Opinion
11-15-1859
MARKS & als. v. HILL & als.
Joynes, for the appellants, insisted: John Lyon, for the appellees, insisted:
1. A provision in a deed of trust to secure creditors, that the trustee may continue the business and replenish the stock, if intended merely as a means of realizing the trust fund, and with a view to winding up the business, is not fraudulent per se, so as to avoid the deed.
2. In such a case a provision in the deed that one of the grantors shall attend to the business, but he being under the control of the trustee, who may at any time on his motion, and shall at the request of creditors, sell the property at auction, is not fraudulent per se, so as to avoid the deed.
3. Partnership effects may be applied, by the concurrence of the partners, to pay an individual debt of one of them, if the other receives a sufficient consideration therefor, though they may be unable to pay all their partnership debts.
4. H and N form a partnership, each to put in two thousand five hundred dollars. N borrows the money on his own note with security. H is unable to borrow on his own credit; and with the consent of N gives the note of the firm for the amount. They fail, and agree that both notes shall be paid out of the partnership assets; and the assets are conveyed in trust to secure these debts as well as other partnership debts. The agreement is upon a sufficient consideration, and valid against partnership creditors not secured by the deed.
5. In a bill by creditors to set aside a deed of trust for payment of debts, on the ground that it is fraudulent on its face, the bill does not ask for an account, but there is a prayer for general relief. Though the deed is sustained as valid, the plaintiffs are entitled to an account.
6. In such case, the court below having dismissed the bill generally, and it not appearing that the plaintiffs asked for an account or that the court considered the question, the appellate court will affirm the decree sustaining the deed, and reverse it as to the account; but with costs to the appellee.
This was a bill filed in the Circuit court of Petersburg in January 1856, by Grandison F. Marks and others, judgment and execution creditors of Hill & Nichols, to set aside a deed of trust executed by William R. Hill and Dudley Nichols, to R. R. Collier in June 1854, to secure certain debts therein mentioned, upon the grounds that upon its face it was fraudulent in law and void as to creditors. Hill & Nichols commenced business in Petersburg in 1853, their stock consisting of household ware, fancy articles, and " notions" generally; and in June 1854, finding the business unprofitable, they made the deed complained of in the bill; by which, to secure a debt which the deed states Hill owed to William A. Bragg of two thousand five hundred dollars, and an accommodation note for two thousand dollars, which had been discounted for Nichols at the Farmers Bank, and endorsed first by R. S. Thompson and second by Collier, and to secure debts of the firm of Hill & Nichols, contained in a schedule to the deed, they conveyed to Collier all their stock of goods, effects and credits, of which an inventory had just been taken, in trust that Collier, with the consent in writing signed by William A. Bragg and R. S. Thompson, should permit Nichols, as agent, to carry on said business, the stock of which was thereby assigned, with authority to replenish the said stock, for the purpose of paying off the debt of Hill to Bragg and the note of Nichols at the Farmers Bank. And forasmuch as the said Collier had made himself liable to pay the debt to Bragg, as was understood between Bragg and Collier, Hill surrendered all interest he had in the business of Hill & Nichols. And in trust also that Collier should proceed to dispose of the effects of the firm and collect the credits specified in a schedule annexed to the deed, and pay the debts of Hill & Nichols, specified in another schedule. And out of the collections of said credits and any sale of said effects, if any, first to pay the expenses of the trust, including for the trustee a commission of five cents in the dollar, out of all the trust subject; and then pay, first, the " " " borrowed money," and next pay ratably the debts in the aforesaid schedule.
And it was stipulated by the parties to the deed, that the agency of Nichols should be arrested whenever Bragg, Thompson or Collier, or any other three of the creditors, should in writing give direction to Collier to make sale of the stock of goods by auction, in such way as Collier might judge best for the benefit of all interested. And after satisfying the trust, Collier should pay over any balance of proceeds and deliver any remnant of the effects and of the stock of goods to the order of Nichols.
The bill charged, that at the time of making the deed William R. Hill and Dudley Nichols were utterly insolvent; and that the plaintiffs' executions against them were returned " no effects:" and that appeared from the return thereon. The objections to the deed were: First--That the partnership effects were conveyed to pay the individual debt of Hill to Bragg and of Nichols to the Farmers Bank; debts which were contracted by each of them to raise the capital which each was to put into the partnership. Second--That Nichols was authorized to carry on the business with the stock conveyed by the deed, without limitation as to time, and with authority to the agent to replenish the stock. And it is charged that the trustee had continued through the agency of Nichols to carry on the business up to the time of filing the bill or a short time previous.
