Caldwell v. Northwest Atlanta Bank

1. Since the act of 1931 (Ga. L. 1931, p. 153; Code, § 67-1305), the effect of failure to record a security deed, as against ordinary judgment liens, is the same as the effect of failure to record a deed of bargain and sale, with the result of restoring the rule before the act of 1889 (Ga. L. 1889, p. 106; Code 1910, § 3320), under which present rule an unrecorded security deed is given priority except as against subsequent deeds by the same grantor, and except as hereinafter indicated.

(a) Under the statutes relating to materialmen's liens and the recording statutes, the bona fide holder of a security deed executed before the first material was furnished, and therefore necessarily prior to the record of the materialman's claim of lien, will take priority over the materialman's claim of lien, although the security deed was itself not recorded until after the first material was furnished. The rule would be different where the holder of the security deed had actual notice of the furnishing of the material prior to the execution of his deed; and might be different where the holder of the security deed had such actual notice prior to the record of the security deed.

(b) Even if the question of actual notice to a security-deed holder would be pertinent, where he took the instrument before the delivery of the first material and did not record it until thereafter, but before the materialman's claim of lien was recorded, the instant petition of such materialmen against holders under a security deed failing to show any actual notice to the deed holders before its record, the priority of such holders was properly sustained.

(c) The priority of such deed claimants was not affected by the fact that all of the money secured by the deed was not paid to the debtor at the time of its execution.

2. The petition failing to attack the validity of the security deed, and attacking merely a foreclosure deed, executed by virtue of a power in the security deed, as a conveyance to hinder, delay, and defraud creditors under an alleged fraudulent conspiracy between the grantee in the security deed, the grantee in the foreclosure deed, and the debtor executing the security deed, no sufficient facts were alleged to support the general charges of the pleader as to fraud.

3. In the additional attack on the validity of the foreclosure deed and sale under the security deed, on account of an alleged chilling of the bidding, the petition also failed to show facts such as would invalidate the sale.

4. Under the preceding rulings, the court did not err in dismissing the action on general demurrer.

No. 14107. JULY 14, 1942. REHEARING DENIED JULY 25, 1942. Two materialmen, creditors of J. W. Cobb, filed an equitable petition against him and against Northwest Atlanta Bank and B. S. Barker, praying for cancellation of a foreclosure deed from the bank to Barker, executed under a power of attorney under a previous security deed from Cobb to the bank; and praying for an injunction against any change of title pending the litigation. It was alleged, that on June 11, 1940, Cobb executed to the bank a deed conveying the described land, to secure a debt of $1,800; that this deed was recorded on June 17, 1940; that the $1,800 loaned was not paid to Cobb on the date of the loan, but "payments were made after material had been furnished [by petitioners] and was being used upon said premises, all of which was known to defendant bank;" that approximately $300 is still held by the bank; that petitioners furnished materials for the improvement of said property, and filed their claims of lien, one for $368.71, and the other for $108.34; that one of plaintiffs began to deliver material on June 13, 1940; and that "such delivery constituted implied notice to the defendant . . bank that material was being furnished and the plaintiffs' claims of lien." It was further alleged that when the house on the premises was about two-thirds completed, "the improvements . . were stopped by litigation involving the property lines," filed in said court, between a third person and the debtor; and that "petitioners each have a judgment which has been made a special lien against the property improved." There is no additional averment as to the nature of this judgment or special lien; and there is no allegation as to when the materialmen's liens were recorded, or when the suit in which judgment was obtained was filed. While the validity of the original security deed from Cobb to the bank is not attacked, petitioners claim priority under their alleged materialmen's liens, and allege that they "rank superior to any claim of the defendants and should be so decreed."

