of the Supreme Court of the State sold to pay said purchase money, and were purchased by one Dennis Simmons, the-sale reported to and confirmed by said Court, and a deed to the same executed to him, and that the defendant is in possession of said lands by purchase for value from said Simmons.” It is thus seen that the answer of the defendant contains no allegation of the pendency of an action for foreclosure at the time of the execution of the mortgage to the plaintiffs, and we are not at liberty to go outside of the record and the defence made in the pleadings to ascertain how the matter was in point of fact.

5. It is further insisted that the mortgage from Vernoy to the plaintiffs was executed to secure advancements to be thereafter made, and is therefore inoperative by reason of our registration laws, the object of these laws being to give notoriety, as veil to the extent as to the existence of mortgages and deeds of trust. This question has been raised twice-in our Reports, but left [undecided. See DeCourcy v. Barr, Busb. Eq., 181, and Small v. Small, 74 N. C., 16. The mortgage is in the form of an agricultural lien upon the crop to-be made to secure advances for making it; and then, as a further security for repayment at the time stipulated, of the sum to be advanced, not exceeding sixteen hundred dollars, the mortgage upon the land was executed. Upon this contract'the plaintiffs advanced the sum agreed on, over one-thousand dollars of which is yet unpaid, and can be collected only by resorting to the mortgage: It is settled that a mortgagee is a purchaser for valuable consideration, and whether the consideration is adequate or not, will not affect *243the legal title. It was immaterial whether the future payments were secured in the deed or by promissory notes, as they were equally unforceable; and to the extent of the payments made by the plaintiffs before notice of the defendant’s equity, the legal title acquired by them will protect and secure them. If after the execution of the mortgage to the plaintiffs and before they had made any part of, or all the advancements stipulated, they had been fixed with notice of the defendant’s equity, any advancements subsequently made by them would have been made at their peril; for a naked legal title without an equity arising from being something out of pocket would not have prevailed against the equity of the defendant. But as the plaintiffs were unaffected with notice before they paid out their money, the legal title must prevail as a security for repayment.

6. The case', so far as the plaintiffs are the actors, is the. ordinary one of purchasers for valuable consideration without notice, who, having obtained’the legal estate at the time of their purchase, are entitled to priority according t® the maxim, “ where equities are equal the law shall prevail.” But from the character of the defence, the action is more like one wherein the defendant is the actor, and seeks to set aside the legal title of the plaintiffs, or to have them declared trustees for his benefit. To succeed in this, however, it was incumbent upon him to do two things, — first, to allege and show that the plaintiffs purchased and acquired the legal title with notice of his equity; and second, to show on his part an actual 'purchase for value, fully completed by payment of the purchase money. He has done neither. His equity is derived through Bond, his vendor, whose unrecorded mortgage we have seen does not operate as notice. His purchase is not fully complete, for he has not paid the purchase money; and having bought under a decree of Court, that tribunal will not require him to pay the purchase *244money, unless a good title can be made. So m fact the defendant is out nothing and has sustained no injury in legal contemplation. Basset v. Nosworthy, 1 Smith, L. C., 1, and notes; Le Neve v. Le Neve, 1 S. L. C., 21, and notes.

There is error; judgment reversed, and judgment here according to the ease agreed, for the plaintiffs.


Per CuRiAM. Judgment reversed.