Traders National Bank v. Lawrence M'f'g Co.

3 S.E. 363, 96 N.C. 298

• Court: Supreme Court of North Carolina
• Decided: February 5, 1887
• Status: Published

Opinion

Smith, C. J.,

(after stating the facts). It is to be observed, that no specific exception is taken to the rulings of the Court, as should have been done, limiting the examination to them, many of which objections to the referee’s report, if this had been done, might not have been pressed in this Court, and so relieved it of unnecessary labor. The proper course is to state the exceptions to the rulings of the Court which the appellant wishes to be reviewed, after the rulings have been made, and to let them come up as part of the record, as contemplated in §418 of The Code. This would serve as a distinct and definite announcement to the oppo sing party of the matter relied on, lessen the labor of the Court and counsel in hearing the appeal, and tend to a fair trial of the cause.

While there- are, as there should be, full records in each appeal, it will be more convenient to consider, in proper order, the exceptions of the appellants and dispose of them, as they arise, in one opinion.

Preliminary to this, we advert to the fact that the said Hall, originally a defendant, having by assignment become the owner of many of the pi’oved claims, and purchaser of the corporate property of both companies at foreclosure sales, has assumed the place of plaintiff, and filed an independent complaint in the cause. We proceed accordingly to an examination of the essential subject matter involved in the exceptions.

The mortgage of April 1st, 1882: Objection is made to the validity of the bonds secured in this deed -for their full amount, as a loan unwarranted by law as usurious and void, for the excess above the sum borrowed.

The answer to this, is found in section 14 of the charter of the Lawrence Manfacturing Company, which declares that this corporation may borrow money on such terms as its directors may determine upon, and they may issue bonds or other evidences of indebtedness.

It is true that words, essentially similar, contained in the charter of the Bank of Statesville, by which it was authorized “ to lend money upon such terms and rates of interest as may be agreed upon,” were held to confer a power to be exercised under the restraints of the general law, and not independently of them. Simonton v. Lanier, 71 N. C., 498.

A like limiting interpretation was given to general words in the charter of the Bank of Fayetteville, authorizing it to issue notes, and not defining their denomination, in State v. Matthews, 3 Jones, 451.

But these cases differ from that before us, in that, here the enabling provision is for the benefit of the borrower, and that it may secure needed financial assistance in carrying on its business operations, while in the others the claim was not allowed to relieve those banking institutions from the restraints imposed by law upon all others, nor, in terms, does it undertake to do so, to the oppression of those who deal with them. Morrison v. Eaton & Hamilton R. R. Co.,. 14 Indiana, 110.

The mortgages to Fries: In Hyman v. Devereux, 63 N. C., 624, a note secured by a mortgage and transferred to an assignee, was surrendered, and a new note, both under seal, executed to the assignee in its place, and it was insisted that the new security was no longer protected by the mortgage. But it was held, that this result did not necessarily follow the act of substitution, unless it was shown that an extin-guishment of the debt was intended, and still less, in the words of Rodman, J., “can it be presumed in the absence of proof that a creditor who takes a note in the place of a former one, intends to discharge the mortgage.”

The same ruling was subsequently made in Kidder v. McIlhenny, 81 N. C., 123.

In the present case, while the identity of the indebtedness remained, as respects the creditor, it was changed into a new security, taken from one not bound by the former, and a mortgage given by the new debtor upon its own property, the former being given up and extinguished or cancelled. After an interval of more than a year, this arrangement was superseded by another, in which the borrowing company resumed its original liability, paid one fourth part of the debt, gave a new note for $7 500, (the residue,) and executed a second mortgage on its property, then owned, for its security, the second note and mortgage being at the same time cancelled. If there is any effect to be given to our registration law, the contention that the debt constitutes a lien under the antecedent cancelled mortgages, cannot be sustained to the prejudice of intermediate debts. A creditor examining the registry, would find that there was no mortgage on the property of the Woodlawn Manufacturing Company, after its cancellation or entry of satisfaction, when that of the other Company, with a new contract of indebtedness and a conveyance of its property to secure it, had taken the place of the first, and he might safely rely upon the exonerated and other means of the first mortgagor to meet a new contract with himself.

