Case ID: va_44/html/0566-01.html
Source: Caselaw Access Project
Author: {"author": "CABEBB, P.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

*Fry & Co. v. Boyd, Trustee &c. & als.
    April Term, 1846,
    Richmond.
    Deeds of Trust — Conveyance of Debts by Insolvent Firm — What Passes. — A conveyance by an insolvent firm to a trustee, of all debts due them, held under the special provisions of the deed, only to pass the balance of a debt, after offsetting- a claim not yet due held, by the debtor against the firm.
    Harper, Hardy & Co. were merchants, doing business in the town of Buchanan in the county of Botetourt.' About the beginning of the year 1842, they failed in business, and by a deed dated the 14th of January 1842, they conveyed all their property, both social and individual, to William W. Boyd, in trust for the payment of their debts. The execution of this deed does not appear to have been induced by the demand or request of their creditors, but from a desire on their part, to make the best provision in their power for the payment of their debts.
    The deed recites their creditors and securities, and the debts due to each, or for which the securities are bound, where the amount is ascertained, and where there is an account unsettled between the grantors and the creditors the fact is stated. It then conveys and transfers to the trustee, in the first place, all the partnership property, and all debts and sums of money due to the partnership, and all securities had, made or obtained for their benefit, and to them belonging, whether by bond, bill, note, or in an3’ other manner whatsoever; and all their books of accounts, and all suits, judgments, damages, rights and interests to them in any wise belonging. Upon trust that he shall proceed to sell the property, and collect by suit or otherwise all the debts conveyed and transferred to him ; and out of the proceeds pay' off the debts specified, and the balances which upon a settlement, may be found to be due to the persons mentioned, in the order specified in the deed.
    *The deed then proceeds to convey the individual property of two of the partners to the trustee, to be applied to the payment of the debts of Harper, Hardy & Co., if the partnership property shall not be sufficient to discharge them. The deed then says : ‘ ‘ And in all cases of settlements with persons owing debts and sums of money to the said Harper, Hardy & Co., such person or persons shall be allowed a credit for any debts or sums of money that may be due to them from any of the members individually of said firm of Harper, Hardy & Co., if the same shall have arisen prior to the execution of this deed.” This deed was recorded in the clerk’s office of the County Court of Botetourt.
    At the time this deed was made, Harper, Hardy & Co. held two accepted draffs drawn by them on H. W. & J. J. Fry & Co. of Richmond, each for the sum of 1025 dollars; one of which bore date the 5th of December 1841, and payable at sixty days, and the other dated the 10th of December 1841, and payable in sixty days. These drafts passed into the possession of Boyd, the trustee, who deposited them in the Bank of Virginia for collection, and gave notice thereof to Fry & Co. At the same time Harper, Hardy & Co. were indebted to H. W. & J. J. Fry & Co. 884 dollars 4 cents, on account, for merchandise which was purchased before the drafts were drawn, but which was on a credit extending beyond the time when the drafts fell due.
    In January 1842, Fry & Co. applied to the Judge of the Superior Court of Chancery for the Richmond circuit for an injunction to restrain the collections and protest of their drafts, alleging in their bill, that Harper, Hardy & Co. were indebted to the complainants in the sum of 884 dollars 4 cents; that Harper, Hardy & Co. had made a deed conveying away all their property' for the payment of their debts, and were insolvent; and that the true construction of their deed was not to transfer their acceptances specifically, but to transfer the debt *due to them from the complainants. The Judge below refused to grant the injunction, but it was allowed by one of the Judges of the Court of Appeals as to the draft dated the 10th of December, upon the complainants depositing in the Bank of Virginia the sum of 884 dollars 4 cents to the credit of the suit, and paying the balance of the draft to the person authorized to receive it.
    Boyd filed his answer, in which he says that Harper, Hardy & Co. had assigned to him all their effects, for the benefit of their creditors; and among the effects so assigned were the two acceptances of the complainants. That he knows nothing of the debt which the complainants claim, and denies their right to offset it against their acceptances in his hands. The bill was taken for confessed as to Harper, Hardy & Co. and the Bank of Virginia.
    The cause came on to be heard in February 1843, when the Court dissolved the injunction, and directed that the money which had been deposited by the complainants in the Bank of Virginia, and which had been lent out during the pendency' of the suit, should be paid into bank, preparatory to a final decree. From this decree Fry & Co. applied to this Court for an appeal, which was allowed.
    The cause was argued here, by Rhodes and Macfarland for the appellants, and the Attorney General for the appellees, on several grounds, but the Court decided it upon the construction of the deed.
   CABEBB, P.,

delivered the opinion of the Court.

The deed of the 14th of January 1842, by Harper, Hardy & Co. to William Boyd, does not appear to have been preceded by any demand by any of the creditors of Harper, Hardy & Co. for security' for the payment of the debts due to them; much less by any treaty or ^agreement for such security. The execution of the deed seems to have been purely spontaneous on the part of Harper, Hardy & Co., and was intended for the laudable purpose of providing a fund for the payment of all their debts; giving certain preferences, however, to particular creditors. It embraced all their property of every kind, including all debts and sums of money due to them. The trustee is directed to sell the property in possession, and to collect, by suit or otherwise, as he may deem best, all the debts conveyed and transferred to him by the deed; and there is a proviso, that “in all cases of settlement with persons owing debts and sums of money to the said Harper, Hardy & Co., such persons shall be allowed a credit for any debts or sums of money that may be due to them from any,of the members individually of said firm of Harper, Hardy & Co., if the same shall have arisen prior to the execution of this deed.”

Although it would have been competent to Harper, Hardy & Co., under certain circumstances, to transfer the acceptances of Fry & Co., so as to deprive them of the right to setoff the amount of their claims against the said acceptances, yet the Court is of opinion that that effect has not been produced by the transfer made in this case. Harper, Hardy & Co. meditated no such injustice. They intended to place the trustee in the same situation, in relation to the debts due to them, which they themselves occupied; and to assign to him only that which they themselves ought, in justice, to assign: namely, the balance that might be due to them after the allowance of just credits. If the general terms of the deed, and the circumstances under which it was executed, should be thought to raise- anj' doubt on the subject, that doubt is removed by the special proviso allowing the benefit of setoffs in favour of debtors of the firm having claims against the individual members of the firm. Debtors of the firm being allowed to setoff *against the firm, debts due to them from the partners individually, must, a fortiori, be allowed to setoff claims due to them from the firm itself.

The order of the Chancellor is, therefore, reversed, and the injunction is reinstated; and the cause is remanded, to be farther proceeded in, according to the principles of this decree.