Vernon & Averill v. Morton & Smith

38 Ky. 247, 8 Dana 247, 1839 Ky. LEXIS 51

• Court: Court of Appeals of Kentucky
• Decided: May 7, 1839
• Status: Published

Opinions

Judge Ewing

delivered the Opinion of the Court.

The complainants, respectively, in these three cases, upon the return of nulla bona upon executions sued out on judgments obtained by each, against Willcox and Lynde, filed their bill to set aside a deed of conveyance, an fraudulent, by which they had assigned all their effects to Vernon and Averill, as trustees, for the use and benefit of their creditors.

_ , , . . , . , __ The deed ol assignment bears date the 8th of November, 1834, and is signed and sealed by Wilcox and Lynde and Vernon and Averill; and these bills were filed in May following.

The deed commences by reciting the sums due by Wilcox and Lynde, and Dickerman (formerly of the firm, and whom the two former had purchased out,') to each of twenty two creditors, amounting in the aggregate to eighteen thousand one hundred and one dollars, fourteen cents, for books, stationary &c. sold and delivered to them; and being desirous to secure them, they in substance, “transfer and assign over to Vernon and notes, book accounts, as per schedule annexed, together with all the goods now in the possession of the sherAverill, for the payment of said debts, all their effects, consisting of books, stationary, fixtures, binders’ tools, iff under restraining orders, which goods they intend to get out of the sheriff’s hands, by giving bond as authorjze¿ by the restraining orders; to be disposed of by the said Vernon and Averill, as followeth:—

First — “ to be taken possession of by Vernon and Averill, and sold out, at fair and reasonable prices, and to the best advantage; and the proceeds equitably distributed among the said creditors, in ratable proportions to the amount of their debts respectively; for which service, the said Vernon and Averill to receive a salary of three hundred dollars each, annually, to be paid out of the effects, and to do the business and carry out the objects of the trust, the trustees are empowered to appoint an agent and other competent clerks, and to allow them reasonable salaries, to be paid out of the effects.” “And the trustees are constituted attorneys in fact, to settle and collect, sue for and recover all demands, and to give acquittances &c. and to enter as the sureties of Wilcox and Lynde, in bonds, to obtain the possession of the goods, that have been taken under six restraining orders, as well as any other restraining orders that may be issued, and to defend said suits, and to retain so much out of the proceeds of the effects, as will indemnify them.”

On the same day, a counterpart to the aforesaid deed was executed by the same parties, stipulating and providing, “ that if the specified creditors do not consent, within three months, and execute a deed accordingly, permitting all the other creditors not named, to come in and share pro rata with them, in the proceeds of the effects, provided the creditors not named shall come in within four months, and assent to the provisions of the trust, and agree to share in the proceeds pro rata, then, such named creditors are not to be entitled to the benefit of the trust, but the proceeds are to be divided among those who shall assent within three months, and to those not named who shall assent within four months.” “And if a proportion of the creditors, holding two thirds of the amount of claims named in said deed, shall prefer a deed made immediately to themselves, transferring the trust effects, such deed is to be made, the trustees retaining a sufficient portion of the effects, to indemnify themselves for all securityships and responsibilities incurred.”

The answers of the trustees and of Wilcox and Lynde flatly deny the allegations of fraud, and say that the assignment was made at the instance of many of the creditors, and the agent and attorney of others, as the best thing that could be done, to do equal and impartial justice to all.

The trustees say that, they took possession of the effects, employed competent clerks, and went on to make sales of the goods and collections, until April following, when the stock being broken, and the rents and expenses very great, under the advice of many of the creditors represented by their agents, they sold out the residue of the stock to Kellog and Parker, for six thousand nine hundred and eighty two dollars — one third in cash, and one third in nine months, and one third in eighteen months; and report, at the time of filing their answer, in September, 1835, as the sum received by retail, after the assignment, $2,890 12 cents. The amount sold at retail, not then received — $3,210 87 cents; and the amount received upon the books and notes transferred — $1,637 92 cents, and expenses, rents &c. $3,665 03, and a considerable balance purporting to be owing on the books and notes, but whether collectable or not, uncertain.