Hill, Nichols, Collier and Bragg answered the bill separately, though all concur in the grounds of defence. They deny all fraudulent intent in making the deed, and aver that its provisions were made with the purpose to advance the interest of the creditors; all of whom were intended to be included, though some were inadvertently omitted. They say that Hill not being able to raise the sum of money which by their agreement he was to put into the business, he, with the assent of Nichols, gave to Bragg, from whom he borrowed the money, the note of Hill & Nichols for it: and this is proved by the note which Bragg exhibited with his answer. They say further, that Nichols borrowed his capital from the Farmers Bank, with Thompson and Collier as his sureties; but that as the partnership was bound for Hill's capital, it was thought but reasonable, and it was agreed between Hill & Nichols, that the debt of the latter to the Farmers Bank should also be paid out of the partnership effects; and as both debts were for borrowed money which had been laid out in the purchase of their stock in trade, and was represented by the goods in hand and the debts due them, that it was proper these debts should be preferred. As to Collier's interest in these debts, he was not bound for that of Bragg but by his signing the deed, which he supposed furnished him the means of paying it; and he was the second endorser on the debt due to the Farmers Bank; Mr. Thompson the first endorser, having ample means to pay it.
It was further stated, that as soon as the deed of trust was executed, possession of all the property was delivered to the trustee. That the stock, consisting of miscellaneous wares, fancy goods and " notions," would have been ruinously sacrificed at public auction: many of the articles could be " worked off" in the course of trade, which would be thrown away if forced upon the market. That for the benefit of the creditors, the deed gave to the trustee a qualified discretion as to the time and mode of disposing of the property. That to secure custom and work off the bad stock, it was necessary to renew the supply of such articles as were in common use and would command ready sale. And that it was not for the purpose of continuing the business, but simply to enable the trustee to dispose of the whole stock to the best advantage, that he was authorized, with the consent of the cestuis que trust, to replenish the stock until opportunity should occur to sell it to advantage. That Nichols, from his acquaintance with the business, was thought best fitted to act as agent for the trustee: he retained no right under the deed to manage the property. That in fact he acted as such agent only until he obtained employment elsewhere about the 1st of January 1855.
The cause came on to be heard on the 4th of June 1855, upon the bill, answers, the replications thereto and exhibits, when the court held that the deed had been executed in good faith, and was not invalid for any thing on its face; and therefore dismissed the bill with costs. And the plaintiffs thereupon applied to this court for an appeal; which was allowed.
Joynes, for the appellants, insisted:
1st. That the deed was void, because it provided that Nichols should carry on the business. And he distinguished between the cases in which the trustee employed the grantor as his agent, to act for him, subject to his control, and for whose acts the trustee was responsible as for his own; which he admitted might be done; and the case in which it was a condition of the deed that the grantor should act; and therefore deriving his authority from the source from which the trustee derived his, he was necessarily independent of him to the extent of the authority conferred upon or retained by him. He referred to McClurg v. Lecky, 3 Penr. & Watts' R. 83; Nicholson v. Leavitt, 4 Sanf. S. C. R. 252, 273; Shattuck v. Freeman, 1 Metc. R. 10; Vernon & al. v. Morton, 8 Dana's R. 247.
2d. That the deed was void, because Nichols was authorized to continue and carry on the business, and for this purpose to replenish the stock: thus subjecting the whole trust subject to the casualties incident to the business, by which it might be lost or wasted. And again he distinguished between the cases in which the business was allowed to be carried on for a time with a view to the more advantageous disposal of the trust subject; and the case in which authority was given to carry on the business indefinitely, and to replenish the stock in order to give it vitality and success. He referred to Janes v. Whitbread, 5 Eng. Law & Equ. R. 431, as a case of the first class, and Owen & Wish v. Body & als. 31 Eng. C. L. R. 254, as establishing the principle of the other; and he insisted that this case came within the principle of Owen, & c. v. Body; Lang v. Lee, 3 Rand. 410, 425; Sheppards v. Turpin, 3 Gratt. 373; Spence v. Bagwell, 6 Gratt. 444; Addington v. Etheridge, 12 Gratt. 436; American Exchange Bank v. Inloes, 7 Maryl. R. 380; Whallon v. Scott, 10 Watts' R. 237; Hafner v. Irwin, 1 Ired. Law R. 490.
