18 Gratt. 387 | Va. | 1868
Lead Opinion
Whatever may be the law and course of judicial decision in other States on the subject, there can now be no doubt but that in this State, a debtor in failing circumstances may make a valid assignment of his whole estate (subject, however, to existing liens thereon), for the benefit of his creditors, in such order of priority as he may choose to prescribe in the assignment; and though his estate be insufficient for the payment of all his debts, he may lawfully subject it, in the first place, to the payment in full of such of his debts as he may choose to prefer, and then to the payment pro rata of the claims of such of his other creditors as may, in a limited period, (which should be reasonable,) accept the terms of the assignment, and release him from all further or other liability on account of said claims. And such an assignment may be valid, even though it do not direct any surplus which may remain after satisfying the claims of the accepting and releasing creditors to be applied to the payment of his other debts, or ' any of them; or even though *it direct any such surplus to be paid to the debtor himself.
That such is the settled doctrine in this State, is abundantly shown by the cases of Skipwith’s ex’or v. Cunningham, &c., 8 Leigh 271; Kevan & als. v. Branch, 1 Gratt. 274; and Phippen v. Durham & als., 8 Id. 457. Whether the doctrine be sound in its origin or not, it ought to govern our courts until otherwise provided by the legislature. As was said by Allen, P., in an opinion concurred in by all the other judges, in Dance & als. v. Seaman & als., 11 Gratt. 780: “It would disturb many titles if the principles heretofore established and sanctioned by the practice of the country were now to be questioned. , If inconvenience results from the construction heretofore given to the statute against fraudulent conveyances, the remedy should be administered by the law-making power. An act of the legislature would operate prospectively, and men could regulate their transactions so as to conform to its provisions. But a decision of the court giving a new and different rule of construction, would have a retroactive, and, therefore, an unjust operation.”
Of course, if there be any intention on the part of the debtor, in executing the assignment, to delay, hinder or defraud creditors, &c., it is void as to such creditors, by the express declaration of the statute ; saving only the title of a purchaser for valuable consideration, and without notice of the fraud. Ho appearance of fairness on the face of the assignment can ,give effect to it in such a case. Rraud may be proved by the deed itself, or by evidence aliunde. When proved by the deed itself, it is called constructive, or legal fraud, and cannot be disproved by evidence aliunde. Mere badges of fraud, which sometimes appear on the face of the deed, and sometimes from evidence aliunde, unlike constructive or legal fraud, may always be repelled by other evidence.
*In this case it certainly does not appear that there was any actual intention to delay, hinder or defraud creditors. If actual fraud be charged ip the bill, it is positively denied in the answer, and there is no evidence in the record tending to prove it, but the contrary. Indeed, the bill seems to state a case only of constructive or legal fraud.
Then the question we have to consider is, Whether the deed of trust in this case is void according to the doctrine settled by our decisions before referred to?
In order to maintain the validity of such a deed, or, at least, that part of it which provides for the payment of debts on the terms of the execution of a release by the creditors, it is necessary that all, or substantially all, the debtor’s estate should be conveyed by the deed. Skipwith’s ex’or v. Cunningham, &c.; Phippen v. Durham & als.; ubi supra. The debtor is permitted by such arrangement to protect his future earnings from the pursuit of such of his creditors as may enter into it, but not a portion of his present property. “He may protect his person, indeed, by a fair composition, and a surrender of all his property, but he cannot protect a part of that property by giving up another part. Such an attempt is fraudulent and void.” 8 Leigh 292; Quarles & als. v. Kerr & als., 14 Gratt. 48. But it is not necessary for the deed to show on its face that all the estate of the debtor is conveyed. That fact may be proved by evidence aliunde. In neither of the cases of Kevan & als. v. Branch & als., and Phippen v. Durham & als., did it appear on the face of the deed that all of the property of the debtor was conveyed. , In Phippen v. Durham & als. all of the debtor’s property was not in fact conveyed, yet so nearly all as to bring the case within the operation of the rule. The amount omitted was too small to show that it was omitted for the purpose of securing any benefit to the debtor. The omission *must have been from inadvertence. What invalidates a deed in such cases is, an intention to delay, hinder or defraud creditors, &c. ; and unless there be such an omission of property in the deed as shows such an intention, it is not material. Any omission of property for the purpose of securing a substantial benefit to the debtor (except such property as may be exempt by law from distress or levy), conclusively shows such an intention.. In the
•But it is objected, that the deed not only requires that the grantors should be released, but also that Samuel R. Adams, who is.,not a ■ grantor, should be released. If’the property of the firm of Rogers, Adams & Co. was properly ^conveyed for the purposes of the deed' — a question which will be hereafter considered — it seems to follow that he ought to be released from the debts of that firm, as well as the other partners.
