Tompkins v. Wheeler

APPEAL from the Circuit Court of Kentucky. In the circuit court of Kentucky, a bill was filed, on the equity side of the court, for the purpose of setting aside a deed of assignment or mortgage made by Leonard Wheeler, for the purpose of securing certain of his creditors, in preference to the complainant, who was also a creditor.

At the November term 1837, of the circuit court, the complainants had obtained certain judgments against the defendant Wheeler; and on the application of the defendant, it was agreed, that no executions should be issued upon those judgments until February 1838. The debt on which the judgments had been obtained amounted to $12,000, which had been purchased by the plaintiffs for $1000; the defendant having failed in 1814, and this being one of the debts due by him at the time of his failure. He afterwards entered into business in Kentucky, contracted a large amount of debts, and obtained some property.

Five days before the time when the complainant had a right to issue execution on the judgments, Leonard Wheeler executed a general assignment or mortgage of all his property. The assignment provided for the payment, in the first place, of all his debts contracted since his failure, in 1814, giving to them a priority or preference, 'as all his means and effects had been accumulated by the credit given to him in Kentucky; the same being divided into two classes.' It provided, that among his old debts, out of the surplus of his estate, which was expected to remain after the first and second class of preferred debts had been satisfied, certain debts, due by him in 1814, the judgments in favor of the plaintiffs not being among them, should be paid; and not believing the effects assigned would extend beyond the payment of these debts, no others were designated. The assignment then proceeded to assign and transfer all the property and effects to the creditors of the first and second class, in trust to pay the debts according to the preference and classification in thr same; giving to the said creditors, or a majority of them, power to niminate and appoint an agent, attorney or trustee, to carry the purposes of the instrument into full effect.

On the 15th of February 1838, writs of fieri facias were issued on the judgments, which were returned by the marshal 'nulla bona.' The appellant filed a bill in the circuit court, praying that the deed of assignment executed by Wheeler should be decreed fraudulent and void, as it regarded the complainant. The bill also alleged acts done by the defendant, Wheeler, for the concealment of property, and also the nominal creation or increase of debts which were included in the preferences made by the assignment, and other acts of fraudulent collusion; and also, it alleged, that the property assigned had been left in the hands of the assignor, and the creditors had never appointed an agent or trustee, who had taken charge or direction of the property assigned. In the opinion of the court, delivered by Mr. Justice THOMPSON, other facts are stated, which were taken notice of by the court. The circuit court made a decree dismissing the bill, and the complainants prosecuted this appeal.

The case was submitted to the court, on a printed argument, by Ogden, for the appellant; and by Crittenden, who presented to the court the printed argument of M C. Johnson, for the appellee.

D. B. Ogden, for the appellant.-The right and power of a debtor to give a preference to some bon a fide creditors over others, is not denied. But such preferences are no favorites in a court of equity, in which 'equality is equity;' yet, inasmuch as such a deed is good and valid at law, equity follows the law, and will support it. But a court of chancery will look narrowly into all the circumstances of the case; and if they find the deed tainted in the smallest degree with fraud, they will declare it void. A preference may be given to some creditors over others; but, in giving that preference, the debtor must act bon a fide. Independent of the questions of law arising in this case, there are strong circumstances to show, that in making this assignment, the defendant, Wheeler, did not act with good faith towards the complainant. He obtained from him an agreement to postpone issuing any executions upon his judgments, until after the first of February; it was in bad faith for him to avail himself of this postponement, thus obtained, to place all his property out of the reach of an execution. It is evident, that this assignment was made to defraud and injure the complainant, and to prevent his recovering his debt. Another strong circumstance against the fairness and good faith of this assignment, is the following: The assignment directs that an old debt, due from him to F. & J. Sexton, of New York, for the sum of $3120, with interest at the rate of six per cent. from August 1814, shall be paid; and it also recites that this debt has been assigned to Norman Porter, who now holds the same. Now, this Norman Porter, it appears throughout this record is one of the most intimate friends of Wheeler, and one of those favorites for whom he wished to provide, in preference to the complainant. Porter's answer states, that he paid $307.50, Kentucky money, for the debt of F. & J. Sexton, in January 1838. He began to negotiate for it in December 1837. He purchased it, without any arrangement with or suggestion from Wheeler. He had heard of the prosecution by Winter, and of Wheeler's intention to assign his property for the benefit of his other creditors, to prevent Winter from recovering the amount of his judgments; and he, therefore, bought up this debt of the Sextons. The amount of principal and interest on this debt, calculating the interest at six per cent., from August 1814, to November 1837, is $7422.40; which this Mr. Porter receives, and for which he paid but $307.50.

