Marks v. Hill

• Citation: 56 Va. 400
• Court: Supreme Court of Virginia
• Decision Date: 15 November 1859
• Parties: MARKS & als. v. HILL & als.

56 Va. 400

MARKS & als. v. HILL & als.

Supreme Court of Appeals of Virginia.

November 15, 1859

1. A provision in a deed of trust to secure creditors, that the trustee may continue the business and replenish the stock, if intended merely as a means of realizing the trust fund, and with a view to winding up the business, is not fraudulent per se, so as to avoid the deed.

2. In such a case a provision in the deed that one of the grantors shall attend to the business, but he being under the control of the trustee, who may at any time on his motion, and shall at the request of creditors, sell the property at auction, is not fraudulent per se, so as to avoid the deed.

3. Partnership effects may be applied, by the concurrence of the partners, to pay an individual debt of one of them, if the other receives a sufficient consideration therefor, though they may be unable to pay all their partnership debts.

4. H and N form a partnership, each to put in two thousand five hundred dollars. N borrows the money on his own note with security. H is unable to borrow on his own credit; and with the consent of N gives the note of the firm for the amount. They fail, and agree that both notes shall be paid out of the partnership assets; and the assets are conveyed in trust to secure these debts as well as other partnership debts. The agreement is upon a sufficient consideration, and valid against partnership creditors not secured by the deed.

5. In a bill by creditors to set aside a deed of trust for payment of debts, on the ground that it is fraudulent on its face, the bill does not ask for an account, but there is a prayer for general relief. Though the deed is sustained as valid, the plaintiffs are entitled to an account.

6. In such case, the court below having dismissed the bill generally, and it not appearing that the plaintiffs asked for an account or that the court considered the question, the appellate court will affirm the decree sustaining the deed and reverse it as to the account; but with costs to the appellee.

This was a bill filed in the Circuit court of Petersburg in January 1856, by Grandison F. Marks and others, judgment and execution creditors of Hill & Nichols, to set aside a deed of trust executed by William R. Hill and Dudley Nichols to R. R. Collier in June 1854, to secure certain debts therein mentioned, upon the grounds that upon its face it was fraudulent in law and void as to creditors. Hill &amp Nichols commenced business in Petersburg in 1853, their stock consisting of household ware, fancy articles, and " notions" generally; and in June 1854, finding the business unprofitable, they made the deed complained of in the bill; by which, to secure a debt which the deed states Hill owed to William A. Bragg of two thousand five hundred dollars, and an accommodation note for two thousand dollars which had been discounted for Nichols at the Farmers Bank and endorsed first by R. S. Thompson and second by Collier, and to secure debts of the firm of Hill & Nichols, contained in a schedule to the deed, they conveyed to Collier all their stock of goods, effects and credits, of which an inventory had just been taken, in trust that Collier, with the consent in writing signed by William A. Bragg and R. S. Thompson, should permit Nichols, as agent, to carry on said business, the stock of which was thereby assigned, with authority to replenish the said stock, for the purpose of paying off the debt of Hill to Bragg and the note of Nichols at the Farmers Bank. And forasmuch as the said Collier had made himself liable to pay the debt to Bragg, as was understood between Bragg and Collier, Hill surrendered all interest he had in the business of Hill & Nichols. And in trust also that Collier should proceed to dispose of the effects of the firm and collect the credits specified in a schedule annexed to the deed, and pay the debts of Hill & Nichols, specified in another schedule. And out of the collections of said credits and any sale of said effects, if any, first to pay the expenses of the trust, including for the trustee a commission of five cents in the dollar, out of all the trust subject; and then pay, first, the " " " borrowed money," and next pay ratably the debts in the aforesaid schedule.

And it was stipulated by the parties to the deed, that the agency of Nichols should be arrested whenever Bragg, Thompson or Collier, or any other three of the creditors, should in writing give direction to Collier to make sale of the stock of goods by auction, in such way as Collier might judge best for the benefit of all interested. And after satisfying the trust, Collier should pay over any balance of proceeds and deliver any remnant of the effects and of the stock of goods to the order of Nichols.