Again it is objected, that the deed is incomplete in this, that it refers to and makes schedule A a part thereof, whereas it was not attached or appended thereto before the execution of the deed. There was no necessity for such a schedule to give effect to the deed — the property thereby conveyed being sufficiently described therein for that purpose. Skipwith’s ex’or v. Cunningham, &c.; Kevan & als. v. Branch; Phippen v. Durham & als., supra; Lewis & als. v. Caperton’s ex’or & als., 8 Graft. 148; Brashear v. West, 7 Peters R. 608, 614; Burrill on Assignments, 276-278, and cases cited. The deed does not refer to schedule A as being actually annexed thereto, but only states that an inventory of the stock will, as soon as practicable, be taken and marked schedule A, and annexed to the deed, “which schedule, when so annexed, is to be taken as a part of this deed. ’ ’ It was inconvenient to make out the schedule in time to be annexed to the deed before its execution, but it was made out immediately thereafter, and filed with the answer of Rogers, Riddick & Co. "in this case within about a month after the execution of the deed, and nearly a month before the expiration of the period of sixty days named in the deed.
Again, it is objected to the deed, that it ‘ ‘undertakes to release the trustee from all liability except for money actually received by him; thus releasing him from all responsibility in the selection of his agents, or for the supervision of their actions; enabling him to be guilty of gross and wilful negligence, to appoint incompetent and corrupt assistants without any responsibility ; . and attempting to compel the creditors to sanction this unlimited grant *of power over the effects, under penalty of being excluded from any enjoyment of The fund.” And it is said that, under the deed, the trustee has the power to employ, “and actually does employ, one of the grantors to manage and control the business, to sell the assets and collect the moneys due; his employee admitting himself by the deed to be insolvent and irresponsible. These clauses in the deed they claim to be inconsistent with, and tending to defeat, the objects of the deed, and as such render the deed fraudulent and void.”
The deed does authorize the trust “to employ such agents, &c., as he may deem necessaty, and to pay them a reasonable compensation for their services out of the trust fund;” and does provide, “that the said trustee shall not be liable for any moneys, other than such as shall actually come to his hands in the execution of the trust; and that said trustee shall not be held responsible for the default or omission of any of the agents whom he may employ to aid him in the execution of the trust.”
There is nothing very unusual in these provisions, which are inserted out of abundant caution, at the instance and for the protection of the trustee; and they do not very materially, if at all, vary the legal liability of the trustee. Burrill on Assignments, 227. The employment of agents by a trustee is often necessary to enable him to execute the trust, and such necessity existed in this case. He is bound to select fit agents, and to hold them to a strict and prompt responsibility for their acts; and having discharged this obligation, he is not liable for any loss arising from their acts or defaults, even though there be no clause of exemption from such liability in the deed. Such a clause of exemption as is contained in the deed in this case does not discharge him from his obligation aforesaid. While he is not responsible “for any moneys other than such as shall actually come to his hands in the execution of his *trust,” he is responsible for his negligence in not appointing fit agents, and in not holding them to a proper account.
But, after all, such a clause could only be material as a badge of fraud, and as tending to prove that there was an understanding between the debtor and trustee, that the debtor should continue to use and enjoy his property, notwithstanding the deed. If such was the fact, the deed would of course be fraudulent. But if such was not the fact, if the clause was only inserted out of
Again it is objected, that the deed, being made to a ^creditor in trust to secure his own demands, is a mortgage, to which the right of redemption is incident, and the creditor trustee cannot sell by the mere authority of the deed, and without resorting to a court of equity.
This is an objection which does not strike at the validity of the deed, but only at the power of the trustee to act as such. The trustee, being the agent of both parties, debtor and creditor, ought to be an impartial person; and generally the creditor is supposed not to be such a person, and will not be permitted to act as trustee, especially in regard to real estate, though the deed provide for his doing so. Chowning v. Cox & als., 1 Rand. 306. It seems not to have been jet decided by this court that this principle extends to personal estate. 1 homax’s Dig. last ed. 423. Moore’s ex’or v. Aylett’s ex’or, &c., 1 Hen. & Mun. 29. Though the reasons assigned by the court in Chowning v. Cox apply as strongly to personal as to real estate. 1 Tuck. Com. book 2, p. 104. But the debtor may sanction and confirm a sale, even of real estate, made by his creditor as trustee, and will be considered as having done so by being present at the sale, and making no objection. Taylor’s adm’rs, &c. v. Chowning, 3 Leigh 654. And it is not perceived why, if the debtor has no objection, the co-creditors of the trustee should have any. Generally the interest of all the creditors is the same, so far as relates to the execution of the trust, and would be safe in the hands of any of them as trustee. In this case the trustee had a comparatively small claim, which was included in the first or preferred class of debts secured by the deed, and there seems to be no good ground of objection to his acting as trustee. There can be no doubt about the sufficiency of the trust fund to pay the preferred debts. The sale of the goods has already been made, with the sanction and concurrence of the grantors in the deed, and the proceeds are more than enough to pay the preferred debts. *So that whatever just ground of objection, if any, might once have existed to the action of Cannon as trustee, it can now no longer exist.
