FRIENDLY FINANCE CORPORATION v. Quinn

BaeNHILL, J. At common law a conditional sale contract is valid and effective even as against creditors and bona fide purchasers for value from the conditional vendee. Under the reservation of title in the vendor, no assignable title vests in the conditional vendee. 47 A.J. 42, 43, 110. Instead, it vests absolute title in the vendor and he is entitled to recover in replevin or trover from any purchaser from the vendee or other person in possession, Dunbar v. Bawles, 28 Ind. 225, and, under the rule of comity recognized by most states, the contract is enforceable in any state in which the property may be found. Anno. Ann. Cas. 1913C 330, 12 L.R.A. 446. In the absence of a registration statute or other modification of the common law rule, a person is bound at his peril to take notice of the imperfections of his grantor’s title. 45 A.J. 506. *410 However, our Legislature has modified the common law rule in certain particulars. Under Gr.S. 47-20, an unrecorded mortgage is not valid as against “creditors or purchasers for a valuable consideration from the donor, bargainor, or mortgagor, but from the registration of such . . . mortgage in the county . . . where the donor, bargainor, or mortgagor resides; or in case the donor, bargainor, or mortgagor resides out of the state, then in the county where the said personal estate, or some part of the same, is situated.” Gr.S. 47-23 makes the provisions of this section applicable to conditional sales contracts. Under the provisions of these statutes a conditional sale contract will not be enforced in this State as against a creditor or purchaser for value from the conditional vendee, non constat the rule of comity, unless the same is recorded as in said sections provided. Credit Corp. v. Walters, 230 N.C. 443, 53 S.E. 2d 520. In appraising these registration statutes, it must be noted that “registration affects the rights only of purchasers for value from, or creditors of the mortgagor” or conditional vendee. As against them alone, the mortgage or conditional sale agreement is void until registered. Harris v. R. R., 190 N.C. 480, 130 S.E. 319; Montague Brothers v. Shepherd Co., 231 N.C. 551. Except as thus modified, the common law is still in force in this State, G.S. 4-1; Scholtens v. Scholtens, 230 N.C. 149, and in proper cases we observe the rule of comity. So then, the question here posed for decision is this: Is the unrecorded conditional sale contract in question valid and enforceable in this State as against the defendant under the common law or is it void as against him by reason of the provisions of Gr.S. 47-20, 23 ? The judgment indicates the court below concluded that on the facts agreed the common law rule is controlling. In this conclusion we are constrained to concur. When the common law rule and our modifying statutes are considered together as one complete whole, it is made to appear that the law in this State is this : The conditional vendor' in a conditional sale contract (when such contract is properly recorded in the State of its execution, if registration is required by the law of that state. G.S. 44-38.1) possesses a valid title to the property therein described, enforceable in this State without registration as against anyone in possession except “creditors or purchasers for a valuable consideration” from the conditional vendee; that is, the title is valid as against all except those who deraign their title from the conditional vendee. 45 A.J. 509. They alone are the beneficiaries of the statute. Our statutes protect the title conveyed by the mortgagor, Gr.S. 47-20, or conditional vendee, Gr.S. 47-23, as against unrecorded liens and conditional sales contracts. They go no further in the modification of the common law rule. (See, however, Gr.S. 44-38.1, not applicable here.) *411 Mere possession without proof that title was acquired, either directly or by mesne conveyances, from the mortgagor or conditional vendee is not sufficient to bring a claim within the purview of the language used in the Acts. Chandler v. Conabeer, 198 N.C. 757, 153 S.E. 313; Music Store v. Boone, 197 N.C. 174, 148 S.E. 39. The defendant here is relying on the provisions of these statutes. He must show that he comes within their protective provisions. This he has failed to do. On this record it does not appear that Stewart, the conditional vendee, has ever attempted to convey title to the automobile in question. Nor does it appear that he has been or is now a resident of this State. "When the mortgagor or conditional vendee is a nonresident of this State, the situs of the property in this State is material when, and only when, the person in possession or claiming title thereto adverse to the conditional sale agreement deraigns title from the mortgagor or conditional vendee. Otherwise the statute is inapplicable. The common law is controlling. The defendant also seeks to invoke the principle declared in the line of cases represented by Bank v. Liles, 197 N.C. 413, 149 S.E. 377. But we are unable to perceive wherein the plaintiff has been guilty of such negligence as would invoke the application of that rule. Certainly it was not so stipulated or found by the court below. It is not made to appear that Stewart, the conditional vendee, is a resident of this State or that he willingly parted with the title to or possession of the automobile. Even so, defendant asserts that if plaintiff had made diligent inquiry it would have ascertained the facts. Perhaps the same may be said of defendant. In any event, plaintiff owed no duty to third parties, volunteers, or strangers to its title, to exercise due diligence at the peril of forfeiting its rights. In the final analysis the case presents one of those unfortunate transactions which are liable to happen in our complex commercial life. Both parties apparently have acted in good faith. Perhaps neither was as alert or careful as he might have been. One must lose. Who the victim is must be decided under the law as it now exists. Under the circumstances it is a hardship for either to suffer loss, but the law must prevail. The judgment below is Affirmed.