First Pres'n C. of York v. York Depository et al

Full title: FIRST PRESBYTERIAN CHURCH OF YORK v. YORK DEPOSITORY ET AL

Court: Supreme Court of South Carolina

Date published: Nov 5, 1943

27 S.E.2d 573 (S.C. 1943)

27 S.E.2d 573

Opinion

15582

November 5, 1943.

Before L.D. LIDE., J., York County, April, 1943. Affirmed.

Suit by First Presbyterian Church of York, South Carolina, against York Depository and another to have a lease set aside and cancelled of record and named Defendant ejected from the premises. Defendant Demurred to the Complaint. From a Judgment Order sustaining the Demurrer and dismissing the Complaint, the Plaintiff appeals.

The Circuit Decree of Judge Lide, ordered to be reported, follows:

This case comes before me upon a demurrer interposed by York Depository, one of the defendants, to the complaint for alleged insufficiency of factual allegations to constitute a cause of action. The demurrer was heard at the close of the April, 1943, term of the Court of General Sessions for York County, to wit, on April 13, 1943, and after argument of counsel was taken under advisement. Helpful briefs have been filed and considered. Before the hearing counsel for the plaintiff made the point that the case had not been docketed and hence should not be heard because of the provisions of Section 595, Code 1942. But the Court of Common Pleas had not been opened, and it was, and is, my view that the section mentioned had no application, but that the hearing should be had pursuant to Sections 36 and 37, Code of 1942, providing for a hearing at Chambers, due notice having previously been given; for while the hearing was held in the Court room it was in fact a Chambers hearing.

The complaint herein alleges that the plaintiff is a religious organization located at York, and that Mrs. Theodora H. McNeel, who at her death was a citizen and resident of the Town of York and a member of the plaintiff Church, died testate on September 13, 1942, and the defendant F.H. Garner was appointed as executor of her will, which was dated January 23, 1942, and this will contains the following devise and bequest:

"Item 3. I will and bequeath unto The First Presbyterian Church, York, South Carolina, the lots together with the buildings thereon, on the West Side of Main or Congress Street, in the Town of York, South Carolina, lying between the former Sullivan's Hotel and the old Nichols lot, known as the McNeel Block, for the following purposes, to wit:

"It is my will, and I do direct, that the said Church use the rents from the room now occupied by the York Depository for the upkeep of the McNeel Memorial Building; the one occupied by the York Hardware Company for the benefit of the Business Women's Circle of the said Church; the rooms now occupied by the Home Furniture Company, B. Levy, Office of Federal Land Bank of Columbia, and Arthur Hart Yarn Company, all to be applied to the general budget of the said Presbyterian Church of York, South Carolina, for pastor's salary and current expenses and benevolences. The rents from the room now occupied by Smith's Grocery to be given to the Ella C. Davidson Auxiliary, or its successor, to be used by said Auxiliary in their church budget.

"Should the Board of Deacons of the said Church deem it advisable and proper to sell any of the McNeel Block, I do authorize and empower and instruct them to sell the same, and reinvest the proceeds of the sale in other real estate or stocks or bonds, to be held by them for said Church, and the rents or incomes or dividends or interest derived therefrom to be used by the said Church as above stated, the reinvestment to take the place of the original property, and I direct that no rent is to be collected from Mr. James Gardner for the shop he now occupies, as long as he wants to use it."

It is further alleged that the defendant York Depository, mentioned in the excerpt quoted from the will, is a banking corporation and has for some years occupied the building in the McNeel Block known as the bank building, and that as above set forth Mrs. McNeel in her will directed that the rents from the room occupied by it be used for the upkeep of the McNeel Memorial Building of the plaintiff; and it is specifically alleged in the complaint that Mrs. McNeel "had in previous years at great cost and at her own expense, erected Assembly and Sunday School rooms in a building adjacent to and adjoining the said Church building, said Sunday School rooms being known as the McNeel Memorial."

