Walter v. Kilpatrick

• Decision Date: 24 March 1926
• Docket Number: 223.
• Citation: 132 S.E. 148,191 N.C. 458
• Parties: WALTER et al. v. KILPATRICK et al.
• Court: North Carolina Supreme Court

132 S.E. 148

191 N.C. 458

WALTER et al. v. KILPATRICK et al.

No. 223.

Supreme Court of North Carolina

March 24, 1926

Appeal from Superior Court, Lenoir County; Barnhill, Judge.

Suit by H. F. Walter and another against J. L. Kilpatrick and another. From a judgment for defendants, plaintiffs appeal. No error.

Recital that note was secured by deed of trust held sufficient to put transferee on notice as to terms of deed.

Action to enjoin and restrain sale of land, under power of sale contained in deed of trust, to reform said deed by striking therefrom a provision relative to priority in payment of the first three notes secured therein from proceeds of sale of land conveyed thereby, and for judgment that all the notes secured by said deed of trust shall be paid equally and ratably from proceeds of sale by trustee or by commissioner under decree of foreclosure.

On November 1, 1919, H. C. White conveyed to G. G. Moore trustee, a tract of land, situate in Lenoir county, to secure the payment of six notes, executed by him, and payable to the order of J. L. Kilpatrick; the consideration for said notes being the balance due on the purchase price of said land sold and conveyed by Kilpatrick to White, by deed of same date. Five of said notes, each for the sum of $5,539.88 become due, according to their tenor, successively, on the 1st day of January, 1921 to 1925, inclusive; the remaining note for $391.20 becomes due on January 1, 1926. Immediately upon the execution of said notes by H. C. White, defendant J. L. Kilpatrick, payee named therein, indorsed the three notes, due January 1, 1924, 1925, and 1926, respectively, without recourse, and transferred same for value, and before maturity to plaintiff H. F. Walter; thereafter the said H. F. Walter, for value, and before maturity, transferred the notes due on January 1, 1924, and on January 1, 1926, to his coplaintiff, the First National Bank of Kinston, N.C. At the date of the commencement of this action, to wit, February 3, 1922, J. L. Kilpatrick was the holder, as payee, of the three notes, first maturing, and plaintiffs were the holders, as indorsees of the three remaining notes, as herein stated. Each of said notes contains on its face the following words:

"This is one of a series of notes secured by deed of trust or mortgage, and it is agreed that the failure to pay any note or interest when due shall cause all to become due and payable immediately."

Interest on all of said notes to January 1, 1921, has been paid; no other or further payment has been made on any one of said notes.

The deed of trust, executed by H. C. White to G. G. Moore, trustee, and duly recorded, contains a provision in the following words:

"In case of sale under the power, the first three notes shall have priority to the funds."

Plaintiffs, in their complaint, alleged that these words were inserted, after the execution of the deed of trust, by interlineation, without the knowledge or consent of plaintiffs; this allegation is denied by defendants. Plaintiffs further allege that the effect of said interlineation is to exclude plaintiffs from any participation in the proceeds of the sale of the land conveyed by the deed of trust, for the reason that said land, if sold now, would not bring a price more than sufficient to pay the three notes, first maturing; that, if the first three notes, now held by J. L. Kilpatrick, shall first be paid in full out of the proceeds of the sale of the land, no sum will be left in the hands of the trustee to be applied on the payment of the remaining notes now held by plaintiffs.

Plaintiffs pray judgment that said provision be declared void, and that the holders of all said notes, secured in said deed of trust, be declared entitled to payment from the proceeds of the sale of said land, equally and ratably.

The issue submitted to the jury was as follows:

"Was the deed of trust from White to Moore, trustee, recorded in Book 64, page 362, Lenoir Registry, altered and changed after the execution and delivery of said deed of trust and the notes thereby secured by inserting therein the clause, 'In case of sale under the power, the first three notes shall have priority to the funds,' as alleged in the complaint? Answer: No."

From judgment declaring (1) that the deed of trust, as recorded, containing the provision recited in the issue, is valid and binding as to all its terms, as same appear therein, (2) that the first three notes, held by J. L. Kilpatrick, are entitled to priority in payment out of the proceeds of the sale of the land under the power of sale, contained in the deed of trust, (3) that the notes held by plaintiffs are entitled to participate in the proceeds of said sale, only after the payment in full of the notes held by J. L. Kilpatrick, and (4) that the order heretofore entered, enjoining and restraining the sale of the land by the trustee be dissolved, plaintiffs appealed to the Supreme Court.

Rouse & Rouse and F. E. Wallace, all of Kinston, for appellants.

Cowper, Whitaker & Allen and Sutton & Greene, all of Kinston, for appellees.

CONNOR J.

The notes held by plaintiffs and defendants, at the commencement of this action, executed by H. C. White, each containing an unconditional promise to pay a certain sum of money, at a fixed future time, to the order of J. L. Kilpatrick, are in form negotiable instruments. C. S. §§ 2982, 2985. The recital on the face of each note, to wit, "This is one of a series of notes secured by deed of trust or mortgage," does not affect the negotiable character of the notes (C. S § 2986; Branch Banking & Trust Co. v. Leggett, 116 S.E. 1, 185 N.C. 65; 29 A. L. R. 709, note; Critcher v. Ballard, 104 S.E. 134, 180 N.C. 111; Zollman v. Jackson Trust & Sav. Bank, 87 N.E. 297, 238 Ill. 290, 32 L. R. A. [N. S.] 858, with note); nor do the words in said recital, "and it is agreed that the failure to pay any note or interest when due shall cause all to become due and payable immediately," render the notes nonnegotiable. The agreement is valid. Newbern Banking & Trust Co. v. Duffy, 68 S.E. 915, 153 N.C. 62. Acceleration of the maturity of a note, or of notes in a series, as the result of the failure of the maker to pay interest, or to pay one of the notes of said series, when same becomes due, according to the tenor of the note or notes, by virtue of an agreement to that effect, appearing on the face of the note, or notes, does not make the note, or notes of the series, payable upon an contingency, and therefore nonnegotiable, within the meaning of C. S. § 2985. The agreement for acceleration may be enforced as against the maker by the holder of the note or notes in the series, at his option. White v. Hatcher, 188 S.W. 60, 135 Tenn. 609; Chicago Railway Equipment Co. v. Merchants' National Bank, 10 S.Ct. 999, 136 U.S. 268, 34 L.Ed. 349; Wilson v. Campbell, 68 N.W. 278, 110 Mich. 580, 35 L. R. A. 544; Clark v. Skeen, 60 P. 327, 61 Kan. 526, 49 L. R. A. 190, 78...