Opinion
(June Term, 1843.)
1. Under the act passed in 1829, Rev. Stat., ch. 37, sec. 24, registration is an essential ingredient in a mortgage or deed of trust to make it that instrument or constitute it a deed or security as against a creditor or purchaser.
2. Therefore, notice of an unregistered mortgage or deed of trust constitutes no ground for relief in equity against one who takes a subsequent mortgage or deed in trust, and first registers it, unless the first mortgagee or trustee has been prevented from registering by the fraud of the other.
3. Where a statute declares that a deed or other instrument shall not be valid "at law," it does not mean simply that it shall be held invalid in a court of law only, but invalid in all courts. "At law" is not an expression which in a statute signifies merely a legal tribunal as distinguished from an equitable jurisdiction, but, generally, our system of jurisprudence, whether legal or equitable.
4. In these cases where notice of an unregistered deed will entitle the party to relief in equity, it must be clearly shown that such notice of the contents of the instrument, as to the subject and purposes of the conveyance and of the intention to rely on it as a conveyance, substantially reached the party, in pais, as would be derived upon those points from the registry itself.
THIS cause having been set for hearing at Spring Term, 1843, of the Court of Equity for BURKE, was then removed, by consent of the parties, to be heard in the Supreme Court. The following is a summary of the matters stated in the pleadings:
The bill is filed by Fleming and Lewis, and states that on 18 November, 1837, the defendant Benjamin Burgin the younger, of Burke County, being indebted to each of the plaintiffs, Fleming and Lewis, who also resided in Burke, and to sundry persons named, residing in Charleston, in South Carolina, in certain sums therein mentioned, did, for the purpose of securing those several debts, convey and assign by deed to the plaintiff (585) Fleming certain slaves and other chattels in Burke County, in trust to sell the specific articles and collect the debts, and thereout pay all the debts in the deed mentioned; that all the creditors mentioned in the deed have been paid, except the plaintiffs, Fleming and Lewis; to the former of whom the sum of $1,000, or thereabouts, is due on sundry bonds and judgments, and to the latter about the same sum. The bill charges that the deed was executed in Charleston, and that the plaintiffs were, in consequence of that, unable to have it proved and registered in Burke immediately, but had the same done on 20 December, 1837. The bill then states that immediately after the executing of the deed to Fleming in Charleston, B. Burgin, Jr., returned to his residence in Burke, and on 4 December, 1837, there made to Benjamin Burgin the elder another deed of mortgage and assignment of the same slaves, chattels and debts, and also others, to secure to him the payment of the sum of $3,700, pretended to be due him. And the bill charges that the said debt was not truly due to B. Burgin, Sr., and that the deed to him was executed with the fraudulent intent to delay and hinder the creditors of B. Burgin, Jr., and particularly to defeat the deed before made to Fleming, and so is void as against them. And the bill further charges that B. Burgin, Sr., had express notice of the deed to the plaintiff before he took his mortgage, and that he fraudulently had his assignment proved and registered on 8 December, 1837, for the purpose of defeating the prior deed to Fleming, or postponing the satisfaction of the debts due to the plaintiffs until the debt to himself should be discharged out of the effects assigned. The bill also charges that the chattels and effects assigned to B. Burgin, Sr., are of value sufficient, if properly managed and accounted for, to discharge all the debts, as well those of the plaintiffs respectively as that to B. Burgin, Sr. The bill is brought against both of the Burgins, and the prayer is that the plaintiffs may be let in upon the effects preferably to the mortgagee, B. Burgin, Sr., and likewise that an account may be taken of the debt to that person, and if he should be entitled to the preferable (586) satisfaction, that, after his debt shall have been discharged, those to the plaintiffs may also be raised out of the effects.
