Case ID: va_47/html/0174-01.html
Source: Caselaw Access Project
Author: {"author": "Baldwin, J.\n    ", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Lewisburg.
    Reynolds v. The Bank of Va. & als.
    
    1849. July Term.
    ( Absent Cabell, P. and Brooke, J.)
    1. A debtor conveys a large property, real and personal, in trust to secure numerous creditors, who are divided into three classes: The first two classes are creditors by judgment. The trustees not having signed the deed, refuse- to act; and thereupon two of the creditors of the first class file a bill on behalf of themselves' and the other creditors secured by the deed, against the grantor and the trustees; and the prayer is for the appointment of other trustees, and for general relief. The grantor appears and demurs to the bill for want of proper parties plaintiffs. Held :
    1. In such case one or more creditors may sue for themselves and the other creditors secured by the deed.
    2. In such case it is error simply to appoint trustees in the place of those named in the deed. But the Court should have the trust administered under its own supervision and control.
    3. The appointment of commissioners to sell and administer the trust under the supervision and control of the Court, is authorized either under the prayer for the appointment of trustees, or under the prayer for general relief.
    2. A defendant in equity who is in default, files a demurrer to the bill, which is overruled. He is not entitled to two months in which to file an answer.
    By deed bearing date the 1st day of November 1843, Charles G. Reynolds and Frances his wife, conveyed to James A. Lems and John Welch the one moiety of a tract of land on the Kanawha river, with the salt wells, fixtures, &c., thereon, and other personal property, in trust to secure certain enumerated creditors. These creditors were divided into three classes, the two first of which were creditors by judgment, and were very numerous. The deed provided that Reynolds should have four years for the payment of the debts secured, by his paying twenty-five per cent, thereof in each year. But upon the failure to pay the one fourth of the'first and second class of debts in the first or second year, so that any part of either of said instalments remained due at the end of two years from the date of the deed, then the trustees should, at the request of said creditors, proceed to sell the property, or so much as might he necessary to pay off and discharge so much of said instalments as was then due and unpaid. And the deed provided for farther sales upon the failure to pay the subsequent instalments. This deed was only signed by Reynolds and wife; and was admitted to record upon the acknowledgment of Reynolds in the clerk’s office, on the 10th of March 1845. The wife was never privily examined.
    On the back of this deed there was an agreement under seal, of the same date with the deed, executed by H. H. Wood and N. B. Coleman, the sureties of Reynolds in many of the debts secured, by which they declared that they approved and sanctioned the indulgence given to Reynolds ; and they bound themselves not to seek to avail themselves of the fact that such indulgence was given, in order to exonerate themselves from their liabilities as his sureties. And this agreement was acknowledged by Wood and Coleman at the same time the deed was acknowledged by Reynolds, and was admitted to record.
    In August 1846, the Bank of Virginia and William P. Peyton, two of the creditors of the first class secured by the deed aforesaid, on behalf of themselves and of the other creditors of Reynolds secured by the deed, filed their bill in the Circuit court of Kanawha, in which they stated the execution of the deed by Reynolds, and of the agreement by Wood and Coleman. They charged that according to the terms of the deed a considerable portion of the debts thereby secured had become due, and ought long since to have been paid; and that for the non-payment thereof the said trust had been forfeited, and the property therein mentioned liable to sale. That the trustees never having signed the deed, refused to accept the trust, or act under the deed. That having been lately called upon by the complainants they had refused to act, or have any thing to with the deed, in any manner whatever. The plaintiffs therefore made Reynolds, Wood, Coleman, Lewis and Welch, parties defendants, and asked that the Court would appoint a suitable trustee or trustees to act under the deed, and carry into effect the purposes and designs of said trust; and that the Court would grant to the complainants such other and further relief in the premises as to the Court may seem meet and proper, and good conscience require.
    At the October rules the bill was taken for confessed as to all the defendants, and the cause was set down for hearing, though it does not appear that there had been a rule upon the defendants to plead. At the November term of the Court, the defendant Reynolds appeared and objected to the hearing of the cause, on the ground that it had not been properly matured for hearing; but the Court overruled his objection. He then tendered a demurrer to the bill; and for causes of demurrer, assigned the want of proper parties plaintiffs thereto, and of improper parties defendants; and that there was not sufficient matter of equity stated on the face of the bill. The Court permitted the demurrer to be filed upon condition that it should not delay the cause, and the plaintiffs joined in the demurrer. The Court then overruled the demurrer, and proceeded at once to decree that Robert A. Thompson and Robert H. Early be substituted as trustees in the place of James A. Lewis and John Welch, with power for them, or either of them, to execute the trust in as full and ample a manner as the said Lewis and Welch, or either of them, could have executed the same. And it was further ordered, that in the event the said Thompson and Early, or either of them, should make sale of the trust property in the deed mentioned, or any part thereof, that then they, or the one of them selling, should make report to the Court of his proceedings therein. From this decree Reynolds applied to this Court for an appeal, which was allowed.
    
