Found At: www.statewidetitle.com
Issue 57 Article 119
Timber, is it Land, Goods or Both?
Chris Burti, Vice President and Legal Counsel
In an article entitled Recent Real Property Decisions, Timber Deed Priority, Statewide Title Newsletter and Legal Memorandum, January 1999 we discussed Fordham v. Eason, 131 N.C.App. 226, 505 S.E.2d 895, (1998) as a decision that should give the title examiner some concern. We stated that we hoped it would be overturned or overruled. We got our wish but as in the tale of the genie in the bottle, it did not turn out as we hoped. The Supreme Court reversed the Court of Appeals (No. 509PA98, Supreme Court of North Carolina, Dec. 3, 1999) but the reasoning used to support the decision is not necessary to achieve the outcome and is bound to produce more litigation.
In Fordham, a landowner (Eason) executed a timber-cutting contract with the plaintiff Fordham Timber Company, Inc. (Fordham). The contract was not recorded and no consideration was paid. Subsequently appellant American Woodland Industries, Inc. (AWI) secured a two year "Timber Purchase and Sales Agreement" from the landowner paying $30,000. This agreement was recorded and Woodland began cutting. At this point Fordham secured a preliminary injunction stopping Woodland from cutting and subsequently commenced logging the tract itself. Woodland filed an answer and counterclaim alleging trespass, wrongful timber cutting and abuse of process. The trial court issued summary judgment in favor of Fordham on the wrongful cutting issue and the Court of Appeals affirmed, remanding on the abuse of process issues.
The court reasoned that since Woodland was not the owner of the land itself it could not assert a claim for wrongful cutting of timber and trespass. The opinion cites N.C.G.S.§ 1-539.1 as follows: "[a]ny person, firm or corporation not being the bona fide owner thereof or agent of the owner who shall without the consent and permission of the bona fide owner enter upon the land of another and injure, cut or remove any valuable wood, timber, shrub or tree therefrom, shall be liable to the owner of said land for double the value of such wood, timber, shrubs or trees so injured, cut or removed. (Emphasis added)." The court goes on to say that "[I]n no sense was Woodland the owner of the lands in question. . . . In order to sustain an action for permanent damages to the freehold, or to the ownership interest, such as an action for unlawful cutting of timber, plaintiff must allege and show that he is the owner of the land from which the timber was cut. Woodard v. Marshall, 14 N.C.App. 67, 187 S.E.2d 430, 431 (1972) (emphasis added)."
The right to take timber from land is well established to be a profit à prendre. This is an interest in land that must be granted in writing to satisfy the Statute of Frauds, Council v. Sanderlin, 183 N.C. 253, 111 S. E. 365, (1922). It is very similar to an easement and the rules governing it are essentially the same. In Fordham, the Court of Appeals never discussed this aspect of the factual basis giving rise to the action. If the "agreement" recorded by AWI was sufficient to convey the timber rights in the land then that interest should be sufficient to support an action under N.C.G.S.§ 1-539.1 since AWI would own a recorded interest in the land itself.
