McCREARY TIRE AND RUBBER COMPANY v. Crawford

116 S.E.2d 491 (1960)

253 N.C. 100

McCREARY TIRE AND RUBBER COMPANY; C. M. McClung and Company, Inc.; Globe Rubber Products Corporation; Nu Era Corporation; Robbins Tire and Rubber Company, Inc.; Universal Tool and Stamping Company; Gates Rubber Company, Sales Division, Inc., a Wyoming Corporation, Plaintiffs, v. Jack CRAWFORD D/B/A Crawford Tire Company, Defendant; and B. W. Acceptance Corporation, Intervenor.

No. 21.

Supreme Court of North Carolina.

October 12, 1960.

*495 Weinstein, Muilenburg, Waggoner & Bledsoe, Charlotte, for appellant-intervenor.

McKeever & Edwards, Murphy, for appellees.

PARKER, Justice.

Intervenor has one assignment of error: The court erred in signing the judgment, and in not allowing intervenor's motion to recall the executions.

The exception to the signing of the judgment presents two questions: One, do the facts found support the judgment, and two, does any error of law appear upon the face of the record. City of Goldsboro v. Atlantic Coast Line R. R., 246 N.C. 101, 97 S.E.2d 486, and cases there cited.

*496 Plaintiffs in their written and verified answer to intervenor's written motion aver that the Trust Receipts executed and delivered by Crawford to intervenor were in effect chattel mortgages. Judge Patton's legal conclusionstated by him as his opinionwas that these Trust Receipts are in effect conditional sales contracts.

The Trust Receipt set forth in General Motors Acceptance Corporation v. Mayberry, 195 N.C. 508, 142 S.E. 767, is almost identical with the Trust Receipts here, with the exception of a few recitals immaterial in the instant case. In that case the Court held that insofar as it affected creditors of either party, the transaction was a conditional sale. In this jurisdiction, conditional sales contracts for personalty in which title is retained as security for the debt are treated as chattel mortgages. Mitchell v. Battle, 231 N.C. 68, 55 S.E.2d 803, and cases and text books there cited.

It has been uniformly held in this State that a chattel mortgage or a conditional sales contract for personalty, although not recorded, is valid as between the parties. Coastal Sales Co. v. Weston, 245 N.C. 621, 97 S.E.2d 267; Cutter Realty Co. v. Dunn Moneyhun Co., 204 N.C. 651, 169 S.E. 274; General Motors Acceptance Corporation v. Mayberry, supra; Thomas v. Cooksey, 130 N.C. 148, 41 S.E. 2; Butts v. Screws, 95 N.C. 215. See Leggett et al. v. Bullock, 44 N.C. 283.

G.S. § 47-20 does not protect every creditor or purchaser against unrecorded chattel mortgages or conditional sales contracts of personalty. It protects only (1) purchasers for a valuable consideration from the bargainor or mortgagor, and (2) creditors who have first fastened a lien on the personalty in some manner sanctioned by law. Coastal Sales Co. v. Weston, supra; M. & J. Finance Corporation v. Hodges, 230 N.C. 580, 55 S.E.2d 201, 204.

"A judgment constitutes no lien upon the personal estate of the judgment debtor, a seizure thereof by an officer under authority of an execution creates a special property therein and a lien thereon for the purpose of satisfying the execution. It is the levy under execution that creates the lien in favor of the judgment creditor." M. & J. Finance Corporation v. Hodges, supra.

Jones, "Chattel Mortgages and Conditional Sales," 6th Ed., Vol. 1, Sec. 178, says: "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."

In 21 Am.Jur., Executions, Sec. 441, it is said: "The general rule is that a levy may not be made on mortgaged personal property under an execution against the mortgagor while the mortgagee is in possession. A fortiori, mortgaged personal property may not be seized and taken from a mortgagee after it has been surrendered to him to sell in satisfaction of the mortgage." To the same effect see 33 C.J.S. Executions § 45, p. 177.

In Cowan v. Dale, 189 N.C. 684, 128 S.E. 155, 157, the Court held that where D. E. Flowers, before making a deed of assignment for the benefit of creditors, had given a mortgage on his stock of merchandise (personal property), and the mortgagee was in peaceful possession thereof at the time the deed of assignment for the benefit of creditors 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 was properly dissolved. The Court, after quoting with approval what we have quoted above from Jones, "Chattel Mortgages and Conditional Sales," states immediately thereafter:

*497 "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 the mortgagee.' Morrow v. Reed, 30 Wis. 81. `If a mortgagee or pledgee takes possession of the 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, 74 Minn. 130, 76 N.W. 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.' First Nat. Bank [of Crockett] v. George R. Barse Live Stock Commission Co., 198 I11. 232, 64 N.E. 1097, 1104. See, also, Ogden v. Minter, 91 Ill.App. 11; Second Nat. Bank of Monmouth v. Gilbert, 174 Ill. 485, 51 N.E. 584. `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. 340, 351. `Such a lien (mortgage) is good between the parties, without a change of possession, even though void as against subsequent purchasers 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 L. Ed. 1075. See, also, 11 C.J. 587, § 281. "Upon reason and authority therefore we are of opinion that the plaintiff is not entitled to a continuance of the restraining order. This conclusion 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."

