Hardy v. . Fryer

Bbogden, J. Tbe question is this: Under what conditions will reference in a registered instrument, to a prior encumbrance unregistered, constitute a valid and enforceable lien by tbe bolder of such prior unregistered encumbrance ? *422 Tbe principles deducible from our decisions upon tbe subject of tbe sufficiency of tbe references necessary to impart vitality to a prior unregistered encumbrance, may be stated as follows: 1. Tbe creditor bolding, tbe prior unregistered encumbrance must be named and identified witb certainty. 2. Tbe property must be conveyed “subject to” or in subordination to sucb prior encumbrance. 3. Tbe amount of sucb prior encumbrance must be definitely stated. 4. Tbe reference to tbe prior unregistered encumbrance must amount to a ratification and adoption thereof. Tbe theory out of which these principles grow, is that tbe reference to tbe unregistered encumbrance, if made witb sufficient certainty, creates a trust or agreement that tbe property is held subject thereto. Hinton v. Leigh, 102 N. C., 28; Ward v. Anderson, 111 N. C., 115; Brassfield v. Powell, 117 N. C., 141; Bank v. Vass, 130 N. C., 592; Piano Co. v. Spruill, 150 N. C., 168; Blacknall v. Hancock, 182 N. C., 369; Bank v. Smith, 186 N. C., 642; Hardy v. Abdallah, 192 N. C., 45. Applying tbe tests specified to tbe case now under consideration, we are of tbe opinion that tbe references in tbe deed measure up to tbe standard prescribed by law. Tbe creditor is identified, tbe amount and imrpose of tbe debt stated, and tbe existence of a prior conveyance and agreement to assume tbe indebtedness fully and definitely disclosed. Tbe decisions in this State chiefly relied upon to sustain tbe contention of tbe defendants are Piano Co. v. Spruill, supra, and Hardy v. Abdallah, supra. Tbe reference in tbe Spruill case, supra, was as follows: “One MePbail Piano, now in our possession, which is free and clear of all encumbrances except $115 now due tbe Piano Company.” Tbe court held this reference to be insufficienUfor tbe reason that tbe recital did not name tbe piano company, tbe creditor, nor state bow or for what tbe $115 was due.. Tbe opinion states: “Here tbe mortgage to Spruill & Bro. does not recite any prior conveyance nor indicate that tbe mortgagees shall bold tbe property in trust to pay off sucb prior-lien and apply only tbe surplus to their own debt.” In tbe Abdallah case, supra, tbe only reference was in tbe warranty clause as follows: “Is free and clear of all encumbrance except one note for purchase money due in 1922.” This reference did not identify tbe creditor nor state tbe amount of tbe supposed indebtedness, nor did it refer to any conveyance at all. However, tbe defendant contends that tbe references which have been upheld by tbe court as imparting vitality to unregistered liens have all occurred in tbe identical paper held by tbe party endeavoring to exclude tbe prior encumbrance. And, therefore, as there is no reference *423 in tbe mortgage wbicb tbe defendant bolds, but only a reference in tbe original deed of conveyance, tbe principles of law referred to do not apply. Now, it must be observed, in tbe outset, tbat tbe reference occurred in a conveyance wbicb is an essential part of defendant’s title. In other words, tbe validity of defendant’s mortgage depends upon tbe validity of tbe deed from Harris to tbe plaintiffs, Hardy and wife. Tbis deed is tbe foundation of defendant’s chain of title so far as tbis controversy is concerned, and when tbe defendants took tbe notes aggregating $'5,516.25, and tbe mortgage or deed of trust securing same, they were charged by law with full notice of tbe provisions of tbe deed upon wbicb their security rested. In tbis situation tbe defendants are met with tbe principle of law declared in Holmes v. Holmes, 86 N. C., 206: “And it is a well established rule, tbat where a purchaser in tbe necessary deduction of bis title must use a deed wbicb discloses an equitable title in another, be will be affected with notice, and will be bound by any trust tbat rested upon him from whom be purchased.” Manwing, J., in Thompson v. Power Co., 154 N. C., 22, states tbe same principle, quoting from 2 Pom. Eq. Juris. (3 ed.), sec. 626: “Wherever a purchaser bolds under a conveyance and is obliged to make out bis title through tbat deed, or through a series of prior deeds, tbe general rule is firmly established tbat be has constructive notice of every matter connected with or affecting tbe estate wbicb appears, either by description of parties, by recital, by reference, or otherwise, on tbe face of any deed wbicb forms an essential link in tbe chain of instruments through wbicb be must derive bis title. Tbe reasons for tbis doctrine are obvious and most convincing ; in fact, there could be no security in land ownership unless it were strictly enforced.” Hpon tbe law as written, we bold tbat tbe judgment of tbe referee, approved by tbe trial judge, was correct, and tbe same is Affirmed.