It is further alleged that on or about March 1, 1941. Mrs. Theodora H. McNeel and York Depository entered into a lease agreement in writing whereby Mrs. McNeel leased unto York Depository the bank building room in question now occupied by it, with all the appurtenances, for a term of ten years commencing March 1, 1941, and ending March 1, 1951, at a yearly rental of $360.00. payable in monthly installments of $30.00, commencing on April 1, 1941; and it is also alleged that this lease was not recorded until September 15, 1942, which was the second day after Mrs. McNeel's death.

It is further alleged that under the terms of Section 8804. Code of 1932, all leases and contracts in writing made between landlord and tenant for more than twelve months shall not be valid in law against the rights and claims of third persons unless recorded within forty days from the date of the execution thereof, and that the plaintiff is a third person within the meaning of this section, and that the lease between Mrs. McNeel and York Depository was not recorded within forty days from its execution, and that the plaintiff had no notice of the existence thereof, and hence the same is not effective against the plaintiff.

It is also alleged that the actual cost of the maintenance and upkeep of the room occupied by York Depository under its lease, including taxes, fire insurance and other charges, is $684.34 annually, and that after allowing credit for the annual rent of $360.00 under the lease, the plaintiff will be called on to furnish to the defendant York Depository this banking room at a loss to it of $324.34 per annum, and that hence the McNeel Memorial Building will have to be maintained from other finances and resources of the Church. And it is further alleged that the reasonable rental value of the banking room is the sum of $900.00 per year, and that it would be inequitable, unjust and an undue burden upon plaintiff for the defendant York Depository to occupy the premises at an annual rental of only $360.00, and that the plaintiff is entitled to have the lease in question surrendered up and cancelled of record; and the prayer of the complaint is for judgment that the "said purported Lease Agreement" be set aside and cancelled, and the defendant York Depository ejected from the premises; and for general relief.

The defendant York Depository demurs to the complaint in that it does not state facts sufficient to constitute a cause of action, since it appears upon the face of the complaint that Section 8804 has no application to this defendant, because the plaintiff is not a "third person" within the meaning thereof, and there is also a second ground of the demurrer to which reference will hereinafter be made. The demurrer, of course, admits pro hac vice the facts alleged but not the conclusions of law.

The following is a full copy of Section 8804. Code of 1932: "All leases or contracts in writing, hereafter to be made between landlord and tenant, for a longer term than twelve months, shall not be valid in law, against the rights and claims of third persons, unless the same shall have been recorded in the office of the register of mesne conveyances within forty days from the time of execution thereof, nor shall any payment made in anticipation of rent, for a longer period than twelve months, be considered a valid discount against the claims and rights of third persons."

The stipulation relating to recording within forty days, by analogy to other recording acts, plainly implies that if recorded within that period constructive notice will be afforded from the date of the instrument, while if recorded thereafter such notice would be effective from the date of recording only. But this portion of the section requires no consideration in the instant case, because it is admitted that the lease was not recorded until after Mrs. McNeel's death.

The important question in this connection is whether or not the plaintiff comes within the category of "third persons" as stated in the statute. This section is derived from one of the original recording acts adopted in this State, and its purpose like that of all other recording acts was to give notice, not to the world, but rather to those entitled to notice. At common law no provision was made for the recording of deeds, leases or other instruments of that character, but the complexities of modern business eventually required some protective method and hence recording acts were passed, to the end that notice of a lease or other instrument might be given to persons subsequently purchasing the property involved for value or subsequent creditors.

Stated another way: A recording act imposes the duty upon a person about to advance money or anything else of value for the purchase of property, or to extend credit to the owner of such property, to investigate the record before paying out his money, or parting with anything else of value, to ascertain if there are any instruments of record affecting the title, and if he fails to do this he will be bound by what the record shows. But of course, if he already has notice of the existence of any outstanding lease or other instrument, he will be bound by such notice whether the instrument is recorded or not. And obviously, a legatee or devisee under a will would have no occasion to investigate the record before the will became effective, for he is by no means a purchaser for value or a subsequent creditor, but is merely a beneficiary of the bounty of the person making the will. Hence he occupies the precise position of the testator or the testatrix, and his rights can rise no higher than their source.

