Dewey v. Littlejohn, 37 N.C. 495, 2 Ired. Eq. 495 (1843)

June 1843 · Supreme Court of North Carolina

37 N.C. 495, 2 Ired. Eq. 495

CHARLES DEWEY vs. THOMAS B. LITTLEJOHN & OTHERS.

Notice of a deed of trust, not registered according to law, raises no equity at gainst a creditor. _

A creditor may honestly obtain a security, by way of mortgage or deed of trust, for a debt known or believed to exist, though unliquidated, and a preference, thus gained by one creditor over another, for what may turn out to be due, is not unfair.

So, mere delay, either iu' settling or collecting the debt, will not, of itself, impeach the deed, since forbearance may arise from many motives, besides that of giving a false credit to a debtor, and in many instances may be attributed to the most benevolent and praise-worthy motives.

Thus, where upon a dissolution of copartnership between' two brothers, a deed' of trust was given by one to the other for an estimated balance supposed to be due, and no settlement was made nor any attempt to proceed under the deed was made for thirteen years, the creditor brother being in'the meantime resident out of the State, it was held that the deed was not on that account fraudulent, the brothers both stating in their answer, that the amount, since ascertained to be due on a' settlement, was more than sufficient to cover the property secured by tho deed of trust.

A man, who is appointed to a public office, for the faithful performance of the duties of which he is bound to give sureties, may properly indemnify such sureties by a deed of trust'orrbis property.

íhe circumstance that'possession of the property, conveyed by a deed of trust, is to be retained by the maker of the deed until it is wanted for the purposes of the trust, is not in itself an evidence that the deed is fraudulent.

If a sale under a deed of trust to sell for the benefit of creditors is, by the terms of the deed, to bs delayed so long, or if the proportion, in point of value of the consumable articles conveyed over those of a different character were such, as to induce the court to believe, that it was the object or an object of the deed to provide for the maker permanently or temporarily, and not for his creditors, the court would pronounce the deed void.

"Where the parties to a deed of trust for the satlsfaation of creditors do not definitely express the debts that are due, or to become due, creditors have a' right to demand an enquiry, and, although they charge fraud in the deed» and the charge is not established and their bill dismissed, yet they aie not bound to pay any costs to the defendants.

answer^ directly responsive to the bill, must be received as true, in the absence of testimony contradicting it.

The cases of Davidson v Cowan, 1 Dev. E<j. 470 ; Moore v Collins, 3 Dev. 170, and Cannon vPeebles, Sired. 449, cited and approved.

This was a canso removed by consent from Wake Court of Equity, at Spring Term 1843. The bill was filed, answers put in, replication thereto, and no proofs taken on either side. In this state of the cause, it was set for hearing. The following facts were exhibited by the bill and answers.

The defendant, Thomas Ii. Littlejohn, became indebted to the plaintiff in 1839, by endorsing a bill of exchange, drawn by one Hunt, and the plaintiff recovered judgment thereon against him, T. B. Littlejohn, for $1902 70, besides costs, at August County Court, 1840, of Granville. The plaintiff issued a fieri facias, which was returned nulla bo-na, to February Term 1841, and then he filed this bill on the 4th March 1841.

