Stewart v. Kerrison

• Decision Date: 30 April 1871
• Citation: 3 S.C. 266
• Parties: STEWART v. KERRISON.
• Court: South Carolina Supreme Court

3 S.C. 266

STEWART

v.KERRISON.

Supreme Court of South Carolina.

April Term, 1871.

A deed of conveyance of real estate to a trustee, in trust “to hold the said premises as a security” for certain creditors of the assignors, who had accepted the notes of the assignors for the principal of their debts, payable in two and three years, with interest, and such other creditors as should, within a limited time, accept the same terms, with power to sell or mortgage the property to pay off the notes: Held, to be an assignment for the benefit of creditors and not a mortgage.

The rents and profits accruing before the sale, were not, in terms, directed to be applied to the assignors' debts, and the assignors were allowed by the trustee to remain in possession of the assigned property: Held, That the assignment was fraudulent in law and void as against a creditor who had not accepted the terms stipulated for.

BEFORE CARPENTER, J., AT CHARLESTON, JUNE TERM, 1870.

Action by A. T. Stewart & Co., plaintiffs, against Edwin L. Kerrison, Herman Leiding and Charles Kerrison, defendants.

The case is stated in the decree of the Circuit Court and the judgment of this Court. The decree is as follows:

CARPENTER, J.

The defendants, Kerrison & Leiding, merchants, residing and doing business in the City of Charleston, on the 26th of May, 1860, gave their note to the plaintiffs, who were citizens of New York, for $2,155.43, payable on the 26th December, 1860. This note was not paid at maturity, and there was due to the plaintiffs on the 1st June, 1865, not only the principal but interest, amounting to $670. Towards the close of the year 1860, the defendants purchased goods from the plaintiffs to the value of $15,005.97, but this amount was reduced at the commencement of the late war, by the return of goods, to $5,870.

In April, 1861, Edwin L. Kerrison happening to be in New York, two suits were commenced against him, one upon the open account on which judgment was recovered against him in 1862, for $4,872 principal, and $615.22 interest, and the other upon the note above referred to, upon which judgment was entered up for $2,155.43 principal, and $151.96 interest. Some time towards the close of the year 1866, Kerrison & Leiding applied to their creditors, and to the complainants among others, to take their notes, dated the first of December, 1866, payable with interest from the first of June, 1865, in two and three years, in lieu and stead of their respective debts. All of the creditors agreed to the proposal, with the exception of Benkhard & Hutton, Lord & Taylor, Strang, Advance & Co., and the complainants, who were among the largest creditors of the firm, and whose claims amounted in the aggregate, as was stated at the bar, to be between forty and fifty thousand dollars.

On the first of May, 1867, Kerrison & Leiding conveyed all their real estate which, with the exception of their household furniture and other personalty, of inconsiderable value, constituted their entire property liable to execution, to their co-defendant, Charles Kerrison. The deed, after premising “that a majority of the creditors of Kerrison & Leiding, both in number and amount, or value, with a view to enable them, the said Kerrison & Leiding, to resume some mercantile trade or business, had agreed to take their notes, dated the 1st December, 1866, payable with interest from the first of June, 1865, in two and three years, secured by a conveyance to an approved trustee of the real estate thereinafter mentioned, and that all the other creditors of Kerrison & Leiding might be disposed to come in upon the same footing, in which event it was intended to secure them that right,” conveys the real estate to the trustee upon the following trusts:

1. In trust to hold the real estate so conveyed as a security for the creditors who had agreed in advance to accept the provisions of the deed.

2. For such other creditors of Kerrison & Leiding, who at any time before the 1st December, 1867, should take and accept the notes of Kerrison & Leiding, dated 1st December, 1866, payable in two and three years, with interest from 1st June, 1865.

The deed directs the trustee, if the notes are not paid in the meantime by Kerrison & Leiding, to sell the assigned property in due time to provide for the payment of the notes as they should fall due, or to raise the sum required by mortgage, if practicable, or if he should deem it best for the interest of all, then to sell and dispose of the premises, or any of them, at any time after the execution and delivery thereof, as he might think proper, and to pay the proceeds of sale after deducting commissions, etc., to the holders of the notes.

