Potts v. Blackwell, 57 N.C. 58, 4 Jones Eq. 58 (1858)

June 1858 · Supreme Court of North Carolina

57 N.C. 58, 4 Jones Eq. 58

JOSEPH POTTS and others against JOHN BLACKWELL and others.

A deed of trust executed Iona fide for the security of actual creditors, for debts, whether old or new, must be regarded as a conveyance for value under the Stat. 27 Eliz., and a mortgage is considered as standing on the same footing as a deed of trust.

A creditor of a firm lias no sucli lien upon the partnership effects, as to prevent one of the partners, at the tinie of the dissolution of the partnership, from assigning them in payment of his individual debt.

Where, one partner mortgaged the effects of the firm, to pay a debt to another, which did not exist, and the mortgagee assigned the mortgage to secure a bona fide debt of his own, to one who had no notice of the state of the balances between the partners, it was Held that such assignment is good.

Petition to rehear a decree passed, in this canse, at the last term of this Court, Jones’ Eq. vol. 3, p. 449.

The whole facts of the case being set out in the report of the case as formerly heard, it is not deemed necessary to restate them here.

Hoclman, for the plaintiffs, argued as follows :

This case being an important one, and apprehending that some points did not attract sufficient consideration on the former argument, I have ventured, on behalf of the plaintiffs, to to ask the Court to re-examine its conclusions.

I submit the following propositions:

1st. A mortgagee or assignee in trust, who takes a mortgage or assignment, without giving any new consideration, but simply as security for a pre-existing debt, is not a purchaser for value, within the statute 27 Eliz.

2nd. Such a mortgagee, or assignee, represents the creditor, whose debt is secured in the conveyance; his equity is derived from, and measured by, that of the creditor. In this case, Potts, &c., represent the creditors, and possess the equities of creditors, under 18 Eliz.

3rd. A new and substantial consideration for the assignment did move from the assignees to ITanks, which constitutes them purchasers for value, under 27 Eliz. They possess, therefore, the equities both of creditors and of purchasers for value.

4th. There was no debt owing by Hanks to John Blackwell, and the mortgage being to secure a merely pretended debt, was fraudulent and void as to the plaintiff.

5th. The assignees of J. Blackwell, the mortgagee, stand on no better footing than he did, and took his estate subject to all the equities, which existed against it.

1st. Prop. It is not material to plaintiffs, whether they are deemed creditors or purchasers for value ; their equities, in either case, are the same. But it is essential to the argument I propose to submit, to have a clear conception of their position, and of the reasons, on -which their equities are founded ; and as the question is not, in my opinion, one of any difficulty, I will consider it shortly.

In a loose and general sense, the assignees are purchasers, beeause they take, by purchase, as opposed to descent. But a subsequent purchaser, upon valuable consideration, is the only one authorized by statute 27 Eliz., to avoid a prior voluntary deed. Twine’s case, 1 Smith’s Leading Cases, p. 16. And this Court has held, that the consideration shall be not only valuable, in a technical sense, but substantial, and not grossly inadequate ; Pullenwider v. Poberts, 1 Dev. and Bat. 278.

It is true, that expressions may be found in the text books, Roberts’ Fraud. Con.; Coote on Mort. 315 ; (68 Law Lib.) in which a mortgagee is called a purchaser, within the statute 27 Elizabeth. The expression is perfectly correct in reference to a mortgage, given upon a loan at the time, or an}»- present substantial consideration. And it is believed that a reference to the cases cited, will show that it is invariably used in this sense ; and that no case can be found in which a mortgagee, or assignee, who has received his conveyance simply as collateral security for a pre-existing debt, has been held a purchaser within the statute. In reason, it cannot be so. It is an abuse of language, to term one, who has paid nothing whatever, a purchaser for value. He is strictly a volunteer. A past consideration, — such as a precedent debt, — will not support an assumpsit; Smith on Cont. marg. p. 113, note citing Ilopldns y. Logan, 5 Mees, and Weis. 211, and other cases.

