## Facts

- Gay Lumber Company (Gay) executed and recorded a mortgage in favor of James H. Pou (Pou) to secure an existing debt.
- Pou’s mortgage included a clause stating it would cover not only Gay’s then-owned property, but also property Gay might later acquire while the debt remained unpaid (an after-acquired property clause).
- After Pou’s mortgage was recorded, Gay acquired five additional tracts of land.
- Hickson Lumber Company (Hickson) advanced the funds used to buy those five tracts.
- In connection with that financing, Gay gave Hickson a mortgage on the five newly acquired tracts.
- A dispute arose in proceedings involving Gay’s property and creditors over whether Pou’s earlier recorded mortgage attached to, and had priority in, the five tracts by virtue of the after-acquired property clause.
- The trial court treated Pou’s after-acquired property clause as effective against Hickson’s mortgage, and Hickson appealed.

## Issues

1. Whether an earlier recorded mortgage containing an after-acquired property clause has priority in later-acquired land over a subsequent mortgage given to the lender who furnished the purchase money for that land.

## Decision

- The North Carolina Supreme Court reversed the trial court.
- The court recognized that an after-acquired property clause in a mortgage may be effective to reach property acquired after execution of the mortgage.
- The court held, however, that the lien created by the after-acquired property clause attaches only when the mortgagor acquires title, and it takes subject to a purchase-money mortgage given as part of the same acquisition.
- Accordingly, Hickson’s purchase-money mortgage on the five tracts had priority over Pou’s earlier mortgage claim to those tracts based on the after-acquired property clause.

## Legal Principles

- A mortgage may include an after-acquired property clause, and equity will give effect to the parties’ agreement when the mortgagor later acquires the described property.
- An after-acquired property lien does not attach until the mortgagor obtains an interest in the property; it cannot bind the property sooner because the mortgagor has no title to convey or charge.
- A purchase-money mortgage (or equivalent purchase-money security), given to secure funds used to acquire the property and made as part of the same transaction by which title is obtained, is superior to prior liens that could not attach until after acquisition, including liens asserted under after-acquired property clauses.
- Recording of the earlier mortgage provides notice of its terms, but record notice does not defeat the priority traditionally given to purchase-money security arising contemporaneously with the acquisition of title.

## Conclusion

Hickson Lumber Co. v. Gay Lumber Co. holds that while an after-acquired property clause in a recorded mortgage can reach land the mortgagor later acquires, the earlier mortgagee’s claim to that land is junior to a mortgage given to the lender who supplied the purchase money as part of the same acquisition transaction, so Hickson’s mortgage had priority over Pou’s after-acquired property claim to the five tracts.


Hickson Lumber Co. v. Gay Lumber Co., 63 S.E. 1045 (1909)