Perkins v. Langdon

• Decision Date: 25 February 1953
• Docket Number: No. 740,740
• Citation: 237 N.C. 159,74 S.E.2d 634
• Parties: PERKINS et al. v. LANGDON.
• Court: North Carolina Supreme Court

Page 634

74 S.E.2d 634

237 N.C. 159

PERKINS et al. v. LANGDON.

No. 740

Supreme Court of North Carolina.

Feb. 25, 1953

Robert H. Dye, Fayetteville, Cooper & Cooper and Sanders & Holt, Burlington, for defendant, appellant.

Brooks, McLendon, Brim & Holderness, Greensboro and James R. Nance, Fayetteville, Long & Ross, Graham, for plaintiffs, appellees.

JOHNSON, Justice.

The case comes here on a record of some 350 pages, embracing 221 exceptions, most of which are brought forward and argued pro and con in the briefs which total 96 pages. All exceptions brought forward have been duly considered, and the entire record has been carefully studied and fully examined. However, the vital issues around which the controversy revolved in the court below seem to be: (1) whether the defendant agreed not to sell the leased property during the term, (2) whether the purchasers took title charged with notice of the lease or as bona fide purchasers for value without notice of the lease, and (3) the issue of damages. Accordingly, we limit discussion to such of the defendant's exceptions as seem to bear materially on these factors. The exceptions not discussed are overruled. See State v. Lea, 203 N.C. 13, 164 S.E. 737; State v. Lea, 203 N.C. 35, 164 S.E. 737; Rider v. Lenoir County, 236 N.C. 620, 73 S.E.2d 913.

When the case was called for trial, the defendant, prior to the introduction of any evidence, moved for judgment on the pleadings. The motion was denied. The defendant's exception then noted is brought forward.

Here the defendant makes the contention that a parol lease for not more than three years (not being within the provisions of the Statute of Frauds, G.S. § 22-2, or our recording laws, G.S. § 47-18), is valid in law and enforceable against a bona fide purchaser for value without notice of the lease. On this premise, the defendant urges that it was incumbent on the plaintiffs to make demand on the new owners of the property for possession of the warehouses. As to this, the defendant asserts that the plaintiffs' failure to allege such demand (and refusal) constitutes a fatal defect in pleading which entitles the defendant to judgment on the pleadings.

It may be conceded that ordinarily the owner of leased property may sell it during the term of a lease, and in the absence of a covenant to the contrary the lessee cannot prevent the landlord from selling the premises subject to the lease or resist a change of landlords, or ground a cause of action on such transfer and change of landlords. Perkins v. langdon, 231 N.C. 386, 57 S.E.2d 407; Mordecai's Law Lectures, 2d Ed., pp. 596 and 597; 51 C. J. S., Landlord and Tenant, § 258(a), p. 895; 35 C. J., p. 1213 et seq.; 32 Am.Jur., Landlord and Tenant, § 89.

This is so because such transfer of the reversion, subject to the lease, neither terminates the leasehold estate nor deprives the tenant of any of his rights in the land. 32 Am.Jur., Landlord and Tenant, § 89. See also G.S. § 42-8.

But a different situation is presented where the lessor under a parol lease for not more than three years transfers the reversion to an innocent purchaser for value who has no notice of the tenancy, and nothing sufficient to put him upon inquiry exists at the time of sale. In such case, while there is some authority for the proposition that the purchaser takes subject to the outstanding lease and is bound by its terms, whatever they may turn out to be (Tiffany, Real Property, 3rd. Ed., Vol. 1, § 110, citing Bramhall v. Hutchinson, 42 N.J.Eq. 372, 7 A. 873; and American Law of Property, Vol. 1, § 3.59), nevertheless, by what we consider to be the better reasoned line of authority, where the lessor transfers the reversion to an innocent purchaser for value who has no notice of the tenancy, and nothing sufficient to put him upon inquiry exists at the time of the sale, the transfer destroys the leasehold estate of the tenant, is a wrong done to the lessee, and renders the lessor liable to the lessee in an action at law for damages. Williams v. Young, 78 N.J.Eq. 293, 81 A. 1118; Grover v. Norton, 113 Misc. 3, 183 N.Y.S. 731; Raisin v. Shoemaker, 206 App.Div. 122, 200 N.Y.S. 615, affirmed 238 N.Y. 630, 144 N.E. 921. See also Annotation, L.R.A. 1915C, p. 194; 32 Am.Jur., Landlord and Tenant, § 89; 51 C. J. S., Landlord and Tenant, § 258.

