Belknap v. Lyell

• Decision Date: 04 February 1907
• Citation: 42 So. 799,89 Miss. 197
• Court: Mississippi Supreme Court
• Parties: WILLIAM B. BELKNAP ET AL. v. GARLAND LYELL, TRUSTEE

42 So. 799

89 Miss. 197

WILLIAM B. BELKNAP ET AL. v. GARLAND LYELL, TRUSTEE

Supreme Court of Mississippi

February 4, 1907

November 1906

FROM the chancery court of Lincoln county, HON. ROBERT B. MAYES Chancellor.

Lyell trustee in bankruptcy, the appellee, was complainant in the court below; Belknap and others, the appellants, doing business as Belknap & Company, were defendants there. From a decree in favor of the complainant the defendants appealed to the supreme court.

On July 17, 1901, D. T. Bryant, a merchant, being indebted to W. B Belknap & Company, executed his promissory note to said company, due January 1, 1903, for $ 1, 744, and to secure the payment of the note and any further advances to be made he executed a deed in trust for the benefit of Belknap &amp Company, which conveyed to P. Z. Jones, trustee, "his entire stock of hardware, goods, wares, and merchandise now in the storehouse known as the 'Leary Building, ' and occupied by the party of the first part as his hardware store in the city of Brookhaven, Lincoln county, Mississippi, together with all store fixtures, furniture, iron safe, showcases, etc., used in connection with said store, and also all goods, wares, and merchandise that may hereafter be purchased by the party of the first part to be sold in his store before the satisfaction of this deed in trust, and all of the further acquisitions, earnings, accretions, and profits of the said business before the satisfaction of the said deed in trust, and any increase of the property, real or personal, that may hereafter be acquired by purchase or otherwise, the title to which unto the said trustee or any successor he warrants and agrees forever to defend." The deed in trust gave Bryant the right to retain possession and sell in the course of trade, and provided that in case of default in the payment of the indebtedness, or if the trustee at any time believed the property, or any part thereof, endangered as security for said payments, he might sell and dispose of the same, etc. In June, 1902, Belknap & Company filed a bill in the chancery court against Bryant, charging that he was disposing of the property at inadequate prices and converting it into money with intent to place it beyond the reach of his creditors; that the property was not ample security for the debt of complainant (Belknap & Company); that it was being dissipated by defendant (Bryant), and that, if defendant was permitted to remain in possession of the property until the maturity of the note, the property would be so wasted as to render the security worthless. The prayer of the bill was for a writ of sequestration. After the writ had been issued, Bryant executed the following instrument, dated June 13, 1902: "I hereby surrender and deliver possession to P. Z. Jones, trustee, the entire stock of hardware, goods, wares, and merchandise, store fixtures, furniture, iron safe, showcases, etc., now located and contained in the Leary building, in the city of Brookhaven, Mississippi, occupied by me for the last two years or so as a hardware store. The said trustee is to dispose of and sell, immediately after the signing of this instrument, the said property to the best advantage, and either at public or private sale, as he may deem best, and the net proceeds he shall apply, after deducting necessary expenses, to the liquidation of the debt due by me to W. B. Belknap & Company, and mentioned in a deed in trust of date July 18, 1901, and of record in chattel deed book No. 14, Lincoln county; this delivery being made under and in pursuance to the terms of the said instrument, which is referred to and made a part thereof." At the same time Belknap & Company executed the following: "We have received of D. T. Bryant his stock of hardware, goods, wares, and merchandise, store fixtures, iron safe, showcases, etc., in the Leary building, Brookhaven, Mississippi, through P. Z. Jones, our trustee, and we hereby agree to pay to D. T. Bryant, or order, the net proceeds of all we realize out of said property in excess of $ 1, 200 net, less $ 349 already arranged and paid for an assignment of insurance and by cash. We agree to realize the best prices obtainable for the said property, and not to sacrifice or sell it at an unreasonably low or absurd figure." On July 17, 1902, after Belknap & Company had taken possession of the property, involuntary bankruptcy proceedings were instituted against Bryant by certain of his other creditors; and Lyell, the appellee, was named as trustee. The trustee thereafter filed a bill in chancery against the appellants, praying a decree in favor of the trustee for the value of the property delivered to the appellants and for the amount of the preferred payments made by Bryant within four months prior to filing of the petition in bankruptcy. The bill alleged that the deed in trust executed July 18, 1901, was fraudulent and void; that the instrument executed June 13, 1902, less than four months before the bankruptcy proceedings, and at a time when Bryant was insolvent, was also fraudulent and void, being made for the purpose of preferring Belknap & Company over the other creditors, and of defrauding the other creditors in the collection of their debts.

Affirmed.

P. Z. Jones, for appellants.

No question was raised as to the validity of appellants' debt; no actual fraud was charged or proven. The fraud relied upon is constructive fraud, in that Bryant was allowed to remain in possession of the stock of goods after the execution of the deed in trust. This deed in trust was placed on record immediately after its execution, and about twelve months elapsed before the filing of the petition in bankruptcy. Every one had notice of the deed in trust, and that the trustee had the right at any time to take possession of the goods mentioned and conveyed in the deed in trust; that the deed was not absolutely void, but was valid as between Bryant, the trustee, and Belknap & Company. Our court has repeatedly held that such a deed in trust is valid as against third parties, if possession is delivered thereunder to the trustee. Before creditors acquired any right to subject the property to the payment of their debts, possession was delivered to the trustee under the deed in trust, and the rights of Belknap & Company, through their trustee, are superior to those of the other creditors. The transaction was perfectly legal and valid under the laws of Mississippi, and must be held legal and valid under the federal statutes. Flash v. Baldwin, 59 Miss. 61; Thompson v. Fairbanks, 196 U.S. 516; Humphreys v. Tatman, 198 U.S. 91.

The contention of the counsel for the appellee is that the deed in trust executed by Bryant to the appellants on July 17 1901, is void because possession was not taken immediately after the delivery to the trustee; that the transfer made by Bryant on June 13, 1902, is void because it was made within four months of the bankruptcy proceeding, while Bryant was insolvent, and known to be insolvent, and made by him and received by Belknap & Company for the purpose of giving Belknap & Company a larger per cent of his debt than the other creditors would receive. Under Flash v. Baldwin, supra, the question as to whether the transfer from Bryant to Belknap & Company, through their trustee, on June 13, 1902, was fraudulent, is a question of fact. If the purpose of the parties was to secure the payment of an honest debt, in a just, fair and honest manner, then the transaction, under the state laws, is perfectly legal and valid. There is nothing in the proof to indicate that Belknap & Company, or their agents and attorneys, were actuated by any desire except the securing of the payment of an honest debt, and the transaction should not be condemned simply because, by their diligence, they secured the partial payment of their debt to the exclusion of the other creditors. The records may be searched, and we invite a most careful scrutiny, for the purpose of ascertaining any actual fraud. If the transaction is to be condemned, it is because of the...