Kemp v. National Bank of the Republic of New York

• Decision Date: 07 May 1901
• Docket Number: 324.
• Citation: 109 F. 48
• Parties: KEMP et al. v. NATIONAL BANK OF THE REPUBLIC OF NEW YORK.
• Court: U.S. Court of Appeals — Fourth Circuit

109 F. 48

KEMP et al. v. NATIONAL BANK OF THE REPUBLIC OF NEW YORK.

No. 324.

United States Court of Appeals, Fourth Circuit.

May 7, 1901

This is an appeal from a decree of the circuit court of the United States for the Western district of Virginia, rendered on the 21st day of December, 1898, annulling and setting aside a deed of trust from T. D. Berry and wife to C. A. Board trustee, dated April 22, 1898, to secure two negotiable notes, of $2,500 each, held by the appellant Price. The appellee filed its bill in equity in the lower court, setting forth that it was a creditor for a large amount of Thomas D and W. W. Berry, Jr., individually, and of the firm composed of said parties, trading as Berry Bros., and of the First National Bank of Bedford City, and sought to have set aside as fraudulent and void nine certain deeds of trust executed by said T. D. Berry, and admitted to record on the 14th and 19th days of May 1896. Said complainant alleged that the said Berry and his said firm were hopelessly insolvent at the time of the making of said several deeds, and that the deeds were made in anticipation of said Berry's creditors, and particularly complainant, procuring judgments at the term of the circuit court of Bedford county then about to commence his purpose being to place his assets, individual and social beyond the reach of his creditors. Complainant further alleged that the said T. D. Berry was president of the First National Bank of Bedford City, and a director of the Liberty Savings Bank; that with the business of said institutions he was thoroughly conversant, and over their affairs and officers he exercised almost, if not quite, unlimited control, said officers yielding implicitly to his management; that said banks suspended on the 16th day of April, 1896, in a hopelessly insolvent condition, and would not pay 25 cents on the dollar of their indebtedness, the said First National Bank being placed in the hands of a receiver, and the Liberty Savings Bank making a deed of assignment for the benefit of its creditors; and the said T. D. Berry and his firm, principally, if not wholly, by his instrumentality, had obtained from each of the institutions twice as much as their capital stock, and that the said T. D. Berry knew, at least a month or two before the failure of these banks, that they were merely struggling for existence, and must inevitably come to naught; that with the deliberate intent to hinder, delay, and defraud his creditors, and particularly complainant, the nine several deeds of trust were executed, all made after the failure of said banks, when said Berry knew that he and his firm were hopelessly insolvent; that all parties interested in said deeds, including the trustees therein, had notice of the intent with which they were made, and that the negotiable notes attempted to be secured were given without consideration, and were not in the hands of bona fide holders,-- said notes being intended for use, if at all, to place money in the hands of the grantor so as to defeat the claims of existing creditors. The defendant T. D. Berry filed his answer, denying fraud of all sorts in connection with the making of the several deeds mentioned, and any purpose to hinder, delay, and defraud his creditors in the execution of the same, or, indeed, to do anything fraudulent in connection with the making of said deeds and the securing of the debts severally, all of which he insisted were bona fide, and that the object and purpose of said several deeds were to prefer the creditors named in them, respectively, as he insisted he had a right to do, and he gave a detailed statement in his answer of his several debts thus secured and his transactions in reference to the same; that, as to the particular deed which is the subject of this appeal, the notes were made at the time of the execution of the deed, and given to the receiver of the First National Bank of Bedford City, to be delivered by him to Dr. S. H. Price, treasurer of Bedford county, for whose benefit they were drawn, the said Price to execute a paper, showing the facts in relation thereto; that said notes are still held by said Price; that said Price, as treasurer, had considerable money on deposit in said bank when it closed its doors, and that he (said T. D. Berry) felt under a moral obligation to protect said treasurer from loss by reason of said deposit as far as he could, and that said trust deed and notes were given for that purpose. Price filed his answer, averring that some time previous to the 1st day of April, 1896, rumors having been circulated as to the solvency of the said bank, he applied to Thomas D. Berry, its president, for information as to its financial condition, and was informed that the bank was solvent, and able to pay all its indebtedness; that on account of such assurances on the part of said Berry, he continued to keep an account with said bank, and that on the 16th of April the bank was indebted to him in the sum of $5,551; that since the failure of the bank respondent has assumed and paid to the said county the full sum which he, as treasurer, had deposited in said bank, and that said debt was his individual property; that the said Berry executed and delivered the two notes aforesaid for the debt mentioned, as respondent had allowed his money to remain in the bank upon his (said T. D. Berry's) representations, and as there was a high moral obligation resting upon said T. D. Berry to secure respondent. Respondent denied all fraud in connection with the matter, and, on the contrary, averred that he knew nothing of the intention of said Berry to execute the notes and deed of trust until the same were actually executed and delivered; that they were made and delivered in good faith, for the debt aforesaid; and that the security furnished by said notes and deed of trust was wholly inadequate to pay the amount due, as the land conveyed would not sell for enough to pay the debt secured. In the lower court, so far as the subject of this appeal is concerned, the case was heard upon the bill, answer, and stipulation, admitting the truth of the statements contained in the answer of Price. The court sustained the several deeds mentioned, with the exception of the one for the benefit of the appellant Price, holding said deed to have been executed without valid consideration so far as the grantor, T. D. Berry, was concerned, for the reason that the debt secured was one due by the bank, and not by the grantor, and was therefore void as to plaintiff's debt. The said decree further directed how the receiver theretofore appointed should deal with the properties, and appointed a special master to ascertain and report the claims of the creditors, and their respective liens, and to take any other pertinent accounts.

