Wilmington & Weldon Railroad v. Burnett , 123 N.C. 210 ( 1898 )

The Wilmington, New Bern Norfolk Railway Company, a corporation in this State, on 12 January, 1891, executed a trust deed or mortgage to the State Trust Company of New York to secure certain bonds issued by said corporation. Default being made in the payment of said bonds, as provided in the mortgage, suit was commenced in the Circuit Court of the United States at Wilmington, N.C. on 13 March, 1897, for a foreclosure and sale of the mortgaged property. A receiver was appointed who took possession of the same, a decree of foreclosure was had, and on 27 July, 1897, the road (the mortgaged property) was sold and the assignor of the plaintiff became the purchaser; that on 26 November, 1894, the defendant Burnett, at that time a passenger on the mortgaged road, was injured by said road, for which he commenced a suit for damages against the mortgaged road in the Superior Court of New Hanover County on 9 January, 1895; that this action continued and pended in said court until September Term, 1897, when the defendant Burnett recovered judgment against the Wilmington, New Bern Norfolk Railway Company (the mortgagor); that upon this judgment the defendant Burnett has caused execution to issue to the sheriff of New Hanover County, and he is seeking to collect the same out of the mortgaged property of the Wilmington, New Bern Norfolk Railway Company, purchased by the plaintiff, or its assignor on 15 July, 1897, under the foreclosure sale made under (213) a decree and order of the Circuit Court of the United States.

This action is brought to enjoin the defendant Burnett and the sheriff of New Hanover County from selling said property under said execution.

It seemed to be conceded by counsel on both sides that the plaintiff's right to the relief demanded depends upon the construction the court puts on section 1255 of The Code.

This section has been considered by this Court in several recent opinions. But it is contended by the plaintiff that the precise question presented in this case has not been decided, while it is contended by the defendant that it has been decided in favor of the defendant in Coal Co. v.Electric Light Co., 118 N.C. 232, and in Langston v. Improvement Co.,120 N.C. 132. (And we wish here to correct an error in this last case on page 134. It should be section 1255, and not 685, as it is printed.)

This distinction the plaintiff seeks to make is that the mortgaged property had been sold before the defendant recovered his judgment, when it had not, in the other case. But upon an examination of these cases (CoalCo. v. Electric Light Co., and Langston v. Improvement Co., supra) it will be seen that in both of them the mortgaged property had been sold under the mortgage; and in both of them it was held that this made no difference, as the purchaser took with notice of the plaintiff's claim. So, in this case, the plaintiff purchased with notice of the defendant's claim, as it was considered by the master or referee, to whom the matter was referred by the court making the decree of foreclosure and order of sale and reported by him as a claim against the mortgagor corporation. So we fail to see the distinction claimed (214) by the plaintiff between this case and Coal Co. v. Electric Light Co., and Langston v. Improvement Co., on the ground of the sale of the mortgaged property. These opinions are expressly put upon the ground that the mortgages were void as to such claims, and that the property stood, so far as such claims are concerned stand, just as if no mortgage had been made. If this were not so, this statute would be a false light held out to such claimants to induce them to furnish material and labor — thinking they had a security, when in fact they had none. A party furnishes a corporation with $500 worth of coal to run the concern; he knows there is a mortgage on the corporate property, but he knows that section 1255 says that this mortgage is not good against such claims. The corporation refuses to pay, and he is compelled to sue, and before he can get his judgment the mortgage is foreclosed, the property sold, and he gets nothing. The Legislature could not have intended this and we so hold.

The mortgagee always has the power to protect himself against such claims, if he chooses to do so, by foreclosing the mortgage or by taking the property into possession, or by having a receiver appointed. And where the mortgagee is getting a part of the earnings by way of interest or otherwise, and prefers to allow the mortgagor to remain in possession and to run the concern, he must take the risk of such liabilities.

Another ground the plaintiff takes is that the mortgaged property was sold under a decree of the Circuit Court of the United States, having jurisdiction of the matter, and the power to foreclose the mortgage and to make an order of sale. This is not disputed. But the defendant was not a party to that suit, and no rights that the defendant Burnett had are affected by this decree and order of sale. Therefore, the (215) fact that the plaintiff claims under a sale made under a decree of foreclosure and order of court, does not affect the rights of the defendant Burnett. The order was based on the mortgage, and conveyed no more than was conveyed by the mortgage. It conveyed no more than would have been conveyed by a foreclosure of the mortgage, under a power of sale contained in the mortgage.

We have stated that the mortgagee had notice of the plaintiff's claim, and that the purchaser was affected with this notice, as it was a part of the record in the proceedings under which the purchaser bought. We have done this for the purpose of showing the great similarity between this case and the cases of Coal Co. v. Electric Co., and Langston v. Imp. Co., supra.

But this notice of the defendant's claim is not involved in the principle upon which this case is decided. The principle underlying this decision and upon which it is decided, is, that under section 1255 of The Code, the mortgage conveyed nothing as against this claim; and as it conveyed nothing as against this claim, the purchaser got nothing as against this claim by the mortgage sale.

There were many authorities cited in the well considered brief of defendant's counsel, but as the principle upon which the case turns has been so recently decided by our own Court, we have not thought it necessary to cite them in this opinion. The plaintiff has also filed a well considered brief, in which a number of cases are cited to sustain the contention of the plaintiff, which we do not discuss, and will only refer to the case of The B. C. R. N. R. Co. v. Verry, 48 Iowa 458, which was considered by the counsel for plaintiff to be more directly in point than any case cited for plaintiff. That case is distinguishable from this. The statute upon which it is based differs very (216) much from our statute (section 1255). That statute makes thejudgment recovered on such claim a lien on the property of the corporation, and such judgment is to have priority to the debts secured in the mortgage. It does not provide, as our statute does, that the mortgage is void as to such debts. But it provides that judgment when recovered shall be a lien on the property of the mortgagor. This lien does not attach until there is judgment, and then on the property of the mortgagor.

And as this is so, and as there is no provision against mortgaging as to such debts, when the judgment was obtained, the sale having taken place, the mortgagor had no property upon which the lien could attach. To our mind, the distinction between the two statutes, and between that case and this, is clear.

From the view we have taken of this case, there is error in the judgment appealed from, in continuing the restraining order and in granting the injunction.

Error.

Cited: Belvin v. Paper Co., ante, 147; Williams v. R. R., 126 N.C. 920;Howe v. Harper, 127 N.C. 358; Harden v. R. R., 129 N.C. 363.