As authorities directly sustaining this proposition see Painter v. Zane, 2 Graft. 262, and cases cited by counsel; Petrie v. Olarlc, 11 Serg. and Rawle, 371 ; Halstead v. Panic of Kentucky, 4 J. J. Marshall; Dickson v. Tillinghast, 4 Paige, 215 ; Gole v. Muidle, 13 Eng. L. and Eq. E. 27 ; Reddiek y. Jones, 6 Ire. 107 ; Donaldson v. Bank of O. F., 1 Dev. Eq. 103; Karris v. Horner, 1 Dev. and Bat. Eq. 455.

2nd. Prop. The creditors of Hanks, are co-plaintiffs with his assignees in this bill. That they are creditors, is admitted ; or if denied, this Court would direct a reference to ascertain the facts. The assignees represent the creditors, and must, of necessity, possess the same equities. It is a mistalre to say, that a creditor must, in all cases, get a judgment at law before he can come into a court of equity. The case of creditors5 bills is a familiar instance to the contrary. It is true, that a creditor cannot sue in equity to recover a mere debt; because the remedy at law is adequate. Neither can he do so to enforce the collection of a debt out of the general equitable property of his debtor; a judgment at law, and a return of “ nulla bona55 upon his execution, are necessary to ascertain the debt, and to give a lien on some specific property, and perhaps, to exhaust the legal remedy. Bee the case of 'Angel v. Draper, 1 Yern. 399, and note, upon which our cases of Peeples v. Tatum, 1 Ire. Eq. 414, and Rambaut (& Go. v. Mayfield, 1 Hawks5 85, are founded. Now, the assignment satisfies all the conditions required by the principle of these cases; it ascertains the debt against the assignor as a judgment does ; and it gi/oes a lien on specific property as the execution does. In short, it is a familiar practice to declare priorities between prior and later mortgagees. The only authority that I am aware of, requiring the creditor to get a judgment at lawr, in a case at all like this, is an obiter dictum of Lord Ellenbrough, in a short and unconsidered case, (Golman v. Groker, 1 Yes. Jr. 161;) a dictum not all necessary for the decision of the case; for the plaintiff, there, was not a creditor at all. See Hovenden’s Sup. note. This case may be considered over-ruled in Rider v. Kidder, 10 Yes. 360, in which creditors obtained a decree without having got judgment at law, and in the case of Lister v. Turner, 5 Hare, 281, (26 Eng. Oh. E.)

3rd Prop. Two of the assignees, viz., Potts and Donnell, were sureties for Hanks, to a number of the debts secured in the assignment; they executed the assignment; and thereby became bound b3r its terms; in effect, the}r thereby agreed that in consideration of its being made, they would give up any attempt to obtain priority by actions at law on the debts, for which they were bound ; and that the property should go according to the classification of the assignment, by which they were postponed. It is true, they were sureties, and not creditors; but as sureties, they might have maintained actions in equity, if the creditors had refused to sue. Also by execution of the deed, the assignees undertook certain onerous duties, which undertaking, of itself, constituted a valuable and substantial consideration.

If the plaintiffs have succeeded in establishing either of these last two propositions, it is sufficient to give them equities paramount to those of defendants, who, I hope to be able to show, have none. It is admitted that the plaintiffs must show a paramount equity ¡-otherwise “potior es-t conditio pos-■sidentis.” If, however, the plaintiffs have a paramount equity, the mere possession of the legal estate by the defendants, whether fairly or fraudulently obtained, would be no bar to plaintiffs’ relief. But, in fact, the assignment did not pass the legal estate ; that still remains in John Blackwell, under the mortgage.