The Supreme Court noted that "Fordham challenges AWI's claim of possession of the Easons' timber on the grounds that AWI did not have a valid deed. However, under the Uniform Commercial Code, a deed is not required to create a contract for the sale or transfer of goods." In ruling that this argument was without merit, it can be reasonably inferred that the Court determined that the agreement was not sufficient to constitute a conveyance. This analysis only makes sense, if such is the case, because the UCC only applies to contracts, not interests in land. None the less, the agreement was recorded, it was given for value and under well-settled North Carolina real property law and the UCC (see NCGS Sec. 25-2-107(3)), and it constitutes an enforceable right superior to the claims of Fordham. In the opinion, the Court states that on "7 February 1997, Rubin Williams, acting on behalf of AWI, entered into the agreement with the Easons titled "Timber Purchase and Sales Agreement." This agreement allowed AWI to enter and remove trees, tops, or laps from a 115-acre tract of land bounded on the east by the Little River and the West by Cat Tail Swamp, as recorded at book 1434, page 584 in the Johnston County Register of Deeds' office, until 7 February 1999. This agreement priced the timber on a per-unit basis using the species of timber, class of material, and unit type sold. In return for the right to remove timber from the Easons' property, AWI paid Eason a $30,000 deposit. The "Timber Purchase and Sales Agreement" allowed AWI initially to deduct the cost of any timber removed from the land from the $30,000 deposit consistent with the per-unit prices listed in the agreement. AWI agreed to pay the Easons on a per-unit basis when the $30,000 deposit was completely depleted. Additionally, the agreement required the Easons to refund AWI's deposit "if there is any stoppage of logging operations for any reason, less the amount of the stumpage cut." The Easons received a check for $30,000 from AWI on 7 February 1997. A.V. Eason and Grace W. Eason signed the agreement on 10 February 1997 in the presence of Rubin Williams, a Notary Public". This summary by the Court contains a recitation of all of the essential elements of a conveyance, with the sole exception of the seal requirement. The seal requirement has been legislatively repealed effective before the opinion. If, in fact, it does contain all of the required elements necessary for a conveyance, the Courts review of Chapter 25 of the North Carolina General Statutes seems inappropriate since a conveyance is obviously more than a mere contract, but rather, a grant of a real property interest. It is important to note that a timber deed conveys more than a mere contractual right to cut and remove timber. It includes the right to possess the land upon which the timber is located, to cross the remainder of the fee owners land necessary for ingress and egress and to build necessary logging roads for the same. Unless specifically restricted in the deed, it is assignable, inheritable and alienable. As such, it can be encumbered by voluntary and involuntary liens. We would not take odds on the outcome of a dispute over the right of the IRS to enforce a tax lien against a taxpayer holding a timber interest under a valid timber deed.
If the agreement is not a conveyance then at the very least, it would constitute a contract for deed (of the timber rights). As such, the Court is in a position to make a policy decision to interpret the agreement in the alternative as a contract to sell timber subject to Chapter 25. This the Court chose to do. Relying on NCGS Sec. 25-2-107(2) the Supreme Court concludes "that timber is classified as goods under North Carolina law when it is the subject of a contract for sale. A dispute over a trespass to timber where the claim of a possessory interest arises under a contract for the sale of timber should be settled using a trespass to chattel analysis."
The Supreme Court summarizes the historical treatment of timber interests "as an interest in land. See Drake v. Howell, 133 N.C. 162, 165, 45 S.E. 539, 540 (1903); Mizell v. Burnett, 49 N.C. 249, 252 (1857). Traditional case law classified timber as realty. See Williams v. Parsons, 167 N.C. 529, 531, 83 S.E. 914, 915 (1914); Hawkins v. Goldsboro Lumber Co., 139 N.C. 160, 162, 51 S.E. 852, 853 (1905). As realty, timber transactions had to comply with the formalities required by a transfer of an interest in land. See Dulin v. Williams, 239 N.C. 33, 38, 79 S.E.2d 213, 217 (1953); Winston v. Williams & McKeithan Lumber Co., 227 N.C. 339, 341, 42 S.E.2d 218, 220 (1947); Morton v. Pine Lumber Co., 178 N.C. 163, 167, 100 S.E. 322, 323 (1919). Several cases also distinguished the classification and treatment of standing timber from severed timber. Those decisions held that while standing timber was realty, severed timber was personal property. See Austin v. Brown, 191 N.C. 624, 627, 132 S.E. 661, 662 (1926); Frank Hitch Lumber Co. v. Brown, 160 N.C. 281, 283, 75 S.E. 714, 714-15 (1912)."