In Williams v. Young, supra, the New Jersey Court, some twenty years after its decision in Bramhall v. Hutchinson, supra (cited by Tiffany and relied on by the defendant) had this to say: 'When defendant wrongfully conveyed the land in question to an innocent purchaser for value without notice of complainant's leasehold estate, the leasehold estate in the land was necessarily destroyed. The absolute and unrestricted title of such purchaser rendered the further existence of a leasehold estate impossible. The conveyance to the innocent purchaser was, in effect, a conveyance of the term and the reversion. Complainant thereby became entitled to recover from defendant in an action at law, * * *.' [78 N.J.Eq. 293, 81 A. 1119.]

In Grover v. Norton, supra, it is stated: 'But where a lessor transfers to an innocent purchaser for value, who had no notice of the tenancy, and nothing sufficient to put him upon inquiry existed at the time of the sale, the transfer destroys the leasehold, is a wrong to the lessee, and renders the lessor liable to the lessee in an action for damages.' [113 Misc. 3, 183 N.Y.S. 732.]

This rule seems to be in accord with the letter and spirit of our registration statute, the Connor Act, adopted in 1885, now codified as G.S. § 47-18. This statute provides in pertinent part as follows: 'No conveyance of land, or contract to convey, or lease of land for more than three years shall be valid to pass any property, as against creditors or purchasers for a valuable consideration, from the donor, bargainor or lessor, but from the registration thereof within the county where the land lies: * * *.' (Italics added.)

The fact that these parol leases for not more than three years (also valid as not being within the Statute of Frauds, G.S. § 22-2) are excepted from the operation of the Connor Act (G.S. § 47-18) is not to be interpreted as meaning that a lessee under such lease is protected at all hazards or that his rights are superior to those of a bona fide purchaser for value from the lessor. These short-term parol tenancies are merely exempted from the operation of the Connor Act. This being so, we look for guidance to the law as it stood prior to the passage of this Act and as it now stands where the Act has no application.

As to this, the true rule is that a bona fide purchaser for value without notice of outstanding equities takes title absolute. But where upon the sale of land the rights of a tenant under one of these short-term parol leases becomes involved, the facts respecting whether the lessee was or was not in possession at the time of the sale ordinarily becomes a crucial factor in determining whether the purchaser stands in the protected position of a bona fide purchaser for value without notice of the lease, and where the lessee is in actual possession, the purchaser ordinarily takes subject to the lease, although he has no actual knowledge thereof. Actual possession is treated as the equivalent of notice to the purchaser and as a substitute for registration. Webber v. Taylor, 55 N.C. 9; Edwards v. Thompson, 71 N.C. 177; Tankard v. Tankard, 79 N.C. 54; Heyer v. Beatty, 83 N.C. 285; Bost v. Setzer, 87 N.C. 187; Johnson v. Hauser, 88 N.C. 388; Staton v. Davenport, 95 N.C. 11; Mayo v. Leggett, 96 N.C. 237, 1 S.E. 622. See also Allen v. Bolen, 114 N.C. 560, 18 S.E. 964; 51 C. J. S., Landlord and Tenant, § 258; Raisin v. Shoemaker, supra; Eckman v. Beihl, 116 N.J.L. 308, 184 A. 430; Huddleston v. Ward, Mun.Ct. Ohio, 68 N.E.2d 580; 39 Am.Jur., Notice and Notices, § 18; Annotation, 74 A.L.R. 355.

It is here noted that our registration act of 1885, G.S. § 47-18 contains a proviso that in cases where deeds were executed prior to 1 December, 1885, actual possession excepted the cases from the operation of the act and stood as the equivalent of registration. Prior to 1885 in cases involving conveyance of leasehold interests in land, and fixing the rights as between the iessee and the purchaser, actual possession of the land was treated as 'notice to the would of all equities in favor of the occupant.' Heyer v. Beatty, supra.

In Bost v. Setzer, supra, 1882, it is stated: 'If for instance a person should purchase an estate from the owner, knowing it to be in the possession of a tenant, he is bound to inquire into the estate which the tenant had, and has an implied notice of the nature of the title.'

But to constitute constructive notice, the possession must be open, notorious, and exclusive and existing at the time of the purchase. Edwards v. Thompson, supra.

The logic and fundamental fairness of this rule which protects a bona fide purchaser for value without notice of an existing parol lease is inescapable when we realize that in the absence of such rule, in many situations no amount of inquiry or inspection of the premises would protect a purchaser as a matter of law from these hidden equities; whereas, the rule which treats the actual, open possession of the lessee as notice to the world fully protects a lessee in possession. Besides, on principles of natural justice the burden of giving notice of these undisclosed encumbrances and equities should be placed upon him who has knowledge thereof, namely, the owner, or lessee if he has the right of possession.

The application of the rule urged by the defendant, permitting the engrafting of these hidden equities, would unduly burden land titles.

It necessarily follows from what we have said that the motion for judgment on the pleadings was properly denied.

Next is the exception hased on refusal to allow the defendant's motion for judgment as of nonsuit.

It is admitted that the defendant...