Again it is objected, that the deed requires the creditors to release without information as to the assets or liabilities.
When creditors are put to their election, whether they will accept the provision made for them by the debtor in an assignment of his property, and give him a release, or be excluded from the benefit of the assignment, it is reasonable that the deed should give to the creditors all the information in the power of the debtor, as to the nature and value of the property conveyed, and the amount of the debts intended to be provided for, and a reasonable time to obtain such information as the deed may not afford, and to make up their minds deliberately and understandingly whether they will accept or reject the offer made to them. If this be not, when it can conveniently be, done, the omission might at least be a badge of fraud, though it might not in itself amount to legal or constructive fraud. In this case, it seems that all the information was given by the deed which could, under the circumstances, conveniently be given in regard to the subject conveyed and debts provided for; and the necessary means were immediately taken and diligently pursued by the trustee and grantors to give the speediest and fullest information in their power to the creditors, who might easily have obtained, within the period limited by the deed, all the information necessary to enable them to make their election properly. The period limited by the deed, sixty days from the date of its recordation, seems to have been reasonable under the circumstances, and as long as was given in some other cases in which the deed has been sustained. In Skipwith’s ex’or v. Cunningham, &c., four months after the date of the deed was the period limited. *In Kevan & als. v. Branch, three months was the period. In Phippen v. Durham & als., the period was but thirty days from the date of the deed. In neither of these cases was there any schedule annexed to the deed; nor, in the first, were the creditors, except those of the first class, named in the deed. There seems, therefore, to be no good ground of objection to the deed in this case on account of any defect of information which it gives as to the assets or liabilities.
The next and last objection is, ‘ ‘that by the terms of the deed the partnership assets of Rogers, Riddick & Co. go pro rata to pay the debts of Rogers, Adams & Co., without any estimate of the debt or assets of
The counsel for the appellees “admit that it was a defect in the deed to dispose indiscriminately of the assets of these two concerns,” but they say that “it is a mistake to suppose that such a defect invalidates the deed. Ror precisely this mistake was corrected in the case of McCullough & als. v. Sommerville, 8 Leigh 415; and the deed was so reformed as to apply properly the several kinds of assets.” On the other hand, the counsel for the appellants insist, that that case differed essentially from this; that'“in that case, there was no requisition for release; the creditors were not required to sign the deed under penalty of entire exclusion from the assets of their debtor.” “The creditors of Rogers, Riddick & Co. were cut off, by the very terms of the deed, from obtaining such an equitable reformation of the deed as obtained in McCullough & als. v. Sommerville. They were required to release their debtors, ^'Rogers, Riddick & Co., and at the ■ same time to consent (by their acceptance of the deed) that the assets of Rogers, Riddick & Co. should go, pro rata, to the payment of the debts of Rogers, Adams & Co., and that, too, without even knowing what the debts of Rogers, Adams & Co. were.”
There can be no doubt but that it was competent for the grantors in this deed to convey the said effects of Rogers, Adams & Co., notwithstanding Adams, one of the firm, did not join in the deed, in trust to secure the payment of the debts of the,firm, or any of them, either pro rata, or in such order of priority as they thought fit to prescribe. McCullough & als. v. Sommerville, 8 Leigh 415; Anderson v. Tompkins, 1 Brock. R. 456; Harrison v. Sterry, 5 Cranch’s R. 389; Burrill on Assignments, pp. 43-64, and the cases cited.
Nor can there be any doubt but that it was competent for the grantors in ■ this deed to convey the social effects of Rogers, Adams & Co. in trust for the payment pro rata of the.debts due by said firm, to such of its creditors as should, within the period limited, sign the deed, and thereby accept such ratable dividend in satisfaction of said debts, and agree to release the said firm and the members thereof, from all liability on account of the said debts respectively. If partners convey all their social and individual property for the payment of their debts, there is the same reason for authorizing them to prefer such of their creditors as will give them a release, as there is for authorizing an individual, who conveys all his estate for the payment of his debts, to give such a preference. It cannot be necessary to cite authority to sustain so plain a proposition. The case of Pearpoint v. Graham, 4 Wash. C. C. 232, stated in Bur-rill on Assignments, p. 47, assumes the proposition without question, and is decided upon such assumption. There was a question in that case whether *the assignment was valid, being executed by one only of the partners; but the learned judge thought it had been ratified by the other partners, and so became the act of the firm; and on that ground it was sustained.