      Patton and Doddridge, for the appellants,
    insisted:
    1st. That the demurrer to the bill should have been sustained for want of proper parties plaintiffs. They contended that the interest of the creditors secured by the deed was not the same, but was diverse and opposite, and therefore that the rule which authorized some to sue for all did not apply. Wilkins v. Gordon and wife, 11 Leigh 547; Cole’s adm’r v. M’Rae, 6 Rand. 644: the 8th section of the charter of the Bank of Virginia, 2 Rev. Code, p. 72. That moreover, the deed was not signed by either trustees or creditors; and they had never expressed their assent to it. And the bill did not allege that even the complainant’s debts were unpaid.
    2d. That the cause was not properly on the docket, because there had been no rule upon the defendants to plead. That the act of 1819, 1 Rev. Code, ch. 66, § 36, p. 202, required that a rule to plead should be given in the office; and that the act of 1826, Supp. Rev. Code, ch. 103, § 1, p. 130, was not intended to dispense with the rule to plead; but only with the decree nisi.
    
    3d. That after overruling the demurrer, the Court should have given the defendant time to answer. 1 Rev. Code, ch. 66, § 100, 101, p. 216; Sutton v. Gatewood, 6 Munf. 398; Bassett v. Cunningham, 7 Leigh 402; Bowles v. Woodson, ante, p. 78.
    4th. That the decree was erroneous in merely appointing trustees in the place of the trustees named in the deed. They insisted that if the Court took cognizance of the case, it should have had the trust executed under its own direction and supervision; and should have ascertained the amount of the debts, and to whom due, and the order of payment.
    
      B. H. Smith and Miller, for the appellees,
    insisted:
    1st. That as all the creditors were secured by the same deed, and as, so far as the record shews, there is no conflict of interest among them, the rule that some might sue for all did apply. 1 Daniel’s Ch. Pr. 284-5, 291; Weld v. Bonham, 1 Cond. Eng. Ch. R. 361.
    2d. That the Court had power to appoint trustees to sell. 2 Tuck. Com. 104; Dunscomb v. Dunscomb, 2 Hen. & Munf. 11; Lee v. Randolph, Id. 12; Pate v. M’Clure, 4 Rand. 164; 2 Rob. Pr. 69; Willis on Trustees, p. 17, 33, 57, 68, note R., 10 Law Libr.
    3d. That no rule to plead was necessary under the act of 1826. Supp. Rev. Code, ch. 103, § 1, p. 130. By that act the subpoena contains the common order to answer within two months, and no rule is necessary. But if there was irregularity in maturing the case for a hearing, it was cured by the appearance of the defendant. Poling v. Johnson, 2 Rob. R. 255.
    4th. That the defendant having been in default when he filed his demurrer, could only file it by permission of the Court, and on condition that it should not delay the cause. The act of 1826, before referred to, directs the mode of proceeding; and under that act the defendant was not entitled to further time to answer after his demurrer was overruled.
   Baldwin, J.