For some years before the year 1827, a partnership existed between the two brothers, Thomas B. Littlejohn and Joseph B. Littlejohn, in merchandize at Oxford, and also in a Tannery under the firm of Littlejohns and Locker. Thomas B. Littlejohn was also indebted on two notes to a Bank in Raleigh, which Joseph B. Littlejohn had executed as his surety. By a deed, bearing date the 30th day of October 1827, reciting the two debts and also that on their partnership accounts, T. B. Littlejohn was considerably indebted ta J. B. Littlejohn, and that he was desirous of securing the payment of all those debts, T. B. Littlejohn conveyed to John Nuttall several parcels of land in Granville, and one negro slave, in trust to sell, when required by either of the parties, and pay those debts. This deed was duly registered in 1828. By two other deeds of the same date, T. B. Littlejohn conveyed certain slaves to John Nuttall in trust to sell and pay certain debts, for which Willis Lewis was his surety, and conveyed to Willis Lewis certain slaves in trust to sell, and pay certain debts, for which John Nuttall was his surety. The debts set forth in the two deeds last mentioned, it is admitted by the defendants, have been long since paid. It is admitted, likewise, that the debts for which J. B. Littlejohn was the surety for T. B. Littlejohn, as mentioned in the first deed, were paid many years ago, and the deed is now set up as a security for such sum only as T. B. Littlejohn may owe the other party on their partnerships.— On the 29th of February 1836, Thomas B. Littlejohn became indebted to John A. Hicks in the sum oí $2500; for which he executed his bond, and Abram W. Tenable joined therein, as his surety; and for the further security of the debt and as indemnity to Tenable, T. B. Littlejohn on that day executed a deed to Thomas B. Lewis for four negroes, Pleasant, Reuben, Robin and Davy, in trust to sell and pay the said debt. Afterwards Davy was sold, and his price with other sums of money, amounting in all to $1350, applied in part payment of the debt, but still leaving a balance of $1150, of principal, besides interest due thereon. This deed was registered on the 18th of May, 1840. The bill charges, that there was nothing due from T. B. Littlejohn to Joseph B. Littlejohn or their partnerships; that they lived near each other for several years after the execution of .the deed, and made no settlement nor took any account of the state of their concerns so far as to enable other creditors to know what sum the one owed the other, and, in fact, that J. B. Little-john removed to Tennessee a number of years past, leaving all the effects of the partnerships, and the property conveyed, in the hands of T. B. Littlejohn ; from which circumstances the plaintiff charges, that nothing was due to J. B. Littlejohn originally, or that he had released or abandoned all claim to any sum that might be owing to him, and therefore that the deed first mentioned was kept on foot as a subsisting security, fraudulently and for the mere purpose of deceiving and hindering the plaintiff, and other creditors of T. B. Littlejohn.

The bill further states, that by another deed bearing date the 29th of July, 1840, T. B. Littlejohn conveyed to John R. Hicks the same negroes, Pleasant, Reuben, and Robin, and eight others, and also several parcels of land in Gran-ville county and the town of Oxford; also two males, three horses, twelve head of cattle, all his crops of corn, fodder and oats, and his household and Kitchen furniture, the same being all his visible property — for the purpose of securing certain debts or pretended debts therein recited, that is to say, a debt to Thomas Brown on bond for f1709, due 12th January, 1829, one to R. & R. H. Kingsbury for ($743 76, by bond, and several others specified, and also for the purpose of securing Samuel J. Downey and Abram W. Tenable from loss from any liabilities they have incurred or may hereafter incur, as sureties for the said T. B. Littlejohn in his bond, given for the performance of his duties as Clerk .and Master of the Court of Equity for the years 1838 and 1839; with power and direction to the trustee, upon being required by the parties therein secured, to sell the property, and out of the proceeds pay, first, such monies as Tenable and Downey may be liable for as sureties in the official bond as aforesaid ; secondly, the debt to Brown, and. lastly, all .the other debts ; with a proviso, that, by consent of the parties, T. B. Littlejohn is to remain in possession until the trustee shall want the property for the purpose of a sale, and that T. B. Littlejohn shall surrender the possession when required for that purpose. This deed also recites that be fore mentioned, as having been made to T. B. Lewis for the negroes Pleasant, Reuben and Robin, on the 29th February 1836, and conveys those slaves subject to the operation of that previous deed.

The bill states, that the period, when this last mentioned deed, dated July 29th 1840, was in fact executed, was unknown to the plaintiff, and it charges that it was not executed, or, if so, was kept under the control of T. B. Littlejohn until after the plaintiff got his judgment, which was on the first Monday of August 1840, and that none of the creditors accepted the deed before that day; and that without the concurrence of any creditor, T. B. Littlejohn, of his own head, wrote and executed the deed for the sole purpose of hindering and defeating the plaintiff: That if any of the creditors knew of the execution of the deed, they and T. B. Little john and Hicks contemplated, that Littlejohn was to enjoy, consume and dispose of the property in the same manner as if he we.ie still the owner, and that the creditors assented thereto fur the ease and favor of T. B. Littlejohn, and he had kept and used the property ever since.