3d. That the debts to Bragg and to the Farmers Bank were the individual debts of Hill & Nichols; and they being insolvent when they made the deed, could not convey the partnership assets to pay them to the injury of the partnership creditors; and if the debt of Hill to Bragg, being secured by the partnership note, might be paid out of the partnership assets, that was not the case as to Nichols' debt to the bank; and there was no consideration to sustain Hill's conveyance to secure that debt. The deed therefore was void as to both, or at least one of these debts; and as it did not give the surplus of the fund devoted to the satisfaction of these debts to the other creditors secured by the deed, the appellants were entitled to have this fund applied to satisfy their debts. On the last point, he referred to Coly. Part. § 914 to 918; Tate v. Liggat, 2 Leigh 84. As to the power of one partner to convey assets of the partnership to pay the debts of the other, he referred to Hulchinson v. Smith, 7 Paige's R. 26; Nicholson v. Leavitt, 4 Sanf. S. C. R. 252; Burtus v. Tisdall, 4 Barb. S. C. R. 571; Collins v. Hood, 4 McLean's R. 186; Ferson v. Monroe, 1 Foster's New H. R. 462; Kirby v. Schoonmaker, 3 Barb. Ch. R. 46; Allen v. Chester Valley Co. 21 Conn. R. 130; Murrill v. Neill, 8 How. U. S. R. 414; McCullough v. Sommerville, 8 Leigh 415.
4th. That the court erred in dismissing the bill, the plaintiffs below being entitled to an account, and to have the surplus of the trust fund after the debts provided for in the deed were satisfied. Janney v. Barnes, 11 Leigh 100; Skipwith v. Cunningham, 8 Leigh 271. And that this might be had under the prayer for general relief, he referred to these cases, and also to Watts v. Waddell, 6 Peters' R. 389; Bailey v. Burton, 8 Wend. R. 339.
John Lyon, for the appellees, insisted:
1st. That the object of Hill & Nichols in providing for a private sale of the stock of goods, was to benefit their creditors, not themselves. They gave up everything they had, and still remained liable for their debts. That from the character of the goods, to sell them at auction was to throw them away; and if they were to be retailed, it was necessary to replenish the stock with such articles as were of common use and frequently called for. But the deed showed that the purpose was not to continue the business for profit, but to sell to the best advantage, and thus close up the trust in a way the most advantageous to the creditors. And that Bragg, Thompson or the trustee, or any three of the other creditors, could have a sale of the goods whenever they chose to require it. The case therefore came clearly within the principle of the first class of cases referred to by the counsel for the appellants. Janes v. Whitbread, 5 Eng. Law & Equ. R. 431.
2d. That Nichols was simply the agent of the trustee. All would admit he was the best qualified agent that could be obtained to act whilst the goods were to be retailed at private sale, for no one questioned his integrity; and his agency could be terminated at any time by the creditors interested in the trust subject.
3d. That whilst it was true that the partners being insolvent could not make a voluntary assignment of the assets, yet they could convey the assets or their interest in them to satisfy their individual debts. Story Part. § 358 to § 363. And that in this case Bragg's debt bound the partnership; and Hill certainly received a valuable consideration in his release from that debt, for his conveyance to secure the debt of Nichols to the Farmers Bank. And he insisted that the result of the cases cited by the counsel for the appellants, was that the property of the partnership belongs to both the partners, and neither is entitled to dispose of the interest of the other, whether they are solvent or insolvent. But that where both unite they may convey the partnership property, effectually, for a valuable consideration.
4th. That the plaintiffs below could only have asked for an account under their prayer for general relief. That a party can only have relief according to the case made in his bill; and where the bill states the case for one specific object, the court will not give a different relief. Nickell & Miller v. Handly, 10 Gratt. 336. In this case, the bill does not allege that there will be a surplus of the trust fund, after satisfying the objects of the trust, but charges throughout that there would be no such surplus: And this is admitted by the defendants. He referred to Mitford's Plead. 39, note; Colton v. Ross, 2 Paige's R. 396; Foster v. Cook, 1 Hawks' R. 509; Lloyd v. Brewster, 4 Paige's R. 537; Nicholson v. Leavitt, 4 Sanf. S. C. R. 313; Story's Equ. Pl. § 40, 41, 42, 43; James v. Bird's adm'r, 8 Leigh 510.