Both of the defendants answered. B. Burgin, Jr., denies that he owed the plaintiffs the debts mentioned in the deed, and says that he owed Fleming not more than $350, but does not speak of the amount due to Lewis. He also denies that the deed of 18 November to Fleming was executed really as a security to be enforced for the debts therein named, and says that, being in Charleston with Fleming, who lived near him and knew his affairs fully, and being then much indebted to divers persons who threatened to arrest him, he was persuaded by Fleming to execute a conveyance for some property, which should satisfy the creditors residing there and induce them to allow this defendant to return home, after which the deed, having answered its end, might be destroyed. He further says that he was induced by his distresses and those persuasions to yield his assent to the proposed measure; and that, thereupon, Fleming prepared the deed, in which he untruly stated the debt to himself to be larger than it was, as aforesaid, and this defendant executed it, solely with the view and for the purpose last mentioned, and with the distinct understanding with Fleming that the deed should not be registered or anywise put in force, but should be canceled as soon as this defendant should get home, and that he should then be at liberty to sell or otherwise dispose of his property as he might think best for the purpose of paying or securing any of his debts, and answering any other purpose he might have. He further states that he has in fact paid the creditors in Charleston, as he at the time intended, and that, being so authorized by the agreement between Fleming and himself, he executed the mortgage to the other defendant on 4 December to secure the debt mentioned to that defendant, the whole of which was just, and not to defeat the deed to the plaintiff; and that he then informed the other defendant, B. Burgin, Sr., that he had executed the deed to the plaintiff, and the circumstances under which and the purposes for which it was done, all (587) as by him before set forth, and that accordingly he was at liberty, notwithstanding the execution of the said deed to Fleming, to make any other disposition of his property which would promote his interest.
The other defendant, B. Burgin, Sr., states how the debt to himself arose, and that the whole of it was justly due, and that, finding the debtor in failing circumstances, he took his mortgage and assignment truly for the purpose of securing himself, and not for the purpose of defeating any creditor of B. Burgin, Jr. He denies that at the time of taking his deed he had any notice, directly or indirectly, express or implied, of the execution or existence of the deed to Fleming, except what he derived from the other defendant, and the information of that transaction, thus derived by this defendant from the other defendant, was as is set forth in the answer of that defendant, B. Burgin, Jr. B. Burgin, Sr., further states, in particular, that when the deed to himself was read, B. Burgin, Jr., informed him that he had made a mortgage to Fleming in Charleston, reciting among other things a debt of $350, and that he executed it for the purpose of making his creditors in Charleston easy until he could get away, and that it was agreed between Fleming and himself (B. Burgin, Jr.) that the former could surrender the deed as soon as they returned home, and this information, this party says, he believed at the time he received it and still believes, and therefore insists on his own priority. The answer then states that the defendant is unable to set forth what sums can be realized from the property and debts assigned to him, and states the reasons why he is so unable, and it submits, if there should be a surplus after paying his debts, to apply it as the court should direct.
To these answers replications were entered, and the parties proceeded to take their proofs, which are noticed, so far as material, in the opinion delivered in this Court.
Caldwell for plaintiffs.
Alexander for defendants.
The execution of the deed from the one Burgin (588) to the other at the period of its date and the justice of the debts thereby secured are fully proved, and indeed were admitted on the hearing. The case therefore turns on the effect which, notwithstanding the prior registration of that deed, notice, at the time it was taken, to the creditor of the previous deed, under which the plaintiffs claim, will have in postponing the last mortgage; and whether, if any notice will have that effect, the notice in this case was sufficient. The act of 1829, Rev. Stat., ch. 37, sec. 24, enacts that no deed of trust or mortgage shall be valid at law to pass any property, as against creditors or purchasers for a valuable consideration, but from the registration of such deed. The act, therefore, takes away the relation of the deed to the period of its execution which arose under the former statutes upon its registration in due time, by declaring that it shall be valid "but from the registration." We have a strong impression, also, that the Legislature intended to make the registration indispensable to the operation of the deed in all instances, not merely as a ceremony requisite in point of formality to make it evidence, but as entering into the constitution of the deed as an instrument set up against a creditor or purchaser from the mortgagor. The policy of the registry acts is, first, to give notice of conveyances and encumbrances, and, secondly, to exclude the necessity of parol proof upon the question whether another person had or had not notice. It was well known to the Legislature that, notwithstanding the former legal provisions on this subject, it had become a rule of the Court of Equity that notice of a prior unregistered encumbrance, which notice might be proved by parol, would give relief against a subsequent deed, first registered; and, consequently, that many persons kept their encumbrances in their pockets, and registered them only when they wished to use them, as they might do from the length of time allowed in the registry acts and in those giving further time for that purpose. From this practice many evils arose, as there might be vague rumors of encumbrances of which there was no means of knowing the particulars. To remedy (589) them the Legislature first passed the act of 1820, requiring mortgages and deeds of trust to be registered within six months, and enacting that if not so registered they should be held, as against creditors and purchasers, utterly null and void. Then followed the act of 1829, whereby the Legislature, not content that there should be any delay in registering, destroys all relation of the deed, and says it shall not operate until or "but from" its registration. It would seem that the Legislature could not more emphatically declare that the fact of registration was requisite to perfecting the deed as against the protected persons and that