ith. Prop. The debt for which the mortgage was given, is alleged to have accrued by reason that Hanks had received •from the concern $20,000 more than Blackwell had, and it was necessary that Blackwell should also receive that sum to •equalize them inter se. Had the partnership creditors been first paid, this would be just enough. But in Piehardson v. Panic of Pnglcmd, 4 Myl. and Craige, 165, (18 Eng. Oh. R.) it is said : “ But if pending the partnership, neither law nor ■equity will treat such advances as debts, will it do so, after • the partnership has determined, before any settlement of account, and before the payment of the joint debts, or a realization of the partnership estate ? Nothing is more settled than that under such circumstances, what have been advanced by one partner, or received by another, only constitutes items in the account. There majr be losses, the particular partners’ share of which may be more than sufficient to exhaust what he has advanced; or profits more than equal to what the other received ; and until the amount of such profit and loss be ascertained by the winding up of the partnership affairs, neither partner has any remedy against, or liability to the other for payment from one to the other of what may ha/oe been advanced or received. See also, Pulling Mer. Ac. p. 40, note 6, (57 Law Lib.) Adams’ Eq. 640. In Collyer on Part, p. 548, §575, it is said, “But if two copartners enter into a contract, for the purpose of defrauding their joint creditors, the one agreeing to permit the other to withdraw money out of the reach of the joint creditors, such contract is fraudulent and invalid.” See Anderson v. Maltby, 4 Bro. 423, S. C., 2 Ves. Jr. 244, where this doctrine is directly maintained. It is submitted upon these authorities, that Ilanhs owed John Blackwell nothing; and that the attempt, under pretence of a debt, to permit J. Blackwell to withdraw pioney from the joint creditors, was a fraud. But -whether the mortgage was actually fraudulent, or simply voluntary, and therefore fraudulent as to the plaintiffs, is immaterial; in either way, it is void as to them. And it is conceived that a fortiori, it is a fraud where the retiring partner is a secret one, whose claims were wholly unknown to the creditors.

5th Prop. It is respectfully submitted that the Court was in error in considering the mortgage from Hanks to J. Blackwell, and the assignment by J. Blackwell to E. M. Blackwell, &c., as equivalent to a joint conveyance by both partners to E. M. Blackwell, &c. Hanks did not concur in the assignment; he knew nothing of it; he was not a party to the assignment nor even informed of it. The passage of the title from Hanks to E. M. Blackwell (if it passed) was effected by two clearly distinct and successive steps, viz: 1. The mortgage; 2d, the assignment of the mortgage. To say that in effect it was the same thing as if there had been but one conveyance by both partners — is to beg the question if in fact there were two conveyances — and if in fact it was not the same thing; for the very point to be established by the defendants is, that the two things, though not the same in fact were equivalent in effect.

If to this, it is said, that where there is a conveyance to a fraudulent donee, and he convey, for value, &c., there are two steps, and the first is void, and yet the terminus is reached, effect is given to the last deed, this is admitted j yet it is important to observe, what is clear, that in this case, effect is not given to the last deed, because the two deeds are equivalent in effect to one conveyance by both the first fraudulent grantor and his grantee, but beeause the purchaser for value has a permanent equity; and if the defendants in this case can bring themselves within the range of that principle, the full benefit of it will be conceded to them. I hope to show that they cannot. At present, all that I contend for is, that the two conveyances were in fact distinct and successive/ that we must view them as separate things, as they really were, and not blend them into one ; that we ought not to assume them to be different from what they were in fact; and that if they were in effect equivalent to one joint conveyance, that is a proposition to be established by those who maintain it.

The plaintiffs hope that they have shown satisfactorily that whether they are creditors or purchasers for value, as to them there was no valid debt from Hanks to J. Blackwell, and that consequently, the securities for that debt, at least, were voluntary, and if voluntary, fraudulent and void; and that if the mortgage had remained in J. Blackwell, they would have been entitled to the relief prayed for; and I -will now proceed to argue that E. M. Blackwell, &c., to whom J. B. assigned the mortgage, have no higher equity than he had. The higher equity that is claimed for them, can only be claimed upon the ground, that they are purchasers of tire land for a valuable consideration, without notice, under 27 Eliz. The want of notice is admitted, but it is contended that they are not protected by the statute, because :

1. They were not purchasers for value within the settled' construction of the statute.

2. They were not purchasers of land, (to which the statute is confined,) but merely of a chose in action, and so not within the statute.