This is repugnant to the letter and policy of thelaw, which in express terms requires deeds in trust to be registered before they can have operation against creditors and purchasers for value, (The Code §1254,) and points out how, when so registered, they may be discharged, (§1271). This evidence is furnished by an inspection of the registry, and is for the protection and safe dealing of others with the mortgagor or maker of the trust deed, and would be misleading and delusive, if satisfied and cancelled mortgages, so shown upon the registry, could be afterwards re-instated and given precedence over debts contracted after such examination.

tío imperative is the requirement that such deeds, to be effective, must be registered, that one who knows of the execution of a prior deed of trust, and procures one upon the same property from the mortgagor, and causes it to be first registered, unless fraud was used to prevent the earlier registration of the first, acquires the preferable right, and equity will not interpose for his relief. Flemming v. Burgin, 2 Ire. Eq., 584.

There is no error in the ruling as to this debt.

III. The debts contracted prior to April 1st, 1882: These are given priority in the distribution of the assets of the Lawrence Manufacturing Company, by virtue of the proviso contained in §3 of chapter 131, Acts of 1872-73, wdiich is as follows : “ That all debts and contracts of any corporation, prior to or at the time of the execution of any mortgage or deed of trust by such corporation, shall have a first lien upon the property, rights and franchises of said corporation, and shall be paid off or secured before such mortgage or deed of trust shall be registered.” Battle’s Revisal, chap. 26, §48.

The proper interpretation of this proviso makes the controversy, the ruling in reference to which constitutes the alleged error presented in the exception.

On the one side it is argued, that the proviso is annexed to corporations authorized to be formed by purchasers under a deed of trust or mortgage made by an insolvent or expiring corporation, and does not extend to such a mortgage as the present, and this inference is drawn from the beginning words of section three, “ when such corporation shall expire or be dissolved,” meaning such purchasing corporation to be constituted under the act.

On the other hand it is insisted, that the clause says “ that all debts and contracts of any corporation prior,” &c., and not of such corporation, thus giving a wide and unrestricted operation to the promo. This construction is sought to be fortified by the succeeding section, which declares the provisions of the act shall not apply to a corporation in which the State has an interest; for the State would have no interest in a corporation formed of purchasers, and there would be no necessity for this exemption, unless existing corporations were meant, in which are not to be included such as the State had an interest in. Moreover, it is required that existing debts shall be paid off or secured before the “ mortgage or deed in trust shall be registered.”

It is true these eontrariant interpretations find, each, some support in the uncertain terms in which the legislative intent is expressed.

Some inference of an intent to extend the proviso to corporations generally, however they may have been brought into existence, may be drawn from terms of the replacing enactment in The Code, §685, which extends to all corporations, and renders every conveyance of their property made absolutely, or upon condition, in trust, or by way of mortgage, “ void and of no effect as to existing creditors, and as to claims for torts committed previously thereto, when’ otherwise satisfaction could not be obtained.” The claim must be enforced by action, however, within sixty days.

This. section has no application to the present actions, which were begun in the Fall of 1882, before the statute went into effect, but it is some indication of the enlarged scope intended to be given to the proviso in the former enactment which, with some modification, is transferred to The Code.

Moreover, the primary purpose of the legislation is to impose restraints upon insolvent corporations, and disable them from borrowing money and conveying their property to secure it, whereby present liabilities might go unpaid.

Hence, satisfaction of, or security for, these is required, to give efficacy to the deed by putting it on the registry: and we can see no reason why a limited number of corporations, determined by their mode of origin, should be, and none other, embraced in the operation of the statute. If a construction extending it to existing liabilities be admitted, the effect would be to convert an intended preferential assignment into one for the common benefit of all creditors, or to render the assignment nugatory, unless the omitted liabilities should be first secured.