Nor can there be any doubt but that it was competent for the grantors in this deed to convey by one and the same deed, instead of by different deeds, the individual estate of W. H. Rogers ’ and the social effects of Rogers, Riddick & Co. and of Rogers, Adams & Co., in trust for the payment of a debt of W. H. Rogers and debts of the said two firms respectively. If authority be required for so plain a proposition, it may be .found in the case of McCullough & als. v. Sommerville, 8 Leigh 415; so that if in this case the net proceeds of the effects of Rogers, Riddick & Co. had been devoted in the first place to the payment of debts of that firm, and the net proceeds of the effects of Rogers, Adams & Co. had been devoted in the first place to the payment of debts of that firm, the arrangement would have been legal and valid, notwithstanding the condition of release on which the payments might be directed to be made.
Nor can there be any doubt but that if there had been no release clause in this deed, it would have been legal and valid, notwithstanding it directs the proceeds of the individual property of W. H. Rogers, and the social effects of Rogers, Riddick & Co. and Rogers, Adams & Co. to be applied indiscriminately to the payment of a debt of W. H. Rogers and debts of said firms. McCullough & als. v. Sommerville, 8 Leigh 415, is an express authority for that proposition, according to which case, the court of chancery in such a case will reform the deed, according to the probable intent of the grantors and the justice of the case, and apply the individual fund in the first place to the payment of the individual debt, and the partnership funds in the first place to the payment of the partnership debts ^respectively, observing the order and preference established by the deed. The coui-t held in that case, that though the deed neither mentioned the partnership, nor distinguished the social effects and social creditors from the individual property and individual creditors of the grant- or, but purported on its face to convey his individual property, for the payment of individual creditors named in the deed, in two classes, according to a certain order and preference therein established, yet it was not fraudulent, either in fact or in law. “Was this deed fraudulent?” enquired Judge Carr in that case. ‘ ‘There is no evidence in the record to establish the fact; nothing to show an intention to withdraw the effects of the firm from the creditors, or by any covin or collusion to disappoint their claims. On the contrary, the whole property, of
Now the only remaining question — and the question on which this cause depends— is, Does the release clause, as it is called, make any difference? There was certainly, In this case, no fraud in fact, “either perpetrated or intended. ’ ’ There was certainly none in law, in the conveyance being made by two only of the three members of the firm of Rogers, Adams & Co., nor “in jumbling together the separate and social funds, and directing the separate and social creditors to be indiscriminately paid,” or, rather, to be paid without expressly discriminating between these classes of creditors ; for the deed does not direct them to be paid “indiscriminately.” Is there any in law, in requiring the deferred creditors to give a release, as the condition on which they are to be allowed to participate in the benefit of the deed? Why should there be? Why may not a court of chancery reform the deed in this case as well as in the case of McCullough & als. v. Sommerville, according to the probable intent of the grantors and the justice of the case, and apply the individual fund in the first place to the payment of the individual debt, and *the partnership funds in the first place to the payment of the partnership debts respectively? The counsel for the appellants argue that that case differs essentially from this, in the fact that “in that case there was no requisition for a release; the creditors were not required to sign the deed rrnder penalty of entire exclusion from the assets of their debtor.” “The court, in deciding upon the deed (in that case), found no difficulty in separating the social from the individual assets, and the social from the individual debts. But no such question,” as the counsel further argue, “can arise or be adjudicated here.” “The creditors of Rogers, Riddick & Co. were cut off, by the very terms of the deed, from obtaining such an equitable reformation of the deed as obtained in McCullough & als. v. Sommerville. They were required to release their debtors, Rogers, Riddick & Co., and at the same time to consent (by their acceptance of the deed), that the assets of Rogers, Riddick & Co. should go pro rata to the payment of the debts of Rogers, Adams & Co., and that, too, without even knowing what the debts of Rogers, Adams & Co. were.” Now this is a plausible argument; but is it not a petitio prin-cipii? When the grantors made the deed in the terms in which it is written, the case of McCullough & als. v. Sommerville fixed its construction, and required it to be read as if it had been written so as to apply the individual fund in the first place to the payment of the individual debt, and the partnership funds in the first place to the payment of the partnership debts respectively. Suppose it had, in fact, been so written — can there be a doubt but that the deed would have been valid? But the legal construction of the deed as actually written is the same. Why, then, should there be any more doubt in this case than there was in that, but that the deed is valid? What reason can there be for saying that the intention of the grantors is different where there is a requisition for a release, from what it is *'where no such requisition exists — that the intention is literal in the one case, and not in the other? The deed in McCullough & ais. v. Sommerville could not legally take effect if construed literally, and therefore it was construed according to the probable intent of the grantor and the justice of the case. The deed in this case cannot legally take effect if construed literally, and for the same reason it ought to be construed according to the probable intent of the grantors and the justice of the case. If it was proper in McCullough & als. v. Sommerville to act upon the rule of construction which was established in that case, a for-tiori, it is proper to follow it in this case, after the lapse of more than thirty years since that decision was made. -It is a fair and reasonable, and not a forced or strained rule of construction. The deed conveys the assets of two firms in trust to secure the
