Wood v. Porter
| Citation | 77 S.W. 762,179 Mo. 56 |
| Parties | WOOD v. PORTER et al.; BOONE COUNTY NATIONAL BANK et al., Interpleaders, Appellants |
| Decision Date | 23 December 1903 |
| Court | United States State Supreme Court of Missouri |
Appeal from Pettis Circuit Court. -- Hon. Geo. F. Longan, Judge.
Affirmed.
Geo. P B. Jackson and Montgomery & Montgomery for appellants.
(1) The deed of trust is fraudulent and void because made and contrived with the intent to hinder, delay and defraud the creditors of Jonathan R. Barrett, the maker thereof. Barrett was insolvent when the deed of trust was executed. It covered and included his whole estate and was of far less value than the indebtedness secured. It conveyed the legal title to all his real estate to the trustee to secure a large amount of indebtedness, but provided that no default should authorize a sale of the property by the trustee until three years, eleven months and three days after its date. The debts, with a small exception, were all long past due and unpaid, and there was default when the deed was delivered. Nearly four years must elapse under the terms of the deed of trust before there could be any sale and the distribution of its proceeds among the creditors. The property, in the meantime, is protected by the conveyance against the demands of creditors. A creditor is entitled to have the property of his debtor subjected by due course of law to the immediate payment of his debt and any disposition made by the debtor which hinders and delays the creditors an unreasonable time renders the conveyance void. What is a reasonable time is nowhere definitely settled, but the time prescribed by this deed of trust is, in the light of all the authorities, unreasonable. Bank v Martin, 33 S.W. 565; Dunham v. Waterman, 17 N.Y. 17; Brigham v. Tillinghast, 3 Kernan 220; DeWolf v. Man'fg Co., 49 Conn. 282; Rosenstein v. Coleman, 18 Mont. 459, s. c., 45 P 1081; McCleary v. Allen, 7 Neb. 25; Hardin v. Osborne, 60 Ill. 93; Mitchel v. Beal, 8 Yerger 134; Green v. Trammell, 3 Md. 11; Sheerer v. Lantzerheiser, 6 Watts 543; Puckett v. Drug Co., 20 S.W. 1127; Nicholson v. Leavitt, 2 Selden 517; Baring v. Griffin, 2 Comstock 370; Van Nest v. Yoe, 1 Sand. Ch. 7; Owens v. Arvis, 26 N. J. Law 30; Knight v. Packer, 12 N.J.Eq. 214; Bank v. Sprague, 21 N.J.Eq. 530; Greenleaf v. Edes, 2 Minn. 275; Henderson v. Downing, 24 Miss. 116; Wooten v. Clark, 23 Miss. 76; Bank v. Numes, 80 Ky. 334; Bump on Frd. Con., 397 and 398; Bishop on Ins. Debtors (3 Ed.), secs. 214 and 215; McDowell v. Steele, 87 Ala. 493. The cases from our own State support these authorities. State to use v. Benoist, 37 Mo. 508; Bigelow v. Stringer, 40 Mo. 204; Segers Sons v. Thomas Bros., 107 Mo. 641; National Tube Works Co. v. Machine Co., 118 Mo. 375; Bank v. Russey, 74 Mo.App. 656; Gaff v. Stern, 12 Mo.App. 120; Moore v. Carr, 65 Mo.App. 72. (2) The provision in the deed of trust that the trustee may execute any of the powers conferred upon it by the deed of trust, by or through any of its officers, agents or attorneys, and it shall not be responsible for any negligence, default or other wrongful act of such agent, provided the trustee shall have exercised due care in the selection of such agent, etc., and the further provision, that the trustee shall be liable only for gross negligence or willful wrong, voids the deed of trust. The reason of the rule, as clearly stated and fully sustained by the authorities, is that the effect of such a deed is to withdraw the debtor's property from the reach of creditors pursuing their lawful remedies and to place it in the hands of a trustee, where it may be wasted and lost, unless the trustee chooses to exercise a much greater degree of diligence than he is required by the deed. The trustee, who is chosen by the debtor, is by the debtor's act relieved from the legal liabilities of trustee. The creditors have far greater interest in the application of the trust funds than the debtor, and that interest depends in many cases upon the competency and diligence of the trustee. The debtor can not be permitted, by creating a trust for his creditors, to place his property where it can not be reached by ordinary legal remedies and at the same time exempt the trustee from his proper responsibility to his creditors. Any provision in such a deed which exempts the trustee from that degree of liability or in any way restricts it to a less degree than that which the law imposes upon the trustee, renders the deed of trust void. Wait on Fr. Conv., sec. 334; DeWolf v. Mfg. Co., 49 Conn. 329; Hutchinson v. Lord, 1 Wis. 269; Litchfield v. White, 7 N. Y. (3 Selden) 438; McIntyre v. Benson, 20 Ill. 502; Olmstead v. Herrick, 1 E. D. Smith 310; 2 Bigelow on Fraud, 323; Bishop on Insolvent Debtors (3 Ed.), sec. 223; Packing Co. v. Hoover, 1 D. C. App. Cases 268; Hayes v. Johnson, 6 D. C. 174; Finley v. Dickinson, 29 Ill. 9; Robison v. Nye, 21 Ill. 592; August v. Seeskind, 6 Cold. 166; Spinning v. Portsmouth, 25 N.H. 9.
