NEWMAN MACHINE COMPANY, Inc.
v.
George F. NEWMAN, Jr., Trustee.
No. 1.
Supreme Court of North Carolina.
March 12, 1969.*66 Charles T. Hagan, Jr., and McNeill Smith, Greensboro, for plaintiff appellant.
McLendon, Brim, Brooks, Pierce & Daniels, by Hubert Humphrey, Greensboro, for defendant appellee.
HUSKINS, Justice.
A demurrer tests the sufficiency of a pleading, admitting, for that purpose, the truth of factual averments well stated and such relevant inferences of fact as may be deduced therefrom. When pleadings are thus challenged they are to be liberally construed with a view to substantial justice between the parties. G.S. § 1-127; G.S. § 1-151; McKinney v. City of High Point, 237 N.C. 66, 74 S.E.2d 440 (1953). A demurrer admits the facts alleged but not the pleader's legal conclusions. Gillispie v. Goodyear Service Stores, 258 N.C. 487, 128 S.E.2d 762 (1963). A complaint must be fatally defective before it will be rejected as insufficient. Woody v. Pickelsimer, 248 N.C. 599, 104 S.E.2d 273 (1958). Demurrers in declaratory judgment actions are controlled by the same principles applicable in other cases. Even so, it is rarely an appropriate pleading to a petition for declaratory judgment. If the complaint *67 sets forth a genuine controversy justiciable under the Declaratory Judgment Act, it is not demurrable even though plaintiff may not be entitled to prevail on the facts alleged in the complaint. This is so because the Court is not concerned with whether plaintiff's position is right or wrong but with whether he is entitled to a declaration of rights with respect to the matters alleged. 22 Am.Jur.2d, Declaratory Judgments, § 91; Walker v. City of Charlotte, 268 N.C. 345, 150 S.E.2d 493 (1966); Woodard v. Carteret County, 270 N.C. 55, 153 S.E.2d 809 (1967).
The complaint and demurrer present these questions:
(1) Does the complaint state a cause of action justiciable under the Declaratory Judgment Act?
(2) Does the complaint state a cause of action in equity to quiet title to personal property ?
Plaintiff contends for an affirmative answer to both questions, while defendant argues that an action to quiet title to personalty cannot be maintained in this jurisdiction because there is statutory provision for such suits only with respect to real property. G.S. § 41-10. Defendant further contends that the type of dispute pictured by the complaint does not qualify for consideration under the Declaratory Judgment Act because (a) a genuine controversy does not exist, (b) the action does not include all necessary parties, (c) the action involves primarily issues of fact rather than questions of law, and (d) the object of the action is "to bag" in advance an impending lawsuit by becoming plaintiff now so as to avoid becoming defendant later.
The excellent briefs of the parties are largely devoted to discussions of whether the complaint states a cause of action justiciable under the Declaratory Judgment Act. We find it unnecessary to decide the first question, however, in view of the conclusion we have reached on the second.
We hold that the complaint states a cause of action to remove cloud and quiet title to personalty and that such action may be maintained in this State. Since the courts generally apply the same principles when title to personalty is involved as they do when title to land is clouded, McClintock, Principles of Equity, Sec. 197 (2d ed. 1948), brief reference to some of the requirements in equity suits to remove cloud and quiet title to realty prior to enactment of G.S. § 41-10 is helpful to an understanding of the question before us.
Under the old equity practice, "[a] bill quia timet was intended to prevent future litigation, by removing existing causes which might affect the plaintiff's title. If one in possession of land under a legal title knew that another was claiming an interest in the land under a title adverse to him, there was no adequate remedy at law for such occupant to test the validity of such claim. Being in possession, he could not sue at law, and the adverse claimant would not sue, so that the adverse claim might be asserted at some future time when the evidence to rebut it might be lost, or at any rate the existence of such claim cast a cloud upon his title which would affect its value. His remedy was a bill in equity against the adverse claimant to have the cloud removed by a decree of the court and thereby quiet his title." McIntosh, N. C. Practice and Procedure in Civil Cases § 986 (1929); Holland v. Challen, 110 U.S. 15, 3 S. Ct. 495, 28 L. Ed. 52 (1883).
It is stated in Jacobi Hardware Co. v. Jones Cotton Co., 188 N.C. 442 at 445, 124 S.E. 756 at 758 (1924), that "`[a] bill quia timet is in the nature of a writ of prevention, and is entertained as a measure of precaution, justice, and to forestall wrongs or anticipated mischiefs, as where a guardian or other trustee is squandering an estate, or where one in possession of property which another unjustly claims is likely to lose the evidence of his title by delay in asserting and testing the hostile claim. Bailey v. Briggs, 56 N.Y. 407, 415.'"
*68 Prior to 1893, in equity suits to remove cloud or quiet title to realty plaintiff was required to allege and show: (1) that he had no adequate remedy at law, Byerly v. Humphrey, 95 N.C. 151 (1886); (2) that he was in rightful possession of the land in question, Peacock v. Stott, 104 N.C. 154, 10 S.E. 456 (1889), McNamee v. Alexander, 109 N.C. 242, 13 S.E. 777 (1891); and (3) that the defendant's adverse claim was such as to affect plaintiff's title injuriously, Murray v. Hazell, 99 N.C. 168, 5 S.E. 428 (1888). In Busbee v. Macy, 85 N.C. 329 (1881), plaintiff sought to remove a cloud upon the title to land alleging that a deed under which defendant claimed was void on its face by reason of the uncertain description of the land therein contained. The court held that since the illegality of defendant's deed appeared upon its face, a court of equity should dismiss the action and decline to declare an instrument to be a void deed which upon its face is no deed at all. In Busbee v. Lewis, 85 N.C. 332 (1881), plaintiff sought to remove a cloud upon his title and was denied equitable relief because a valid legal objection was apparent on the face of the record." * * * [A] court of equity will not take jurisdiction of an action to remove a claim upon the ground of its being a cloud upon the title of another, when the claim is based upon a deed alleged in the complaint to be void upon its face, since, if it really be so, the party has always at hand a certain defense against the deed, whenever it may be urged against him."