The first question which I shall consider in this case, is, whether the Circuit court erred in overruling the appellant’s demurrer to the bill of the complainants.

The bill was filed by the appellees, in behalf of themselves, and numerous other creditors secured by the deed of trust executed by the appellant, to obtain relief in consequence of the refusal to act of the trustees named in the deed. It cannot he doubted that there is sufficient matter of equity stated in the bill, and if the demurrer ought to have been sustained, it must be for want of proper parties.

It is a rule of equity that a trust shall never fail for want of a trustee, and therefore if the trustee dies, or refuses to accept the trust, or is incapable of performing it, a Court of equity will give to the cestuis que trust the proper relief, either by executing the trust or appointing a trustee for that purpose. The substantial object of such a suit is to obtain the performance of the trust, and the mode of accomplishing it is a proper matter for the sound discretion of the Court. In a case like the present, where the conveyance is an incumbrance for the security of creditors, with power to the trustee to sell the property conveyed and apply the proceeds to the discharge of the debts, and the cestuis que trust sue in equity for relief, the usual course of the Court is to treat the security as it would a mortgage, and cause a sale to be made of the trust property by a commissioner appointed for the purpose, and acting under its direction and control; and to dispose of the proceeds by its decree according to the rights of the parties. And it would be difficult to conceive a case of the kind where the cestui que trust comes before the Court with proper parties to his bill, in which it would be error to proceed in that mode, instead of merely appointing a trustee, and dismissing the subject to his individual judgment and discretion.

It is true that in this case the specific relief prayed for in the bill, is the appointment of trustees in place of those named in the trust deed, but who have refused to accept the trust. But the bill concludes with a general prayer for such other and further relief in the premises as to the Court may seem meet and proper, and equity and good conscience require. Now, the general rule is, that though the plaintiff may not be entitled to the particular relief prayed for, yet the Court may give him the proper relief, under such a general prayer, which the case stated in his bill will justify. There are some exceptions to this rule; put none applicable to the present case. In truth, a sale under the direction of the Court, and the proper application of its proceeds, would he nothing more than a condition or qualification of the specific relief indicated in the bill; for the person appointed to perform those duties is substantially a trustee, and there can be no possible objection to his being guided by the instructions of the Court, which is for the benefit of all parties, and cannot injure or surprise any one.

Whether the Court decided correctly at the hearing, in merely appointing trustees and clothing them with all the powers and duties conferred by the trust deed upon the trustees therein named, or ought to have directed the proper steps in order to the execution of the trust under the instructions and control of the Court, is therefore a question that does not arise upon the demurrer, which was properly overruled, unless it appears from the bill that the plaintiffs have failed to make the proper parties thereto.

In regard to the necessary parties to a suit in equity, it is impracticable to lay down any rule free from qualifications and exceptions. The best general rule, perhaps, to be deduced from the numerous authorities is, that all persons having material interests in the subject, which are to be affected by the object of the suit, must be made parties to the bill, either as plaintiffs or defendants. But there are various classes of cases to which the application of the rule would be attended with such delay, inconvenience and expense, as would be found intolerable in the administration of justice. Amongst these are suits brought by creditors against the representative of a deceased debtor, for an account of the assets of his estate, and the application thereof to the payment of his debts. In such cases, all the creditors have common, and at the same time distinct interests in the subject and object of the suit; and a strict adherence to the general rule would require them all to be made formal parties to the bill. To avoid the necessity of this, and yet prevent the unjust and injurious consequences which might otherwise ensue, a practice has grown up, and is well established, of making those who are not plaintiffs, substantial, instead of formal parties, by allowing a few, or one only, of the creditors, to sue in behalf of themselves and all the rest, and those so represented to come in before a master, establish their demands, and participate in the relief. This practice has been extended to cases where a number of creditors are secured by a deed of trust. Story’s Eq. Plead. 3d edit. § 102, and the authorities there cited. It has been sometimes asserted, that the practice is to be limited to cases where all the creditors have a common interest in the objects of the bill, and is not allowable to a mortgagee claiming priority of satisfaction; but the more recent authorities, upon better reason, establish the contrary doctrine ; for the bill being filed on behalf of all, they are so far parties to the suit that they have a right to appear, assert their several priorities, and contest those of others. Story’s Eq. Plead. § 101, 102, 103, 76 c., and the authorities there cited.

