Cohn Bros. v. Ward
| Decision Date | 16 April 1892 |
| Citation | 36 W.Va. 516 |
| Court | West Virginia Supreme Court |
| Parties | Cohn Bros. & Co. v. Ward, et al. |
Where a deed of trust secures several creditors, and one or more of the debts secured is fictitious and fraudulent, that fact does not invalidate the deed as to bona fide creditors secured by it not guilty of any fraud.
Creditors not secured or not preferred in a deed of trust, who sue to overthrow it or some of the debts therein secured on the ground of their being fraudulent or void, and succeed in overthrowing some of the debts therein secured, are not advanced in priority so as to take rank of the debts overthrown, and get payment out of the property conveyed in preference to bona fide creditors secured or preferred by the deed, but the whole property remains to answer their demands according to the deed.
J. M. Laidley, A. B. Wells and 0. Johnson for appellants. A. B. Wells and O.Johnson cited 30 W. Va. 443; 22 W. Va. 434; 31 W. Va. 166; Id 159; 27 Gratt. 479.
J. G. Shilling for appellees cited 21 W. Va 291; 31 W. Va. 156; 22 W. Va. 434; 30 W. Va. 443; 1 Am. & Eng. Ency. 853; 23 Fed. Rep. 13; 8 Am. & Eng. Ency. 642 note; Bump. Fraud. Conv. (2nd Ed) 42, 58; Code (1891) c. 72, § 5; 3 Ala. 694; 22 W. Va. 412; 13 W. Va. 230; 29 W. Va. 703; 8 Gratt. 149.
James T. Ward and wife executed a deed of trust onveying to Uriah Dobbins, trustee, real and personal property, in trust First, to pay costs of its execution; second, a debt to J. C. Dillard; third, a debt to James S. Gandee; fourth, a debt to Jasper Peterson and to six other creditors debts in successive order, and the residue ratably on other debts.
Cohn Bros. & Co. brought a suit in Roane county to set this deed of trust aside as fraudulent and void as to them as creditors of Ward, and a decree was pronounced holding the deed of trust valid, but holding the debt secured to Dillard and part of that of Gandee void as to the plaintiffs; and the decree then proceeded to substitute the plaintiffs and other creditors of Ward not secured among the eight preferred creditors, but falling among the pro rata creditors secured in said deed, to the places held by Dillard and Gandee to the extent of the amounts of their rejected or invalid debts; in other words, advanced these creditors to that extent from the position of deferred pro rata creditors to that of Dillard ami Gandee, who were first and second creditors.
Ward and three; of said preferred creditors, Gandee, Peterson, and Cunningham, appeal.
A question of practical importance in this State, considering the wide use of deeds of trust giving preference among creditors, arises in this case, and one winch, so far as I know, or the briefs inform us, has not been pointedly decided in either of the Virginias. This question is: Suppose a deed of trust securing various creditors gives pref-ererice to them in order first, second, third, and so on, and a creditor not preferred attacks the deed of trust as fraudulent and void, hut fails to overthrow the deed in toto, but yet does succeed in overthrowing as fraudulent some one or n ore of the debts preferred, does the attacking creditor take the place and rank of the creditor whose debt is overthrown to the extent of that debt? Or do the preferred creditors lower in the order of preference than the creditor whose debt is overthrown get the benefit of his overthrow? Is the whole property to go to pay the remaining preferred creditors first, just as if the defeated debt had not been inserted; or is the amount which otherwise would have gone to him to be diverted from the other preferred creditors, and go to the unpreferred creditor attacking the deed?
In Bank v. Hqffheimer, 23 Fed. Rep. 13, in the federal circuit court of Virginia, a deed had been made to a trustee, conveying estate to pay numerous creditors scheduled as "Class A," and, after their payment, to pay creditors scheduled as "Class Band a general creditor brought suit to avoi 1 three of the debts in class A, and they were adjudged fictitious and void, and it was further field (1) that "the deed conveyed integral amounts to a series of integer cred tors, and its provisions were several by the terms of the grant; (2) that, as it did not provide for the contingency of some of the debts in Schedule A. being fictitious, which they in fact proved to be, the amounts which were intended for them were not disposed of by the deed, remained in the grantor as to the attacking creditors, and were subject to their claims." The court also said that deeds of assignment giving preference must be strictly construed, and equity will not interpolate clauses to carry out a possible intent to prefer creditors otherwise than as expressed, and that the success of attacking creditors can not enlarge the deed as to those claiming under it. The opinion in the case bases itself chiefly on Prince v. Shepard, 9 Pick. 176; but a scrutiny of that case will show that it was misconceived in the case referred to, because there Henry Prince conveyed to John Prince and Hodges half of a ship, to have and to hold to them, respectively, in the proportions which the sums of money due to them, respectively, bear to each other and other creditors attached; and, the ship having been sold, and the proceeds held by consent to await judicial decision as to the matter, John Prince sued in assumpsit the parties holding the proceeds of sale, and it was found that the debt of Hodges was void, that of John Prince valid, and the decision was that the interests of John Prince and Hodges were several, so that John Prince could sue alone in assumpsit, though, if the interests had been valid in the whole, they would take as tenants in common; that the officer could sell under attachment only the part fraudulently assigned, that being still, as regarded the attaching creditors, in Henry Prince. Now, notice that each of the mortgagees in that case had a separate debt, and the half of the ship was conveyed to them to be held, not the whole half for the payment of both debts, but to be held by each mortgagee separately in interests or portions corresponding to those debts. Each had a separate share, and, one share being avoided, it remained in the mortgagor liable to attachment, and the bona fide debt of John Prince had no claim on the interest conveyed to Hodge. It was a coveyance of an integer an interest integral. But in the present ease it is different. Ward conveyed the whole property to pay all the debts. No one creditor had a claim on any particular portion of that property. Each and every creditor preferred all of them had a right to look to the whole property for full payment, When one creditor is paid, or his debt avoided, lie is eliminated; but he carries no part of the property with him, for it remains a whole yet, to answer the remaining debts, for the conveyance pledged it as a whole for all the debts. Where there is, for instance, one tract of land, or a separate interest therein, conveyed to secure one man, and another tract, or a separate interest, conveyed to secure another, and the debt of one of these men is fraudulent, the tract or interest conveyed to secure him is still in the debtor, liable to his creditors, and the other of these creditors has no lien on it, because it was not conveyed to him. Such, in effect, was the Massachusetts case of Prince v. Shepard. But the case would be different if the whole tract, or a given interest, were conveyed to secure both deb's in differ ently. The fault of the decision in the ease of Bank v. Hoffheimer, supra, lies in the idea that the interests of e asses of creditors A. and B. were integers, or separate shares or entities. The whole property was conveyed to a trustee to pay, first, one class; second, another class, in full. All creditors of both classes had right to all the property...
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