Before the expiration of the time fixed by the deed, all the creditorsof Kerrison & Leiding accepted its provisions, with the exception of A. T. Stewart & Co., who instituted suit for the recovery of their debt in the Circuit Court of the United States. Judgment for $9,387.77, was entered on the 19th September, 1868, on which execution has issued and been returned “ nulla bona.”

This bill has been filed to set aside the assignment to Charles Kerrison, which is said to be obnoxious to the Stat. 13 Elizabeth, which declares all conveyances “made with purpose and intent to delay, hinder or defraud creditors to be clearly and utterly void, frustrate, and of none effect.” In Cadogan & Kennett, Cowp., 434, Lord Mansfield, commenting on the Stat. 13 and 27 Eliz., says: “These statutes cannot receive too liberal a construction, or be too much extended in suppression of fraud,” and he further adds, that “if the transaction be not bona fide, the circumstances of its being for a valuable consideration will not alone take it out of the Statute.” “It is very possible,” says Ch. Dunkin, in Jacot vs. Corbett, “Mr. Corbett may not have conceived that he was doing an improper act, yet if he has done that, the intent and purpose of which was to hinder and delay his creditors, the law has affixed a character to the transaction and declared it as to such creditors void and of no effect.”

It has long been a settled rule that a debtor in failing circumstances may, in the absence of any statutory prohibition, not only dispose of his property in trust for the use and benefit of his creditors generally, but may by such a conveyance give a preference in payment to one creditor before another, or to one class of creditors before another class. The temptation to the abuse or unequitable exercise of this power, and the facilities it affords for coercing creditors into a surrender of their legal rights and for reserving undue advantages to the debtor, through the services of a friendly trustee, have caused the Courts, while admitting the legality of the rule allowing preferences, to watch its application with jealousy, and to annex to it such qualifications as are calculated to prevent its operation from being oppressive and unjust. Among these there is none which is better established, or which has been more rigidly enforced, than that which forbids the debtor to encumber the assigned property with considerations beneficial to himself. Accordingly assignments providing for only a part of the creditors and directing the assignee to pay back or re-assign to the assignor the surplus which may remain after satisfying the debts provided for, or reserving to the debtor any part of the income or property for his own benefit, have been repeatedly held to be fraudulent and void- Goodrich vs. Downs, 6 Hill, 438; Strong vs. Skinner, 4 Barbour's Ct. R., 546; Lansing vs. Woodworth, 1 Sand. Ch., 43;Barney vs. Griffin, 4 Sand. Ch., 552; affirmed on appeal, 2 Comstock, 365; Leith vs. Holaston, 4 Com., 211; Jacot vs. Corbett, Cheeves' Eq., 71. It makes no difference whether the surplus be large or small, or whether the reservation be express or implied. An assignment by a debtor for the benefit of a portion of his creditors, without a provision that the surplus should be distributed among all the creditors, has been held to be fraudulent by reason of the resulting trust of the surplus, even though it turned out that there was no surplus.- Dana vs. Tull, 17 Vermont, 390. This doctrine has been recognized fully in our own case of Jacot vs. Corbett. Says Ch. Dunkin, “A debtor has no right to place his property beyond the reach of his creditors under the ordinary process of the law, prescribe the terms on which they are to participate in his effects, and secure to himself, in case of neglect or refusal, a control over such funds, and thereby the power to make other terms. Such deed is a direct violation, as well of the terms as the policy of the statute. The purpose is to hinder and delay creditors by transferring a colorable title to a third person, while the real ownership is in the assignor, unless the terms prescribed are assented to. No case, I think, can be found sanctioning an assignment which sustains such control in the debtor.”

Let us apply these principles to the deed now under consideration. The bill charges that no disposition was made by the assignment to Charles Kerrison of the rents and profits of the assigned estate, and that a trust as to such rents and profits therefore resulted to the assignors, who, with the assent of the trustee, had continued in the absolute control and enjoyment of the real estate.

The trustee, in his answer, disputes the correctness of this construction of the deed, and contends, “that Kerrison & Leiding had no interest in the assigned property until all the rents, profits and sales had been applied to the creditors secured and a surplus remained.” He further states that though he entrusted the management of the trust property to Kerrison & Leiding, he took care to ascertain that an account of the rents and profits was kept, and directed their application to the current expenses of the property. He admits, however, that “he did allow his co-defendants to occupy houses they had formerly lived...