Garrison v. Vermont Mills

• Decision Date: 14 December 1910
• Citation: 69 S.E. 743,154 N.C. 1
• Parties: GARRISON v. VERMONT MILLS.
• Court: North Carolina Supreme Court

69 S.E. 743

154 N.C. 1

GARRISON v. VERMONT MILLS.

Supreme Court of North Carolina

December 14, 1910

On rehearing.Rehearing granted.Former opinion withdrawn and judgment reversed.

Equitable liens are such as arise either from a written contract which shows an intention to charge some particular property with a debt or obligation, or declared by a court of equity from the facts and circumstances of the case, and do not depend on possession.Strictly speaking, they are not a jus in re, nor a jus ad rem, but are more properly a charge on the thing which can be enforced only in equity.

For former opinion, see152 N.C. 643, 68 S.E. 142.

The facts found by the referee are substantially as follows: On March 15, 1906, the Cone Export & Commission Company and the Vermont Mills, Incorporated, entered into a written contract that the Cone Export & Commission Company was to have the exclusive sale of the entire product of the defendant's mills at Bessemer City, N. C., except such goods as it might sell to its own store for sale to its customers.It is further provided in said contract: "Fourth.The party of the second part, the Cone Company, will advance to the party of the first part, the Vermont Mills, upon their demand three-quarters of the net cash value of goods on hand stored with the party of the first part.By net cash value is meant the net proceeds after deducting freights, cash and other discounts, commissions, etc.The goods thus advanced on are to be billed up by the party of the first part to the party of the second part, and are to be stored and put in separate warehouses, as is the present custom of the party of the first part with their present commission house, and insured for the account of the party of the second part by the party of the first part."This contract was in force when the receiver was appointed for the mills, and under it the interpleader had advanced the company over $13,000 on the output of the mills to be shipped to it.

The following is taken from the report of the referee: "On January 15, 1907, prior to the appointment of the receiver one W. B. Vaught, agent of the claimant, visited the mills in company with D. A. Garrison, president of the mills, R. F Coble, a director and superintendent of the mills, J. H Wilkins and S. J. Durham, and took an inventory of the cloth already made by the mills.That said cloth was on the looms, some stored in the basement, and some in the warehouse.There was only one warehouse.That said Vaught stated that he took possession of the cloth as the property of said claimant, and appointed said Coble as agent of claimant, to care for and hold said cloth.That these acts and declarations were not assented to by D. A. Garrison, president, for himself, or on behalf of the mills.That the cloth was numbered by bales, pieces, and yards.That said cloth remained in its then position until taken charge of by the receiver.(7) That on the 15th day of January, and at the date of the appointment of the receiver, said mills was indebted to claimant, and the claimant held invoices for the goods which were then on the premises of the mills, and said indebtedness was in the nature of advances thereon.(8) That on the 26th day of February, 1907, the receiver and claimant entered into a contract whereby claimant was to dispose of the cloth on hand at the mills at the date of the appointment of receiver, and to account for same, awaiting the legal determination of the ownership thereof.(9) That the net proceeds derived by claimant from sale of said cloth on hand at mills at the date of the appointment of receiver under the contract between receiver and claimant amounted to $4,579.33.(10) That the net proceeds derived by claimant from the sale of cloth in its possession in New York prior to the appointment of receiver amounted to $3,337.39.(11) That at the date of the appointment of receiver the mills were indebted to claimant in the sum of $13,387.92."

King & Kimball and Jas. H. Pou, for petitionerCone Export Company.Burwell & Cansler and O. F. Mason, for appellee.

BROWN J.