The bill further charges this intention the more, for the reason that in fact Downey and Venable were not responsible for any default of Littlejohn in his office of Clerk and Master for 1838 or 1839, or for none before the execution of the deed, and because the deed provides for future defaults. The bill particularly charges, that Brown removed many years a go to Scotland, and would not have left a debt so long uncollected, and, especially, allowed the interest to run so long in arrear, and for those reasons charges, that the said debt was pretended and not truly owing. The bill further charges, that if the said debts were just, and there was no such original fraudulent purpose, yet that the creditors now indulged the debtor fraudulently, and to the prejudice of the plaintiff, for as much ns they do not sell enough of the property to pay their debts, and thus leave the residue unincum-bered and open to the plaintiff’s execution. The bill is brought against Thomas B. Littlejohn, Joseph B. Littlejohn, the heirs and executors oí Nuttall, who is dead, and the executors of Willis Lewis, who is also dead, Thomas B. Lewis and John R. Hicks, the trustees in the two deeds last mentioned, Venable, Downey, Brown and all the creditors secured in the deed of July 25, 1840, and it interrogates them particularly upon the matter before alleged, and especially T. B. and J. B. Littlejohn, whether they had settled their partnership, and whether any and what sum is due thereon from the former to the latter: and also interrogates T. B. Littlejohn and Brown whether any part of the said alleged debt to the latter is really owing, and why the same was not sooner paid. And the bill also interrogates T. B. Littlejohn, Venable and Downey, when a default took place in the office of Clerk and Master, whose money was misapplied, and how, aud when, and at what period it was disclosed to the parties.

The prayer is, that all the deeds may be declared fraudu-lelh and void as against the plaintiff, and that he may have satisfaction decreed out of the property therein conveyed, and for general relief. The representatives of Nuttall and Willis Lewis did not answer, and the bill has been taken pro confesso against them. The answer of T. B. Littlejohn states the debts for which those persons, Nuttall and Willis Lewis were sureties to have been paid long ago, and that releases were not taken, because they were not known to be necessary, or through mere inadvertence. As to the debts from Thos. B. to J. B. Littlejohn, the separate answers of both those persons state, that in both oí the firms J. B. Lit-tlejohn had advanced a large capital; that they were conducted chiefly and almost exclusively under the management of T. B. Littlejohn, as the active partner; and that, although, in October, 1827, no settlement had taken place, it was well known to both of them, that T. B. Littlejohn was largely indebted thereon to J. B. Littlejohn ; that a settlement could not well have been made at the time, as the concern then owed large debts, and had a large amount of debts owing to them, but that from a rough estimate of the assets, and the accounts of the respective partners, they then believed, that T. B. Littlejohn was indebted to J. B. Littlejohn in a sum not less than the utmost value of all the property conveyed by the deed, and certainly, not short of $10,000. These auswers státe, that before settlement could be made, J. B. Littlejohn removed to Tennessee, In 1829, and has resided there ever since, and that, owing to the want of opportunity for making a settlement, one was not made until, by the filing of this bill, it was made necessary for J. B. Littlejohn to come to this State for that purpose, and that he accordingly came, and, on the 29th of November, 1841, the parties stated their accounts and came to a settlement, a copy of which is annexed to the answer of J. B. Littlejohn ; whereby it appears, that at the execution of the deed there was a balance due to J. B. Littlejohn of about $17,000, of principal money, and that including interest up to November, 1841, the balance a.mounted to $24,933 48, after deducting large payments made in the mean time. The answers admit, that some parcels of the land, particularly mentioned, had been sold, but they state that J. B. Littlejohn concurred in the sales, and received such parts of the purchase money as had been paid.