I quote the following from 45 Am. Jur., 468, 469: "The record of an instrument is notice only to those who are bound to search for it. It is not a publication to the world at large. Those who, by the terms of the recording laws, are charged with constructive notice of the record of an instrument affecting land are, therefore, those who are bound to search the records for that particular instrument."

See also Am. Jur., 464, 465, where it is said: "The main purpose of recording instruments is to give constructive notice to subsequent purchasers and encumbrances. Statutes providing for such recordation give no substantive rights in themselves. In the absence of a statutory provision to that effect, recording is not essential to the validity of a conveyance as between the parties thereto."

It cannot be denied that Mrs. McNeel, the testatrix, was just as fully bound by the lease as if it had been immediately recorded, and hence if she were living she would have no right whatever to maintain such an action as this against the defendant York Depository upon the ground that the rent agreed on was less than the rental value of the property or for any other reason appearing on the face of the complaint herein. The property was hers and she had the right to make a lease thereof upon such terms as were satisfactory to her. When she made her will she refers to the property in question as being occupied by the York Depository, and she certainly did not purport to give to the plaintiff any larger rights with reference to the property than those she had. Indeed it is obvious that a will can operate only upon what a testator has at the time of its effective date. This proposition is so elementary that no authority is needed in its support, but reference may be had to the case of Purcell v. Purcell, Riley Eq., 282. And as a corollary to this proposition the legatee or devisee must take the property given cum onere. In other words, he stands in the shoes of the testator or testatrix. Yet if plaintiff's theory be correct the Church, although obviously not a purchaser for value or a subsequent creditor, but merely a beneficiary of the superb generosity of one of its devoted members, would occupy a higher legal position than Mrs. McNeel herself did, including the right to eject one of her tenants holding under a lease executed by her.

But I am fully convinced that such an anomalous conclusion is not correct, for it seems to me that a legatee or devisee with relation to the recording act in question has the identical position of an heir-at-law, as to whose property it is said in 16 Am. Jur., 797, 798: "Property descending or passing to heirs and distributees includes and is limited to property of the ancestor at the time of his death. Their status is the same as his was, and they stand in his place with no greater rights than he had with respect to such property. They take precisely what he leaves and no more."

See also 16 Am. Jur., 800, where it is said: "An unrecorded deed of the ancestor is binding upon the grantor and his heirs and devisees." (Emphasis added.)

I also quote the following from 32 Am. Jur., 103: "With the exceptions of a tenancy at will and a tenancy created by a life tenant, the death of the lessor does not terminate a tenancy, but the land passes subject to the lease. Where the landlord dies testate, the reversion passes to the devisee or legatee, and where he dies intestate the reversion passes according to the inheritance and distribution laws; in either case the new owner becomes the landlord in the place of the decedent."

A careful consideration of all the decisions of our Supreme Court relating to Section 8804 shows, I believe, that they are in full accord with the general principles hereinbefore set forth. It appears that this section originated in an act adopted December 18, 1817, and that it has been carried forward with substantially the same terms in all the subsequent codes and revised statutes prior to the Code of 1942. The first case construing this section appears to be that of Anderson v. Harris, 1 Bailey, 315, decided in 1829, which holds that "where a purchaser has received express notice of an existing lease before making his purchase, such lease although not recorded, conformably to the requisitions of the act of 1817, will be valid and effectual against the conveyance of the purchaser, although the latter has been duly recorded." This holding of the Court plainly indicates that the statute was merely designed to protect an innocent purchaser for value without notice.

The case of Page v. Street, Speers Eq., 159, is an interesting case which was heard on circuit before Chancellor Harper, and under the practice then existing he sat as a member of the Court of Appeals in Equity upon the hearing of the appeal from his own decree, and he actually delivered the opinion of the Appellate Court reversing it. Page, the plaintiff in this case, leased a hotel from the Charleston Hotel Company, but the hotel was destroyed by fire. Subsequently a new lease agreement was made and executed, but not recorded until several months thereafter, and in the meantime the Hotel Company executed a mortgage to a bank, and upon the foreclosure of this mortgage the City Council purchased the property at the foreclosure sale. The Appellate Court held that the lease not having been recorded prior to the mortgage made to the bank by the Hotel Company, and the bank then having no sufficient actual notice of Page's lease, it was void as against the mortgage, the mortgagee being in the position of an innocent purchaser for value without notice. In the opinion of the Appellate Court delivered by Chancellor Harper he stated that it was mistakenly said in the decree of the Circuit Court: "That though the Bank itself might have resisted performance, on the ground of want of notice the City Council does not come within the principle that a purchaser from a bona fide purchaser without notice is to be protected."

