Hurst v. Leckie

• Decision Date: 16 November 1899
• Citation: 97 Va. 550,34 S.E. 464
• Parties: HURST et al. v. LECKIE et al.
• Court: Virginia Supreme Court

34 S.E. 464

97 Va. 550

HURST et al.

v.LECKIE et al.

Supreme Court of Appeals of Virginia.

Nov. 16, 1899.

ASSIGNMENT FOR BENEFIT OF CREDITORS-VALIDITY — RESERVATION FOR DEBTOR'S-BENEFIT — OPERATION OF BUSINESS BY TRUSTEE—EMPLOYMENT OF GRANTOR.

1.A conveyance to a trustee for the benefit of creditors, authorizing the trustee, in his discretion, to continue the grantor's business for one year, and, with the consent of a majority of the unpaid creditors at the expiration of the year, to continue operating the business a second year, and to make such purchases of additional stock for cash from the proceeds of the business as will aid in keeping up the business, and disposing of the other stock, is not void as containing a reservation for the benefit of the grantor.

2. That a trustee under a deed for the benefit of creditors, authorizing him, in his discretion, to continue the grantor's business for a limited time, employs the grantor as his chief salesman, does not invalidate the deed.

3. That a grantor in a conveyance of all his property to a trustee for the benefit of creditors failed to deliver all his estate does not invalidate the deed, since the title to all the property passed to the trustee, and he might recover it from the grantor or any other person withholding it.

4. Under Code, § 2501, providing that a deed shall be admitted to record on acknowledgment before a "commissioner in chancery of a court of record, " a deed is entitled to record when acknowledged before a person described in the certificate merely as a "commissioner in chancery for the city aforesaid, " etc., where it appears that in the state in which the acknowledgment was taken there are no commissioners in chancery except for courts of record.

Appeal from corporation court of Buena Vista.

Action by Hurst & Co., and another against G. W. Leckie and another. Prom a decree for defendants, plaintiffs appeal. Affirmed.

Winborne & Batchelor, Barton & Boyd, C. B. Guyer, and G. D. Letcher, for appellants.

F. T. Glasgow, Wm. A. Anderson, and H. T. White, for appellees.

RIELY, J. The deed of trust from G. W. Leckie to Hugh A. White, trustee, which is the subject of this controversy, is assailed as fraudulent per se upon the ground that certain of its provisions are incompatible with the avowed purposes of the deed, and are adequate to defeat it as a security for the payment of the debts of the grantor. The clauses of the deed which are alleged to contain the illegal provisions are the following:

"The said Hugh A. White, trustee, shall immediately take possession and control of all the property, real and personal and mixed, hereinbefore described, and proceed to make sale of the same, either privately or by public auction, and as a whole or in parcels or parts, as he may deem best for the creditors, and in order that the best interest of the creditors may be preserved. The trustee may, if it seems to him wise, run and operate the merchandise business of the said G. W. Leckie for the period of one year from the date of this deed, and if, at the end of that time, the. indebtedness is not all paid, and it is demonstrated that a continuance of the operation of the business will be to the advantage of those creditors not yet paid, then the said trustee shall continue to operate the business for another year, unless a majority in the amount of the creditors then unpaid object in writing to the further operation; and upon such objection by a majority in amount of the creditors, or if it is not demonstrated that it would be to the best interest of the remaining creditors at the end of the first year's operations to continue to operate the business, then the trustee shall proceed to sell such stock of general merchandise at public auction to the highest bidder, after giving reasonable notice of the time and place."

"The said trustee is authorized and empowered to make such purchases of additional stock for cash from the proceeds of his operation of the business as will aid in keeping up the business and disposing of the other stock to a better and more profitable advantage."

It is asserted that the foregoing clauses contain a reservation for the benefit of the grantor in providing for the continuance of the business by the trustee, and that there can be no reservation to the grantor, or to the trustee, of any right, power, or control over the subject of the deed of assignment, which is inconsistent with an absolute application of its proceeds to the payment of the debts secured. It is beyond question that to reserve any benefit to the grantor himself; or to introduce limitations and contingencies such as will give him control over the property or its proceeds, so as to enable him, in effect, to defeat the conveyance; or to reserve the power to revoke it; or to stipulate for the maintenance of the grantor or his family, or for his employment at a fixed salary, —will render the deed fraudulent. 2 Minor, Inst. (4th Ed.) 680, and the cases there cited.

