Opinion
(December Term, 1843.)
1. Where, in a deed of trust for the satisfaction of creditors, the maker of the deed reserves to himself a general power of revocation and the declaration of other trusts by which he may be benefited, the deed is fraudulent on its face, and void.
2. But where the maker of the deed only reserves the privilege of adding to the number of preferred creditors others of the same class, the deed cannot be pronounced by the court fraudulent on its face, but it must be left to a jury to determine whether such provision was inserted with a fraudulent intent.
APPEAL from HALIFAX, Fall Term, 1843, Bailey, J.
B. F. Moore and Iredell for plaintiff.
Badger for defendant.
Trespass, in which the jury found a verdict for the plaintiff, subject to the opinion of the court upon the following case reserved:
It was admitted on the trial that Samuel B. Spruill, on 16 August, 1841, executed a deed of trust for the purpose of securing certain creditors therein named, and that the same was duly proved and registered before the teste of the executions, or either of them hereinafter mentioned; that the debts specified in the said deed were true debts; that the said Spruill, at the time of the execution of the deed, was insolvent and unable to pay his debts, and that the deed conveyed, or attempted to convey, all his property. The trust in the deed was, that the trustee should tell all the property and apply the proceeds of the sale to the payment pro rata of certain debts, particularly described and enumerated, and for which certain sureties, whose names were mentioned, were responsible, and then follows this clause in the deed: "It is, however, stipulated that as the said Samuel B. Spruill is anxious to save harmless all his sureties, if there be any of then unprovided for in this indenture, he is at liberty to direct them to be paid in like manner (205) as his other sureties are." It was further admitted that certain writs of fieri facias upon judgments against the said Spruill, one issuing from September Term, 1841, of Northampton County Court, and one from the Superior Court of Wake County, tested of Autumn Term, 1841, duly came to the hands of the defendant, then Sheriff of Northampton County, to be executed, and that he, by virtue of the said writs, seized and took into his possession the negro slave, Sam, mentioned in the plaintiff's declaration, and one of the slaves conveyed, or attempted to be conveyed, by the said deed, for which seizure this action was brought. It was also admitted that a debt of the said Samuel B. Spruill, of about $70 or $80, to which one Colin W. Barnes stood bound as his surety, was not inserted among the debts provided for in the deed, nor any provision made thereby for the said debt or the said surety, unless by the stipulation in the said deed heretofore referred to — that the said deed or surety was excluded without any act or direction of the said Spruill — and that no direction had been given by the said Spruill for the payment of the said debt. It appeared that the whole debts secured by the deed amounted to about $30,000.
And it was thereupon insisted by the counsel for the defendant that, upon the foregoing facts, and the stipulation in the deed reserving to the said Spruill power to direct surety debts unprovided for, to be paid in like manner as others therein specified, the said deed was void as against his creditors, and that the plaintiff was not entitled to recover in this action for the said seizure by the defendant, while the counsel for the plaintiff insisted that the clause of the deed referred to did not in fact and in law confer the supposed power, and that if it did confer it, yet no inference of fraud could thence be drawn to affect the validity of the said deed; and thereupon the counsel insisted that the plaintiff was well entitled to maintain his action against the defendant.
And it is agreed that should the opinion of the court be for the plaintiff, judgment shall be entered for him; otherwise, for the defendant. (206)
And his Honor being of opinion for the plaintiff, judgment was accordingly entered for him upon the verdict, and the defendant appealed.
When this case was here before ( 24 N.C. 449) the Court declined deciding the point now made in it, because it did not arise on the state of facts. Besides, we consider every question affecting creditors, and on which there is even a slight probability of protecting them against the contrivances of insolvent debtors by assignments for the benefit of a favored few, to be a question well worthy of consideration, and, for that purpose, of being kept open until it comes up so directly as to make its decision a duty. That duty has now arrived; and after having bestowed on it an earnest attention, we are of opinion that the court cannot pronounce the deed fraudulent in law and void upon its face, and, therefore, that the judgment must be affirmed.