I think, therefore, that although the bill would have been demurrable if the plaintiffs had sued for themselves alone, not having made the other creditors parties to the bill, yet that inasmuch as they sued for the benefit of all, and it was competent for the Court to make the rest substantial parties, by the proper proceedings in such cases before a master, that the demurrer was properly overruled.

It is urged, however, on the part of the appellant, that the Court, on overruling his demurrer, ought to have directed him to answer the bill. This would have been an idle ceremony, unless it was incumbent on the Court to allow time for putting in an answer. And this, it is contended, ought to have been done, under the provision of the act, 1 Rev. Code, ch. 66, § 100, p. 216, that upon a plea or demurrer argued and overruled, the defendant shall answer within two calendar months. But a material change was made in our chancery practice by the act of 1826, “ to alter and reform the mode of proceeding in the Courts of chancery;” Supp. Rev. Code, p. 130; the first section of which provides, that every writ of subpoena instituting a suit in any Superior court of chancery in this Commonwealth, shall, after the direction to summon the defendant to appear at the time and place therein mentioned, to answer the bill of complaint, contain a provision or notification to this effect: “ and unless he shall answer the said bill within four months, (by a subsequent statute two months,) the Court will take the same for confessed, and decree accordingly ; and it shall be the duty of the officers serving such a subpoena, to leave with the defendant a copy thereof; and upon the return thereof executed, if the bill be filed at or before the return day, unless the defendant shall, within four months, (now two months,) appear and plead, answer or demur, the plaintiff may either have the cause set for hearing, without having any decree nisi served, or may proceed to compel the defendant to answer; and in either case the same proceedings shall be thereafter had as are now authorized by law: Provided however, That the defendant may, at any time before a final decree, be allowed to file his answer, or plead, or demur: but the cause shall not be sent to the rules, or continued therefor, unless good cause be shewn.”

The effect of this act of 1826, was to dispense with the decree nisi, which was nothing more than the taking of the bill for confessed in Court or at the rules, with a declaration that the Court would proceed at a future day to decree the matter thereof, unless the defendant, at or before the next term after he shall have been served with a copy, shall shew cause to the contrary, Rob. Forms, p. 186. The act substituted for the decree nisi, the notice in the subpoena, and for the service of the decree nisi, that of this subpoena nisi. The manifest intent of the statute is to enable the plaintiff, when his bill has been filed in due time, and the subpoena duly executed, if the defendant is in default, to bring on the cause for hearing at the first term thereafter, and obtain such decree as he is entitled to; but at the same time to authorize the defendant to answer, plead or demur, at any time before a final decree; with a prohibition, however, of any delay of the case beyond the term, unless for good cause shewn to the Court.

In this case the defendant being in default, the law attached to his pleading, demurring, or answering, the condition that his doing so should not delay the cause ; and this condition was expressed in the order of the Court receiving his demurrer. If the defendant had answered instead of demurring, the plaintiff would have been entitled to a trial without delay, and equally so though a demurrer was filed instead of an answer. The overruling of the demurrer placed him in no better condition than he was before : he had still a right to answer, but subject to the same condition. If the mere filing of a demurrer is to entitle a defendant, in default, to the allowance of two months to answer, it will enable him in every case, without any reason whatever, to obtain a continuance beyond the term; which is directly in the teeth of the plain words of the statute, and against its true spirit and meaning.