They also charge that $2,350 worth of the amount of goods retailed were under attachments when assigned to them, and they obtained the possession of them by becoming bound to have them forthcoming, or to pay the amount of the decrees. And if the complainants in those suits shall succeed, the amount of effects in their hands will be reduced at least $2,400.

The Chancellor, upon the hearing decreed, that the deed of assignment and counterpart was fraudulent and void; and that the trustees pay to each of the complainants the amount of their judgments and costs, respectively, out of the proceeds of the assigned effects. And the defendants have appealed to this Court.

The exhibits and proof in the cause show that, the deed of trust and counterpart were duly recorded, and in proper time, and the twenty two named creditors, within the time limited, some by themselves and others ^eir agents or those representing themselves as such, accepted the terms, contained in the second deed, or counterpart to the deed, and executed the required instrument for a pro rata distribution among all the creditors. And six of the creditors not named, also executed a writing assenting to the terms proposed.

And there is evidence tending to show that, all the creditors had timely notice, and that the complainants Morton and Smith were advised of the execution of the deeds, for themselves, and as agents -for the two other sets of complainants, and urged to come in, but declined under the pretext of having placed their claims in the hands of a lawyer for collection.

And it is proved that the deeds were executed openly -and publicly, under the advice and at the request of. the agents of many of the creditors, and especially of Hamilton Smith — who was the agent and attorney of a number of the creditors in the east, holding claims to the amount of upwards of eleven thousand dollars, as proven by himself — as the most proper and equitable arrangement that could be adopted to do exact and equal justice to all, when it was ascertained that the means of the debtors were insufficient to meet all their liabilities.

From this exhibition of the facts of this record, there seems to be nothing which does not square with the strictest integrity and good faith; nothing which bears upon its face the slightest impress of fraud or unfairness. The debtors surrender all, openly, and at the instance, and upon the motion, of as many of their creditors, as could be consulted, so arranging the matter as to afford time and opportunity for all to come in, and share equally, without exacting any release as to the balance of their debts that should remain unsatisfied, or reserving any portion of the effects to themselves or families. A perfect equality is secured to all, if they choose to accept the terms proposed; and in case they refuse to do so, and any thing should be left after satisfying the claims of those who may accept, those who do not accept may no doubt subject that balance to the payment of their debts.

Assignments by debtors for the benefit of preferred creditors hav been held good; & an assignment by a debtor of all his effects for the benefit of all his creditors, or those of them who shall agree to a pro rata distribution, is unquestionably valid. A stipulation in the deed of trust, made by insolvent debtor, for the benefit of their creditors, that salaries shall be paid to the trustees out of the trust property, and that they may employ agents, and pay them out of the proceeds, is neither indicative of fraud, nor improper. Nor is the employment of one of the grantors as an agent in managing the business-the trustees being responsible for his acts.

Equality is equity; and that has been done precisely which a Court of equity would do, if the whole fund was under its control, and all the creditors were parties, seeking a satisfaction of their debts.

It has been frequently settled, that a debtor may prefer and assign over his effects to a favorite class of creditors — provided he do it in good faith. Brooks vs. Marbury, 6 Cond. R. 234, and note; Kent's Com. 5 33-4-5-6. If so, much more may he assign over his effects to trustees for the use of all, providing such terms as will secure to each and all of them, an equal pro rata participation in th e avails.

In the first case, there is inequality and apparent injustice ; but the right has been sanctioned on the principle of the owner’s perfect dominion over his own property, if there be no lien or other legal impediment in the way. In the other case, there is perfect equality, impartiality and justice; and it would require a strong case, to induce this Court, sitting as chancellors, to disturb an arrangement, so equal and just, especially, at the instance of creditors, who are seeking to appropriate all to their own use, at the expense and total exclusion of all others, 'equally meritorious with themselves, and, after, as in this case, they.had the opportunity afforded them, and were urged to come in to the equitable terms proposed.