The deed was made in August, 1841, with a provision for a sale in January, 1842, at the latest, and directing the proceeds to be applied to the satisfaction of a number of specified debts for which Mr. Spruill had given sureties, and which amounted to more than twice the value of all his property. It has, then, this clause,: "It is, however, stipulated that as the said Samuel B. Spruill is anxious to save harmless all his sureties, if there be any unprovided for in this indenture, he is at liberty to direct them to be paid in like manner as his other sureties are." And it now appears that there was a debt of that character for about $80 which was not mentioned in the deed. It is insisted on the part of the defendant that this gives to the debtor an undue control over the trust fund, amounting substantially to a power of revocation and appointment, and therefore the deed is fraudulent and void.
We fully agree that if this deed contained such a power as that (207) supposed, it would be clearly fraudulent. A provision for the debtor himself or his family, before his debts he paid, and a requisition on the creditors that they should consent to such provision or should release him, or any other clause by which it is apparent that the debtor executed the deed for his own advantage, would constitute fraud. Those purposes, thus expressed in the deed, are so directly dishonest and against law that no evidence dehors can explain them away. Therefore, the court may say the fraud is patent in the deed and makes it void in law.
A general power of revocation and appointment will have the same effect; for that is virtual ownership of the property, as the law supposes that every such power will be executed for the benefit of the person who has it. And as to the intent, it is the same, whether the power be in form a general and absolute power of revocation or a power to encumber at the pleasure of the grantor, as was decided in Tarback v. Marbury, 2 Vern., 510. There one made a deed to trustees and their heirs, in trust to sell and pay all his debts, with a power, nevertheless, to himself to mortgage such part of the estate as he should think it. Then judgments were obtained against him; and the question in the cause was whether they were to come in, under the deed, and be paid in an average with other creditors, or be preferred as judgment creditors. It was held that the deed was fraudulent as to the creditors by judgment, because the power to mortgage and charge what sums he saw fit was a power to charge to the full value of the estate, so as to amount in effect to a power of revocation. That decision in reference to creditors is in the spirit of the clause of the St. 27 Eliz., c. 4, which makes void against purchasers a previous conveyance with power in the grantor to revoke, alter, or determine it, although he had not revoked it before the second conveyance. Of this statute Lord Coke says, in Twine's case, 3 Rep., 83a, that it made voluntary deeds, made with power of revocation, as to purchasers, in equal degree with conveyances made by fraud and covin to defraud purchasers. And in 82b he lays it down that if (208) A. reserve to himself a power of revocation, with the assent of B., and afterwards A. bargain and sell the land to another, this bargain and sale is good within the remedy of the act; for otherwise the good provision of the act, by a small addition, an evil invention, would be defeated. This last observation is, probably, to be understood with some qualification; for where the power of revocation is not absolute, but clogged with a condition that is not illusory, the deed would not seem to be more within the reason than the words of the statute. Thus, in Willis v. Martin, 4 Term, 39, it seems to be yielded on all hands that a settlement with power to the settler to revoke, and the trustees to sell the estate, so as the purchase should be paid to the trustee and invested in other lands to the same uses, would be good, going clearly upon the ground that there could be no benefit to the settler under the power, since he was not to get the money, but the trustee was interposed to take the money for the benefit of others, and therefore was not a mere color. But if the condition be but colorable, so that the power is in fact tantamount to a power of revocation, it will, however veiled by artifice, make the deed void as to a purchaser. Thus, in Lavender v. Blackstone, 2 Lev., 146, A. was indebted £ 4,000, for which T. L., his father-in-law, was his surety, and at the instance of T. L. he levied a fine to two persons in fee, in trust at the request of T. L., to sell any of the land and pay those debts or any others for which T. L. should be bound for A.; then, to pay all such debts of A. as were then due, and should be certified by