Before I close this opinion, I beg leave to remark, that I came into court with strong predilections against that course of our own decisions which has tended to maintain the validity of such a deed as that which is now in question — I mean a deed containing what is called “the release clause, ” or a condition for a personal release of the debtor upon a conveyance of his estate for the payment of his debts. I was strongly inclined to concur in the views expressed on this subject by Chancellor Kent and Justice Story, besides other distinguished jurists. Perhaps my previous practice had tended to lead-me into this line of thought and preference. In the case of Phippen v. Durham & als., which came up for decision shortly after I came into the court, I took occasion to express this original inclination of my mind; but I felt myself bound to bow to the authority of the case of Skipwith’s ex’or v. Cunningham, &c., and I therefore concurred in the decision which was made in Phippen v. Durham & als. The longer I have remained in the court, the more convinced I have become of the value of the rule of stare decisis. And I regard the rule as especially valuable in its application to cases arising under the statute of fraudulent conveyances. No man can read Burrill on Assignments, in which all or nearly all the cases on this subject are collected, ^without being struck,, if not confounded, by the great conflict among them. Not only does this conflict exist between the decisions of one State and those of another, but often the decisions of the same State are conflicting in themselves. Courts, after going in one direction, have veered about and gone in another until the legislature has had to interpose and solve the difficulty. Now it seems to me to be wise for us to follow the course of our previous decisions, and leave it to the Legislature, if that course be wrong, to make a change. The propriety of doing so is clearly shown by the remarks of Judge Allen, in Dance & als. v. Seaman & als., 11 Gratt. 780, which I have already quoted.
I will further remark, that I feel in full force the argument founded on the supposed hardship of excluding the plaintiffs and other non-accepting creditors from any participation in the benefits of the deed in this case, when there was so much apparent doubt and difficulty as to the construction and effect of the deed, and the consequence of accepting its terms. But the supposed hardship arises, not from the peculiar terms and effect of the deed in this case, but from the law, which authorizes a debtor in failing circumstances to give preferences in the distribution of his. estate among his creditors, and to require a personal release as a condition of receiving the benefits of any such preferences. Such a debtor, not having estate enough to 'pay all his debts, may, of his own mere will and caprice, convey his estate for the payment of' a portion of them, leaving the rest wholly unprovided for; and the creditors thus excluded would have no legal right to complain. A fortiori, it would seem, creditors to whom an election is given to participate in the benefits of the deed, but who decline to accept its terms, have no such right to complain. No doubt which may exist as to the construction of the deed, nor any difficulty which may arise in ^making an election, can affect the case, if the meaning of the deed can be ascertained, and it was not intended to delay, hinder and defraud creditors. The circumstances which create the doubt or difficulty may tend to prove, and even be in themselves sufficient to prove, such an intention, and make the deed void; but if no such intention existed, the deed is valid. It is not enough, therefore, for the appellants to show that it was doubtful, or at least not certain, when the deed in this case was executed, whether the principle decided in McCullough & als. v. Sommerville would apply to it. Parties are presumed to know the law. And though the presumption is often not founded in fact, it is yet necessary, and well established in law. The deed being valid, and its construction settled by the decision just referred to, the accepting creditors are entitled to the benefit thereof accordingly, to the exclusion of the non-accepting creditors.
The foregoing views bring me to the conclusion' that there is no error in the
Concurrence Opinion
I concur in the opinion de-
livered by the President, and do not propose to add anj'thing to his discussion of the case. I wish to say a word, however, to explain my views of the case of McCullough & als. v. Sommerville, which gave rise,- on a former occasion, to considerable discussion and difference of opinion in this court. Morriss’ adm’r v. Morriss’ adm’r, 4 Gratt. 293. In that case, Judge Daniel, with whom Judge Brooke concurred, considered the case of McCullough & als. v. Sommerville as decided on the assumption, as a general principle of equity, that in the case of an insolvent partnership, the partnership assets must be applied to the payment of 'the partnership debts, and the separate assets of the partners to payment of their separate debts, in accordance with the rule which prevails in bankruptcy. Judge Allen, with whom Judge Cabell concurred, did not consider the case as proceeding on this principle, and confessed himself unable to understand on what ground the court undertook to reform the deed, which was admitted to be fair and bona fide.
The case, as it seems to me, may either have proceeded on the ground supposed by Judge Daniel, or on the ground that as Gillespie, the partner of McCullough, did not execute the deed, the partnership creditors had an equity through him to charge the partnership assets with the payment of their debts. Upon either ground, the partnership assets were misapplied by the deed, so far as they were appropriated to the payment of the individual debts of McCullough equally with the debts of the firm. This right of the partnership creditors was treated as in the nature of an equitable lien, which the separate act of one partner could not defeat. It became necessary, therefore, to reform the deed, so as secure the preference of the partnership creditors in respect to the partnership debts. The arrangement made by the deed being thus disturbed in respect to the partnership assets, justice to the individual creditors required that a corresponding change should be made in respect to McCullough’s individual property. This was so, even if there was no general rule requiring that the separate property of each partner should be devoted first to his separate debts.