In attacking the validity of the foreclosure deed made by the bank to Barker as purchaser at a sale under a power in the security deed, the original petition alleged: that the bank "did secretly during the pendency of said litigation [as to property lines] endeavor to sell the [said property] under an alleged power of attorney from [Cobb], and did, on or about the 16th of January, 1941, as will appear of record in deed book 531, page 383, clerk's office, . . make an alleged deed to the defendant . . Barker at and for a named consideration of $1,500 upon a foreclosure of an alleged indebtedness of $1,800;" that said "effort to collect an indebtedness of $1,800 constitutes a misrepresentation of a material fact, calculated to and which actually would and did chill bidding on said property;" that "said Barker was at all times herein set forth employed by and an agent for the defendant bank;" that Barker "did not pay a cash consideration of $1,500 for said property, and that the alleged sale was really a sale to the defendant bank;" that Cobb, the debtor, "was informed by the defendant bank that the foreclosure was for the sole purpose of putting title in the defendant . .Barker, in order that he might intervene in the above-stated litigation over the property line, . . and that materialmen's liens would not be affected thereby but would be paid off;" and that by reason of the facts alleged the foreclosure deed of January 16, 1941, from the bank to Barker, purporting to convey the property "for an alleged consideration of $1,500, fully appearing in [said deed book], is null and void." It was also alleged that plaintiffs have "no full, adequate, and complete remedy at law."

By amendment of the petition it was further set forth, that Barker "was not present at the time of the alleged sale, and did not personally bid upon the property, but had a secret understanding with the defendant bank that a bid would be offered, by an unknown bidder, in his behalf, for not over $1,500, and that he would be excused from paying cash for the premises sold, although the advertised sale was for cash;" that Barker "did not pay cash at said sale, but was allowed to execute a note therefor dated February 4, 1941;" that "a sale under the circumstances herein set forth is calculated to, and, as petitioners charge, actually did chill the bidding and constitute an unfair and fraudulent sale, being a sale upon terms other than those upon which the public and other bidders were invited to bid upon the property;" and that "the defendants' acts, taken together, constitute a fraudulent conspiracy to hinder, delay, and defraud petitioners and other creditors out of the value of the material furnished and used to improve said real estate," and, "if allowed to stand, will . . also give the defendant bank a preference."

The defendant bank and Barker demurred to the petition as amended, on the grounds that it stated no cause of action; that there was no equity in the petition; that the petition showed the existence of a complete and adequate remedy at law; that the facts stated did not constitute fraud on the part of the defendants; that there was no allegation as to any tender of the amount admitted to be due to the defendant bank; and that there was no allegation of insolvency as to either the bank or Barker. The plaintiffs excepted to the dismissal of the action on this demurrer. 1. "Every deed to secure debt shall be recorded in the county where the land conveyed lies. . . Deeds or bills of sale not recorded remain valid against the persons executing them. The effect of failure to record such deeds and bills of sale shall be the same as is the effect of failure to record a deed of bargain and sale." Code, § 67-1305. The statute with reference to the record of a deed of bargain and sale is as follows; "Every deed conveying lands shall be recorded in the office of the clerk of the superior court of the county where the land lies. The record may be made at any time, but such deed loses its priority over a subsequent recorded deed from the same vendor, taken without notice of the existence of the first." § 29-401. It thus appears that the penalty of failure to record a deed of bargain and sale has reference only to the rights of a subsequent vendee, taking a deed from the same vendor without notice of the existence of the prior unrecorded deed; and it has been held that the provision of the Code, § 67-2501, declaring that "deeds, mortgages, and liens of all kinds, which are required by law to be recorded in the office of the clerk of the superior court, shall, as against the interests of third parties acting in good faith and without notice, who may have acquired a transfer or lien binding the same property, take effect only from the time they are filed for record in the clerk's office," has reference only to liens arising by contract, and not to judgments.Donovan v. Simmons, 96 Ga. 340 (22 S.E. 966); Griffith v. Posey, 98 Ga. 475, 476 (25 S.E. 515). Thus, under the original recording laws, it was held that the failure to record a security deed did not postpone the deed to a judgment obtained after its execution, any more than the failure to record an ordinary deed of bargain and sale. Phinizy v. Clark, 62 Ga. 623 (3), 627; Gibson v. Hough, 60 Ga. 588, 593; Lowe v.Allen, 68 Ga. 225 (b), 227; Davie v. McDaniel, 47 Ga. 195 (5); Smith v. Worley, 10 Ga. App. 280 (2), 282 (73 S.E. 428). But under the subsequent recording act of 1889 (Ga. L. 1889, p. 106; Civil Code of 1910, § 3320), it was held that a judgment would take priority over an unrecorded security deed.Saunders v. Citizens First National Bank, 165 Ga. 558, 565 (142 S.E. 127); Coley v. Altamaha Fertilizer Co., 147 Ga. 150 (93 S.E. 90). However, under the present recording act of 1931 (Ga. L. 1931, p. 153), as embodied in the Code, § 67-1305, providing that "the effect of failure to record such [security] deeds and bills of sale shall be the same as is the effect of failure to record a deed of bargain and sale," the result is to restore the rule as it originally existed, thus giving priority to the unrecorded security deed except as against subsequent deeds by the same grantor. See Walker County Fertilizer Co. v.Napier, 184 Ga. 861, 865 (193 S.E. 770).