DANIEL, J.
The clause in the deed, mainly assailed by the counsel of the appellants in his argument here, is that which provides that the trustee Collier, with the consent in writing of Bragg and Thompson, shall permit Nichols, one of the grantors, to carry on the mercantile business, in which he and his partner Hill had been engaged, with authority to replenish the stock of goods on hand. Such a provision, it was argued, was of itself sufficient to render the deed invalid, and the case of Owen & Wish v. Body and others, 31 Eng. C. L. R. 254, and several American cases, were mainly relied on in support of the proposition.
In the case of Owen & Wish v. Body, the debtor, who was engaged in the business of an inn-keeper, by his deed of assignment conveyed to Owen & Wish, his principal creditors, all his household goods, stock in trade, debts, estate and effects whatever, upon trust that they should, with all convenient speed, in such manner, at such time or times, and on such terms as they should think most advantageous, sell the goods and chattels; and should also, so long as they might think it advantageous to do so, continue and carry on the business of the debtor, either in his name, or in their own names. The assignees were empowered to purchase horses, carriages, and all other articles and things necessary to keeping up the stock in trade, and carrying on the business. Out of the moneys arising from a sale or the profits of the business, Owen & Wish were first to retain a sufficiency to pay their own debts, and then, from time to time, to distribute the residue ratably among such of the other creditors as should execute the deed within three months, as often as there should be sufficient money on hand to pay two shillings in the pound upon or in respect of said last mentioned debts.
The deed further provided, that the assignees, on being requested in writing by the major part in value of the other creditors, should, instead of continuing on the said business or trade, proceed to sell and convert into money immediately all the goods, stock in trade, effects, & c.
The assignment was declared invalid; Lord Denman, C. J. speaking for the court, simply stating that the ground of the decision was, that " the deed imposed such terms as might have constituted a partnership among the persons executing it, and those were terms to which creditors were not bound to submit."
That case, however, though not overruled, has been very much narrowed in its application by more recent decisions of the English courts: Janes v. Whitbread and others, 5 Eng. L. & Eq. R. 431; Coate and another v. Williams, 9 Eng. L. & Eq. R. 481. In the former of these two cases the deed, after authorizing the trustee to sell the property and pay the debts, proceeds to provide, that " it shall be lawful for the said trustee also to employ the said James Ellis (the grantor), or any other person or persons, in winding up the affairs of him the said James Ellis, and in collecting and getting in his estate hereby assigned, and in carrying on his trade, if thought expedient by him; and to allow to the said James Ellis, or any other person or persons so employed as aforesaid, out of the said trust estate, such sum and sums as to the said trustee shall seem proper." The court of common pleas sustained the deed. They construed the provision for carrying on the trade as merely authorizing the trustee to go on with the trade with a view to winding up. They said that the main object of the deed was to have the property realized; and that the carrying on the trade was no more than ancillary to that object: and in this they said the case was to be distinguished from the case of Owen v. Body, in which they thought it apparent that the main object of the deed was to continue the business of the debtor in a spirited manner for the benefit of the preferred creditors. In Coate v. Wil liams, the clause in respect to carrying on the trade was almost identical in terms with that in Janes v. Whitbread. The Court of exchequer, following the decision in Janes v. Whitbread, held that there was nothing objectionable in such a provision: Pollock, C. B. observing that the deed was in precisely the same terms with a printed form which might be had at any law stationer's in London.
Deeds with like provisions have been frequently sustained by the courts of our sister states. As, in the case of De Forest v. Bacon & another, 2 Conn. R. 633; where the deed conveyed all the stock of a country store, a large quantity of boxes and brushes, finished and unfinished, in a brush and box factory, together with a quantity of raw materials for making the same; upon trust to the trustees to sell and pay the debt; and with power to the trustees to conduct and carry on the manufactory of brushes of various kinds until all the materials then on hand should be consumed, and to purchase such articles as might be necessary to manufacture and work up all the raw materials then on hand. Such a provision in a conveyance the court said did not make it fraudulent per se; it could only be evidence of fraud proper to be left to the jury; and as the question of fraud had been fairly submitted to the jury, who had negatived the fraud, there was no ground of complaint.