It was said in that case, that this reformation of the deed would effect the “probable intention of the grantor.” This expression is obscure. Ifor there is no evidence in the case that McCullough did not really intend exactly what he effected by the terms of the deed, namely, a blending of both classes of property and of both classes *of debts, without discrimination. But I suppose the meaning of the court to be only this, that McCullough intended, by means of the two classes of property, to provide for the payment of both classes of debts, and that he probably considered that the substantial effect of the arrangement was, to apply his individual property to the payment of his individual debts, and the partnership property to the payment of the partnership debts. The intention was not the ground on which the court proceeded in reforming the deed.
Whatever was the ground on which the court proceeded in reforming the deed in that case, it equally applies in this. If it was the ground supposed by Judge Daniel, it of course applies equally in the present case. If it was the other ground, above suggested by me, it also applies in this case, because Adams did not execute the deed, and the creditors of Rogers, Adams & Co. have, therefore, a right, through him, to have the assets of that firm applied first to the payment of their debts. I do not think it necessary, therefore, to determine on which of these grounds McCullough & als. v. Sommerville proceeded. In either case, it is a direct authority for the decision which we now make, in reference to the construction and effect of the deed in the present case.
But if McCullough & als. v. Sommerville proceeded on the ground that the partnership assets must, by a general rule of equity, be applied first to the payment of the partnership debts, and that this right could not be controlled by the execution of a deed of trust, I do not think it can be considered as necessarily holding a corresponding doctrine in reference to the separate property and separate debts of the partners. Tor, as I have already said, justice to the individual creditors required that the deed should be reformed for their benefit, when it was reformed for the benefit of the partnership creditors. It *would have done violence to the intention of the grantor, as well as to the claims of his separate creditors, to reform the deed in one part and let it stand as to the other. Besides, whatever may be the general rule of equity in the application of individual and partnership assets, it is very doubtful, to say the least, whether it ought to control the power of a partner to appropriate his separate property, by deed of trust, to the payment of his debts as a partner in preference to his separate debts. They are equally his debts, and equally binding on him in law and conscience. In Jackson v. Cornell, 1 Sanf. Ch. R. 348, it was held by Vice-Chancellor Sanford, that a partner cannot make a valid assignment of his individual property for the payment of debts, for which he is bound as a partner, in preference to his individual debts. He rested the decision on the ground that there is a general rule of equity which requires that, in case of insolvency, the separate property of a partner shall be applied first to the payment of his separate debts, as in bankruptcy, and that the partner could not control the operation of this rule bj’ an assignment. In the case of
With these explanations, I am content to follow the authority of McCullough & als. v. Sommerville in this *case. It removes the only difficulty I have felt. The hardship complained of by the appellants is chargeable to the doctrine long since fully established by the decisions of this court, that an insolvent debtor may convey his property in trust for such of his creditors as he may choose to prefer, and exact a release as a condition of participation in the trust fund.
There is only one provision of the deed of trust in this case which admits of serious question and debate. It is the second clause, whereby the trustee is required to ‘ ‘distribute ratably any surplus remaining after the discharge of the debts in schedule B, among such of the creditors of the firm of Rogers, Riddick & Co. and of the late firm of Rogers, Adams & Co. embraced in the schedule marked C as shall, within the period named, sign the deed— thereby accept such ratable dividend in discharge of the debt due them, by the said firms of Rogers, Riddick & Co. and of Rogers, Adams & Co., and thereby agree to release said several firms and the members thereof from all manner of obligation or liability at law or in equity on account of said debts. ” That it is the right and privilege of a debtor, devoting his whole property by deed to the payment of his debts, to prefer one creditor or class of creditors to another; and to exact a release of them, is fully established by the decisions of this court. I, also, fully concur with the President in the satisfactory and conclusive replies he has given to the other exceptions of the appellants to this deed. But after mature reflection, I am unable to give my assent to his treatment of this particular provision of the deed, that I have just cited. I cannot, therefore, avoid with propriety a concise statement of the grounds of my dissent.