The assignment purports to convey his property directly to the creditors named in it. There is no proof that it was delivered to any of them; and it is in proof, that several of the creditors never knew of its existence. Wheeler continued in possession of the property; it never was delivered over; this of itself is evidence of fraud. 1 Pet. 356; 4 Mason 321; 3 Maule & Selw. 371; 15 Johns. 571; 4 Bibb 445. The assignment gives the creditors power to name a trustee to take the property; no such trustee has ever been appointed. The sale of some property to Putnam was evidently made for the mere purpose of preventing the judgment-creditor from recovering his demand; and is, therefore, void. Cowp. 434; 1 Burr. 474; 1 Camp. 333. This assignment, the court will recollect, was made but four or five days before the time during which execution was to be stayed expired, and the negotiation which brought about the assignment of this debt of the Sextons, was not entered upon by Porter, until December, long after the judgments were entered, and Porter himself admits, that he knew of the intended assignment by Winter, and that their debt was to be provided for. It appears, that a more fraudulent attempt than this to give a preference over a bon a fide creditor rarely occurs. 7 Pet. 605; 2 Gallis. 557; Pick. 71.

Johnson, for the appellees.-The assignment of Wheeler to his creditors is charged to be fraudulent, because it was made by Wheeler, without the knowledge or assent of the creditors therein named, and was never delivered to, nor accepted by them.

It is contended, that the fact is otherwise. None but F. L. Turner failed to give assent to it; and the mortgage-funds can, under no contingency, pay his debt; and his interest in them amounts to nothing. As to all who do not admit that they did not assent, the presumption of law is, that they did assent, as the deed was beneficial and had no condition attached. See Halsey v. Whitney, 4 Mason 206; Wheeler v. Sumner, Ibid. 183. This presumption particularly applies to all the non-residents, as to whom the suit is dismissed. All others have answered, or by agreement are considered as having answered; assenting to the mortgage, or stating that they were paid, before process was served. It may not appear from the answers of some, when the assent was given, but according to the practice of the United States' courts, a matter alleged but not answered must be proved on final trial. See Young v. Grundy, 6 Cranch 52. If a more specific answer had been desired, exceptions should have been taken. All exceptions to insufficient answers are expressly waived by agreement.

In regard to delivery, it is well settled, that if a deed be delivered to a stranger, for the use of the grantee, without any condition annexed, making it an escrow, it is a delivery to the grantee. Shep. Touch. 58. In this case, the deed was delivered to the clerk of the Fayette county court, for the use of the grantees, to be recorded in his office. It has also been decided, that if a deed of feoffment be made to four, but only delivered to three of them, and livery of seisin made to the three, for the use of all, without the assent of the fourth, and when it comes to his knowledge, he disagrees to it, still the freehold is in him, and so remains, until disclaimer in court; and so, if a deed be made of goods and chattels, and be delivered to a stranger, for the use of donee, there the goods and chattels vest in donee, before notice or agreement; but in this case, donee may make refusal in pais, and by such refusal, the interest is divested. See Butler v. Baker, 3 Coke's Reports 26, 27. See also the case of ''Doe on dem. Garnons v. Knight'', 5 Barn. & Cress. 471, for a full argument on the effect of delivery to a stranger, and for a collation of all the authorities. According to these principles, so far as the vesting of legal title is concerned, it matters not, whether the grantees were consulted or knew of the deed or not; the property embraced in it was vested in them, by force of the delivery to the clerk, for their use, until their disagreement. In cases of deeds of trust, where the property is conveyed to a stranger, for the benefit of creditors, and these creditors not parties to the deed, it has been decided by this court, in Marbury v. Brooks, 7 Wheat. 556; and Brooks v. Marbury, 11 Ibid. 78; Brashear v. West, 7 Pet. 608, also in the case of Halsey v. Whitney, 4 Mason 206; and Wheeler v. Sumner, Ibid. 183, that the assent of the creditors is not necessary to the validity of such a deed; and in the case of Marbury v. Brooks, supra, an assent, after a creditor had attached the goods, was decided to be sufficient to make the deed valid from its execution.