The Court goes on to conclude that when "North Carolina adopted the Uniform Commercial Code in 1965, it changed the classification of timber when timber is the subject of a contract for sale (emphasis added). N.C.G.S. §§ 25-2-101, 25-2-107 (1995). The Uniform Commercial Code defines timber as follows: A contract for the sale ... of timber to be cut is a contract for the sale of goods within this article whether the subject matter is to be severed by the buyer or by the seller even though it forms part of the realty at the time of contracting, and the parties by identification effect a present sale before severance." The Court notes the limited body of law discussing timber rights under N.C.G.S. § 25-2-107. In Mills v. New River Wood Corp., 77 N.C.App. 576, 335 S.E.2d 759 (1985), the Court of Appeals held that contracts for the sale of "timber to be cut" had a four-year statute of limitations because they were governed by N.C.G.S. § 25-2-107(2). The curious aspect of this case was that the court referred to a timber deed which if it was a deed in proper form would have been an instrument under seal and subject to a ten-year limitation period.
The Supreme Court opinion goes through a tortuous analysis of the doctrine of trespass to chattel in order to find for AWI. Much of this analysis could have simplified by utilizing NCGS Sec. 25-2-722 which provides that where "a third party so deals with goods which have been identified to a contract for sale as to cause actionable injury to a party to that contract a right of action against the third party is in either party to the contract for sale who has title to the goods; and if the goods have been destroyed or converted a right of action is also in the party who bore the risk of loss under the contract for sale".
The Court clouds the distinction between contract and conveyance by refusing to discuss the issue. The Court chooses to discuss possessory rights under general contract law without respect to the recording acts. "Only one party in this case, AWI, had any possessory rights in the Easons' timber. Thus, it is unnecessary to discuss the filing procedures and requirements necessary to establish superior title and to protect a contract holder's rights against subsequent purchasers and lien creditors." This is of importance because NCGS Sec. 25-2-107(3) states; "The provisions of this section are subject to any third-party rights provided by the law relating to realty records, and the contract for sale may be executed and recorded as a document transferring an interest in land and shall then constitute notice to third parties of the buyer's rights under the contract for sale." The effect of this provision should be to preserve the common law and statutory protections of real property conveyances. The provision also clearly seems to acknowledge that timber rights can still be conveyed as real property interests notwithstanding that timber contracts are governed by the Code.
In summary, the Supreme Court should have determined if the instrument was a conveyance and if so, the court should have construed AWIs rights under traditional real property doctrines. If the agreement was not a conveyance but was, as the Court found, a valid contract under 25-2-107(2) then AWI was a proper plaintiff under NCGS Sec. 25-2-722. As such AWIs rights were superior to Fordhams by virtue of NCGS Sec. 25-2-107(3) and NCGS Sec. 47-18 which provides that "(a) No (i) conveyance of land, or (ii) contract to convey, or (iii) option to convey, or (iv) lease of land for more than three years shall be valid to pass any property interest as against lien creditors or purchasers for a valuable consideration from the donor, bargainor or lessor but from the time of registration thereof in the county where the land lies". Since Fordham admitted cutting the timber, was not a purchaser for value or lien creditor having a prior registered interest, the only issue was the amount of damages. The issue of whether Eason and Fordham had a contract is really only pertinent to the issues of contribution and damages between them.
It may seem that we are making a mountain out of a mole-hill, but counsel for the North Carolina Association of Registers of Deeds has advised its members that " timber deeds, although they are in the form of a deed to real property and are recorded in the deed books, are for the sale of personal property rather than real property. They therefore do not convey an interest in real property, and no excise stamps should be charged for recording them." We strongly disagree with this opinion. It should be noted that Fordham, Chapter 25 and Mills do not go so far as to expressly repudiate the real property interest conveyed by a timber deed. The statute and cases only go so far as to state that severed or unsevered timber is considered goods under the UCC when subject to a contact to sell.
An interesting footnote to this discussion may be observed in how the State of North Carolina defines land titled in the State. NCGS Sec. 46-64 provides that "As used in this Chapter (3) "Land" means real property, buildings, space in buildings, timber rights, mineral rights, rights-of-way, easements, options, and all other rights, estates, and interests in real property."