Hence it will be seen that the City Council was protected in its purchase under the foreclosure of a mortgage given to a bank, because the bank occupied the position of a bona fide purchaser for value without notice.

And in the recent case of Gentry v. Recreation, Inc., 192 S.C. 429, 7 S.E.2d 63, 67, 128 A.L.R., 743, Section 8804 was again before the Court, and the Supreme Court held that the plaintiff, Gentry, being the holder in due course for valuable consideration of negotiable notes secured by a chattel mortgage on the furniture and fixtures of a tenant, was not bound by an unrecorded lease of which he had no notice. The Court says: "We are, therefore, of opinion from the record in the case that the respondent stands in the impregnable position of a wholly innocent third party, and hence would not be bound by the acceleration clause in the lease, even if it could be construed as conferring the right of distress, notwithstanding the fact that there was no formal written assignment of the chattel mortgage."

Upon the examination of the opinion in this case it will be seen that the Court never for a moment assumed that the plaintiff would not be bound by a lease merely because it was not recorded, but the judgment of the Court was based squarely upon the proposition that the plaintiff occupied the position of "a wholly innocent third party," he being a subsequent purchaser or chattel mortgage creditor for value without notice. In other words, the general phrase "third persons" as used in Section 8804 applies only to such persons as purchasers for value without notice or subsequent creditors without notice.

It is also of interest to observe that the Georgia Court of Appeals reached a like conclusion in the case of Tremere v. Barfield, 12 Ga. App., 774, 78 S.E., 729, 730, where the Court says: "Hence a seller of personal property who reserves title in writing until the purchase money has been paid, but who fails to properly record the reservation of title, loses his right to enforce his reservation of title against third persons who in good faith part with money or other thing of value upon the faith of the apparent unconditional ownership of the property by the vendee, and without actual or constructive notice of the vendor's reservation of title. As to all such persons the vendee is to be treated as having the absolute unconditional title to the property; but as between the parties themselves and persons who have notice the reservation of title is good whether recorded or not. Hill v. Ludden Bates, 113 Ga. 320, 38 S.E., 752. In order, however, for third persons to acquire priority over a vendor who has failed to record his reservation of title, it must appear that such person has parted with something of value on the faith of the vendee's apparent ownership of the property."

Counsel for the plaintiff cite the case of Stanley v. Schwalby, 162 U.S. 255, 16 S.Ct., 754, 763, 40 L.Ed., 960, wherein it is said: "A valuable consideration may be other than the actual payment of money and may consist of acts to be done after the conveyance." But is difficult to see how this principle could apply to a devisee. And surely it could not be held that the fact that Mrs. McNeel, the testatrix, directed that the rents from the room occupied by the York Depository be used for the upkeep of the McNeel Memorial Building, already owned by the Church due to her liberality in previous years, would put the Church in the position of a purchaser for valuable consideration without notice and thus defeat her own lease.