Nor can we perceive any thing wrong in the allowance of a reasonable compensation to the trustees, for their trouble and responsibility; or in allowing them to employ agents and clerks to attend to the sales and collections, and to carry out the objects of the trust. The mode was suggested and assented to by many of the creditors, by their agents, as the best that could be adopted, to prevent a sacrifice, by a speedy sale at auction. And it is clearly shown that, if such a sale had been made, that it must have resulted in an enormous sacrifice, to the manifest injury of debtors and creditors.

Goods were attached by a eh. order — to be restored to the debts. bond with Seouforthcoming 16 pay the decree, wards, assigned finding hole of the who stipulated to give the required bond, & pay the decree (if proceeds of the goods: there was no impropriety, or evidence of veyance, in Norirf Kirizing the trustees to defend the attachment suits, and pay the expenses out of the assigned effects. And, tho’ the debts for which the goods were attached, were admitted to he just, the trustees might well question the jurisdiction of the Chancellor, or the validity of the proceeding, without subjecting themselves to a charge of bad faith, or their deed to the imputation of fraud. See the Petition and Response, post.

Nor can we perceive any thing improper in the employment of one of the debtors to assist in the sales as agent and clerk, under the superintendance of the trustees, they being held responsible, as they would unquestionably be, for a faithful disposition of the trust effects.

The debtor so employed, it must be presumed, would be better acquainted with the books and state of the business; and therefore capable of affording assistance and advice, which might be essential, and not attainable from any other source. It does not appear that an unusual or unfair allowance was made him; or that he was permitted, or did appropriate any of the effects to his own use; and if such were the case, with the knowledge of the trustees, or if they, in the discharge of the fiducial duties confided to them, in any other respect, misapplied the trust effects, or permitted others to do so, they might be made personally responsible to creditors, and, perhaps, as well to those who did not come in, as to those who did, if by a faithful disposition of the effects, a balance would have been left, after satisfying the claims of the assenting creditors.

Nor can we perceive any thing improper in embracing ¡n ^he assignment, the goods attached under restraining orders out of chancery: nor in making provision to procure security, to obtain the release of those goods; nor in providing for the defence of those suits. The orders authorized their restoration to the debtors, upon their giving the necessary security tor their return, or the payment of the decrees that might be rendered; and the debtors in their failing condition could not be expected to obtain a friend to become bound for them, without providing for his indemnity. It would seem perfectly allowable for them to make provision out of their effects for his indemnity.

And though the debts set up in those suits, were acknowledged to be just, it was surely competent for question the jurisdiction of the Chancellor, in the state of case exhibited, and to provide the means to defend the suits, without subjecting themselves to the imputation of bad faith, or their assignment to the charge of fraud.

Facts held to be sufficient evidence, prima facie, of a good consideration for a deed of trust, made for the benefit of the grantors’ creditors.— Securityship undertaken by the trustees, to obtain part of Ore goods that were attached, would alone constitute a valuable consideration. The possession of chattels retain ed by the vendor after an absolute sale, is per se, evidence of fraud. But this principle does not apply to mortgages, or deeds of trust.— And where one of a firm who had assigned their ef fects to trustees for the benefit of their creditors, was retained by the trustees to aid them in executing the trust, and so remained in possession of the goods convey ed — such continued possession is held to be no evidence of fraud.