The deed in question is an absolute conveyance by the grantor of all his property to the trustee; is a complete, immediate, and unreserved dedication thereof to the payment of the creditors secured; and provides for the immediate possession and control by the trustee. It leaves no interest whatever in the property in the grantor, nor reserves to him any use, possession, or control over it, but, by its express terms, all right and title to, and possession and control of, the property are absolutely and immediately vested in the trustee. It pro vides not only for the immediate possession and control of all the property by the trustee, but for the immediate sale thereof by him for the purpose of paying the creditors in the order that they are secured. It is only in the event that it seems to the trustee wise and advantageous to the interests of the creditors that he is authorized to continue the business. Nor is he empowered to do so for an indefinite time, but he is expressly restricted to the period of one year, unless the operation of the business for that length of time demonstrates that a continuance of the business for another year will be to the advantage of the creditors who have not then been paid. But, even if that be demonstrated by the result of the operation of the business for a year, yet, upon the objection of a majority in amount of the unpaid creditors to a further continuance of the business, the trustee is required to sell the stock of merchandise by public auction, to the highest bidder, after giving reasonable notice of the time and place of sale. And if the trustee should deem it wise to run and operate the business for a year, instead of making an immediate sale of the stock of merchandise, the deed contains no provision that the trustee shall employ the grantor as agent or clerk to assist him at a fixed salary, or that he should employ him at all. It is not perceived that the deed contains any reservation whatever for the benefit of the grantor. No interest or right in or to the property, or possession of or control over it or its proceeds, is reserved to him.

Nor does the law condemn as vicious and illegal the provisions of the deed giving to the trustee the discretionary power to run and operate the business for a year, if he deem it wise to do so, having in view the interests of the creditors. It is not mandatory, and does not oblige him to carry it on for a single day. He may immediately sell and convert the property into money, and apply the same to the payment of the debts in the order that they are secured. It is only if, in his judgment, best for the creditors, that he may. in his discretion, carry on the business for a year, taking that limited and definite period to dispose of the stock to the best advantage by retailing the goods for cash in the usual course of mercantile trade and business, and not sacrifice them by a forced sale by public auction. The provision would seem to be a salutary one, instead of fraudulent and illegal.

It is also proper in this connection to observe that the deed requires the trustee to proceed at once to collect all debts, and from such collections and the proceeds of the sale of the property, and out of the operations of the business, if it is operated, after paying certain charges and expenses, to pay the debts in the order of their priority.

Nor is the deed rendered fraudulent by the further provision empowering the trustee "to make such purchases of additional stock for cash from the proceeds of his operation of the business as will aid in keeping up the busi-ness and disposing of the other stock to a better and more profitable advantage." It confers upon the trustee the authority to make only such purchases as will aid in keeping up the business and disposing of the other stock more advantageously. The language of the provision shows clearly that the purchases of additional stock were to be only ancillary to the winding up of the business. The power to replenish the stock for this purpose is not illegal. Marks v. Hill, 15 Grat. 400, and Williams v. Lord, 75 Va. 390.

The trustee is not empowered to incur any debt in making such purchases. The deed does not authorize him to borrow money with which to make the purchases, nor to buy on credit. He is restricted to purchases for cash received from the operation of the business. Buying for cash and selling for cash, —which he was required to do by the express terms of the deed, —he was not given a power to defeat the security for creditors provided by the assignment by risking the casualties of trade. It is not perceived how the honest and prudent exercise of the power could so result. The deed in question differs very materially from those pronounced to be fraudulent and void in Lang v. Lee, 3 Rand. (Va.) 410, Sheppards v. Turpin, 3 Grat 373, and Catt v. Manufacturing Co., 93 Va. 736, 26 S. E. 246, which were the authorities mainly relied upon by the learned counsel for the appellants to show its...