Greenleaf v. Edes

2 Minn. 264

Opinion

By the Oourt.

I. Atwater, J.

It appears from the complaint in this case, that Charles W. Pairo and wife conveyed to the De fendant in Erroi’, in trust for the benefit of creditors, certain real estate in the City of Saint Paul. The deed was executed and delivered in the City of Washington (of which place Pairo was a resident) on the 14th day of September, 1857. The deed was forwarded for record in Ramsey County and was recorded in said county on the 21st of September, 1857. On the 19th of September of the same year, a writ of attachment was issued at the instance of the Plaintiff in Error against the property of the said Pairo, and was levied on that day on the property conveyed by Pairo to Edes. The first question to be determined is, whether the attachment, duly served on the property before the record of the deed to the Defendant in error, shall give the Plaintiff a prior lien on the premises.

Section one, of Chapter forty-six Revised Statutes provides that conveyances of lands, or of any estate or interest therein may be made by deed, signed and sealed by the person from whom the estate or interest is intended to pass, being of lawful age; or by his lawful agent or attorney, and acknowledged or proved, and recorded as directed in this Chapter, without any other act or ceremony whatever.” By the common law, conveyances of real estate are not required to be recorded, in order to render them valid even as to other than parties and privies. To what extent has the Statute changed this rule? By reading the first section above cited alone, without reference to other provisions, it would seem that a conveyance of real estate could not be valid even as between parties and privies without record. But from a comparison of this section with other Statutes upon the same subject, we are satisfied, that it was not the intention of the legislature to go to this extent, but that conveyances of real estate duly executed and delivered, pass the title without record, as against all except bona fide purchasers for a valuable consideration. Sec. 24 of Chapter 46, Revised Statutes, provides that “ every conveyance of real estate within this Territory hereafter made which shall not be recorded as provided by law, shall be void as against any subsequent purchasers in good faith, and for a valuable consideration of the same real estate, or any portion thereof, whose conveyance shall be first duly recorded.” This section is wholly meaningless unless the view above taken as to the effect of deeds with out record be correct. The common law rule is in force unless expressly abrogated by Statute, and tbe object of the Statute, seems to be only the protection of purchasers for a valuable consideration.

The authorities as to the effect of deeds without record, are numerous and generally uniform, and those based upon Statutes like our own, establish the validity of such deeds beyond question. (4 Kent. 456, and cases cited—also, 10 Johns, 466; 3 At R. 646; 4 Dana, 258; 10 Pick. 413.)

The grantor Pairo, had parted with all his interest in the real estate upon which the attachment was levied, and there was nothing to support the writ, unless the attaching creditor is helped by the recording act. And he can derive no benefit from that unless he shall come within the protection of the Statute as a bona fide purchaser for a valuable consideration.

That an attaching or judgment creditor is not such purchaser within the meaning of the Statute, we are well satisfied. The weight of authorities on this subject settles the question beyond reasonable doubt. In Story's Eg. Jur. Sec. 410, (note) it is said that “ the rule adopted in Equity in favor of bona fide purchasers without notice, not to grant any relief against them, is founded upon a general principle of public policy. It is not however absolutely universal; for it has been broken in upon in two classes of cases. In the first place it is not allowed in favor of a judgment creditor who has no notice of the Plaintiff ’s equity. This appears to proceed upon the principle, that such judgment creditors shall be deemed entitled merely to the same rights, as the debtor had, as he come in under him, and not through him, and upon no new consideration, like a purchaser.” See also, Seavings vs. Brinkerhoff, 5 John, Ch. 329, Coddington vs. Bay, 20 John, 637; Stuart vs. Kissam, 2 Barb. 493; 4 Paige, Ch. R. 215; Jackson vs. Campbell, 19 John, 281; Jackson vs. Dubois, 4 John, 216; 4 Cow. 599.

That such creditor was not considered a bona fide purchaser for a valuable consideration in the view of the Statute which was in force at the time the attachment of the Plaintiff in error was levied, we think also evident from Ohap. 52, Sec. 1, of General Laws of 1858. That Statute requires all conveyances of real estate within this State to be recorded in the proper county; and provides that every conveyance not recorded as therein provided shall be void as against any subsequent purchaser in good faith and for a valuable consideration or as against am/ attachment levied thereon or any judgmentl&wfuily obtained at the suit of any party against the person in whose name the title to such land appears of record, prior to the recording of said conveyance. The sole effect of this action seems to be to provide for the protection of attaching or judgment creditors, whose liens may accrue while the title to the real estate appears by the record to be in the grantor, although in fact, he may have conveyed the premises. In other words, this Statute places such creditors on an equal footing with bona fide purchasers for a valuable consideration. The Statute is expressly limited to conveyances thereafter made, and consequently cannot have a retroactive effect; and the inference is clear and conclusive, that it was not the intention of the legislature previous to the enactment of this Statute, that creditors should be regarded as bona fide purchasers for a valuable consideration. For the only change in the law as it before existed, which is effected by this Statute, is with reference to attaching and judgment creditors. As between parties and privies to such conveyances the Statute of 1858 makes no change, but leaves them subject to the rights and liabilities that before existed.

