Lowry v. Gills

129 S.E. 269, 143 Va. 79, 1925 Va. LEXIS 248

• Court: Supreme Court of Virginia
• Decided: September 17, 1925
• Status: Published

Opinion

Chichester, J.,

delivered the opinion of the court.

On June 5, 1920, J. H. Arrington conveyed to Hunter Miller and S. S. Lambeth, .Jr., trustees, a tract of land in. Bedford county, Va., containing 120.84 acres, to secure the payment of three negotiable notes for $2,-'968.00 each.

On November 9, 1920, he and his wife, Mollie A. Arrington conveyed to S. S. Lambeth, Jr., trustee, the lands conveyed by the above mentioned deed, .and all other real and personal estate of which he was •seized and possessed (with certain reservations, not material here), including a large quantity of canned tomatoes, 7,500 eases, in Arrington’s cannery.

The deed provided that the trustee should take ■charge and possession of all property conveyed, in person, or by his agent or agents, and dispose of same at public or private sale for the benefit of and payment of Arrington’s creditors.

The trustee was given authority to hold the property if in his discretion a better price could be obtained by holding it, but in no event for a period longer than twelve months from the date of the deed of assignment. It is then provided: “This deed is upon the further trust that after the payment of all the debts properly chargeable against the said J. Howard Arrington, all of the surplus remaining in the hands of said trustee shall be by him turned over to the said J. Howard Arrington, his administrators or assigns.”

Shortly. after the execution of the last mentioned deed of trust S. S. Lambeth, Jr., the trustee, and an attorney practicing in Bedford, became ill, and left the State for the purpose of rest and of regaining his health, leaving his business affairs in the hands of John L. Abbot, another attorney, also practicing in Bedford, who undertook to administer the Arrington trust.

The total indebtedness of Arrington was between $20,000 and $30,000. The 120.84 acre farm was sold for $10,000, and on July 17, 1921, Arrington, acting for himself, and John L. Abbot, assuming to act as agent for S. S. Lambeth, Jr., trustee, sold the 7,500 cases of tomatoes to C. W. Gills, and others. The contract of sale was in writing and was as follows:

Bedford 7-17-21.

J. Howard Arrington’s tomatoes . to C. W. Gills—

Goods sold — all merchantable goods in Arrington’s cannery.

Price on No. 2’s 69 cents net.

Price on No. 3’s 105 cents net.

Goods to be labeled and delivered to Bedford Can Company Factory in Bedford in good merchantable condition.

J. H. Arrington.

To be inspected on delivery and accepted aecqrding to condition — unmerchantable goods to be refused.

Payment on delivery of each thousand cases.

Rejected goods to be stored in factory of C. W. Gills for a period of six months.

Title to pass on delivery and acceptance.

Full delivery in sixty days.

C. W. Gills,

John L. Abbot, agent for

S. S. Lambeth, Jr., trustee,

J. H. Arrington.

Under this contract the purchase price of the tomatoes amounted to $9,970.02. Arrington refused to deliver the tomatoes, and Gills and those associated with him, after Landon Lowry had been substituted trustee in place of S. S. Lambeth, Jr., instituted an action in detinue against the substituted trustee to .recover the tomatoes.

Upon the trial of this action the court held that there ■could be no recovery by the plaintiffs until it was ascertained whether the creditors could be paid in full out of proceeds arising from the sale of property assigned to the trustee for their benefit, without selling the tomatoes, and that proceedings should be instituted on the chancery side of the court, in which execution of the trust could be enforced, the trustee’s account settled, and it could be ascertained whether, Arrington, had any interest in the trust subject which he had a right to dispose of.

Thereupon Gills and those associated with him filed their bill setting out the facts substantially as narrated above, alleging that the grantor, Arrington, was solvent and that there was more than enough of trust assets to satisfy his debts and leave untouched the tomatoes; filing the deed of trust, the deed of assignment and the contract, as exhibits, and praying that the trust be executed and an accounting had, the creditors paid, and that the contract for the sale of the tomatoes be enforced.

