Opinion
(June Term, 1855.)
A deed of trust, after registration is viewed in a different light in the Courts of this State, from what it is regarded in the English courts, and is with us considered in the nature of a mortgage.
Where a deed of trust is made, leaving it discretionary with the trustee to pay such debts as he might think best and find most convenient, it was held, that the trustor had a right to control the application of this fund by directing what debts he should pay: but that as to any debt he had paid, or had assumed to pay, and as to his own debts, he had a right to retain funds to pay them before he was bound to obey such new directions.
The debts which the trustee under these circumstances had promised by parol to pay, come within the principle above declared and are not within the statute of frauds.
CAUSE removed from the Court of Equity of Davidson county at the Spring Term, 1855.
Morehead for the plaintiffs.
Gilmer for the defendants.
The plaintiff Stimpson, as trustee, and the other plaintiffs (157) who are the creditors of W. J. McElroy, filed this bill against the defendant Fries and other creditors, seeking to have certain property and effects delivered over to him the said Stimpson, according to the provisions of a deed in trust made to him on 2nd January, 1855, for the satisfaction of the debts therein specified.
In September, 1854, William J. McElroy being greatly in debt, and upon the eve of insolvency, executed the following instrument of writing, which was also signed by the other defendants, viz: "Whereas, W. J. McElroy is indebted to the Greensboro' Mutual Life Insurance and Trust Company in the sum of about $3,575.72, principal and interest, (see the papers and evidences of all in the hands of David P. Weir, for more certainty) — also other debts, and is desirous to make an assignment, and Francis Fries his general agent and attorney, to collect all his debts, dispose of and sell all his estate and property, and pay all his debts; which arrangement is assented to by David P. Weir, treasurer: Wherefore for the purposes aforesaid, and for and in consideration of the sum of ten dollars, to him in hand paid by the said Francis Fries, the receipt of which is hereby acknowledged, he the said William J. McElroy doth hereby, by these presents constitute, nominate and appoint the said Francis Fries his general agent and attorney, to sell and dispose of all his estate, real and personal, in the State of North Carolina, or elsewhere, and pay and satisfy the said debts due the said Trust Company in Greensboro' first of all others, and next such debts as the said Fries may deem best and find the most convenient; —; to make all deeds, writings and conveyances which the said Fries may deem proper and necessary; in his name, to act as general agent of the said W. J. McElroy. And the said W. J. McElroy, by and with the consent of the said David P. Weir, Treasurer, hereby, for value received, transfers, aliens and conveys to the said Francis Fries all his estate, property, slaves, and effects, notes, contracts, and judgments, and other evidences of debts, to him the said Francis Fries, his heirs, and assigns, for the purposes aforesaid, hereby (158) ratifying and confirming any and every thing which the said Fries may do in these premises: Said Fries is to have his expenses paid, but is not to be liable for any more than honesty of performance. In testimony whereof, the said parties have set their hands and seals, this 22d day of Sept. 1854.
W. J. McELROY, [SEAL.] D. P. WEIR, [SEAL.] F. FRIES, [SEAL.]"
By virtue of this contract, the defendant Fries took possession of the entire estate of the defendant McElroy, consisting of land, negroes, evidences of debts due him, stocks, horses and other personal property, some of which he has sold, and all of which he submits to account for, as required by the Court of Equity.
By virtue of the authority given him in the foregoing deed, the defendant Fries paid many of the debts due and owing by McElroy; for some other of his debts he was responsible by force of another deed of trust, executed in 1848, in which he was also the trustee, and which included some of the property conveyed by the deed of 1854; for other debts due by McElroy, he had become bound by his express undertakings to pay them out of the effects in his hands, and besides these, there were debts due to Fries individually, and as the partner of a firm. Those, i.e. the debts for which he was originally liable, the debts which he had assumed to pay, also the debts due him as above stated, he insists in his answer, should be allowed him at any rate, before paying over the fund to the plaintiff Stimpson: Various other debts were presented to him for acceptance or payment, which he declined paying or expressly assuming, but to these creditors he made a general declaration that his intention was, after discharging those above set out, to pay them, and all the other of McElroy's creditors pro rata out of the surplus: and he submits whether, as some of these creditors had probably relied on him in consequence of this general declaration, and had forborne to take other steps to make their debts safe, he ought not to be permitted to pay them also: but as to this he does not (159) insist and professes a willingness implicitly to abide the judgment of this Honorable Court. The defendant Fries in his answer discloses minutely the state of the fund in his hands — what amount he had paid under the trust of 1848 — what remains to be paid on that account — what he has paid under the trust of 1854, and what he has definitely promised to pay: also the sums due him: what property he has sold and what remains. He admits that he was called on by the plaintiff Stimpson to pay the funds in his hands over to him, but believing the rights of the parties to be in a state of great uncertainty, he declined doing so. Answers were filed by the other defendants, McElroy and Weir, which do not vary the facts as stated above.