When this case was determined at the first hearing, I fully concurred in the opinion of the court that "the Cone Export & Commission Company acquired no lien by virtue of its contract of March 15, 1906, for that was purely an executory contract that goods should be shipped to said company for sale on commission."I thought then that it was necessary that the interpleader establish a "factor's lien" for its advances, and that to do so the factor must show actual possession.A factor's lien arises by operation of the common law, for it is universally recognized that a factor or commission merchant without any written or verbal agreement by the law merchant has a lien upon the goods consigned to him, while in his possession, for all advances made to the consignor.It is purely a possessory lien, and I was of opinion that the manner and circumstances under which the interpleader claimed to have taken possession through its agent Vaught did not give it a factor's lien for advances theretofore made.Subsequent reflection and investigation have convinced me that it was not necessary that the interpleader should assert a factor's lien, for, under the fourth section of the contract, it had an equitable lien upon the goods which a court of equity will enforce.While it would appear from the findings that Vaught asserted dominion over the goods and undertook to take possession of them in the name of his principal, yet such actual possession was not necessary to the validity of the interpleader's lien.Equitable liens do not depend upon possession as do factor's liens and other liens at law.They arise either from a written contract, which shows an intention to charge some particular property with a debt or obligation, or are declared by a court of equity from the facts and circumstances of a case.Where there is an intention coupled with a Dower to create a charge on property, equity will enforce such charge against all except those having a superior claim.Such liens are "simply a right of a special nature over the thing, which constitute a charge or incumbrance upon the thing itself, may be proceeded against in an equitable action, and either sold or sequestered under a judicial decree, and its proceeds in the one case, or its rents and profits in the other, applied upon the demand of the creditor in whose favor the lien exists.It is the very essence of this condition that while the lien continues the possession of the thing remains with the debtor."3 Pomeroy, Eq.(1st Ed.) § 1233.An interesting and learned discussion of the subject is to be found in Ketchum v. St. Louis,101 U.S. 306, 25 L.Ed. 999, where the authorities are collected.

Mr. Loveland in his work on Bankruptcy (page 600) says: "Liens may be divided into three classes: First, common-law or retaining liens; second, liens created by statute, such as mechanics' liens; third, equitable liens.The term 'lien' is especially applicable to the common-law lien; but it is by analogy generally applied to other cases where a right to prepayment exists out of a particular property or a particular asset or interest in property, either by contract, expressed or implied, or by the implication of a trust or statute, although the property itself may be in the possession of or vested in the person claiming the lien.Liens of this description are in the nature of equitable charges."Equitable liens do not depend upon possession, nor, strictly speaking, do they constitute a jus in re or a jus ad rem, but more properly constitute a charge upon the thing, which can be enforced only in equity jurisdictions.2 Story'sEq. Juris. § 1213;Peck v. Jenness, 7 How. 612, 12 L.Ed. 841;The Menominie (D. C.)36 F. 197;Hydraulic Co. v. Wilson,133 Ind. 465, 33 N.E. 113.

This principle is recognized in our own reports in Arnold v. Porter,122 N.C. 242, 29 S.E. 414: "Equitable liens do not depend upon possession as do liens at law.Possession by the creditor is not essential to his acquiring and enforcing a lien, but the other incidents of lien at common law must exist to constitute an equity lien.In courts of law the term 'lien' is used as synonymous with a charge or incumbrance upon a thing where there is jus in re nor ad rem nor possession of the thing.The term is applied as well to charges arising by express engagement of the owner of the property, and to a duty or intention implied on his part to make the property answerable for a specific duty or engagement."

1 Jones on Liens, § 27, says: "An equitable lien arises either from a written contract which shows an intention to charge some particular property with a debt or obligation, or is declared by a court of equity out of the general considerations of right and justice, as applied to the relations of the parties and the circumstances of their dealings."

Mr Bispham, in his work on Equity (§ 351), gives substantial reasons for extending the doctrine of equitable liens in mercantile transactions: "Besides the common-law liens there are certain liens, or rights in the nature of liens, which are wholly independent of possession, which exist only in equity, and of which equity alone can take cognizance.In modern times the doctrine of equitable liens has been liberally extended for the purpose of facilitating mercantile transactions, and in order that the intention of parties to create specific charges may be justly and effectually carried out."No especial form or phraseology is necessary to create this lien.A court of equity will look through the form to the substance, and, when it appears that the parties intended to charge or pledge property as security for a debt and the property can be identified, the lien...