Coastal Sales Co. v. Weston

• Decision Date: 20 March 1957
• Docket Number: No. 21,21
• Citation: 97 S.E.2d 267,245 N.C. 621
• Court: North Carolina Supreme Court
• Parties: COASTAL SALES CO., a Corporation, v. Elizabeth C. WESTON, Administratrix of F. E. Weston, Deceased.

Page 267

97 S.E.2d 267

245 N.C. 621

COASTAL SALES CO., a Corporation, v. Elizabeth C. WESTON, Administratrix of F. E. Weston, Deceased.

No. 21

Supreme Court of North Carolina.

March 20, 1957

Peel & Peel, Williamston, for defendantappellant.

W. Bernard Allsbrook, Roanoke Rapids, and Henry C. Bourne, Tarboro, for plaintiff-appellee.

BOBBITT, Justice.

Two questions confront us: 1. Did plaintiff, as between it and Weston, have a valid lien on said lumber? 2. If so, is plaintiff's lien enforceable against the administratrix of Weston's insolvent estate?

To answer the first question, it is necessary to consider three duly executed documents, all dated February 23, 1956, Exhibits A, B and C.

Exhibit A is a comprehensive contract between plaintiff and Weston. It was not recorded. Its pertinent provisions, summarized, are these:

Weston was to produce, grade and stack lumber on his yard near williamston, North Carolina. The lumber was to be manufactured under the direction of plaintiff. Plaintiff was to take 'a bi-monthly inventory of all lumber on Weston's yard.' Plaintiff had the right to go upon the premises to inspect Weston's records and to check the lumber on his yard. Plaintiff was constituted the exclusive sales agent for the lumber so produced. All sales were to be made by plaintiff in its name. The lumber was to be shipped from Weston's yard in plaintiff's name and as directed by it. Plaintiff was to send bills for the lumber so sold and shipped and make all collections.

It was agreed that, up to a maximum of $50,000, plaintiff would advance to Weston an amount equal to 55% of the market value of the lumber produced by Weston and stacked on his yard; provided, such advancements were to be made only on lumber 'free from all liens or adverse claims of any nature whatever.' It was agreed that, as the lumber was produced and stacked, successive advancements were to be made by plaintiff to Weston; and Weston's indebtedness to plaintiff therefor was to be evidenced by promissory notes.

It was agreed that Weston was 'to pay the taxes on and to keep the lumber adequately insured against loss by fire or other casualty * * * with loss payable to the Coastal Sales Company and Frank E. Weston as their respective interest may appear.' In the event Weston failed to do so, plaintiff was given the right to pay such taxes and insurance premiums and add the amount thereof to Weston's indebtedness to it.

It was agreed that Weston was 'to keep up all leases as described in Deed of Trust of even date herewith.' In the even Weston failed to do so, plaintiff was given the right to make the payments required to keep up said leases and add the amount thereof to Weston's indebtedness to it.

Whether evidenced by promissory notes or otherwise, it was agreed that Weston's indebtedness to plaintiff was to bear interest at the rate of 5 1/2% per annum.

When lumber was sold, the purchase price received by plaintiff therefor was to be applied to plaintiff's commissions and to Weston's indebtedness to plaintiff as set forth in detail.

Exhibit A contains this paragraph: '15. To afford security for the Coastal Sales Company for the indebtedness to arise hereunder, the said Frank E. Weston shall execute, simultaneously with this Contract, a Deed of Trust on all machinery and equipment used by him in the operation of the lumber mill together with all lumber now at or upon the yards of the mill aforesaid, and all other lumber produced or handled thereat as the natural product of the business of said mill during the life of this contract.' (Italics added.)

Exhibit B, which was recorded, a contract between plaintiff and Weston, is an abbreviated form of Exhibit A. None of the provisions quoted above from Exhibit A appear in Exhibit B. Exhibit B contains no new matter. Exhibit B provided generally that plaintiff was exclusive sales agent for all lumber then at Weston's mill and 'for all lumber produced or handled thereat during the life of this contract'; that plaintiff was to receive commissions on sales and was to make advancements to Weston 'as stipulated in a separate agreement of even date herewith by and between the parties hereto'; and that 'every part * * * (of said separate agreement) is incorporated herein by reference as fully as if set out herein in detail.'

Exhibit C, which was recorded, is the deed of trust. It was executed and delivered by Weston to W. B. Allsbrook, Trustee.

Exhibit C recites that Weston 'may hereafter become indebted' to plaintiff from time to time in various amounts up to but not exceeding $50,000 under the terms of their contract of even date, which indebtedness 'will be evidenced by notes' of Weston to plaintiff; and that the deed of trust is to secure the payment of said indebtedness, 'both that which now exists and that which will hereafter exist.'