It is clear from what has already been said that in my opinion the demurrer should be sustained and the complaint dismissed. But there are other reasons for this conclusion to which brief reference should be made. In the case of Gentry v. Recreation, Inc., supra, attention was called to one of the anomalies of Section 8804, to wit, the provision with reference to forty days, as being "a strange bit of legislative oversight." But in addition to this, the entire section, except perhaps the last clause of it, appears to have been unnecessary in view of the general recording act incorporated in Section 8875, Codes 1932 and 1942, which seems to have originated in an act adopted in 1876, and this section expressly covers "all leases or contracts in writing made between landlord and tenant for a longer period than twelve months"; and further provides that such instruments "shall be valid, so as to affect the rights of subsequent creditors (whether lien creditors or simple contract creditors) or purchasers for valuable consideration without notice" only from the time of recording. It is a well-recognized principle that where there are two sections of the Code relating to the same subject-matter, that is to say, if they are in pari materia, they must be construed together, and the construction of one if doubtful may be aided by a consideration of the words of the other, having in mind of course the legislative intent. 25 R.C.L., 1065, 1066. And I am of the opinion that the construction hereinbefore given to Section 8804 is fortified and confirmed by this principle. In other words, Section 8875 shows that the phrase "third persons" as used in Section 8804 means the same persons mentioned in Section 8875, to wit, subsequent creditors and purchasers for valuable consideration without notice.

Since then, as I view it, the two sections should be construed together, and as so construed there is no conflict on this point, it is unnecessary to go into detail with reference to another proposition suggested by counsel for the demurring defendant to wit, that if Sections 8804 and 8875 are deemed to be inconsistent, then 8804 having been originally adopted in 1817, and 8875 having been originally adopted in 1876, and adopted, as stated in the title, to provide a uniform registry law for all deeds and other instruments in writing required to be registered, then 8804 was in effect superseded, annulled and repealed by 8875. And I think this proposition is sound and correct. See New York Life Ins. Co. v. Bradley, 83 S.C. 418, 427, 65 S.E., 433.

The second ground of the demurrer is to the effect that Section 8804 was repealed on January 13, 1942, since it was not adopted as a part of the 1942 Code except the last clause thereof which has no application to the instant case. The 1942 Code was adopted as the only general statutory law of the State as of January 13, 1942, by an act approved by the Governor September 26, 1942, the act containing a provision that it should take effect immediately upon its approval by the Governor. It is true that this act is retroactive, for by its terms it declares that the Code shall be the only general statutory law of the State "on the 13th day of January, 1942," and this was several months prior to Mrs. McNeel's death which occurred September 13, 1942. However, she died before the act was approved by the Governor and hence before the same became effective, the date of his approval being as above stated, September 26, 1942. It is contended by the demurring defendant that the act being retroactive in and by its express terms, Section 8804 as originally contained in the Code of 1932 was in effect repealed before Mrs. McNeel's will became operative. But while an act may be retroactive for certain purposes, I do not think a retroactive provision would be valid which affected vested interests in property. 25 R.C.L., 785. Mrs. McNeel died on September 13, 1942, and at that time the rights of the parties became fixed or vested, and I do not think any retroactive legislation could affect them, and hence this particular ground of the demurrer does not seem to me to be tenable.

Before the hearing of the demurrer the defendant York Depository argued its motion to strike out certain allegations contained in the complaint as irrelevant and redundant, but it was and is my view that whether these allegations are irrelevant or not, they are not prejudicial to the defendant, and hence it could not be considered "aggrieved thereby," and therefore the motion is overruled.

The defendant, F.H. Garner, as executor of Mrs. McNeel's will, answered the complaint alleging in substance that as such executor he was not concerned in the controversy between plaintiff and York Depository, and hence was not a proper party to this proceeding, especially in view of the fact that the property involved is real estate; but the defendant York Depository gave notice of a motion to strike out certain allegations of this answer as irrelevant and redundant upon the ground, as I construe the notice, that in the event a decision were made in favor of the plaintiff there would be some liability or responsibility upon the executor as such to the York Depository. This motion was also argued before me and counsel for the defendant York Depository stated that the right to plead to the answer of the Executor within a reasonable time after the final determination of that defendant's motion to strike should be allowed him. But in view of my conclusion that the demurrer to the complaint should be sustained, which requires the dismissal of the complaint, the motion with reference to the answer of the executor becomes inconsequential (as well as the answer itself), and therefore goes out of the case. And of course if the instant order should hereafter be reversed or set aside, the status of all the parties to the cause would then be immediately restored. It is therefore,

Ordered, that the demurrer interposed to the complaint herein by the defendant York Depository be, and the same is hereby, sustained, and that the complaint be, and the same is hereby, dismissed with costs.

