White v. Graves

• Decision Date: 16 October 1832
• Parties: White v. Graves & c.
• Court: Kentucky Court of Appeals

30 Ky. 523

White v. Graves & c.

Court of Appeals of Kentucky.

October 16, 1832

Deeds of Trust. Secret Trusts. Insolvent Debtors. Preference of Creditors.

ERROR TO THE FAYETTE CIRCUIT; HICKEY, JUDGE.

Haggin and Cowan for plaintiffs.

Chinn for defendants.

OPINION

NICHOLAS JUDGE:

H. Graves conveyed all his estate, real and personal, to Edmund P. White, in trust, to sell the same, and with the proceeds satisfy certain debts due from Graves to John White and to indemnify the latter against certain liabilities he had incurred as the surety of Graves. Among other property so conveyed, there was a tract of land, which was stipulated by the deed Graves should have the privilege of selling himself on or before a named day, by private sale, provided the bonds taken for the purchase money should be assigned to Edmund P White, to be held by him for the purposes of the trust. At the time of taking this deed, Edmund P. was acting as the agent of John White for the purpose of obtaining security and indemnity for Graves. In addition to the stipulations contained on the face of the deed, it was verbally agreed between E. P. White and Graves, that out of the proceeds of the sale of the land to be effected by the latter, he was to be permitted to retain $1,000 of the sale money to be applied to his own use or for purposes other than those expressed in the deed. Shortly after the date of the deed, the land was sold by Graves and $1,000 of the proceeds retained by him with the assent of E. P. White. At the time of executing the deed, Graves was in failing if not insolvent circumstances with heavy debts against him then due, some of which were in suit, and on which judgments were obtained recently thereafter.

This deed of trust was attacked by appropriate proceedings on behalf of the other creditors of H. Graves and the balance of the property embraced by it having been sold by order of the circuit court, the deed was treated as fraudulent and void and the proceeds applied, by final decree, to the satisfaction of those other creditors to the prejudice of White, his claims being postponed till theirs were satisfied.

The decision of the case here depends mainly upon two questions First. Whether the deed of trust was fraudulent and void as to the other creditors of Graves; and if so then, secondly, whether White should have been paid pro rata, with the other creditors, or whether his debts should have been post-poned as was done by the circuit court.

As to the first of those questions, we shall only notice one objection out of many that have been made to the validity of the deed. It is the effect of the secret agreement, not expressed on the face of the deed, to permit Graves, the grantor, to retain $1,000 of the purchase money for purposes other than those expressed in the deed. Does this of itself render the deed in contemplation of law, fraudulent and void?

So far as we know, the exact point has not been adjudged, but it falls so entirely within the operation of well settled principles, that there can be but little difficulty in coming to a correct determination of it.

In conceding to a debtor, the right of prefering one creditor to another, by pledges of or liens upon, his property, the law has yielded him a power greatly liable to abuse, and which apart from the necessity of such power in the transaction of business between men in their commercial relations, it would be difficult to defend on mere principles of equity. " The property of a debtor is that upon which he obtained credit, is that to which his creditors look for payment, and upon which they all have an equally equitable claim for remuneration." When the chancellor gets hold of the fund, he always makes equal distribution among the whole of the creditors according to the amounts of their respective claims, unless prevented by specific liens, priority obtained by superior diligence or other controlling circumstance. To disturb this equitable order of distribution, is to interfere with the rights of general creditors; and the law, therefore, whilst it permits it to be done, looks with great jealousy upon the manner of doing it. Whilst it allows the debtor to prefer a favored creditor, it requires in the mode of doing it all fairness and good faith. It denounces all departures from either. In its anxiety to prevent an abuse of...