(a) Under the Code, § 67-2002, in order "to make good the liens specified in section 67-2002, in favor of materialmen and others, "they must be created and declared in accordance with the following provisions, and on failure of any of them the lien shall not be effective: . . The recording of his claim of lien within three months after the completion of the work, or within three months after such material . . is furnished, in the office of the clerk of the superior court . . [and] the commencement of an action for the recovery of the amount of his claim within twelve months from the time the same shall become due." It has been held that after the lien of a materialman is thus made good, it then attaches from the time the materialman commenced to deliver material. Picklesimer v. Smith, 164 Ga. 600 (139 S.E. 72). But it has also been held, with reference to a bona fide purchaser of the absolute title under an unrecorded deed, that such a purchaser, with no actual notice at the time his conveyance was executed as to a then unrecorded materialman's lien upon the same property, takes the property free of such lien. Ashmore v. Whatley, 99 Ga. 150 (24 S.E. 941);Oglethorpe Savings Trust Co. v. Morgan, 149 Ga. 787, 790 (102 S.E. 528); Willingham-Tift Lumber Co. v. Barnes,147 Ga. 209 (2) (93 S.E. 201); Dwight v. Acme Lumber SupplyCo., 186 Ga. 825 (199 S.E. 178); Frazer v. Jackson,46 Ga. 621. The same rule has been applied, and the same priority allowed, as to the vendee under an unrecorded security deed, whose rights under the present recording statutes, as pointed out in paragraph 1 above, are the same as the rights of a purchaser of the absolute title. Milner v. Wellhouse, 148 Ga. 275 (96 S.E. 566); Guaranty Investment Co. v. Athens EngineeringCo., 152 Ga. 596 (6, 7) (110 S.E. 873); Picklesimer v.Smith, supra.

(b) Under the preceding rules, since the security deed was executed before the delivery of any material, and therefore necessarily before the record of the materialmen's claims of lien, no question of notice to the grantee as to the materialmen's claims of lien at the time the security deed was executed would be involved. But even if the failure of the grantee to record his security deed until between the time the first material was furnished and the record of the materialmen's claims of lien could suffice to make relevant the rule as to actual notice of such a claim, then the "actual notice" required of the grantee in the deed in such a case would be "such notice as is positively proved to have been given to him directly and personally, or such as he is presumed to have received personally because the evidence within his knowledge was sufficient to put him upon inquiry." Picklesimer v. Smith, supra. SeeWilliams v. Smith, 128 Ga. 306, 310 (57 S.E. 801); 30 Am.Jur. 238-241, §§ 12, 13; 46 C. J. 546, 547, §§ 33, 34. A mere averment, as in this case, that a materialman on a certain date "furnished and delivered material on the premises," without any other fact, will not suffice to support a bare legal conclusion by the pleader that "such delivery constituted actual implied notice" to the security-deed holder "that material was being furnished and [as to] the plaintiffs' claims of lien." See WestLumber Co. v. McPherson, 173 Ga. 53, 54 (159 S.E. 868); 40 C. J. 292, 293, §§ 371, 330.