Considerably more than a year had elapsed between the execution of the deed of assignment and the filing of the bill, and the trust had not been fully executed.

Pending the final decision by the circuit court the tomatoes were sold and the difference between the sale price to Gills and the actual sale price ($4,363.10) was deposited in the bank, subject to the adjudication of the questions involved in the suit.

The substituted trustee, Lowry, and Arrington, the grantor, filed demurrers and answers. It was conceded that Arrington, after the payment of all of his debts, would have a considerable estate left.

There were a number of grounds of demurrer, all of which the learned chancellor overruled, and held that under the circumstances the contract was binding-upon Arrington; that the plaintiffs in the bill were entitled to the difference between the contract price-of the tomatoes and the price at which they were sold by the substituted trustee, and so decreed. After the entry of this decree S. S. Lambeth, Jr., returned home and filed a petition to rehear it, which, after consideration, the court denied.

From the final decree an appeal and supersedeas were allowed to this court.

There were a great number of legal questions discussed in the petition for an appeal and in the briefs, but the material questions involved in the demurrer may be disposed of under two heads.

(1) . As to whether the contract for the sale of the tomatoes was valid and binding; and,

(2) . Whether a court of equity had jurisdiction of the controversy.

(1). As to the first proposition let it be conceded for the purpose of the consideration of this question that John L. Abbot, who signed the contract as agent for S.'S. Lambeth, Jr., trustee, had no authority to act for the trustee in the execution of such a contract. The question then involved is, did Arrington, the-grantor in the deed of assignment, make a contract-binding upon him with reference to any of the property assigned, whereby he undertook to sell a portion thereof, which was not necessary for the payment of his debts?

It is not contended that Arrington had any right to make any contract with reference to any of the assigned property which would jeopardize in the-slightest degree the interest of his creditors. But. Arrington had a beneficial interest in the property he-assigned, not only because, as a matter of law, after the payments of his creditors in full, and the costs of executing the trust, he was entitled to the entire balance, but under the express provision of the deed of assignment quoted above, he is entitled to have all of the surplus in the hands of the said trustee turned over to him, or his assigns.

So that the situation here is, as disclosed by thereeord, that there is a surplus, after the payment of all debts and the cost of executing the trust, to which Arrington is entitled. Arrington entered into the contract in good faith, no taint of fraud or undue advantage is even attempted to be shown. Under these circumstances did not Gills and his associates, in good conscience and equity, take the place of Arrington as to the ownership of the tomatoes? We think they did.

We are not unmindful that there is a distinction as to the right of a grantor with reference to the subject matter of the trust in the ordinary deed of trust-to secure a debt, and the trust subject in a general deed of assignment to pay creditors.

Thus in Hale v. Horne, 21 Gratt. (62 Va.) 121, it was held that a mortgage is regarded as security for debt, and until a decree for foreclosure, the mortgagor continues the real owner and may sell and deal with the mortgaged premises as owner. The equity of redemption is descendible by inheritance, devisable by will, and alienable by deed.

While in Sandusky v. Faris, 49 W. Va. 151, 38 S. E. at page 363, the court held (quoting from the syllabus) : “When the grantor in a deed of trust eonveys all his property to a trustee for the benefit of his creditors, with power to sell the same immediately, and authorizes-the trustee, after paying the expenses of the trust and ■discharging the liens on the property, to make a pro rata distribution of the proceeds of the trust property among the grantor’s creditors, and reconvey to him whatever may remain unsold in ease the property shall be more than sufficient to pay all the debts, such deed is absolute, and the conveyance is to a trustee for the purpose of raising a fund with which to pay debts, as distinguished from a deed of trust in the nature of a mortgage to secure the payment of debts, and amounts to an appropriation of the property, as far as may be necessary to the accomplishment of that purpose.