All of the debts provided for in this deed, with the exception, perhaps, of house rent, are partnership debts; *and the effects, partnership effects; with the exception of the Texas lands belonging to Wm. H. Rogers individually. But the vice of the deed, consists in the confusion of the social assets and social debts of two separate firms, namely, of Rogers, Riddick & Co. and Rogers, Adams & Co. This is more startling upon a comparison of the respective conditions of these firms; the former, exhibiting a surplus of assets beyond liabilities of $25,279.59; and the latter, a similar surplus of only $4,414.19. The competency of Wm. H. Rogers and James E- Riddick to convey by this deed, the assets of Rogers, Adams & Co. is not contested; but where do the parties to this deed get the right to bring the creditors of Rogers, Adams & Co. into a ratable participation with the creditors of Rogers, Riddick & Co. in the assets of the latter firm? It is conceded, no such right exists; and that if such is the true legal effect of tliis' provision, it is invalid. But it is claimed that his court has a right to reform the deed in this respect, and require these partnerships to be settled separately and apart, by devoting to each its own particular account of social assets and social liabilities. It would be too monstrous to suppose that the individual members of the firm of Rogers, Riddick'& Co. could by any device bring the creditors of another firm into the distribution of their social effects. It would be a voluntary provision, without consideration, and therefore void, to attempt thus to create a lien in favor of creditors of another concern, to which some of the grantors in the deed chanced to belong.
But it is asserted, that while such is the plain and unmistakable declaration of the deed, the law ascribes to it a different effect, and construes it distributively in reference to the two partnerships. This pretension seems to me to proceed from a misconception of the case of McCullough & als. v. Sommerville, 8 Leigh 415, which is relied upon for this position. The grounds of discrimination are *not obscure. In that case, the confusion was of private, with social debts and assets. On the face of that deed, there was no mention or appearance of a partnership; the evidence of it was extrinsic; and it was due to subsequent revelations that it appeared that the grantor had by his deed jumbled his individual with his social funds. But here it is not a question of that kind; there is no mingling of individual with partnership funds in the sense in which I am now treating this case; but the attempt is made to throw into hotch-potch the respective assets of two separate firms, and bind the creditors of each to a ratable distribution thereof. In that case, the reformation of the deed was predicated of the intention of the grantor. Judge Carr imputes this commingling of private with social funds to “ignorance and mistake;” and the decree of the court conclusively shows that this distributive -construction was resorted to as the means of arriving at “the justice of the case and the prqbable intent of the grantor.” Its language is, “that as the purpose of the deed was to provide for certain bona fide creditors of the firm, as well as for individual creditors of said Edward McCullough, although the deed does not devote the social fund exclu
Bet us look into .the principle of that decision. McCullough was responsible in solido for the partnership debts no less than for the individual debts; and there was, therefore, no objection to reform the deed in this particular, either in conformity with the legal presumption of his intention, or with a fixed rule of equitable construction or relief. But Rogers, Riddick & Co. were not responsible, as a firm nor as individual members, for the debts of Rogers, Adams & Co., and it was not competent for them to dedicate the respective assets of each interchangeably to the common ratable satisfaction of the respective creditors of each. Such an attempt is simply nugatory; it is voluntary and without consideration moving from the creditors of Rogers, Adams & Co. to the grantors in the deed, ^specially should this attempt be avoided, when we consider the feature of a release, which did not exist in the case of McCullough & als. v. Sommerville. In the case of Phippen v. Durham & als., 8 Graft. 478, Judge Baldwin, in treating of this condition of a release, uses this language: “The effect of such a condition is to give the whole benefit of the trust to the creditors who comply with it, to the exclusion of those who fail to do so within the prescribed period. It has somewhat the nature of a ^forfeiture; and there ought to be perfect fairness and good faith on the part of the creditors seeking to avail themselves of it.” It seems to me scarcely consistent with “fairness and good faith” to give to the signing creditors alone, the benefit of the reformation of the deed accorded in this case; and to exclude therefrom the victims of this forfeiture. The penalty is an integral part of this clause; it cannot be separated from it; and, in my view, should share its fate.
This case of McCullough & als. v. Sommerville subsequently became the subject of examination and discussion in Morris’ adm’r v. Morris’ adm’r & als., 4 Gratt. 293. Judges Daniel and Brooke united in considering this case as establishing that the rule in bankruptcy affecting separate and joint creditors in their resort to individual and joint funds was to be regarded as a general rule of equity prevailing in this Commonwealth. On the contrary, Judges Allen and Cabell did not so interpret this authority; but considered the reforming of the deed, by throwing each class of creditors in its appropriate fund, as the means adopted by the court of “reaching the justice of the case and the probable intention of the grantor.” The court was thus divided in opinion; and the instruction of the Judge below to the commissioner stood, namely,
So far as this present case is concerned, it is not, in iny view, material to settle the question growing out of these discussions upon the case of McCullough & als. v. Sommerville in the later one of Morris’ adm’r v. Morris’ adm’r & als. Whether the reference óf such classes of creditors to their respective funds is a fixed rule of equitable interposition *in all cases, or fluctuates with the actual or presumed intention of the grantor in each case, is a question that has no bearing upon this commingling of the accounts of one partnership with the accounts of another partnership. Eor the present, therefore, I may content myself with the convenient refuge, “non nostrum, tantas componere lites.’’