A. and his creditors by a certain day; and then, upon ulterior trusts, not necessary to be noticed at present, with a proviso (amongst others) that, with the consent of the father-in-law, T. L., and one R. L., the said A. might make leases for any part of the lands for any number of years, with or without rent. A. and the trustees sold and conveyed land to the value of £ 12,000, and therewith debts were paid; then A. alone sold other (209) lands of £ 400 per an. and conveyed them, and the purchaser held them many years without disturbance, and then mortgaged the residue of the land; and upon a trial at bat of an ejectment between the mortgagee and one claiming under the fine, the jury found for the mortgagee under the direction of the court, for these reasons: The continuing in possession and the sale of £ 400 per an. by himself solely, while the trustees joined in the sale of the other part, was a badge of fraud; secondly, the proviso to make loans for any term without rent, with consent of the trustees, put it in his power to defeat the whole settlement, and those were trustees of his own voluntary nomination. This case presents several points for observation material to that now before the Court. One is, that the first reason must have been one left to the jury, since the circumstances on which it rests are stated to be badges, and but badges, of fraud. Another is, that the next was probably left to the jury also, as the court could not know the trustees (whose consent was required) were the mere agents of the settler, put into the deed to help on his views, and not to check him when about acting to the prejudice of the creditors. But if that was not so, and the court directed the jury to find the deed fraudulent, as coming within the St. 27 Eliz., it must have been on the ground that the power to lease without rent, under any restriction as to consent of others, must have been inserted with a view solely to the personal advantage of the settler getting heavy fines, which would go into his own pocket, instead of rents, which would go to those to whom the estate would go under the settlement, still having respect to the benefit provided in the conveyance for the grantor. But the most apposite fact to our present purpose is, that one of the uses of the fine is precisely of the same character with the clause in this deed on which it is impeached; and so far from having been deemed a fraud per se, which avoided the conveyance in law, it was not even noticed to the jury as one of the badges or evidences of fraud to be considered by them. The provision alluded to is that before mentioned, secondly — that is to say, "in trust to pay such debts of A. as were then due and should be certified by A. and his creditors within a time limited." It is not, therefore, the mere fact that the appropriation of the trust fund (210) may be changed, or that the debtor may modify the appropriation by letting in other creditors existing at the time, that converts the power to do those acts into a fraudulent power of revocation, either literally or substantially. The true principle is, that if it appear expressly to be for the benefit of the grantor, as every general power of revocation must be, or to be a contrivance designed for that end, although covered by some form with a view to conceal that end, then it is fraudulent under the statute, but otherwise there must be a purpose actually to deceive found by the jury. In Griffin v. Stanhope, Cro. Jac., 455, there was a lease to one, in trust for the lessor's wife (in pursuance of a promise before marriage, with a provision endorsed, that the intent was that when there should be a jointure of £ 1,000 per an. settled upon her the lease should be void), and it was contended to be fraudulent, because by the proviso it was to determine at the party's will. But the court held otherwise, and took this difference: That when loans are made with a proviso that if the lessor pay ten shillings, that the loan should be void, it is apparent that the sum is not the value of the land, but only limited as a power of revocation, and therefore void. But if the proviso be that if the lessor pay £ 1,000, then the lease shall be void, this is not fraudulent, but the lease shall be good against the purchaser if the money be not paid thereon; for, in truth, this last is but a common mortgage, and the sum is not colorable barely. But in Jenkins v. Keymis, 1 Leo., 180, it was held, upon a special verdict, that a settlement with a power to the settler to charge the sum of £ 1,000 on a large estate was not void, because "it is not a power within the words of the statute (it being a particular sum) to revoke, determine or alter the estate; and no fraud being found, they (the court) could not adjudge the conveyance fraudulent.