As to the articles of personalty sold by intervenor to Crawford for which Crawford executed and delivered to intervenor his promissory notes for the purchase prices secured by Trust Receipts, which Trust Receipts, according to General *498 Motors Acceptance Corporation v. Mayberry, supra, are conditional sales agreements, and in this State are treated, according to our decisions, as chattel mortgages, such Trust Receipts, although not recorded, are valid as between intervenor and Crawford. Plaintiffs contend that intervenor had no right to repossess such personalty. Such a contention is unsound, for the reason that the Trust Receipts provide that Crawford agreed "to return said articles to said B. W. Acceptance Corporation, or its order, upon demand." Intervenor's legal right to repossess these articles of personal property is not impaired by the fact that Crawford had on deposit with intervenor at the time it repossessed this property a sum of money for the purpose of saving intervenor harmless from any loss it might sustain in financing retail conditional sales contracts assigned by defendant to intervenor. What the legal rights are as to this sum of money is not before us for decision on this appeal.

As to the Olympic T. V., Model No. 18BT61, Serial No. 620668, and the RCA 21″ T. V., Model No. 21S500R, Serial No. A2233623 previously sold by Crawford under conditional sales contracts, which contracts Crawford for value assigned to intervenor, and which articles Crawford by reason of default in the payments due under such contracts repossessed and placed in his store, such conditional sales contracts, although not recorded, are valid as between the parties. As to such articles, intervenor was the owner, Cutter Realty Co. v. Dunn Moneyhun Co., supra, and had a right to take possession of them, and this legal right is not impaired by the sum of money Crawford had on deposit with intervenor, as set forth above.

The court found as a fact that the articles taken out of Crawford's store by intervenor, and stored by it in Jim Gibbs' warehouse, constituted a large part of Crawford's stock of merchandise. Plaintiffs' contention that this constituted a transfer of a large part of Crawford's stock of merchandise without a valuable consideration and is void as against creditors, and violates G.S. § 39-23, is without merit. Under our decisions the Trust Receipts given by Crawford cannot be deemed violative of G.S. § 39-23 or void as against creditors, because the debts secured by the Trust Receipts were not pre-existent but contemporaneous with the contract of purchase from intervenor, constituting a part of one continuous transaction. Cowan v. Dale, supra, and the cases there cited. Certainly the assignment by Crawford to intervenor of the conditional sales contracts as to the Olympic T. V. and the RCA 21″ T. V. do not violate G.S. § 39-23, and is not void as to creditors.

Intervenor took possession of the articles of personal property for which Crawford had given him Trust Receipts and the two articles of personal property upon which he held conditional sales contracts assigned to it for value by Crawford before any right or lien of plaintiffs attached, and therefore its title under the Trust Receipts and conditional sales contracts was good against plaintiffs, as it was previously valid between the parties, although such instruments were not recorded. Under such facts a levy cannot be made on such property under plaintiffs' executions here.

Upon the facts found by the learned judge, he was in error in concluding as a matter of law that the intervenor is not the owner of, and is not entitled to the possession of the Refrigerators, the Range, the Washer and the Freezer, which it had taken and had in its possession by virtue of the Trust Receipts for such articles executed and delivered to him by Crawford to secure the purchase money notes for said articles, and of the Olympic T. V. and the RCA 21″ T. V., which it had taken and had in its possession by virtue of the conditional sales contracts assigned to it for value by Crawford. Upon the facts found by the *499 learned judge, he was in error in concluding as a matter of law that the Trust Receipts were required to be registered under the provisions of N.C.G.S. § 47-20 to be valid against Crawford's creditors, and as they were not registered, intervenor cannot claim title to the property under these Trust Receipts. The judge was in error in adjudging that intervenor is not the owner of, and is not entitled to the possession of the articles taken possession of by intervenor by virtue of the Trust Receipts and of the conditional sales contracts and levied on by the sheriff, in dismissing as to these articles intervenor's motion, and in ordering that this property levied on by the sheriff be sold and the proceeds of the sale be applied to the payment of plaintiffs' judgments, and in taxing intervenor with the costs. These errors of law appear upon the face of the record.

As to the six articles which intervenor took into its possession, and about which it offered no evidence of ownershipwhich facts found by the judge are not challenged by intervenor, intervenor is not the owner of, or entitled to the possession of these six articles, and it makes no specific contention in its brief that its motion should be allowed as to these six articles. Such being the case as to these six articles, intervenor's motion should be dismissed as to these six articles.

The case is ordered remanded to the lower court, which shall make proper conclusions of law pursuant to this opinion, and enter judgment allowing intervenor's motion as to the Refrigerators, the Range, the Washer, and the Freezer held in its possession by intervenor by virtue of the Trust Receipts, and as to the Olympic T. V. and the RCA 21″ T. V. held in its possession by intervenor by virtue of the conditional sales contracts.

The judgment recites the parties stipulated that the judgment could be signed out of term and out of the county. The judgment was signed on 31 December 1959 by Judge Patton in chambers at his home in Franklin. Cherokee County is in the 30th Judicial District. By our rules appeals from the 30th Judicial District were required to be docketed by 10:00 a. m., Tuesday, 12 January 1960. We allowed the petition for a writ of certiorari, and ordered the case to be heard in regular order at the Fall Term 1960.

Error and remanded.