For these reasons we feel constrained to give the larger scope to the proviso, and put it in this respect in harmony with the present law.

While it is a general rule in the construction of statutes, to consider a proviso as a limitation upon the general words preceding, and excepting and taking out something therefrom, the rule is not absolute, and the meaning of the pro viso must generally be ascertained from the language used in it, and of this we have examples.

An instance of this is found in Mason v. McCormick, 75 N. C., 263, where a proviso to the act which allowed parties to testify, was held to impose a disability upon a witness who at the time was a surety to the prosecution bond, and even the removal of the interest would not restore his competency to give evidence. Mason v. McCormick, second appeal, 80 N. C., 244.

IV. The indebtedness incurred for labor done and materials furnished before April 1st, 1882:

These preferred claims are enumerated by the referee in paragraph 35. of his report, five in number, amounting in the aggregate to $15,112.77, due from the Lawrence Manufacturing Company; and those against the Woodlawn Manufacturing Company, four in number, are found in paragraph 36, amounting to $1,719.67.

These claims are allowed priority by virtue of the Act of 1879, which provides that mortgages of incorporated companies upon their property or earnings, whether in bonds or otherwise, hereafter issued, shall not have power to exempt the property or earnings of such incorporations from execution for the satisfaction of any judgment obtained in Courts of this State against such corporation for labor performed or material furnished such corporation, nor for torts committed by such corporation, its agents or employés, whereby any person is killed, or any person or property injured, any clause or clauses in such mortgage to the contrary notwithstanding. The Code, §1255.

The statute does not directly invalidate such mortgages, hut, notwithstanding such attempted alienation, exposes the corporate property to execution issued upon a judgment recovered upon the causes of' action mentioned. Literally and strictly, it does not apply to the present case, as there are no conflicting claims to title between the mortgagee and pur chaser at execution sale, or the privies of such, but the statute must be given a wider meaning, and if applicable, govern the disposition of funds under control of the Court.

There would seem to be no necessity for this enactment, which protects claims for labor done or material supplied, or for torts committed, in presence of that before referred to, which covers all demands for debts and torts, those enumerated in section 685, as well as others.

We are disposed to concur in the view of counsel for the appellant Hall, that the section, so far as it relates to claims for labor performed, or material furnished, pursuing very nearly the words used in §1781, was designed, by its disabling effect, to more effectually secure the liens given by the Constitution to the laborer, (Art. 10, §4,) and the statute extending the lien to materials furnished. But the lien is further extended to torts; and compensation is provided against any alienation attempted to defeat the claim.

But the statute does not, in our opinion, contemplate a lien security for machinery and other articles purchased abroad in putting up the mill, or facilitating its workings afterwards, when it is apparent, personal credit was alone looked to for payment, and a negotiable security taken. Lanier v. Bell, 81 N. C., 337.

The consequences would be pernicious and destructive of all fair and safe dealings with corporations, if a secret lien founded upon a sale by a distant creditor, of which a person had no information or means of information provided by law, could be set up as paramount to his demand, and unless imperatively demanded, such a construction ought not to be put upon an enactment as will lead to this result.

The referee finds that after paying the preferred debts, to-wit, those contracted previous to April 1st, 1882, and those for labor and material, the assets of the Lawrence Manufacturing Company will be absorbed in, and insufficient to pay the mortgage bonds; and that the assets of the Woodlawn Manufacturing Company, applied to the lien debts as above, and then to the debt due J. W. Fries, will be consumed.

What effect the displacement from the list of preferred claims under the statute will have upon those next in order, under the respective assignments of July, 1882, by both companies, must be ascertained upon a re-reference of the account to be stated upon the basis of this opinion, and it is accordingly again referred to the same referee.

If in the confused and complicated case presented in the record, our general rulings upon the law do not cover all the exceptions, they may be again presented on the coming in of the report, in the same manner as they are now.

We repeat, there are no special exceptions to the rulings of the Judge except as they are involved in those taken to the report, and this is not sanctioned by the practice.

. This disposes of all the appeals.

Remanded.