J. H. Bothwell and Charles E. Yeater for respondent.
(1) A debtor, although in failing circumstances and unable to pay his creditors in full, may in good faith prefer any one creditor, to the exclusion of all others, by the transfer of all his property, if it does not exceed in value the amount of the preferred debt, and although such conveyance may necessarily operate to hinder and delay other creditors, and although the debtor even so intends, and intends further to defraud such other creditors, and the preferred creditor so knows, yet if the latter does not participate in the fraudulent intent, but takes only to pay or secure an honest debt, the transaction is perfectly valid. (2) Conceding, for the sake of argument, that the deed of trust preferring one or more creditors is as a general proposition void in law when (1) the foreclosure is deferred for a period of three years, nine months and three days, and (2) when the trustee by its terms is released from liability, except in case of gross negligence, in the execution of his duties in such capacity, yet such general rule is subject to an exception equally well established, to the effect that when the property thereby conveyed, as in this case, does not exceed in value the amount of such secured debts, as shown by the pleadings, such two provisions of the deed of trust are wholly immaterial, and can not in anywise affect other creditors, and do not render such deed of trust invalid. Reed Fertilizer Co. v. Thomas, 37 S.W. 220; Bangs Milling Co. v. Burns, 152 Mo. 374; Swentzel v. Franklin Inv. Co., 168 Mo. 277; Butler v. Sanger, 23 S.W. 487; Bank v. Marshall, 23 S.W. 246; Hat Co. v. Weaver, 23 S.W. 914.
On the 7th of July, 1885, Jonathan R. Barrett and his wife executed a deed of trust upon certain real estate situate in and adjoining the city of Sedalia in Pettis county, to secure a large indebtedness.
Afterwards, on the 28th of August, 1894, Barrett without being joined by his wife executed a second deed of trust upon the same property to the St. Louis Trust Company, to secure the payment of an indebtedness amounting in the aggregate to $ 107,999.55. The debts were divided into four classes: the first class aggregating without interest the sum of $ 5,500, the second class $ 43,729, the third class $ 11,152.88, and the fourth class $ 47,617.67, and were to be paid in the order of classification. The first class was made up of two notes, one for $ 5,000, of which the plaintiff, Hugh W. Wood, was the owner, and the other for $ 500, of which Tippie N. Barrett was the owner at the time these proceedings were instituted.
The deed of trust states that beside the first mortgage, above referred to, there are other mortgages on separate parcels of the real estate conveyed, securing debts aggregating $ 17,100.
The deed of trust conveys the property to the trustee in the usual form and with the usual clause of defeasance, that is, if the grantor shall pay the debts as they become due and payable, the property shall be released.
It further provides, however, that if he fail to pay the debts secured, the deed shall remain in full force and the trustee may "whenever, and as soon as the note of said Jane H. Wilson, above described, shall become due according to its terms or at any time thereafter, proceed to sell," etc.
This note was in the second class, was for $ 22,653.45, dated July 1, 1893, and payable to Jane H. Wilson five years after date.
No provision is made for any sale by which any debt secured may be paid for any other default.
The deed of trust contains a covenant to pay the taxes annually as they become due, but if the mortgagee fail to do so, then it is provided that either the trustee or any creditor secured by the deed of trust might pay the taxes, and such payment with interest should be the first and prior lien over all debts secured. It is not provided that this failure to pay taxes should constitute any default, but it is provided that the trustee might "in its discretion and as shall appear to it for the best interest" of the secured creditors, sell "so much of the property as would pay...
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