Applying the principles of these cases to the present, it seems clear that the court cannot pronounce the deed fraudulent. We assume that, upon its true construction, the clause does not provide for any but the scheduled sureties, except at the election and upon the appointment of Spruill. But we think it does not give him fraudulently (211) an undue control over the fund. There is no uncertainly as to the persons to take benefit for an unreasonable time; at least, not obviously so. From the nature of the power, he must have executed it at or before the time of sale and distribution of the proceeds among the scheduled debts, so that the creditors could not be long tied up. In terms, it is not a provision or a power to make a provision for himself or any volunteer under him, but for a directly opposite end. In any event, all the property is gone from him forever. But in parting from it he reserves the power of doing equal justice to all his sureties, as well those he could not then enumerate as those he had specified. If that was really the purpose, it was one of the soundest morality, placing all having the same meritorious claims on him on the same footing; and if the creditors and sureties who procured him to execute the deed were satisfied with it, no other person can object, as the value of the estates is far less than the scheduled debts. It is not a power by which, apparently, he can take benefit indirectly; for he cannot gain credit and contract new debts on the faith of the power, since it is expressly restricted to those existing at the execution of the deed. It only gives the debtor the power of doing thereafter what he ought to have done then. It is said that such a power may be, nevertheless, used to the debtor's advantage, as the means of bargaining with the different sets of creditors to exclude or admit those not mentioned in the deed. We suppose an appointment from any such consideration would be an illusory execution of the power, and therefore disregarded. The act would be a fraud on the power, and not the power a fraud on creditors. But admit that such a dishonest exercise of the power could be sustained, yet it would only be true that such a power is equivocal and may be used to bad as well as to good ends. Therefore, it follows that it is fit a jury should say whether the purpose of inserting it in the deed was the good one expressed in it, or the bad one imputed to it, and to which perhaps it may be abused. The susceptibility of such (212) abuse is not a ground on which the court can say conclusively it it fraudulent in law, but only a cause of suspicion and argument of fraud to be weighed by a jury. If an insolvent father makes a gift to his son, the law, as Lord Coke says, intends a trust between them — that is, that the donee would, in consideration of such a gift freely made, and also in consideration of nature, relieve his father and not see him want who had made such a gift to him. Therefore, the law pronounces that conveyance fraudulent. But if an insolvent father owe a debt justly to his son, and make an assignment to secure or pay the same, although it is evident that there is great danger of the abuse of the power of debtors to give preferences among creditors, and it is not only possible, but highly probable, that the father thus preferred his son because he knew that "in consideration of nature" the son would be disposed to relieve him, and therefore he thus secured to him the means of doing it by paying him and leaving all others unpaid, yet the court cannot pronounce such a transaction a fraud, but must submit it to the jury to say, from that and other attending circumstances, such as the father's retaining possession or enjoying other bounties from the son, whether the intent was bona fide to pay the son, or under pretense of that to provide for the father himself. In such a case, and in the one before the Court, to use the language in Jenkins v. Keymiss, no fraud being found, the Court cannot adjudge the conveyance fraudulent. There is nothing here to excite a suspicion of actual fraud. The argument against the deed arises from the abuse that might be made by the debtor in holding himself up to be bribed by the creditors. But what could he make by admitting or excluding a petty sum of $80, when the scheduled debts amount to $30,000 or $40,000? The particular circumstances of this case show how unreasonable the rule would be which sternly pronounced the deed void, when no actual fraud was intended, but quite the contrary. The argument against the deed consisted of general reasoning, without an adjudication to sustain it. We think, however, the principle is the other way, and that where there is an apparent good purpose it is not to be presumed bad without some proof. Besides which, Lavender v. Blackstone, supra, is directly in point, as there one of the trusts (213) was similar to that in this deed, and it was not even contended that it was a badge of fraud, though there were several others on which the fine was found to be fraudulent.
PER CURIAM. Judgment affirmed.
Cited: Hardy v. Skinner, 31 N.C. 194; Young v. Booe, 33 N.C. 350; Ingram v. Kirkpatrick, 41 N.C. 471; Gilmer v. Earnhardt, 46 N.C. 560; Blalock v. Mfg. Co., 110 N.C. 107.