1st. They were not purchasers for value, upon the authorities heretofore cited to this point. There was no new consideration whatever at the time of the assignment. It was simply a collateral security for an old debt. The assignees did not execute it, they gave up no rights and assumed no new obligations. They took the equities of J. Blackwell and nothing more. It is doubtful whether they got even the legal estate in the lands; they took no endorsement of the bonds.

2d. They purchased only the chose in action — the mortgage debt; and a chose in action is not within the statute, 27 Eliz.

In equity the mortgage debt is universally considered as the principal, and the mortgage merely as the incident. Coote on Mort., marg. p. 301.

In Goekell v. Taylor, 15 Eng-. L. and Eq. E. p. 110, it is said: “It has not been disputed, nor can it be doubted, that the purchaser of a chose in action does not stand in the situation of a purchaser of real estate for valuable consideration, without notice of any prior title, but that the purchaser of a chose in action takes the thing bought, subject to all the prior claims upon it.”

In Cole v. Huddle, 13 Eng. L. and Eq. E. p. 27, Townsend, one of several co-exeeutors had mortgaged leasehold property of the testator to secure his private debt, it was admitted that he had power to convey the legal estate, but it was said “but this mortgage was given to secure an antecedent debt previously due to Muddle by Townsend, and the equity of the general estate of the testator must prevail over the private debt of an executor.”

See also Barnard v. Hunter, 39 Eng. L. and Eq. E. p. 569; O'rd v. White, 3 Beav. 357, (Eng. Ch.E-.); Danberry v. Ooelt-Inirn, 1 Mor. 626-638 ; Hriddy v. Iiosef 3. Mer. 104 j Lister v. Turner, 5 Hare 281, (26 Eng. Ch. R.); Brandon v. Bmndon, 39 Eng. L. and Eq. R. 188.

There is one observation, to be made on all of these cases in reference to the first branch of this proposition. If it had been deemed admissible in them to ignore one of the two steps by which the title passed to the defendants, and consider the two as one, it would in some of them, probably have altered the result ^ but we find no such suggestion any where.

Towle, for the defendants.

'Battle, J.

In the argument, on the petition to re-hear the decree which was made in this cause at the last term, it is contended by the plaintiffs’ counsel, that the Court erred in the conclusion to which it came, and that such error will be shown by the establishment of the five following propositions :

1. A mortgagee or assignee in trust, who takes a mortgage or assignment, without giving any new consideration, but simply as a security for a pre-existing debt, is not a purchaser for value, within the statute of 27th Elizabeth, (Rev. Code, ch. 50, sec. 2.)

2. Such a mortgagee, or assignee, represents the creditor, whose debt is secured in the conveyance; his equity is derived from, and measured by, that of the creditor. In this case the plaintiffs represent the creditors, and possess the equities of creditors under the statute 13 Eliz. (Rev. Code, ch. 50, sec. 1.)

3. A new and substantial consideration for the assignment, did move from the assignees (the plaintiffs) to Iianks, which constitutes them purchasers, for value, under 27th Elizabeth. They possess, therefore, the equities, both of creditors and of purchasers for value.

4. There was no debt owing by Hanks to John Blackwell, and the mortgage being to secure a merely pretended debt, was fraudulent and void as to the plaintiffs.

5. The assignees of J. Blackwell, the mortgagee, stand on no better footing than he did, and took his estate subject to all the equities which existed against it.