It is pertinent to our present inquiry to cite a striking criticism of Judge Allen upon this case of McCullough & als. v. Sommerville in these words: “Where the court found their authority to reform a deed so as materially to change its operation, after just determining it was made in good faith and by a party having full authority to convey, I am at a loss to conceive; and this, too, without any evidence of mistake on the part of the grantor.’’ How much more questionable is this intervention in the case at bar, when it is in contravention of the clear intention and the whole scheme of the deed; and of the justice of the case in excluding the penalty or forfeiture from the scope of the decreed reformation of the deed?
I do not object to the reforming of the deed; I may question and doubt the authority to do so; such relief, so far as it goes, meets my concurrence; but it stops short of the full redress to which, I think, the complainants are entitled.
This brings me to consider the most material point of my dissent. It consists in my view and treatment of this obnoxious clause of the deed. I cannot agree in ascribing to it a legal import in conflict with its terms. I have endeavored to show there is no authority for doing so. I cannot defeat its operation by such a construction, however ingenious; nor can I consent, while overruling it as to signing creditors, to leave it in full force against the non-signing, whose objections to it are viitually sustained by the court here.
I regard the whole clause, inclusive of the penalty, as ^invalid and inoperative. I do not impeach the bona fides of the grantors — -I do not stigmatize the clause as actual fraud; it is, doubtless, constructively so, because of foisting upon one partnership creditors of another partnership, and therefore strangers to it. The question therefore arises, whether it can be separately annulled without setting aside the whole deed. Actual fraud, within the cognizance of the parties, would vitiate the whole deed; but no principle of law or reason seems to me to inhibit the setting aside of an illegal and, therefore, an inoperative clause, at the same time that other parts, of the deed are sustained. Even in the case of actual fraud affecting some of the debts secured by the deed, this court has declined to pronounce a conveyance thus tainted void as to a fair and bona fide creditor, having no notice of any dishonest purpose to the part of the grantor, so far as his indemnity was concerned. This was the case of Billups v. Sears & als., 5 Gratt. 31. This doctrine lodges with the court a virtual function of expurgation, and is far ahead of the modest pretension I advance, to-annul an inoperative clause of a trust deed. But this question has been so fully examined, and the authorities so satisfactorily cited and reviewed by Judge Tucker in the case of Skipwith’s ex’or v. Cunningham & als., 8 Leigh 271, I cannot better set forth and corroborate my views than by a copious extract from his opinion in that case. It will save any exposition of my own views upon this point, or any comment upon the authorities he cites. It will also be seen that he foreshadows and justifies by anticipation the decision I have just quoted of Billups v. Sears & als. He says, on page 293: “I cannot agree that all the creditors are to lose the benefit of this security for the payment of their debts because an improper provision, deemed fraudulent by construction of law, has been inserted in the deed. I am aware that a distinction has been taken and sustained *in some cases between a deed avoided by statute and one which is only constructively fraudulent upon equitable principles. 14 Johns. R. 458 ; 20 Id. 442. But I think there is another distinction. Where a deed is made for the security of various creditors, whose claims are distinct and unmingled with each other, and where part are illegal and fraudulent, and another part are fair and untainted with fraud, the security shall not be avoided as to the latter, provided they have given no aid any way to the concoction of the fraud. A deed of that character ought to be considered distributively, and, while it is avoided in part, it should be effectual as far as it is good. If it were otherwise; then a deed of trust to secure the payment of ninety-nine just debts would be avoided by the fact that the hundredth was for usury or gaming; for the statute has declared all gambling or usurious securities to be void. This cannot be; and accordingly this court, in the case of Kemper v. Kemper, &c., 3 Rand. 8, decided that where the transaction is of such a nature that the good consideration can be separated from the bad, the court will separate them, and consider the deed valid so far as it is entirely distinct from and unaffected By the illegal consideration. So, in Skipwith v. Strother, &c., 3 Rand. 214, where part of a bond was for gaming, and so in Fleetwood v. Jansen, 2 Atk. 467, there
The authority of this opinion, and the force of its reasoning, justify the conclusion that the obnoxious provision of this deed can be separated from its other provisions and annulled without affecting them. I do not understand my brothers as disagreeing with me upon the illegality of subjecting the assets of two concerns interchangeably to the creditors of each; but they remedy it by a reformation of the deed, which I think questionable, and not sanctioned by the authority of McCullough & als. v. Sommerville, which they invoke to that end. Besides, they leave in force the condition of forfeiture annexed to this invalid provision. The relief which I am disposed to grant would be the abrogation of the whole clause as illegal and inoperative, while the bona fides of the deed, and its obligations in other respects, are not assailed. In this difference of opinion, therefore, I may be permitted to take to myself the consolation of believing that, in my disposal of this case, no hardship or injustice would ensue upon the failure to sign a deed with a provision admitted to be illegal, but claimed here to be susceptible of an equitable interpretation at war with its terms.
For these reasons, I cannot concur in the affirmance of the decree below.
Decree affirmed.
