Bourne v. LAY & COMPANY

140 S.E.2d 769 (1965) 264 N.C. 33

Francis C. BOURNE, Jr., and wife, Elizabeth A. Bourne, and Lush Ledford and wife, Hattie B. Ledford,
v.
LAY & COMPANY, a Tennessee Corporation.

No. 34.

Supreme Court of North Carolina.

March 17, 1965.

Simms & Simms, Raleigh, for defendant appellant.

McKeever & Edwards, Larry Thomas Black, Murphy, for plaintiff appellees.

DENNY, Chief Justice.

This appeal poses two questions: (1) Is the plaintiffs' subsequently acquired but prior recorded deed superior to the defendant's lease? (2) Are the plaintiffs estopped from denying the validity of defendant's lease by accepting rent in accordance with its terms for a period of two years and one month?

In our opinion, the first question must be answered in the affirmative and the second in the negative.

The Connor Act provides that "[n]o 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." G.S. § 47-18.

Our decisions applying the Connor Act establish these legal results:

(1) The registration of a deed conveying an interest in land is essential to its validity as against a purchaser for a valuable consideration from the grantor. Dulin v. Williams, 239 N.C. 33, 79 S.E.2d 213.

(2) A lease for more than three years must, to be enforceable, be in writing, and to protect it against creditors or subsequent purchasers for value, the lease must be recorded. Mauney v. Norvell, 179 N.C. 628, 103 S.E. 372.

(3) As between two purchasers for value of the same interest in land, the one whose deed is first registered acquires title. Combes v. Adams, 150 N.C. 64, 63 S.E. 186; Dulin v. Williams, supra; Hayes v. Ricard, 245 N.C. 687, 97 S.E.2d 105.

(4) Actual knowledge, however full and formal, of a grantee in a registered deed of a prior unregistered deed or lease will not defeat his title as a purchaser for value in the absence of fraud or matters creating estoppel. North State Piano Co. v. Spruill, 150 N.C. 168, 63 S.E. 723; Blacknall v. Hancock, 182 N.C. 369, 109 S.E. 72; Patterson v. Bryant, 216 N.C. 550, 5 S.E.2d 849; Eller v. Arnold, 230 N.C. 418, 53 S.E.2d 266; Dulin v. Williams, supra.

The defendant is relying upon what was said in State Trust Co. v. Braznell, 227 N.C. 211, 41 S.E.2d 744, as follows: "When a grantee accepts the conveyance of real property subject to an outstanding claim or interest evidenced by an unrecorded instrument executed by his grantor, he takes the estate burdened by such claim or interest. By his acceptance of the deed he ratifies the unrecorded instrument, agrees to stand seized subject thereto and estops himself from asserting its invalidity. Bank v. Vass, 130 N.C. 590, 41 S.E. 791; Avery County Bank v. Smith, supra (186 N.C. 635, 120 S.E. 215); Hardy v. Fryer, 194 N.C. 420, 139 S.E. 833; Hardy v. Abdallah, 192 N.C. 45, 133 S.E. 195."

It will be noted, however, that in the Braznell case the deed contained the following statement with respect to the outstanding leases: "`It is understood and agreed that this conveyance is made subject to the leases of the several tenants; * * *.'" The grantors and grantee had agreed to include in the deed a provision which would fully protect the lease of the plaintiff and the leases of the other tenants. This the deed did not do. Hardy v. Fryer, 194 N.C. 420, 139 S.E. 833. Therefore, the action was for the reformation of the deed based on mutual mistake. However, this Court did not uphold the validity of the unrecorded leases because the grantee had notice of their existence. The Court explicitly denied such claim. Instead, the Court allowed the unrecorded lease of the plaintiff to be superior because the grantee had agreed to such a result in his contract of purchase and had the deed prepared by his attorney, which did not protect the leaseholders as called for in the sales agreement.

In the case of Hardy v. Fryer, supra, Brogden, J., speaking for the Court, said: "The principles deducible from our decisions upon the subject of the sufficiency of the references necessary to impart vitality to a prior unregistered encumbrance, may be stated as follows:

"(1) The creditor holding the prior unregistered encumbrance must be named and identified with certainty.

"(2) The property must be conveyed `subject to,' or in subordination, to such prior encumbrance.

"(3) The amount of such prior encumbrance must be definitely stated.

"(4) The reference to the prior unregistered encumbrance must amount to a ratification and adoption thereof.

"The theory out of which these principles grow is that the reference to the unregistered encumbrance, if made with sufficient certainty, creates a trust or agreement that the property is held subject thereto. * * *"

It has been held that a mere reference to a prior encumbrance not amounting to a ratification of it, and where the conveyance is not expressly made subject to the first, except as it may comply with the requirements of the registration law, the first instrument will be subject to the second instrument where the second one is recorded first. Hardy v. Abdallah, 192 N.C. 45, 133 S.E. 195.

We hold that the reference in the deed from the McCraneys to these plaintiffs was not sufficient to make such deed, when registered, subordinate to the defendant's unrecorded lease.

The defendant is wholly responsible for its present situation. It waited eighteen months before filing its lease for registration in Cherokee County, at which time the plaintiffs' deed had been recorded for more than eight months.

On the second question, Are the plaintiffs estopped by accepting the rent according to the terms of the lease for more than two years? the answer is found in the case of Mauney v. Norvell, supra. "The court erroneously held that the plaintiff by accepting rent was estopped to demand possession. * * * He is entitled to rents as long as defendant remains in possession * * *. Acceptance of the rents by the landlord does not create a tenancy from year to year, nor preclude the landlord from recovery. * * * The receipt of money for the use of premises is not inconsistent with a demand for possession, for it has not misled the defendant, nor put him to any disadvantage. * * *"

"It is essential to an equitable estoppel that the person asserting the estoppel shall have done or omitted some act or changed his position in reliance upon the representations or conduct of the person sought to be estopped. A change of position which will fulfill this element of estoppel must be actual, substantial, and justified." 31 C.J.S. Estoppel § 72b, p. 442.

The judgment of the court below will be upheld.

Affirmed.