The cause was set down for hearing on the bill, answers and exhibits, and sent to this Court.
In England, a deed of trust, which is not executed by the creditors, is looked upon as a conveyance made by the debtor for his own convenience in arranging his affairs, which he may control or alter at any time, and revoke at his pleasure, and which, of course, is void against creditors who sue out execution. Walwyn v. Coutts, 3 Meriv. 707; Garrard v. Lauderdale, 3 Sim. 1, and upon appeal, 2 Russ. and Mylne 451.
In this State, such deeds are looked upon in altogether a different light. After registration, the property is vested in the trustee, the trustor having no further control over it, or interest in it, except a resulting trust in the surplus after the debts are paid; the transfer is valid against creditors and subsequent purchasers, as being made upon a valuable consideration; in fact such a conveyance is treated as a mortgage — a third person, to wit, the trustee being introduced, because, from experience, it is found to be expedient to have the legal title in him, rather than in the creditor or his representatives, (160) especially when the parties suppose it will be necessary to sell the property. Ingram v. Kirkpatrick, 41 N.C. 463.
The deed executed by McElroy, 22d September, 1854, is not a mere power of attorney, but is a valid conveyance, the legal effect of which, is to vest the property in Fries, in trust, to pay the large debt due the insurance company, and then in trust to pay such other debts of McElroy as Fries "may deem best and find most convenient."
The deed is drawn very loosely and inartificially, but there is a consideration set out as being paid by Fries, to wit: $10: this at once repels the idea of a mere power of attorney, which may be revoked the instant after it is made; and there are apt and proper words of conveyance, so as to vest the fee simple and absolute estate in Fries in trust, etc.
According to the decision in Ingram v. Kirkpatrick, this gave the insurance company an absolute right to have their debt paid out of the fund, because that debt is set out in the deed, and in regard to it, there is an express declaration of trust. The other declaration of trusts is indefinite, and must depend on the rule id certum est quod certum reddi potest: so that any debt which Fries either paid, or made a definite promise to pay, at any time before the trustor himself made a declaration of the debts which were to be paid out of this trust fund, and thereby made certain the indefinite words used, attached to the fund in the same way as if it had been set out in the deed of trust. This, of course, will take in any debt due to Fries, or to a company in which he was a partner, for by the trust to pay such other debts as Fries may think best and find most convenient, the intention evidently was to include all debts due to Fries; this implication, from the general motives and conduct of men, is nearly as strong, as if the debts had been set out in the deed.
Our conclusion is, by the deed of 1848 the legal title to the property therein named vested in Fries, in trust, to pay the debts set out in that deed: by the deed of 1854 an estate in equity in the property conveyed by the deed of 1848, and the legal estate in the property not conveyed (161) by that deed is vested in Fries in trust to pay the debt due the Insurance Company, then in trust to pay debts due Fries, and then in trust to pay such debts as Fries had actually paid, or made a definite promise to pay before he had notice of the execution of the deed of 1855.
By the deed of 1855, an estate in Equity is vested in the plaintiff Stimpson, of the surplus of the fund in the hands of Fries, in trust to pay the debts set out in that deed. The general power to act as the agent and attorney of McElroy, and to pay such debts as Fries "might deem best and find most convenient" was given in the deed of 1854, in consequence of the reliance which McElroy had in the financial skill and management of Fries, and possibly with an expectation that he would be able to make a composition or some favorable arrangement with the creditors, but in regard to this the rights of McElroy were not concluded, and he, as the owner of the ultimate estate, had a right at any time to interpose and direct that certain creditors should be paid, and this declaration of trust by McElroy, had the same legal effect as if these creditors had been named in the deed of 1854. So, the effect of the deed of 1855 is to revoke the general power given by the deed of 1854, or rather to control it by specific directions to pay certain creditors, and this we think McElroy had a right to do, provided he did not interfere with what Fries had done, or definitely promised to do. Such promises need not be in writing, for it does not come within the Statute of frauds as a promise to pay the debt of another; because Fries had the funds of the debtor in his hands, and the promise was made in reference to the fund, and not upon his individual responsibility — Draughan v. Bunting, 31 N.C. 10.
The decree must declare the rights of the parties in pursuance of this opinion, and the plaintiffs may have a decretal order for an account, if it is moved for.
Per curiam.
Decree accordingly.
Cited: McRary v. Fries, 57 N.C. 240.
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