J. B. Littlejohn admits that he did not press a settlement and payment of this claim, as he would have done in the case of a stranger, or if he had considered any person interested besides himself; and says, that the delay arose from a desire not to distress his brother, and from the belief that his debt exceeded two or three times the value of the property conveyed for its security, and that no other person had an interest in the execution oí the trusts ; and he denies that he released, or ever intended to release the debt.

Both of the defendants aver their belief that the settlement is correct, and that the balance appearing thereon is just and truly due, and they submit to produce their books, and to have an account taken in this cause of their partnerships, if required.

The answer .of T. B. Littlejohn fuither states, that the deed to Hicks, dated July 29th, 1840, was executed and delivered to Abram W. Tenable, therein named, on the day it bears date, and that it was proved and registered on the 30th day of the'same month, as appears by the certificate of the Register on the copy of the deed, exhibited by the plaintiff, to be true. This defendant, the trustee Hicks, Tenable and Downey, and the other creditors who have answered, each for himself, state that the debts secured in that deed are justly due and fully owing: Particularly, T. B. Littlejohn states that he had used money received in his office to the amount of $3,618, which he found himself unable to pay without the sale of some of the property conveyed in the deed, and that Tenable and Downey, as his sureties for the years aforesaid, were liable therefor; that the debt to Brown was justly due, and that Brown, when he left this country, appointed the defendant Tenable his agent, with directions not to press the collection of the moneyl unless it should become necessary to its security; that such directions were given in consequence of a long intimacy and personal friendship betwcnn Brown and T. B. Littlejohn. The mi-swerof T. B. Littlejohn has annexed to it a schedule of the (jgjjjg securec[ and the property conveyed, with an estimate of the value thereof; whereby the debts, without interest,appear to be $8,714 73, and the value of the property $8,200: and it states, that-all those debts' being justly due, and his property not moré than sufficient to pay them, and believing that, if the plaintiff recovered his debt, for which he was bound as a surety only, and raised the same out of his property, some of those debts, contracted on his own account, would go unpaid ; he mentioned his fears to Abram W. Tenable, his principal creditor and surety, and his desire to secure himself and his creditors ; and thereupon, both at the instance of Venable and of his own accord, he executed the deed of July 29, 1840, for the purpose of preferring those to whom he was justly indebted on his own account as aforesaid, and for that purpose only:- that some of the creditors mentioned therein assented to the deed at the time, and that all the others did so immediately afterwards; and that there was no understanding or secret trust, whereby any benefit whatever was intended to be reserved'to himself personally, or variant from the contents expressed in the deed, which he avers was in all respects bona fide. The answer of Tenable corresponds with that of T. B. Littlejohn as to the debt of Brown, and the responsibility of this defendant and Downey, as sureties in the official bond, referring to the answer of Littlejohn for the particulars of his official default, of which the sureties have no personal knowledge. — . Tenable states that the deed was delivered to him for the trustee, and that on the same day he delivered it to Hicks, the trustee, who accepted it. He likewise insists on the deed made to Thomas B. Lewis for his indemnity, as the' surety for the debt to John R, Hicks.

The answer of Downey states that Tenable and Little-' john informed him of the intention to execute the deed of July 29, 1840, and he assented thereto, and denies any fraudulent purpose therein, and, in all other respects, concurs with that part of Venable’s answer which respects Little-john’s official defaults. The trustees, Thomas B. Lewis and TT .. , . . . „ , , , , Hailes, state their respective executions of- the several deeds to them, and their belief that the debts mentioned in them were just, and the deeds lona fule, and not intended to defraud the plaintiff or any other person. Replication was taken to the answers, and the cause set down for hearing without any proofs having been taken on- either side, and transferred to this court for hearing.

Badger and W. H. Haywood for the plaintiff

Iredell forthe defendants.

Ruffin, C. J.