A like decision was made in the case of Kendall v. The New England Carpet Co. 13 Conn. R. 383. There the assignment was by the company of all its goods, materials, effects, & c. to its principal endorser, for the purpose of indemnifying him, with power to the assignee to work up the stock on hand, to make purchases of any materials necessary for that purpose, and to pay all expenses incurred from the avails of the property assigned. Williams, C. J. in delivering the opinion of the court sustaining the validity of the deed, said, that the power in question was one which might be greatly beneficial to all the parties connected with the affairs of a large manufacturing establishment; that the sudden suspension of the operations of such a concern, and the sale of the stock in the various stages of manufacture, in parcels or together, would necessarily greatly diminish the value of the property to the creditors, and impair their security; that the power, it was true, was one which might be abused, but that the interest of vigilant creditors would generally prevent or detect any improper exercise of the power.
Similar views prevailed in the cases of Cunningham v. Freeborn, 11 Wend. R. 240; Foster v. The Saco Manufacturing Co. 12 Pick. R. 451; Woodward v. Marshall, 22 Pick. R. 468; Robins & als. v. Embry & als. 1 Smedes & Marsh. Ch. R. 207; and Dunham & Dimon v. Waterman, 3 Duer's R. 166.
I have been unable to perceive that there is any necessary conflict between these decisions and the case of The American Exchange Bank v. Inloes and others, 7 Maryl. R. 380, and Whallon v. Scott, 10 Watts' R. 237, cited by the counsel for the appellants. The deed in the former case empowered the trustee to sell the property, at his discretion, gradually, in the manner and on the terms in which, in course of their business, the grantors had sold and disposed of their merchandise. No time was fixed for the winding up of the business, and no power was given to the creditors to have the trust closed. The court, after adverting to several other features in the deed which they regarded as indicating a fraudulent design on the part of the grantor, said that the deed was simply a contrivance, through the instrumentality of a trustee, to provide for carrying on the business of the concern in the same manner in which it had been before conducted, and for an indefinite period, free of all control or interference on the part of creditors; and that a debtor could not thus postpone his creditors to an indefinite period without their assent. It was, however, conceded by the court that there might be cases in which the stipulation in question would be proper, where it was designed to be ancillary to the winding up of the debtor's business, or was designed more effectually to promote the interests of the creditors, and not intended for the benefit of the debtor.
In the case of Whallon v. Scott, the deed was held to be invalid, chiefly on two grounds: First, that by the language of the assignment the assignor parted only with the possession of the effects assigned, and not with the property, for a limited time, during which the court said it was impossible to say who was the owner; and 2dly, that whilst the assignees were empowered during the interval to sell the goods by retail, no appropriation of the proceeds was provided for. I see nothing in the facts of the case, or in the language of the court, which would make the decision or the opinion of the court in that case authority for denying to a debtor, in making an assignment for the benefit of creditors, the power to enter into stipulations for the winding up of the business, as were sustained in the cases I have cited.
In the deed under consideration, the clause conferring upon Nichols, as agent, the power to carry on the business and replenish the stock, does not in terms declare (nor is it in any other part of the deed in terms declared), that the power is given for the purpose of winding up the business of the concern. But on reading this clause in connection with the other provisions of the deed, and more especially the provisions contained in the last paragraph, the true construction to be put on the provisions directing the manner of disposing of the goods and their proceeds, taken as a whole, is, I think, that Collier is vested with the power, as soon as he shall deem it advisable, or as soon as he shall be requested in writing, either by Bragg or Thompson, the preferred creditors, or by any three of the other creditors, to make sale of said goods at auction, in such way as the said Collier shall judge best for the benefit of the parties interested; and that in the mean time Collier, with the consent of said Bragg and Thompson, may employ Nichols as his agent to sell the goods by private sales, and replenish the stock whilst so carrying on the business; and that the proceeds of the sales, whether of the sales made by Collier at auction, or of those made by Nichols whilst continuing the business, are to be applied in payment of the two preferred debts. So construing the deed, I cannot see that there is any provision in it inconsistent with an honest surrender by a debtor to his creditors, of his property for the payment of his debts. The grantors have parted completely with all their property, and with all dominion and control over it. They have devoted all their goods, effects and credits to the payment of their debts. Without insisting on any release by their creditors, they make an entire surrender of their property, its profits and proceeds. It is true, that in the event of the stock being sold by Nichols privately, he would probably derive a benefit from the clause conferring the power to sell in that manner. The goods would in all probability bring higher prices, and consequently go further in discharging the debts for which he was bound, if thus sold, than if forced off immediately at public auction. Still any benefit, thus accruing to Nichols, would not be due to any reservation or stipulation in the deed on which he would have a right to insist against the consent of his creditors; but would come to him, incidentally, from the exercise of a power, the control of which, by the terms of the deed, was in no respect with him, but wholly with the creditors and the trustee.