This brings us to the second important question which is presented by the demurrer in the Court below. The deed from Pairo to Edes is a trust deed, purporting to be for the benefit of creditors, and contains a clause authorizing the trustee to sell, “ either at public or private sale, forthwithfor cash, or on reasonable credit, as the trustee may think most advisable.” It is claimed that the provision allowing the trustee to sell on credit, renders the deed void as to the creditors of Pairo, under Sec. 1 of Chap. 61 of Revised Statutes, on the ground that such conveyance was made with the intent to hinder, delay or defraud creditors. Such provisions have been the subject of much discussion in the different States, and the authorities as to their effect in a deed of trust are to some extent conflicting. But without going into a particular examination of the reasoning on which these several decisions have been made, it may suffice to say, that in our view, neither upon weight of authority nor upon principle, can such trusts be sustained under Statutes upon this subject like those of this State. It is doubtless true that the granting of power to the trustee to sell upon credit, does not always necessarily operate to hinder, delay or defraud creditors, and might sometimes, if prudently exercised, prove advantageous to them. If the property is large in its amount, and scattered in its locality, its immediate sale for cash might involve a heavy loss, and perhaps,-looking to the interests to be protected, a ruinous sacrifice; while from the same property, if sold upon credit, with the exercise of ordinary judgment, a sum might be realized equal to its value, and perhaps sufficient to meet the demands of the creditors. These and other reasons entitled to weight, are urged in favor of sustaining such provisions in assignments for the benefit of creditors. Still, the fact that such provisions if allowed, may be used, to not only hinder and delay, but even practically to prevent creditors from collecting their debts at all, should be conclusive against them, unless expressly authorized by Statute. For if the debtor has the right to confer upon the trastee the power to give credit upon sales, there is no limit as to the time for which Such credit shall be given. It may be for one, five, or ten years, entirely at the discretion of the trastee.

It may be true that the property would realize a larger sum at the expiration of such time, than for a cash sale, sufficient perchance to pay the debts and leave a surplus for the benefit of the assignor. And it is probably usually with the intent to benefit the assignor that the clause permitting sales on credit, are inserted in conveyances of this kind.

But voluntary assignments by insolvents, at best, are not regarded with favor by the law, especially those giving preferences, and are not sustained for the benefit of the debtor, nor are his interests to be protected at the expense of those ofthe creditor. Nor, where there may be doubts as to the true construction of the Statute relative to such conveyances, will Courts be anxious to give a liberal construction of the law, in order to sustain them where they seem to have been framed with the view of favoring the debtor at the expense of the creditor. Nor can we concede to the debtor the power of fixing such time as he may choose for the final disposition of his property, and thus setting his creditors at defiance until the expiration of such time as he may limit in the exercise of his discretion.

And if it is illegal and inequitable that the debtor should himself have and exercise such power, it is manifestly equally so, that he should be permitted to exercise it through an agent, or trustee of his own appointment. But it is unnecessary to state all the reasons which suggest themselves in support of this view of the case, as the subject has been ably and elaborately discussed in the cases before the Court of Appeals of the State of New York; and aside from the weight of authority which must be conceded to the decisions of that Court, the reasoning on principle is conclusive to our minds, even were the question to be considered an open one. Nicholson vs. Leavitt, 2 Sel. 510; Brigham vs. Tillinghast 3 Kernan, 215; Kellog vs. Slawson, 1 Kernan, 302; Bernard vs. Griffin, 2 Cow. 365.