The case of Sutton v. Gatewood and wife, 6 Munf. 398, cited for the appellant, was decided under the old law, which the act of 1826 was designed to reform. There the decree nisi was set aside ; and leave granted to demur, without any condition imposed, either by law or the order of the Court. Here, under the act of 1826, the defendant had a right to demur or answer without leave of the Court, but with the express condition that is should not avail for a continuance of the case, without leave of the Court for good cause shewn. Here he shewed no cause, asked no leave, and offered no answer. Surely it could not be error in the Court to proceed to any proper decree upon the merits.

The case of Bassett's adm'r v. Cunningham’s adm'r, 7 Leigh 402, also cited for the appellant, occurred since the act of 1826; but the question we are considering did not arise at all; the only question of practice being, whether in Virginia a defendant in chancery may, at the same time, answer and demur to the same matter in the bill. Some of the Judges, in discussing that question, refer incidentally to the provision in 1 Rev. Code, ch. 66, § 100, p. 211, already noticed, that upon a demurrer overruled, the defendant shall answer within two months after. And such is the law now, where the defendant is not in default when he files his demurrer; but the question here is, whether a defendant in default is by filing a demurrer to the bill entitled to a continuance, and to that question the minds of the Judges were, in the case cited, in no wise directed.

It only remains for me to consider whether the decree rendered by the Circuit court is in itself erroneous.

I have already intimated that if the plaintiffs had sued for themselves alone, it would have been a matter for the sound discretion of the Court, whether it would merely appoint trustees to carry out the provisions of the deed according to their own views and judgment, or would take the proper steps to have the trust executed under the direction and control of the Court. But upon that question, in that frame of the case, the other creditors secured by the deed would have had a right to be heard, for they were materially interested both in the subject and the object of the suit. And therefore, if the plaintiffs had sued for themselves alone, it would have been indispensably requisite to make all the other creditors secured by the deed defendants to their bill; and if they had failed to do so, the bill would have been demurrable for want of proper parties. The plaintiffs however did not sue for themselves alone; they have sued for themselves and all the other creditors secured by the trust deed; and now the question is, what were the proper proceedings to be had, and the proper relief to be given upon such a bill.

It cannot be doubted that if the plaintiffs had, upon the case stated in their bill, specifically prayed for the proper proceedings before a master, and a sale of the trust property, and a disposition of the proceeds according to the rights of those concerned, it would have been competent for the Court to have directed such proceedings, and to have granted such relief. And I have shewn that the omission of such a specific prayer was immaterial, because, in the first place, such a course and mode of relief would have been proper under the general prayer of the bill, and in the next place, would have been in truth nothing more than a conditional or qualified grant of the specific relief actually prayed in the bill.

On the other hand, I think it clear that the plaintiffs having sued in behalf of the other creditors named in the deed, as well as themselves, it was neither necessary nor proper to make them defendants to the bill, the appropriate mode of bringing them before the Court being by the usual proceedings before a master, and the relief consequent thereupon being the adjustment of the rights and priorities of the several creditors, and the sale of the trust property and the application of its proceeds under the direction and control of the Court. Nor was it competent for the Court in a case so sued to adopt any other mode of proceeding or relief. It would be absurd to suppose that the Court ought to have require d the other creditors to be made parties to the bill, for the purpose of determining the proper mode of proceeding and relief. for that would have been to encounter the very inconvenience which the practice in such suits, by some of the creditors in behalf of themselves and the rest, was designed to obviate.

I think, therefore, that in this suit, brought by the plaintiffs in behalf of themselves and the other creditors secured by the trust deed, the Court ought to have adopted the usual proceedings before a master, with a view to the execution of the trust under its own direction and control; and that it was not competent for the Court merely to appoint trustees to carry out the provisions of the trust. There is no reason for saying that such proceedings and relief would have been improper, and in the actual state of the case it had no discretion on the subject. But suppose it had, then I think its discretion was improperly exercised.