Nor is any ground for impeaching the fairness of the deed to be found in the provision empowering Collier to employ Nichols as his agent. It is not stated in the deed nor averred in the bill what compensation Nichols was to receive for his services as agent, nor indeed that he was to receive any; and all suspicion, that it was one of the purposes of the deed to create a profitable employment or lucrative agency for one of the grantors, is entirely shut out by the consideration that the agency might be discontinued at any moment by the action of Collier, or Bragg, or Thompson, or any three of the other creditors. The power in the trustee to appoint the debtor his agent, was conferred by the deeds in each of the cases of Janes v. Whitbread and Coate v. Williams, with the further power to allow him out of the trust estate such sum as to the trustee should seem proper; and there was no suggestion in either case that such a feature vitiated the assignment.
It was however argued here by the counsel of the appellants, that even though the deed should be construed as intending no especial benefit to Nichols, it yet conferred powers upon the preferred creditors to which the other creditors ought not to be bound to submit; that whilst Bragg and Thompson might be willing to encounter the hazards of continuing the business, in the hope of thereby more effectually insuring the payment of their entire debts out of the trust subject, they had no right, without the consent of the other creditors, to subject the estate of the common debtor to such vicissitudes and risks.
It seems to me, that a satisfactory answer to this is to be found in the check upon the powers of the trustee and the preferred creditors, which the deed itself provides. It is difficult to suppose that Collier or Bragg or Thompson would be willing to embark in any heavy expenditures for the purchase of a new stock of goods, in the face of a provision giving to any three of the other creditors provided for in the deed, the power at any moment to order a discontinuance of the business and a sale of the goods at auction. And hence arises fairly a very strong inference that the deed was not planned or framed with a view to speculation, or any protracted continuance of the business for the benefit of the preferred creditors. It is true, that the creditors in the second class are not invested by the deed with any interest in the surplus which might arise from the sale of the stock of goods, after paying the debts of the preferred creditors: the stock of goods alone being appropriated to the security and satisfaction of Bragg and Thompson, and the credits and other effects alone, to the security and satisfaction of the other creditors. Still, as there is no release by any of the creditors, the creditors in either class have, notwithstanding, and independent of the deed, an interest in seeing that the property devoted to the satisfaction of the creditors in the other class, is made to go as far as possible in discharging the debts of the common debtor. They also have a further interest in the subject, growing out of the fact that the expenses of the trust are to be paid out of the effects and credits. The presence of these interests in the creditors of the second class, in connection with their power over the subject before adverted to, exhibit such a check imposed by the deed, on the conduct of the preferred creditors, as goes very far, it seems to me, in explaining the deed, and in showing that it was not in the scheme of Collier or Bragg or Thompson, that the trade should be carried on any longer than might be found necessary for the judicious winding up of the concern. And giving a fair and reasonable construction to all the provisions of the deed, and looking to the nature of the subject conveyed, I am of the opinion that the case, in respect of the feature under consideration, is within the influence of the several precedents I have cited, where features of the kind were held not to invalidate the assignments; that the authority given to replenish the stock of goods was merely designed, as the appellees in their answers aver it was, to enable the trustee and agent to make, occasionally, purchases of the more attractive articles, the presence of which would invite and retain custom, and thus facilitate the " working off" of the less attractive and less saleable portion of the stock; and that the carrying on of the business as provided for, was looked to by the framers of the deed not as one of its main objects and ends, but as a temporary expedient or means which, instead of delaying, would in all probability hasten the judicious conversion of the goods into money.
I do not think that either of the cases of Lang v. Lee, 3 Rand. 410; Sheppards v. Turpin, 3 Gratt. 373; and Addington v. Etheridge, 12 Gratt. 436; cited by the counsel for the appellants, can be made to apply to the deed here. In the last of these cases, the grantor retained to himself the possession of the goods, with the right to sell them until default should be made in the payment of the debts secured, and until the trustee should be requested by any of the creditors to close the deed; and though it is conceded in the second instruction asked in the case, that by the provisions of the deed the grantor was to account to the trustee, the deed in fact contained no such provisions, and was wholly silent as to the proceeds of the sales which the grantor should make during the possession retained by him. And in the other two cases, the deeds were even more obviously objectionable than the deed in Addington v. Etheridge. We should, I think, run counter to no decision of this court in declaring that the deed here is not void on the score of the objection under consideration; and for the reasons already stated, I am for so declaring.