Because the General Assembly considered the two Busbee decisions, supra, an inconvenient or unjust application of the equitable doctrines involved, it enacted Chapter 6, Public Laws of 1893, now codified as G.S. § 41-10, providing, inter alia, that "[a]n action may be brought by any person against another who claims an estate or interest in real property adverse to him for the purpose of determining such adverse claims * * *." Rumbo v. Gay Manufacturing Co., 129 N.C. 9, 39 S.E. 581 (1901). That enactment was designed to avoid some of the limitations imposed upon the remedies formerly embraced by a bill of peace or a bill quia timet, and to establish an easy method of quieting titles of land against adverse claims. Wells. v. Clayton, 236 N.C. 102, 72 S.E.2d 16 (1952).
Since we have no statute regarding suits in equity to remove cloud or quiet title to personalty, we apply to such suits the same principles which obtained prior to enactment of G.S. § 41-10 when title to land was involved.
Although such suits were usually brought only in cases involving real property, "the generally accepted view is that a bill to quiet the title or to remove a cloud on the title to personal property may be maintained in equity, in the absence of statutory authorization, where, by reason of exceptional circumstances, there is no adequate remedy at law." Annot., 105 A.L.R. 291 (1936). In Loggie v. Chandler, 95 Me. 220, 49 A. 1059, it was held that a cloud upon the title to personal property in the form of a recorded chattel mortgage could not be removed; but Pomeroy says "* * * there seems no good reason for thus restricting the jurisdiction, and the instances are not infrequent where it has been exercised, in cases of void recorded chattel mortgages, spurious issues of shares of stock, etc." 5 Pomeroy, Equity Jurisprudence § 2151 (4th ed. 1919). To like effect is Thompson v. Emmett Irr. Dist., 227 F. 560, (9th Cir. 1915), where plaintiff, a purchaser of bonds issued by an irrigation district, alleged that defendant had defaulted in the payment of interest on all of the bonds on the ground that some of the bonds, without designating such bonds by number or otherwise, had been sold without consideration. Defendant demurred and moved to dismiss. Held: The allegations of the bill state a case for the removal of a cloud upon the title to personal property and such a case is within the jurisdiction of a court of equity. Accord, Sherman v. Fitch, 98 Mass. 59 (1867); Magnuson v. Clithero, 101 Wis. 551, 77 N.W. 882 *69 (1899); Voss v. Murray, 50 Ohio St. 19, 32 N.E. 1112 (1893).
In Dittmar v. Alamo Nat. Co., 91 S.W.2d 781 (Tex.Civ.App. 1936), defendants by cross action sought to have their title quieted to certain corporate stock allegedly purchased by defendants from plaintiff. There, as here, it was contended that there was no such action as one to quiet title or remove cloud from title to personal property. Held: "There seems to be no good reason for so restricting the remedy of an action to quiet title. This is especially true in Texas, where the distinctions between law and equity do not obtain. * * * We see no reason why in this state the owner of personalty, in possession, should not be permitted to maintain a suit to quiet his title as against an adverse claimant." It will be noted that in North Carolina, as in Texas, the old technical distinctions between actions at law and suits in equity have been abolished. G.S. § 1-9; In Re Estate of Smith, 200 N.C. 272, 156 S.E. 494 (1931); Woodall v. Bank, 201 N.C. 428, 160 S.E. 475 (1931).
In Ellis v. Dixie Highway Special Road & Bridge Dist., 103 Fla. 795, 138 So. 374 (1931), plaintiff sought to be adjudged owner and holder of certain highway district bonds which defendant claimed had been stolen. Plaintiff could not negotiate the bonds under rules of the New York Stock Exchange until title was established. Held: "Suits in equity to quiet title to personalty are infrequently brought, but a court of equity will give relief in respect of personalty and quiet title thereto when, owing to exceptional circumstances, there is no adequate remedy at law."
In Earle v. Maxwell, 86 S.C. 1, 67 S.E. 962 (1910), the Court said: "While some authorities hold otherwise, we think there can be no doubt that a complaint to remove a cloud on the title to personal property may be maintained. * * * Any distinction between real estate and personal property in this respect must be purely artificial and tend to hinder the practical administration of justice."
Even though there is no statute in North Carolina authorizing suits to quiet title to personalty, we adhere to the general rule that such suits may be maintained in equity where, due to exceptional circumstances, there is no adequate remedy at law. Here, plaintiff is in possession of the stock it purchased from defendant trustee, and defendant is claiming an interest in it adverse to plaintiff. Being in possession plaintiff cannot sue at law, and defendant will not sueat least he has not done so during almost two years of threats and demands. His adverse claim may be asserted in court at some future time when plaintiff's evidence to rebut it may be lost. The existence of such a claim casts a cloud upon plaintiff's title to the stock and may adversely affect its value. Under these circumstances plaintiff is entitled to invoke the equitable assistance of the court to remove this cloud and quiet the title to ownership of said stock when defendant, for whatever reasons of his own, continues to threaten but refuses to act. With the ever increasing importance of personal property in the business world of today, especially stocks, bonds, and other intangibles, there is no sound reason why this equitable remedy should not be available to quiet title to personalty as well as realty.
For the reasons stated the decision of the Court of Appeals sustaining the demurrer is reversed. Let the Court of Appeals so certify it to the trial court for further proceedings consistent with this opinion.
Reversed and remanded.