“The grantor in such deed thereby consents to an immediate sale of such property, and, such consent being analogous to that given by a debtor in a decree 'directing a sale of his property made and entered with his consent, he will not be permitted to enjoin such sale merely because the amount of his debts, their priorities, and the persons to whom they are due and owing having not been ascertained, the amount to be raised by such sale is uncertain, and the legal title is outstanding in trustees in prior deeds of trust.”

It is upon this distinction that plaintiffs in error here rest their contention that Arrington was without power to make any contract as to the property conveyed at all.

We .are in full accord with the views expressed in both cases, but as we view it, there is no distinction which is applicable to the facts of the case under review, where the creditors are paid or can be paid, in full, out of the proceeds of the property conveyed, without the necessity of resorting to the sale of the property which the grantor contracted to sell a third .party. The inhibitions imposed upon the grantor in ■such a deed of trust are for the protection of his creditors, and not for his protection. After his creditors are paid in full he is estopped, in equity and good conscience, in the face of his contract to sell part of such property, to claim he had no authority to sell, to the injury of a third party who contracted with him in good faith. If such a purchaser’s rights conflict with the rights of the grantor’s creditors, they fall, but after the payments of the debts, the trustee holds for the benefit of the grantor and those holding under him. The gist of the holding in Sandusky v. Faris, supra, is that the appropriation of the property by the deed of assignment is only as far as is necessary to pay the grantor’s creditors. The contract, therefore, in the instant case, was binding upon Arrington.

(2). The whole superstructure of the plaintiff in error’s ease rests upon the foundation of some supposed distinction in the two kinds of trust deeds, above mentioned. If we are warranted in holding that there is no distinction applicable to the facts here which would render the contract invalid, and so far as Arrington is concerned, and we cannot doubt that we are, then it would seem that there can be no question as to the jurisdiction in equity to afford relief.

It is contended that Gills’ remedy was by action for damages for a breach of contract. The obvious answer to this contention is that Arrington had no legal title to dispose of, and the presumption would be that he had no beneficial interest to dispose of. Everything he possessed had been assigned to a trustee for the satisfaction of his debts.

His rights were equitable, and having knowledge and notice of the deed of assignment, Gills and his associates knew, as a matter of law, that the sale to them was not made by the trustee, and hence, that unless the creditors could be fully satisfied out of the proceeds of sale of other property, Arrington could make no binding contract as to the tomatoes. They would not therefore have been entitled to damages for a failure on the part of Arrington to deliver the tomatoes unless there were sufficient assets to settle with the creditors without selling the tomatoes.

In order to ascertain this, it was necessary to have the trustee execute the trust and have a settlement of his accounts. After the contract was entered into between Arrington and Gills, Gills stood in Arrington’s shoes as to the tomatoes. He was entitled to them if they were not needed to. pay Arrington’s debts.

Arrington would certainly have had the right to come into a court of equity and have his trust executed and his equity of redemption protected. 1 Pomeroy Equity Jurisp. section 164. And if he had this right his assignee Gills had the right also. The tomatoes were covered by a deed of trust and Gills had the right to implead the trustee and the creditors as well as the grantor in the deed of trust, for the administration of the trust; he had a right to have an accounting of the assets and the liens, in order to ascertain whether he had any rights under his contract.

As pointed out, until this was done, the defendants in error could not know whether they had made a valid contract for the purchase of the tomatoes, and an action at law for damages for the breach of it would have been premature. Having properly invoked the aid of a court of equity, therefore, and the chancery court having once properly acquired jurisdiction of all the parties and control of the assets, under well established principles, it had jurisdiction to settle all questions in controversy among them.

The trial court found that, under the peculiar facts of this case, Arrington had made a contract for the sale of the tomatoes to Gills and his associates binding upon both parties, and that Arrington had breached it, and that Gills had been damaged to the extent of the difference between the contract price and the sale-price, and as the tomatoes had been sold under order of the court pending the final disposition of this suit, that Gills was entitled to the difference between the purchase price and the sale price. We see no error in this conclusion, and the decree will be affirmed.

Affirmed.