nothing should supply the place of it as against those persons. There is a constant suspicion of those instruments discovered, as pervading all our legislation concerning them, and in the acts subsequently passed to give further time for registering conveyances, deeds of trust and mortgages are uniformly excepted. We doubt not that fraud would take a case out of this act, as out of any other intended for the protection of particular persons. We mean a fraud committed by one in being the cause why the deed of another was not registered; for he who prevents an act from being done ought not to insist upon an advantage from its not having been done. But it is so easy to register a deed of trust or mortgage under the act of 1829, which allows it to be proved in the clerk's office and makes the delivery to the register registration (McKennon v. McLean, 19 N.C. 79), that it must be deemed the most gross negligence to omit it, and so strongly argues a purpose not to let the world have that exact knowledge of its contents which the law intended, as justly to raise a presumption that the deed never was relied on as a security, or that it had been abandoned. No stress can be laid on the expression in the act, "valid at law," as recognizing a validity in equity or as intentionally leaving it to a court of equity to support the deed without registration, inasmuch as the Legislature could not suppose a court of equity would defeat the policy of a statute by construction, more than a court of law would, and, moreover, "at law" is not an expression which, in a statute, signifies (590) merely a legal tribunal as distinguished from an equitable jurisdiction, but generally, our system of jurisprudence, whether legal or equitable. From the policy which certainly dictated the act, and the peculiar provisions of it, the Court is forcibly led to conclude that registration is an essential ingredient in a mortgage or deed of trust to make it that instrument or constitute it a deed or security as against a creditor or purchaser.
But if it were otherwise — and we do not find it necessary in this case to say, positively, that it is not — we hold that though notice may deprive a subsequent purchaser of the protection of the act, yet the notice here is not sufficient for that purpose. Lord Hardwick, in Leneve v. Leneve, 3 Atk., 646, laid down the rule, which has been since followed, that notice of an existing unregistered deed bound one who took a subsequent one and first registered it. That certainly tended to subvert the registry acts, as allowing parol evidence to show that knowledge of the deed in pais which could be derived from the registration, and it would effectually subvert them if, as in ordinary cases of notice of a prior equity, a notice of anything that would lead to inquiry were held to be sufficient notice. Fortunately, a case came before the same great judge which called for his opinion on that point. Hine v. Dodd, 2 Atk., 275. In it he informs us that as the act of Parliament was positive and made to prevent perjury from contrariety of evidence, he could not overturn the act upon suspicion of notice, though a strong suspicion, but only for apparent fraud. He says the only cases that had been decided were cases of fraud, though he adds that possibly there may have been others upon notice, divested of fraud, but then the proof must be extremely clear. He therefore qualifies the rule, that fraud is necessary, by the expression, "or clear and undoubted notice," which can mean no less than a full knowledge of the contents of the deed, and that the person omitted to register it merely from inattention or inability, and not because he has abandoned it and does not mean to register it at all. For in that case, though his Lordship declared "the answer loose," and that there were strong circumstances (591) of notice, he yet dismissed the bill upon that part of the case. That the doctrine of that case is correctly understood as here represented is, we think, clearly to be collected from what has been said in subsequent cases, after the subject had been long and thoroughly considered. In Wyatt v. Barwell, 19 Ves., 435, the master of the rolls, after mentioning the doubts entertained of the propriety of having suffered the question of notice to be agitated against one who had registered his deed, proceeds to state what he considered the rule, thus: The courts have said we cannot permit fraud to prevail, and it shall only be in cases where the notice is so clearly proved as to make it fraudulent in the purchaser to take and register a conveyance in prejudice of the known title of another, that we will suffer the registered deed to be affected. Even with that limitation, he thought the efficacy of the registry acts considerably lessened, as no one can tell what may truly or falsely be given in evidence, or what may be the effect of the evidence in the mind of the judge. But finally he concludes by saying that it is only by actual notice, clearly proved, that a registered conveyance can be postponed; and that even a lis pendens will not amount to notice for that purpose. Again, in the previous case of Jolland v. Stainbridge, 3 Ves. Jr., 478, the regret is expressed that the statute had been broken in upon by parol evidence, and the satisfaction of the judge that Lord Hardwick, as he understood him, had in Hine v. Dodd said that "nothing short of actual fraud would do." And what the master of the rolls deemed fraud in this case we cannot misunderstand when we find him saying, "it is clear that it must be satisfactorily proved that the person who registers the subsequent deed must have known exactly the situation of the persons having the prior deed, and, knowing that, registered in order to defraud them of that title he knew at the time was in them." These cases leave no doubt of the kind of notice or fraud on the prior encumbrance which will reinstate him in his preference. It is called sometimes "actual notice" to be clearly proved, and sometimes (592) "exact knowledge" of the situation of the parties. From which it should seem to follow that such notice of the contents of the instrument, as to the subject and purposes of the conveyance and of the intention to rely on it as a conveyance, must substantially reach the party in pais as would be derived upon those points from the registry itself. We do not mean that information precisely correct as to everything conveyed or as to the amount of each debt secured would be necessary to give any effect to the deed, but that, at most, it could only be set up against the subsequent purchaser for such purposes as it was distinctly represented to him as intended to effect and effecting, and that such representations must at least be true as far as they go and convey something like the real contents of the instrument. Without information to that extent there can be no imputation of fraud by taking a deed in order to defeat the former one.