The bill charged, that at the time of making the deed William R. Hill and Dudley Nichols were utterly insolvent; and that the plaintiffs' executions against them were returned " no effects:" and that appeared from the return thereon. The objections to the deed were: First--That the partnership effects were conveyed to pay the individual debt of Hill to Bragg and of Nichols to the Farmers Bank; debts which were contracted by each of them to raise the capital which each was to put into the partnership. Second--That Nichols was authorized to carry on the business with the stock conveyed by the deed, without limitation as to time, and with authority to the agent to replenish the stock. And it is charged that the trustee had continued through the agency of Nichols to carry on the business up to the time of filing the bill or a short time previous.

Hill, Nichols, Collier and Bragg answered the bill separately, though all concur in the grounds of defence. They deny all fraudulent intent in making the deed, and aver that its provisions were made with the purpose to advance the interest of the creditors; all of whom were intended to be included, though some were inadvertently omitted. They say that Hill not being able to raise the sum of money which by their agreement he was to put into the business, he, with the assent of Nichols, gave to Bragg, from whom he borrowed the money, the note of Hill & Nichols for it: and this is proved by the note which Bragg exhibited with his answer. They say further, that Nichols borrowed his capital from the Farmers Bank, with Thompson and Collier as his sureties; but that as the partnership was bound for Hill's capital, it was thought but reasonable, and it was agreed between Hill & Nichols, that the debt of the latter to the Farmers Bank should also be paid out of the partnership effects; and as both debts were for borrowed money which had been laid out in the purchase of their stock in trade, and was represented by the goods in hand and the debts due them, that it was proper these debts should be preferred. As to Collier's interest in these debts, he was not bound for that of Bragg but by his signing the deed, which he supposed furnished him the means of paying it; and he was the second endorser on the debt due to the Farmers Bank; Mr. Thompson the first endorser, having ample means to pay it.

It was further stated, that as soon as the deed of trust was executed, possession of all the property was delivered to the trustee. That the stock, consisting of miscellaneous wares, fancy goods and " notions," would have been ruinously sacrificed at public auction: many of the articles could be " worked off" in the course of trade, which would be thrown away if forced upon the market. That for the benefit of the creditors, the deed gave to the trustee a qualified discretion as to the time and mode of disposing of the property. That to secure custom and work off the bad stock, it was necessary to renew the supply of such articles as were in common use and would command ready sale. And that it was not for the purpose of continuing the business, but simply to enable the trustee to dispose of the whole stock to the best advantage, that he was authorized, with the consent of the cestuis que trust, to replenish the stock until opportunity should occur to sell it to advantage. That Nichols, from his acquaintance with the business, was thought best fitted to act as agent for the trustee: he retained no right under the deed to manage the property. That in fact he acted as such agent only until he obtained employment elsewhere about the 1st of January 1855.

The cause came on to be heard on the 4th of June 1855, upon the bill, answers, the replications thereto and exhibits, when the court held that the deed had been executed in good faith, and was not invalid for any thing on its face; and therefore dismissed the bill with costs. And the plaintiffs thereupon applied to this court for an appeal; which was allowed.

Joynes, for the appellants, insisted:

1st. That the deed was void, because it provided that Nichols should carry on the business. And he distinguished between the cases in which the trustee employed the grantor as his agent, to act for him, subject to his control, and for whose acts the trustee was responsible as for his own; which he admitted might be done; and the case in which it was a condition of the deed that the grantor should act; and therefore deriving his authority from the source from which the trustee derived his, he was necessarily independent of him to the extent of the authority conferred upon or retained by him. He referred to McClurg v. Lecky, 3 Penr. & Watts' R. 83; Nicholson v. Leavitt, 4 Sanf. S. C. R. 252, 273; Shattuck v. Freeman, 1 Metc. R. 10; Vernon & al. v. Morton, 8 Dana's R. 247.

2d. That the deed was void, because Nichols was authorized to continue and carry on the business, and for this purpose to replenish the stock: thus subjecting the whole trust subject to the casualties incident to the...