Nor can we concur with the Chancellor in the opinion, that the proof is not sufficient to sustain the consideration of the assignment. The debtors long before any equity attached in favor of the complainants, not only acknowledged, on the face of the deed, the amount of their indebtedness and to whom, but it is proven that some short time before the assignment, they had made large purchases in the east on credit; and is also proven by Smith, that he had obtained from that quarter, and had under his management and control, for collection, an amount of claims exceeding eleven thousand dollars, in behalf of creditors whose names he had signed to the instrument, assenting to the terms of the assignment. These facts should surely amount to prima facie evidence of the subsistence and justice of their claims, which should be permitted to stand until counteracted by other-proof, and especially as to the amount proven by Smith. Besides the covenant in the deed, on the part of the trustees, to become bound as the sureties of the debtors, (which they performed by entering into the bonds accordingly) is of itself a valuable consideration, independent of the debts due to the trustees themselves.

Nor do we concur with the Chancellor, in the conclusion to which he has arrived, as to the existence of fraud, from the fact of one of the assignors having been continued in the store as agent or clerk.

Though this Court has yielded to the ancient doctrine founded on Twine’s case, that, in absolute sales of chattels, a continuance of possession by the vendor, is per se fraudulent, they have never applied that doctrine to mortgages or deeds of trust. But, on the contrary, have, in many cases, excepted from the operation of that rule, such transfers or conveyances. McGowan vs. Hoy, 5 Lit. R. 243; Bucklin vs. Thompson, 1 J. J. Marshall, 226; same, 282; 3 J. J. Marsh. 653. And in the case of the U. S. vs. Hooe, 1 Con. R. U. S. a similar distinction was taken between a mortgage and absolute sale. And the same distinction is admitted in many of the later decisions of the English Courts.

Where it is consistent with the terms and object of a sale of goods, that the vendor shall remain in possession — his possession is not conclusive evidence of fraud; tho’ it is a fact from which fraud may be inferred; or, which may,on the other hand, be shown to be consistent with good faith. Creditors who have filed bills to set aside a deed of trust, and sub ject the effects conveyed,to their debts, and have failed in that object — the deedbe ing valid, may have the benefit of the surplus after the claims provided for in the deed,are satisfied. But where it is obvious that there is no surplus, their bills maybe dismissed at once.

If the possession is consistent with the terms and object of the deed, it is not deemed intraversable, legal fraud; but it is admitted to be a circumstance from which fraud may be inferred, susceptible of being counteracted by proof, and explained or reconciled with honesty and fair dealing.

The nature, object and character of the possession, is fully explained in this case, and may stand consistent with perfect fairness.

The deed authorized and required the appointment of an agent and clerks by the trustees, to carry out the objects of the trust. The deed was made publicly, under the advice of the creditors, and placed upon the records of the County Court, for the inspection of all; the superintendence of the assigned effects taken by the trustees, and one of the debtors selected, under the powers conferred by the deed, as agent or clerk, to assist in making sales of the goods; and the character in which he acted, well known to all who felt any interest in knowing, and no attempt is made to prove the slightest departure, in the disposition of the effects, from the strictest integrity. We can perceive nothing in these circumstances to brand the transaction with the condemnation of fraud.

Upon the whole, we are perfectly satisfied, that the deed of assignment should be sustained.

But, though the complainants refused to assent to the terms of the assignment, and to come into a ratable division, yet if there should be any surplus after the payment of the claims of those who did assen't, and all other liens upon the trust effects, they, as general creditors, would have a right to subject the surplus to the payment of their demands. Brashears vs. West, 7 Peters, 608; 6 Cond. R. note, 235. And if there were any probability that the proceeds of the effects would more than pay the claims of the assenting creditors, and other liens upon them, we should direct the cause to be retained to ascertain the result, and grant relief to that extent, under the general prayer. But as it is evident that there will be no surplus, but the proceeds must fall far short of discharging the other claims upon them, it will avail nothing to tie up the effects longer.

[By Mr. Pirtle.]

It is therefore, the opinion of the Court, that the decree of the Chancellor be reversed, and cause remanded, that the complainants’ bills in the three cases, respectively, be dismissed with costs, and the appellants are entitled to their costs in this Court.