We think this case wholly wanting in evidence of a notice of that character. The plaintiffs have given no evidence upon the subject but that contained in the answer. On the other hand, the defendant B. Burgin, Sr., proves by the subscribing witnesses to his deed that, when it was executed, the grantor informed those persons and B. Burgin, Sr., that he had made the deed to Fleming in Charleston, but that it was not intended to operate, except to keep his creditors in Charleston easy until he could get away, and that it was agreed between Fleming and himself that the former should surrender the deed and not have it registered. Now, that representation may be true or false without, in either case, impeaching the fairness of the conduct of the party in taking the subsequent deed. There is some reason to believe that it may be true, from the evasive and unsatisfactory answer of one of the subscribing witnesses to the plaintiff's deed as to an understanding of that sort. But, undoubtedly, the second mortgagee had reason to believe it true, not only because he was so informed by the party to the deed, but also because he knew that another subscribing witness to the plaintiff's deed lived in Burke and returned to that county with B. Burgin, Jr., and that the plaintiff might have sent the deed by him and had it proved and registered, but did (593) not. And it is remarkable, too, that the plaintiff has not examined that witness to repel, if he could, the allegation that it never was intended by him to register or set up his deed. But admitting the fact to be that he did intend to claim under the deed, it cannot affect the second mortgagee, since he was not informed of that intention, but was told directly the reverse, and had no reason to disbelieve his information, but swears that he did believe it, and took his deed under that belief, and of course not "in order to defraud" the plaintiffs, but merely to secure his own debt. If any state of information respecting the intended or even actual destruction of a deed, of which a rumor of the existence at one time has reached a party, will excuse one for taking a conveyance of the same property, it would seem that this should.
So far, therefore, as the bill seeks to have the deed to B. Burgin, Sr., declared fraudulent and void, as not having been given for a just debt and with intent to delay creditors, and so far as it seeks relief by having the mortgage to the defendant B. Burgin, Sr., postponed in favor of the assignment to Fleming, it must be dismissed with costs.
But as the property conveyed to the defendant may more than suffice to discharge his debt, so as to leave a surplus for the plaintiff, there must be, if they choose, a reference to take an account of the defendant's mortgage debt and of the sum now due thereon, upon payment of which the plaintiffs may have an assignment of the mortgage, or such other relief as may seem proper upon a motion for further directions, upon the coming in of the report.
PER CURIAM. Decreed accordingly.
Cited: Gilliam v. Reddick, 26 N.C. 371; Womble v. Battle, 38 N.C. 191, 197; Robinson v. Willoughby, 70 N.C. 364; Blevins v. Barker, 75 N.C. 438; Todd v. Outlaw, 79 N.C. 237, 238; Parker v. Banks, ib., 483; Ijames v. Gaither, 93 N.C. 361; Bank v. Mfg. Co., 96 N.C. 305; Weaver v. Chunn, 9 N.C. 434; Hinton v. Leigh, 102 N.C. 32; Duke v. Markham, 105 N.C. 138; Quinnerly v. Quinnerly, 114 N.C. 148; Bostic v. Young, 116 N.C. 771; Blalock v. Strain, 122 N.C. 285; McClure v. Fellows, 131 N.C. 510; R. R. v. Lumber Co., 136 N.C. 191; Piano Co. v. Spruill, 150 N.C. 169.
(594)