The counsel for the defendants, admits that the plaintiffs, as the assignees of Hanks, are purchasers for value, under the statute of 27th Elizabeth, and that they also represent the creditors of Hanks; but he also insisists that a mortgagee, whether for a debt, newly created, or for a pre-existing one, is likewise a purchaser for a valuable consideration within the statute, and that the defendants, who claim as the assignees of the mortgagee, J. Blackwell, have a prior lien -upon the mortgaged property, which they are entitled to retain.

The first disputed question then, is, whether a mortgagee, for a pre-existing debt, is a purchaser for value within the statute. It is not denied that he is so for a debt newly created ; Coote’s Law of Mortgage, 345, (68, Law Lib. 406); citing Chapman v. Emory, Cowp. 278; White v. Hussey, Prec. Ch. 13; Lister v. Turner, 5 Hare, 281. Whatever distinctions there may have formerly been supposed to exist between conveyances, either in trust, or bj^ way of mortgage, to secure these different classes of debt, it must, we think, be regarded as now exploded ; see Riddick v. Jones, 6 Ire. Rep. 109, and Ingram v. Kirkpatrick, 6 Ire. Eq. Rep. 463. In the last mentioned case, the subject of deeds of trust, the consideration on which they are founded, and the purposes for which they are made, is very fully and ably discussed by the Court, and it was held, in opposition to some English cases, that where a deed has been executed, conveying property in trust, for the payment of debts, and the trustee accepted the same, the grantor has no right afterwards to vary the trusts; and any of the creditors secured, may compel the trustee to execute the trusts as declared, although they were not privy to the execution of the deed. The idea of the deed in trust’s being voluntary, in the sense of not being supported by a valuable consideration, is denied, and yet not the slightest intimation is thrown out, that debts therein secured, must be debts just then contracted. Indeed, if such were the case, nine-tenths of all the deeds of trust made in this State, would be deemed voluntary, and would be no protection to the creditor intended to be provided for as against executions in favor of other creditors,, or subsequent purchasers for value. That such is not the law, has been, as we believe, the almost universal impression among the members of the legal profession in this State, and if we were now to hold otherwise, we should unsettle the title to property, to an extent, almost incalculable, A deed in trust, executed Iona fide for the security of actual creditors, whether for debts, old or new, must then, in our opinion, be regarded as a conveyance, for value, under the statute 2'7'th Elizabeth; and a mortgage has always been considered as standing on the same footing as a deed in trust. The only remaining questions, upon which the counsel of the respective parties arc at issue, relate to the mortgage from the defendant Hanks to the defendant John Blackwell, and his assignment of it to his brothers, the other defendants. The counsel for the plaintiffs, insists that the mortgage was void, and that the assignees acquired no equities under the assignment of it. The argument is, that there was either a fraudulent contrivance between the partners Hanks and John Blackwell, to cheat the creditors of Hanks, or of the firm, or that there was, in fact, no debt due from Hanks to John Blackwell, to support the mortgage, and that the assignees of the mortgagee stood upon the same ground as he did, and took his estate subject to all the equities which existed against it.

We are satisfied from the exhibits and proofs, that there was no actual intent on the part of Hanks and John Blackwell to defraud the creditors of the firm, and it is admitted by the plaintiffs, that the debts claimed to be due from John Blackwell to his brothers were bona fide, and justly owing at the time of the assignment of the mortgage to them. The question, then arises, did the creditors of the firm have such a lien upon the partnership effects at the time of the dissolution of the partnership as to prevent one of the partners from assigning them in payment of his individual debts. The case of Rankin v. Jones, 2 Jones’ Eq. 169, decides expressly that the creditors of a partnership have no such lien, and in that case, where one of the members of a firm withdrew from it and assigned all the effects to the other partner, under an agreement, that such partner should pay ail the firm debts, ■and he conveyed all the partnership effects in payment of his ■own debts; it was held that the partnership creditors could ¡not follow these effects, to subject them to the payment of the firm debts. The same principle, though not decided, is strongly intimated in Holmes v. Hawes, 8 Ire. Eq. 21. Euffin, Chief Justice, in delivering the opinion of the Court, said, “ The principle of the bill is, that after the dissolution and division of the effects and debts between the partners, they still continued partnership property, or quasi partnership property, until the debts of the partnership were all paid. That might be questioned, even as between creditors of the firm, and the several partners, and those claiming under them, where the dissolution and division were bona fide — Ex parte Ruffin, 6 Ves. Jun. 109; Clement v. Foster, 3 Ire. Eq. 213.