The admitted fact's that the debts for which J. B. Littlejohn, John Nuttall and Willis Lewis were respectively sureties for T. B. Littlejohn,- have been paid many years past, require the court to put all the deeds of October 30, 1827, out of the plaintiff’s way, except so far as one of those to John Nuttall may be supported, as á security for the balance that may be due from T. B. Littlejohn to his .brother on their partnership dealings. So the deed to Thomas B. Lewis, dated 29th of February, 183G, for the indemnity of Venable, as surety for the debt to John R. Hicks, and not registered until the 18th of May, 1840, must likewise be declared not to be an effectual incumbrance on the slaves mentioned therein, for- the want of due registration. The act of 1-820, expressly enacts, that a deed of trust, not proved and' registered within six months, shall, as against a creditor, be held utterly void, and the circumstance of the registration before the plaintiff got his judgment and execution, makes no difference, as notice of a deed of trust not duly registered raises no equity against a creditor. Davidson v Cowan, 1 Dev. Eq. 470. The case is, therefore, narrowed down to the questions that can be made upon the deedof-Octobor 30, 1827, as a security for the partnership balances, and the deed of the 29th July, 1840, as a valid security for the debts mentioned in it. As far as the object of the bill is to ¡lave those deeds declared void, as having been made with a fraudulent intent towards creditors, the court must hold the bill unsupported. As to the first deed, it is to be remarked, that the circumstance of the security being given by one brother to another for an unknown-balance of accounts, represented to be large as the parties believed, and the further circumstance that there was no attempt to settle and ascertain the balance for so long a period as thirteen years, during which time the alleged debtor continued to enjoy the estates conveyed, certainly furnished grounds for suspicion of the fairness of the claim and of the deed made to secure it, and well justified the plaintiff, as a creditor likely to be defeated by the deed, to call the parties to an explanation upon their oaths. But those circumstances are not absolutely conclusive of fraud, either as evidence that there was no debt owing, or that the parties intended to deceive the world by the possession being so long with the debtor. For a credit- or may honestly obtain a security for a debt,.known or believed to exist, though unliquidated} and a preference thus gained by one creditor over another for what may turn out to be due, is not unfair. So mere delay, either in settling or collecting the debt, will not, of itself, impeach the deed, since forbearance may «rise from many motives besides that of giving a false credit to a debtor, and in many instances may be-attributed to the most benevolent and-praiseworthy motives. In the case before us, the answers of both the parties, T. B. Littlejohn and J. B. Littlejohn, satisfactorily and fully repel, if to be credited, all those imputations of fraud. They establish, although the debt is not specified in the deed by its amount, that it in fact existed, and exceeded the value of all the property conveyed to secure it. They account for the debt not being ascertained at the time by the state of the business of the firms, and for the subsequent procrastination by the separation of the parties by distant residences, by their fraternal confidence, and the natural unwillingness of the creditor to distress the debtor. It furthermore is seen, that all the property conveyed, (except the slave, who died long ago) was land, of which the possession merely is not evidence of title, and of the conveyance of which notice was given to creditors by doe registration. Those statements of the answers must be received as true' by the court, as the case stands, for, in all respects, they are directly responsive to the allegations of the bill, and are in no respect contradicted, even by a single witness. Upon the face of the pleadings, therefore, this deed cannot be declared to have been made with a fraudulent intent to deceive creditors, nor to have been kept on foot for that purpose after the payment of all the debts intended to be secured thereby; but it must be declared to be still a valid security for such sum as may be really owing from T. B. Littlejohn to his brother on their copartnerships. With respect to the last deed, dated July 29, 1840, the court is led to the like conclusion, much for reasons of the same kind. The answers, being responsive to charges in the bill, are evidence for the defendants, while tmcontradicted. They prove the justice of all the debts mentioned in the deed. In truth the bill does not particularly question any one of them, except those to Brown and the alleged misapplications of money in the Master’s office. As to each of them, the answer .of Thomas B. Littlejohn is precise and positive. So is that of Tenable .in respect to the debt to Brown, .with the collection of which he was charged, and for the security of which, with the other debts, he was active in getting the deed in question executed. No one but Littlejohn himself could answer directly to the conversion of the funds in his office, either as to the time or the amount, and he has given an explicit and positive statement as to both, in which the sureties, Tenable and Downey, could only concur, to the extent of their belief; and to that extent they do fully concur. Assuming the defaults to have occurred, and the other debts to exist, as being thus established, the court does not perceive any sufficient ground for impeaching the deed.