The property conveyed to W. B. Allsbrook, Trustee, was described as follows: (1) All of the right, title and interest of Weston in certain described leases; (2) certain described machinery, trucks and trailers; and (3) 'All of the machinery, equipment and other personal property used by the said Frank E. Weston in connection with the manufacture of lumber and also all the lumber of every kind and description, including Pine, Hardwood and Cypress, located on the mill yard of the said Frank E. Weston, which mill yard is included in the Leases hereinabove described.' Prior liens on described personal property aggregating $48,400 were excepted from Weston's warranty.

It was stipulated that Weston was to 'take good care of all lumber herein conveyed'; and, if Weston failed to do so, plaintiff, at its option, had the right to declare the outstanding indebtedness immediately due and payable.

It was further stipulated that Weston 'at all times hereafter * * * shall keep the lumber herein conveyed insured to the extent of the fair market value of same, the market value to be based on bi-monthly reports of inventories of stocks of lumber on hand, * * *.' In the event Weston failed to do so, plaintiff was 'at liberty to effectuate such insurance,' and add the amount of the premiums paid by plaintiff 'to the indebtedness hereby secured.'

It was further stipulated that, if considered 'reasonably proper' by plaintiff's counsel, Weston was to execute supplemental instruments 'to give specific description to the property conveyed or to effectuate the full intent and meaning of this instrument.'

Exhibit D, which was not recorded, is a contract dated May 11, 1956, between plaintiff and Weston. It was agreed that plaintiff would make a 'supplemental advance of ten ($10.00) dollars per M. board feet of 181 MBF of cypress lumber' located on Weston's yard and that Weston's debt to plaintiff therefor would be evidenced by notes and secured as provided in Exhibits A and C.

Based on production reports furnished by Weston, plaintiff made advancements to Weston; and Weston executed and delivered to plaintiff promissory notes for the amounts so advanced, all in accordance with Exhibits A and D. The admitted indebtedness of Weston to plaintiff in the amount of $24,551.07 plus interest is the balance due on these promissory notes. While not deemed material, the record does not disclose to what extent, if any, plaintiff's present claim is based on supplemental advancements under Exhibit D.

It is stipulated that when the three documents, Exhibits A, B and C, were executed, Weston 'did not have and did not represent to have any lumber of any kind on the mill yard referred to in said agreements, and this fact was known to both parties.' Too, it appears clear that when said three documents were executed, there existed no indebtedness of Weston to plaintiff on account of advancements.

The purport of the brief oral testimony is that the lumber produced by Weston was graded, stacked and inventoried in accordance with the provisions of Exhibit A; and that this was done under the supervision of plaintiff's employees.

To embrace after-acquired property, a mortgage or deed of trust must be so worded as to show, expressly or by implication, the mortgagor's unmistakable intention to convey such property. Hickson Lumber Co. v. Gay Lumber Co., 150 N. C. 282, 285, 63 S.E. 1045, 1047, 21 L.R.A., N.S., 843; Merchants' & Farmers' Bank v. Pearson, 186 N.C. 609, 120 S.E. 210.

The three documents, Exhibits A, B and C, bear the same date, to wit, February 23, 1956. It was permissible for the court to find that they were executed at the same time. Sandlin v. Weaver, 240 N.C. 703, 83 S.E.2d 806. Moreover, the terms of these documents disclose their interrelation as parts of a single transaction.

When the three documents, Exhibits A, B and C, are construed together, as parts of one transaction, it is clear that the parties intended that plaintiff have a lien on the lumber produced and stacked on Weston's yard during the life of their contract. These questions arise: Did plaintiff have a valid mortgage lien, such as was upheld in Merchants' & Farmers' Bank v. Pearson, supra? If not, did the plaintiff have an equitable lien, such as was upheld in Garrison v. Vermont Mills, 154 N.C. 1, 69 S.E. 743, 31 L.R.A.,N.S., 450?

The parties intended that plaintiff have a mortgage lien on the lumber; and, if treated as an equitable lien, the basis therefor is that the provisions of the mortgage alone were not legally sufficient to effectuate their real agreement. If then, on principles of equity, we effectuate their intention, the result reached is that the deed of trust, in respect of the lumber, had the status of a mortgage lien thereon.

The validity of the lien, as between plaintiff and Weston, was not impaired by the failure to record Exhibit A. '* * * as between the parties, a mortgage or deed is valid without registration.' McBrayer v. Harrill, 152 N.C. 712, 68 S.E. 204, 205.

G.S. § 47-20 does not protect every creditor against unrecorded mortgages. It protects only (1) purchasers for a...