M. P. Burks (Burks & Kemp, on the briefs), for appellants.

J. Singleton Diggs and W. R. Perkins, for appellee.

Before GOFF, Circuit Judge, and MORRIS and WADDILL, District Judges.

WADDILL District Judge, after stating the case as above, .

The assignment of error presents for consideration a single question, namely, the correctness of the decision of the lower court in adjudging the deed in question to be invalid for lack of consideration. The appellee has raised a preliminary question, however, which will first be disposed of, namely, whether the said decree is a final one, and from which an appeal will lie. It is earnestly contended that no appeal lies, as the decree was merely interlocutory, and would not be final until the execution of the order of reference mentioned in the decree. This position may be conceded, so far as persons interested in the particular reference are concerned, but it cannot be seriously claimed that the appellants have any interest therein as the decree stands. So far as they are concerned, the purpose of the suit was to determine the validity of the deed in question. The court having declared it invalid, and entered a decree annulling the same, that decree as to them was a finality. It extinguished every interest they had in the subject-matter of the conveyance, and from it, and no subsequent decree, directing how the property should be disposed of between other persons, or the taking of accounts in reference to the property between them, should they appeal. In re Farmers' Loan & Trust Co., 129 U.S. 206, 213, 9 Sup.Ct. 265, 32 L.Ed. 656; Central Trust Co. v. Brant Locomotive Works, 135 U.S. 207, 225, 10 Sup.Ct. 736, 34 L.Ed. 97; McGourkey v. Railroad Co., 146 U.S. 536, 13 Sup.Ct. 170, 36 L.Ed. 1079; Sanders v. Improvement Co. (C.C.A.) 106 F. 587.

The right of the defendant T. D. Berry, under the law of Virginia as it existed at the time of this transaction, to prefer his creditors one over another, if such preferences were made in good faith and for a valid consideration, is no longer an open question, under the decision, state and federal. Peters v. Bain, 133 U.S. 670, 686, 10 Sup.Ct. 354, 33 L.Ed. 696; Dance v. Seaman, 11 Grat. 778; Brockenbrough v. Brockenbrough, 31 Grat. 580; Young v. Willis, 82 Va. 291, 293. And in a case like the one in hand, where it is clear from the admitted facts that the trustee in the deed, as well as the beneficiary therein, had no notice even of its execution, there can be no doubt of the validity of the deed, if made to secure a valid obligation. The fact of insolvency on the part of the grantor in no way affects the validity of the deed. This right an insolvent debtor had at common law. Huntley v. Kingman, 152 U.S. 527, 14 Sup.Ct. 688, 38 L.Ed. 540;

Talley v. Curtain, 4 C.C.A. 182, 54 F. 43. Indeed, although the effect of the deed may be to delay creditors, if the transfer were made in good faith, with the intention to pay the preferred creditor and without any secret trust, it was...