There were, however, some objections stated in the argument, which it is proper to notice.

^ 'vas sa'd, ^at as a Provision for an indemnity to the sureties i$ the official bond, it was against good morals and public policy, especially as it includes future as well as past breaches of duty. But we think there is no force in the argument. We see no reason why a person, who is entering into a bond as surety for the faithful performance by an officer of his public duties, may not provide, in any manner he can, for his counter security. The principal contracts at the time to repay to the surety any money the latter may be compelled to pay for him, and, therefore, he may superadd thereto any further or collateral security. If this may be done when the obligation is contracted, it must be competent to do so, whenever the party apprehends danger, and, certainly, when an acknowledged default has happened.

I was likewise said, that as some of the property conveyed, as the crops, were perishable, and consumed in the use, and as the possession was to be retained by the debtor, the deed is thereby shewn to be fraudulent, as appearing to be made for the ease or favor of the debtor.

If it so appeared, we should no.t hesitate to pronounce the deed fraudulent. But the intent to secure any benefit, ease or favor to the debtor, is peremptorily denied, and we do not think those provisions in the deed, when considered with other parts of it, do establish such an intent. The possession was to be kept by Littlejohn no longer than the property was required for the stirpose of a sale, and as to the period or terms of making the sale he has no voice, but they are to be determined by the creditors at their will.

It is true, that some of the crops might be consumed before the sale; but even that might be for the benefit of the creditors, as keeping the property together until the crops growing when the deed was made in July, would mature and be gathered, and have had in view rather the convenience of the trustee than favor to the debtor. We need not, however, farther consider the point at present, since our views are fully expressed on it in Moore v Collins, 3 Dev. 137, and have been more recently repeated in Cannon v Peebles, 2 Jred. 449. If the sale had been delayed so long, or if the proportion, in point of value, of the consumable articles over those of a different character, was such as-to induce the court to believe, that it was the object, or an object of the deed to provide for Littlejohn permanently or temporarily, and not for his creditors, it would be the duty of the court to pronounce the deed void. But it is seldom practicable, and seldom prudent, to have an immediate sale under such assignments ; and until a sale, if to be -in a reasonable time, as fixed in the deed, or to be fixed by the trustee or creditors, it is more convenient to all parlies, that the possession should not be changed. We must presume the creditors will be governed by their own interest and not Little-john’s ease, until the contrary appears, and, especially, when any view to his benefit is so positively denied. The court must therefore declare, that the plaintiff has not established the allegation in his will, that the deed of July 29th, 1840, to John R. Hicks, was fraudulent, and, consequently, it is supported as a valid deed and security for such sums and debts as may remain due to the several creditors or sureties therein provided for. But should the plaintiff think proper to proceed no further in Lis suit, and to dismiss his bill upon the declarations thus made, he may do so without costs, for in the opinion of -the cou.rt, he had a right, under the circumstances, to call fora discovery upon most of the points on which he asked-it. The case however is one, on which the plaintiff, supposing those two deeds to be fair, and subsisting securities, has a right to relief by having the encumbrances cleared from the property, and to that end, to have such enquiries and accounts taken as will ascertain the sums -really due on the claims provided for, so that they may be raised out of the property, if sufficient, and the plaintiff get satisfaction out of the surplus if any. Therefore, the plaintiff is allowed to have such .enquiries upon any or all.of those debts, as he may choose, but if they should result against him, they will probably be made at his cost.

The plaintiff declined to have the proposed enquiries made.

Per Curiam. Bill dismissed, but without costs.