It follows, as a necessary consequence, from this principle, that the mortgage from Hanks to John Blackwell, being made bona fide, and without any fraudulent intent, would have prevailed against the creditors of the firm, had the debt, which they supposed to be due from the former to the latter, turned out to be actually due. But assuming that, from the condition of the partnership and ¡die state of accounts between the partners, there was no debt, and that .the mortgage was to be regarded as a mere voluntary conveyance, still, as the assignees of the mortgage took it in payment of bona fide debts, without notice of the condition of the partnership, they are purchasers for value, and can hold against creditors of, and subsequent purchasers from, the mortgagor. In support of this position, it seems to us, that the case of Major v. Ward, 5 Hare, 598, (26 English Ch. Rep. 597,) to which we were referred by the defendants’ counsel, is directly in point. There, a son took a conveyance of an estate from his father, and afterwards mortgaged it, for money borrowed, to a mortgagee, with a power of sale. The conveyance from the father to the son, was declared by a court of equity, to be void as to the creditors of the father, and yet, it was held that the mortgagee of the son, had a right paramount to the creditors of the father, and consequently, could, convey a good title to a purchaser. The Yi-ce Chancellor, Sir James Wigram, in giving judgment, said, “The position of the parties is, in fact, somewhat anomalous. The creditors of William (the father) claim not under, but paramount to, Stephen (the son). There is no priority between William Beasley’s creditors and Stephen’s, and those who claim under Stephen. But the title of Major, (the mortgagee) who claims under Stephen, is paramount to-that of the creditors of William. The creditors of William, in such circumstances, may have a right to redeem, and a right te require Major to account for the proceeds of the sale, hut (not claiming under Stephen,) they have ne right to interfere with the power of sale vested in Major, and which, his contract with Stephen, gave him.” The only apparent difference between the case of Major v. Ward, and the one now before us is, that Major- became a mortgagee, a pro tanto purchaser,. for money advanced at the time, whereas, the defendants, Josiah, Robert and James Blackwell, became assignees of the defendant, John Blackwell’s mortgage from Hanks, to secure the payment of pre-existing debts. But we have seen-, that whether the debts secured were new or old, is now considered, at least in this State, as immaterial. Major ivas held to have acquired a good title from a person, who claimed under a conveyance which was decided to he void against the creditors of his grantor, and upon the same principle, Josiah, Robert and James Blackwell, must be held to have obtained a good title from John Blackwell, though his mortgage may have been void as to the creditors of Hanks, the mortgagor.

This view7 of the case makes it unnecessary for ns to consider, whether the mortgage and assignment are to be considered as one conveyance from both the partners, of as successive conveyances, to wit, a mortgage from one partner to the other, and then an assignment by the latter. In form, there were, undoubtedly, tivo conveyances, but they have very much the appearance of being integral parts, only, of one and the same transaction. They were executed the same day, upon tlie same sheet or sheets of paper, before the same subscribing witness, and were afterwards proved and registered together. We cannot doubt that, whatever legal interest either partner had in the property, passed by these conveyances to the assignees of the mortgage ; and for the reasons, which we have already stated, wre believe that they acquired a title paramount to the right of the creditors of Planks, or of the firm of ITanks and Blackwell, and also paramount to the title of the plaintiffs, who became purchasers subsequently.

There is no error in the decree, and the petition to rehear, must be dismissed.

Per Curiam, Petition dismissed.