Accordingly, in the instant equitable action by materialmen against the grantee in a security deed and against the purchaser at a foreclosure sale under that deed, the petition having failed to show any actual notice to the defendant holders under the security deed as to the furnishing of materials by the plaintiffs at the time the security deed was executed, or during the time before it was recorded, and it appearing that at the time the security deed was executed and recorded the materialmen's claims of lien remained unrecorded, the priority of the holders under the security deed was properly sustained.

(c) The fact that, as alleged, the holder of the security deed did not advance to the debtor all of the money secured by the deed at the time of its execution would not affect the priorities of the parties. Picklesimer v. Smith, supra.

2. The petition of the materialmen, while claiming priority over the security deed, does not attack its validity. However, cancellation is sought as to the subsequent deed from the bank holding the security deed, to the defendant purchaser under a foreclosure sale by virtue of a power in the deed, on the ground that the foreclosure deed was made to hinder, delay, and defraud creditors, including petitioners, and that the acts of the deed holders and of the debtor constituted a fraudulent conspiracy. Even could it possibly be assumed that a foreclosure deed executed by a bona fide creditor, by virtue of an irrevocable power of attorney in its security deed, could legally constitute a fraudulent conveyance within the meaning of the Code, § 28-201, enumerating "acts by debtors" that are voidable against creditors, the petition wholly fails to show facts to indicate fraud. Not only are the good faith and validity of the original security deed not attacked, but it is manifest that the foreclosure deed was neither "secret," as alleged by a mere conclusion, nor voluntary, since the facts set forth in the petition show that the deed was made after a public sale, for a consideration of $1,500, and that it was recorded on the day of its date. Nor is there any averment that the consideration did not represent the fair market value of the property; or that any defendant was or is insolvent. In so far as any participation by the debtor in the foreclosure sale is alleged, fraud on his part is expressly negatived by the averment that he was informed by the security-deed creditor as to certain purposes of the sale, which were legitimate. The decisions inMoncrief Furnace Co. v. Northwest Atlanta Bank, 193 Ga. 440 (19 S.E.2d 155), and Sweat v. Airline, 186 Ga. 460 (197 S.E. 893), were based on wholly different averments. In the former case the deed was voluntary; and in both cases the debtor was a party to alleged fraudulent transfers and acts.

3. Whether or not an alleged holder of a materialman's lien could be heard to attack a foreclosure sale by a creditor under a power in a security deed, on the ground that there was a chilling of the bidding or like irregularity, in the absence of any attack on the validity of the instrument or the right of the creditor to sell under the power (see Williams v. Williams Co., 122 Ga. 178,180, 50 S.E. 52, 106 Am. St. R. 100), the petition contains no sufficient averment that the bidding was chilled so as to prevent the property from bringing its fair value. There are general allegations that the purchaser was an employee or agent of the bank holding the security deed; and that the alleged sale was "really a sale to the defendant bank." Even if these averments could suffice to show any illegal act by such parties, bad faith is negatived by the deed of purchase itself, showing the alleged agent to be the grantee; and by the allegation that the grantee actually executed his note to the bank for the purchase-money, the good faith of which loan instrument is not attacked. The averment that the bank accepted a note instead of cash from the purchaser and the sheriff would not show a chilling of the bidding, or otherwise invalidate the sale, especially since it is not made to appear that this was done by prearrangement, or that any bidder was informed of such a prearrangement, or that it would be limited to the one person, so as to show that the bidding was thus in any wise affected. See generally, in this connection, as to what chilling of the bidding must be shown to invalidate a public sale, and who may attack the sale on that ground: Universal Chain TheatricalEnterprises v. Oldknow, 176 Ga. 492 (2), 496 (168 S.E. 239); Ruis v. Branch, 138 Ga. 150, 152 (74 S.E. 1081, 42 L.R.A. (N.S.) 1198), and cit.; Code, § 39-1316.

4. Under the preceding rulings, the court did not err in dismissing the action of the materialmen on general demurrer.

Judgment affirmed. All the Justices concur.