The provision of statute under which only a trust of this kind — that is, one for the benefit of creditors — can be created, is contained in subdivision 1, Section 11, of Chapter XLIY. page 203 Kevised Statutes, which allows a trust to sell lands for the benefit of creditors. The provision with which this deed, as actually framed, conflicts, is found in Section 1, Chapter LXIY. page 269 Kevised Statutes. By comparing these Statutes with those of New York, under which the decisions above referred to were made, it will be found that they are identically the same; our statutes, undoubtedly, having been copied, as to those sections, from the statutes of New York. Hence, the reasoning of the Court of Appeals of that State upon the point under consideration applies with equal force here as there. And, indeed, in view of the fact that our Code is mostly a transcript from that of New York, and of the advantage to be derived to the profession, as well as to the community at large, from the decisions of the eminent Court of Last Resort of that State, we should long hesitate to differ from a unanimous opinion of that Court given upon a point involving the construction of the same statute as our own. In all such cases, it is believed that far less evil would result, from applying the rule of “Stare decisis,” even in every instance, rather than regard such decisions as open for discussion, and not binding on this Court.

But, it is claimed by the counsel for Defendant in Error that, although the provision or clause in the trust deed permitting the trustee to sell on credit be illegal and void, it does not necessarily vitiate the whole deed, and that the trust as to the other parts should be sustained upon the rule “ Ut res magis vdleat guam ppereat;” but we find no authority which goes to the extent of applying that rule to a case like the one at bar, save that of Darling et al. vs. Rogers, 22 Wendell, 483. But that decision — in effect, at least, if not directly — seems to have been overruled by subsequent decisions of the Courts of that State above referred to. And, indeed, it is difficult to see how that decision can be sustained on reason or principle. If the provision in this trust deed which is objected to be illegal, it is so on the ground that it was inserted with the intent to hinder, delay or defraud creditors.

The statute provides that every corweycvnce made with such intent shall be void, as against the creditor so hindered, delayed or defrauded. The whole conveyance is tainted with the fraud — or, at least, mala fides of the grantor — and not simply the clause conferring or attempting to confer the illegal authority. The deed is the instrument by which the conveyance is made, and the statute, in effect, therefore declares the deed void. It is a familiar principle of law,' that fraud vitiates every contract into which it enters, as to all affected by it save parties and privies to the fraud. The cases to which the maxim above quoted is applicable are those unaffected by any consideration of fraud or bad faith by the parties to the instrument to which it is sought to be applied.

The rule is undoubtedly a sound one in all cases where it can properly apply; but it cannot prevail over an express provision of statute which declares every conveyance of this kind absolutely void. In the cases cited above from the Court of Appeals in New York, the conveyances containing a clause permitting the trustees to sell upon credit were declared void, as against creditors; and, though it does not appear that the point was directly raised as to whether snch clause avoided the whole instrument, yet the inference is strong that such an idea was not entertained either by the counsel or Court: for these cases were ably and elaborately argued, and, evidently, carefully considered by the Court, and it is hardly possible to believe that so important a point for sustaining such conveyances would not have been urged had it been considered well founded, especially with the case of Darling vs. Rogers, before the Court. It was stated by the Court in Nicholson vs. Leavitt, 2 Sand 253, that where an instrument contains a clause or provision in contravention of a statute it renders the whole instrument void. In that case it was argued that the intent to hinder and delay is as much prohibited by the statute as the intent to defraud, and, consequently, when apparent and proved, must have the same effect: that is, must be just as fatal to the validity of the instrument to which it applies.

But the intent of the debtor to hinder or delay his creditors must always be implied, when such is the necessary effect of any provision in the instrument of assignment, or of the exercise of any authority or power which the instrument confers. But the Superior Court in that case held that it was not true that every assignment by an insolvent must be held to be void, if the necessary effect of its provisions, or of any of them, is to hinder and delay the creditors; and the Court say that, if such be the true construction, every assignment for the benefit of creditors must be necessarily void, inasmuch as its necessary effect is more or less to hinder or delay creditors; — and the same reasoning was urged before this Court in the case at bar. The remark is true; and for the reason that such assignments would hinder and delay creditors, they would be void unless expressly authorized by statute: and, for the same reason, they cannot be extended beyond the very letter of the statute, which only authorizes a trust to sell lands for the benefit of creditors — not to mortgage, nor to hold them indefinitely in the hands of the trustee or any other person, nor to disj)Ose of them in any other way than for money. In our view, the provision authorizing the assignee to sell upon credit is in direct contravention of the statute, and must, therefore, render the deed entirely void. It will be observed that the. case in 2d 8md. above referred to, was overruled by the Court of Appeals in M Seldrn, 510, aud consequently is not authority as to the law in New York upon the point in question.

Entertaining this view of the case upon the provision in the assignment authorizing the trustee to sell upon credit, it is un. necessary to consider the other points raised by the Plaintiff in Error on tbe argument.

• The judgment of the District Court must be reversed, and judgment rendered for the Plaintiff in Error on demurrer in the Court below.