The rule, that in absolute sales of chattels, the possession remaining with the grantor, is a fraud per se, has been fully recognised in Kentucky; but it is equally well settled, that this rule has no application to mortgages and deeds of trust. See 5 Litt. 243; 1 J. J. Marsh. 282; 3 Ibid. 453. In Snyder v. Hitt, 2 Dana 204, the court say, that the possession of the mortgagor is not fraudulent, and in general, no evidence of fraud. This court, in United States v. Hooe, 3 Cranch 73, decide, that where the deed provides for the grantor retaining possession, it is not fraudulent, and in 1 Pet. 449, the rule is held only to apply where the possession of the grantor is inconsistent with the deed.

The reason of this distinction in Kentucky, is two-fold. 1. The possession of the mortgagor is not inconsistent with the deed: and, 2. All deeds of mortgage and of trust are required to be recorded.

The equity of redemption, or resulting trust of grantor, and his interest in freeing himself from debt, by making the property as available as possible for that purpose, are such actual and legal interests in the property, as all courts will regard and protect, and are such interests as render it not only consistent with the transaction, but highly beneficial to all parties, that the debtor, if honest and capable, should remain in the possession of the incumbered property. He is the person best acquainted with the property and its capabilities, and his interest perfectly coincides with that of the creditors, in making it as valuable as possible.

There can be no doubt, that the assignment in question is not an absolute sale, but a mortgage or deed of trust. The property is assigned for the purpose of paying the debts. Upon their payment, the property, by operation of law, results to the grantor. But by whatever name it may be called, it is, in substance and reality, a mortgage; and Wheeler has, in the property, all the interests which are above enumerated as appertaining to the mortgagor: and there is, consequently, the same consistency of his possession with the deed, that there could be were it a mortgage, in the most nicely technical sense. In the deed, it is provided, substantially, that he shall remain in possession, managing the fund, until the grantees, by agent or otherwise, take possession.

In Kentucky, all mortgages and deeds of trust, whether of real or personal estate, on legal or equitable interests, are required to be recorded in the offices of the county courts. Brown and Morehead's Statute Law of Kentucky, 448-9; also, see Session Acts of 1836-37, p. 255; also, Session Acts of 1838-39, p. 96. These statutes would change the rule as to possession, even had it previously existed, by destroying the reason of it. In regard to chattels, the only ownership the world can know, is the continued possession. Being capable of transfer, by the most secret contracts, without the least solemnity or notoriety, purchasers and creditors could be deceived and defrauded without limit, did not the law provide for their security some visible test of ownership. The continued possession is the test as to chattels, but it is not, of real estate, the title-deeds being the evidence, and accordingly, we find the rule does not extend to real estate. In Kentucky, the notice of incumbrances is the record, and purchasers and creditors are completely guarded against being defrauded by mortgages, &c., by an easy reference to the office of the county court. The property is not, however, of the character to which the rule applies. Consisting of choses in action, they are incapable of bisible possession, and pass by assignment. So this court held, in the case of Spring v. Sough Carolina Insurance Company, 8 Wheat. 268.

If a debtor gives up all he has, to bon a fide creditors, and such, all he has provided for, are admitted to be, and he reserves no right, power or benefit to himself, it is impossible that this can be fraudulent. The law not only does not condemn, but approves and sanctions it. See the luminious opinion of Justice STORY in the case of Halsey v. Fairbanks, 4 Mason 207, and the numerous authorities collated and ably commented on.