Nor do I think that the validity of the deed is either wholly or partially destroyed by the fact that the partnership effects are conveyed for the purpose of securing the payment of the two thousand dollar note of Nichols to the Farmers Bank. Both partners were present, assenting to the whole arrangement, and uniting in the execution of the deed. There were no executions against their effects. They had done nothing to impair their dominion over their property. They were not under the operation of any bankrupt or quasi bankrupt or insolvent laws regulating the disposition of their assets. Under such circumstances, I do not doubt that the two partners combined had the same power and control over their social effects as each one had over his own individual and separate estate. Each one had a right, for a valuable and adequate consideration, to make a bona fide sale of his interest in the concern, or his share in the effects to the other. There was nothing to forbid their making a fair division of the social effects between themselves as the equities between them required; and if upon a settlement of their transactions one was indebted to the other, the former had the same right to apply his share of the effects to the payment of the debt that he had to apply his separate estate to the payment of any other debt he might owe.
Neither of them, it is true, had a right to give away his property, whether social or separate, to the prejudice of his creditors of either class, nor to pledge such property for the payment of the debts of others, for which he was in no wise bound, so as thereby to defeat the payment of debts for which he was bound. But if either of the partners had contracted a debt in his own name alone, of which the equities between the partners would require that the other should pay his share, I can see no good reason why the partners might not agree to apply the assets of the firm to the payment of such debt, or to give a deed of trust upon their partnership effects for the purpose of securing the payment, though the effect of making such an application of the assets, or of giving such a deed, might be to defeat the payment of debts contracted in the name of the firm.
As authority for these propositions, I would refer to Ex parte Ruffin, 6 Ves. R. 119; Ex parte Williams, 11 Ves. R. 3; Story on Partnership 508; and to the cases cited in the notes to Silk v. Prime, 2 Leading Cas. in Eq. (3d Am. ed.) p. 72, 331-2-3, 71 Law Libr.; and more especially, Siegel v. Childrey, 4 Casey's R. 279.
Now, it is stated in the bill that the debt from Hill to Bragg (the two thousand five hundred dollars) and the debt from Nichols to the bank (the two thousand dollars), were due for money borrowed by Hill and Nichols, respectively, to put into the business of their said partnership, as their respective shares of in-put capital. And in their answers, Hill and Nichols state that each was to put in two thousand five hundred dollars; that in order to carry out the agreement, Nichols borrowed two thousand dollars of the bank, on his individual note, endorsed by Thompson; and that Hill, being unable to raise his two thousand five hundred dollars out of his own private resources, or upon his individual credit, borrowed that sum of Bragg, on the note of the firm of Hill & Nichols. Bragg makes a statement to the same effect in his answer, and files with it, as an exhibit, a copy of the record of a judgment obtained by him upon the note, by the confession of Hill and Nichols, and also a copy of the note on which the judgment was founded. The origin and character of the two debts are thus sufficiently shown; and indeed I did not understand the counsel for the appellant as contending that the record was wanting in proof in that regard. Nichols and Hill each also further state, that, such being the origin and character of the two debts, and the money derived from each loan having gone into the capital and business of the firm, and being represented by a corresponding amount of the goods and effects of the partnership, they deemed it just and proper, and so agreed, that the two debts should be placed on the same footing, and should both be paid out of the assets of the firm. It is true, that it is not stated in the answers when this agreement was made, whether at the time when Hill borrowed the two thousand five hundred dollars and gave the note of the firm for its payment, or at the time of executing the deed, or at some point of time in the interval; and I am inclined to infer from the answers, that the agreement was, most probably, not made till about the time of their coming to the conclusion to make the deed. But I do not regard the date of the agreement as material to the rights of the parties. It is enough, in the view which I take of the case, that the equities between the parties fully justified such an agreement; that they did so agree and carry out their agreement in the deed; as sufficiently appears by the deed itself.