Messrs. Hart Moss, of York, S.C. Counsel for Appellant, cite: As to Appellant being a "third person" within meaning of Sec. 8804, Code of 1932, under facts of case at Bar: Code of S.C. 1932, Secs. 8804, 8875; Code of S.C. 1932, Sec. 8873; Spears' Eq., 159; 192 S.C. 429, 7 S.E.2d 63; Code of S.C. 1932, Sec. 7042; Bouvier's Law Dict.; 1 Mart. (N.S.), La., 384; 130 Mich., 347, 90 N.W., 32; 10 Minn., 50; 28 R.I. 319, 67 A., 326; 64 Wis. 173, 24 N.W., 874. As to Whether Section 8804, Code of S.C. 1932, Was Repealed By Not Being Adopted as Part of Code of 1942; And if Repealed are "vested rights" retroactively divested?: Sec. 8804, Code of S.C. 1932; Sec. 8804, Code of S.C. 1942; Secs. 1 and 2 of Act Adopting Code of 1942, Approved Sept. 26, 1942; 55 S.C. 295, 33 S.E., 372; 87 S.C. 270, 69 S.E., 391, Affirmed in 60 L.Ed., 658; 91 S.C. 344, 74 S.E., 1010; 6 R.C.L., at p. 305 and 306; 25 R.C.L., at p. 785, and p. 795; 165 S.C. 219, 163 S.E., 653; 169 S.C. 436, 169 S.E., 174; 5 S.C. 125; 1 S.C. 152.

Mr. R.B. Hildebrand, of York, S.C. Counsel for Respondent, cites: As to History of Section 8804, Code of S.C. 1932: St. At L., Vol. VI, p. 67; Corbin's St. At L., (1872) p. 433; Rev. St., Vol. I, (1893) p. 658; Sec. 2414, Vol. I, Code of S.C. 1902; Sec. 3500, Vol. I, Code of S.C. 1912; Sec. 5270, Vol. III, Code of S.C. 1922; Sec. 8804, Vol. III, Code of S.C. 1932; Sec. 8804, Code of S.C. 1942; 1 Bail., 315 (1829); Speer's Eq., 159 (1843); 192 S.C. 420, 7 S.E.2d 63. As to Plaintiff being "a third person" under meaning of Sec. 8804: 16 A.J., Sec. 32, p. 797, also p. 799, Sec. 33; Id., Sec., 34, p. 801; 32 A.J., Sec., 95, p. 103; 146 S.C. 225, 143 S.E., 796; 2 Mill Const., 18; 2 Bail. L. (18 S.C.L.), 554; 25 R.C.L., Sec. 289, p. 1065; 25 R.C.L., Sec., 292, p. 1067; 23 R.C. L., Sec. 25, p. 171; 23 R.C.L., Sec. 24, p. 170; 189 S.C. 463, 1 S.E.2d 624; 23 R.C.L., Sec. 95, p. 230; 25 R.C.L., Sec. 285, p. 1061; 83 S.C. 427, 65 S.E., 433; 71 S.C. 992. As to Repeal of Sec. 8804, Code of S.C. 1932: Const. of S.C. 1895, Art. VI, Sec. 5; 148 S.C. 118, 145 S.E., 695; 155 S.C. 520, 152 S.E., 700., 162 S.C. 52, 160 S.E., 144; 96 S.C. 313, 80 S.C. 599; 2 Rich. Eq., 43; 59 C.J., Sec. 717, p. 1181; 50 C.J., Sec. 718; 2 McC. Eq., 171; 4 McCord, 476; 4 McCord, 442; 1 Hill Eq., 265.

November 5, 1943.

PER CURIAM.

The exceptions to the order of Judge Lide, who tried this case on Circuit, have been carefully considered and are found to be without merit. The order, in our opinion, is a correct disposition of the controversy. It is affirmed and adopted as the judgment of this Court, and will be reported.

MESSRS. ASSOCIATE JUSTICES BAKER, FISHBURNE and STUKES and CIRCUIT JUDGES T.S. SEASE and E.H. HENDERSON, ACTING ASSOCIATE JUSTICES, concur.