The case made by the bill, (which was taken for confessed,) and the exhibit therewith, was that of a conveyance by a debtor to trustees of property, real and personal, to secure debts to a large amount, to numerous creditors, all of whom, with two exceptions, had recovered judgments. By the provisions of the deed, time was allowed the grantor, who covenanted to pay the moneys secured, in instalments of one, two, three and four years. The creditors, including those by judgments, were divided into three classes, and priority of satisfaction was to be made according to those classes. The deed was executed by no one besides the grantor and his wife, and she was not privily examined. The bill alleges that the trustees named refused to undertake the trust, but does not aver that it was accepted by the creditors intended to be secured ; and the only parties to the bill are the plaintiffs, the grantor and his wife, the trustees named in the deed, and two persons, who, as sureties to some of the creditors, signed a memorandum annexed to the deed, waiving any objection to the indulgence allowed to the grantor. It does not appear that the priorities conferred by the deed amongst the judgment creditors, were according to their legal priorities, nor what payments, if any, have been made by the grantor towards the discharge of the debts. The property conveyed by the deed is a tract of land in Kanawha county, with the salt wells, salt furnace, fixtures, &c., tools, implements, &c., thereon, and certain slaves, with other personal property. And the trustees were authorized, from time to time, for default of payment, to sell so much of the property as should be requisite, and make application of the proceeds ; the sales to be for cash, after public notice of ninety days.

Now, for aught that appears, some of the creditors may be unwilling to accept the provisions of the deed, and choose to stand upon their judgments, or other legal priorities ; nor can it be ascertained without adjustment of the demands of the numerous creditors, what payments may have been made on account of their debts, nor of course what will be the aggregate amount chargeable upon the trust fund. Nor, in the present state of the cause, can it be known that the terms of notice and sale prescribed by the deed, may not require alteration, in order to prevent a sacrifice of the property. And though parties concurring in such a deed may have been willing to confide the performance of the trust to the trustees originally selected for the purpose, yet when the aid of a Court of equity is invoked in such cases, it ought to be extended in such wise as will best promote the purposes of justice, settle the rights of the parties, and prevent future litigation. It is true the substituted trustees are directed by the decree, in the event of a sale of the trust property, to report their proceedings to the Court, which seems to indicate that the Court intended to reserve some control over their conduct; but in the mean time great and irreparable mischiefs might occur in the execution of the trust, for want of the previous instructions and Court.

I think that the decree ought to be reversed, and the cause remanded to the Circuit court, with directions to proceed therein according to the principles above indicated ; and to allow the appellant, at any time before a final decree, to answer the bill of the plaintiffs, if he shall offer to do so, but without delaying the case, unless for good cause shewn.

The other Judges concurred in Judge Baldwin’s opinion.

The decree was as follows:

The Court is of opinion, that the Circuit court did not err in overruling the demurrer of the appellant to the bill of the complainants, nor in proceeding to hear the cause, without further delay, upon the bill taken for confessed and the exhibits therewith: but that it did err in the relief granted by its decree; instead of directing the usual proceedings before a commissioner, after notice duly published, with the view of ascertaining and adjusting the rights and priorities of the creditors named in the trust deed, and the balances due to them respectively, in order to the execution of the trust under the direction and control of the Court, by the sale of the trust subject, on a reasonable credit, and the application of its proceeds, according to the rights and interests of those concerned. It is therefore decreed and ordered, that the decree of the Circuit court be reversed and annulled, with costs to the appellant: and the cause is remanded to the Circuit court for further proceedings as above indicated, with permission to the appellant to answer the bill, if he shall offer to do so at any time before a final decree, but upon condition of not delaying the cause; and for such measures, if applied for by any of the creditors, as may be deemed proper for the preservation of the trust subject, and of its rents, profits and hires, until the ultimate disposal thereof.