It would be a very harsh and unreasonable judgment, as respects Nichols, to infer from his merely allowing Hill to raise his two thousand five hundred dollars on the note of the firm, that he thereby contemplated and agreed that in a final settlement of the partnership said note should, as between him and Hill, rank as a partnership debt, and be paid out of the assets of the firm, whilst he should be left to pay the note of two thousand dollars out of his private means. So to infer, would be in effect to suppose that Nichols intended to make a donation to Hill of the half of the two thousand dollars put by him into the concern, inasmuch as Nichols would be clearly two thousand dollars in advance to the firm more than Hill, if in a settlement of their affairs the two thousand five hundred dollars should be treated as the debt of the firm, and the two thousand dollar note as the debt of Nichols alone.
It is true, as it respects the owners of the two debts, that whilst Bragg stood as the creditor of the firm, the bank stood as the creditor of Nichols alone. Yet as between the partners in settling their transactions and adjusting their burdens inter se, Nichols had, as I conceive, a clear right in equity to insist that the debt of two thousand dollars should be placed on the same footing with the debt of two thousand five hundred dollars. This being so, and there being nothing further in the record to show how the parties stood in respect of their advances to the firm, it cannot be said that the deed as to Hill is, in respect to the two thousand dollars, without consideration, or that he is appropriating his share or interest in the effects of the firm to the payment of the debt of another, for which he was not bound. And upon a view of the whole case, I am of the opinion that the appellants have failed to show that the deed is void or in any respect invalid.
The appellants, however, have a right to subject the surplus proceeds of the trust subject, if any, after the satisfaction of the debts secured in the deed, to the discharge of their judgments. The bill, it is true, does not specifically ask for such relief. It seeks to set aside the deed, and to charge the entire subject conveyed with the payment of the judgments. There is, however, a prayer for general relief, under which, according to the decisions of this court in Skipwith v. Cunningham, 8 Leigh 271, and Janney v. Barnes, 11 Leigh 100, the appellants were entitled to have the surplus applied in discharge of their demands.
In each of those cases, as here, the bill was framed with a view to the setting the deed aside; in neither was there any specific prayer for an account. Yet this court, in each case, though concurring in opinion with the court below, that the deeds were valid, held that, under the prayer for general relief, the surplus might be decreed to the appellant, reversed the decree dismissing the bill, and remanded the cause for an account.
Upon the authority of those cases, I am of the opinion that we should affirm the decree so far as it dismisses so much of the bill as seeks to avoid the deed, whether in whole or in part, and reversing on account of the error in failing to direct an account, to remand the cause with instructions to the Circuit court to order an account of the trust fund, unless the benefit of such an order is waived by the appellants, and proceed with the cause as equity shall require; but if the appellants waive an account, to dismiss the residue of the bill with costs to the appellees.
I am further of the opinion, that notwithstanding the reversal to the extent just indicated, the appellees should have their costs in this court. It appears, I think, satisfactorily, from the pleadings and the opinion and decree of the Circuit court, that the questions touching the validity of the deed were alone litigated between the parties and actually passed upon by the court; and that the failure to order an account, or to submit to the appellants whether they would have an account, was a mere omission, proceeding from an oversight on the part of the court, and not from any error of opinion: an omission consequently which we may well presume would not have occurred, or would have been promptly corrected, but for the neglect of the appellants to bring the matter directly to the notice of the court. Under such circumstances, as there may be a surplus of the fund after satisfying the purposes of the deed, whilst, in order to avoid the possible injustice which might be done to the appellants, by wholly affirming the decree dismissing the bill, it becomes necessary to reverse and remand for an account, we shall be fully justified by the decision of this court in Handly v. Snodgrass, 9 Leigh 484, and numerous cases there cited by Judge Tucker, as also by several cases since decided (see Blessing's adm'r v. Beatty, 1 Rob. R. 287; Williamson's ex'or v. Howard, 2 Rob. R. 39; and Boyce's adm'r v. Smith, 9 Gratt. 704); in decreeing the costs of the appeal to the appellees. In all of these cases, the appellants succeeded in obtaining the correction of errors, which, if allowed to stand, might have operated to their prejudice; yet, in each case, the costs of the appeal were given to the appellee. In some instances, the decree of the Circuit court was affirmed without prejudice; in others, the decree was amended, and as amended, affirmed; and in others, the decree was reversed with costs to the appellees. The last mentioned mode of correcting this error is, I think, the one most appropriate here.
The other judges concurred in the opinion of DANIEL, J.
DECREE REVERSED, with costs to the appellees.