Case Name: SOPHIA M. PALMER by her next friend against HENRY M. GILES
Court: Supreme Court of North Carolina
Jurisdiction: North Carolina
Decision Date: 1859-12
Citations: 5 Jones Eq. 75
Docket Number: 
Parties: SOPHIA M. PALMER by her next friend against HENRY M. GILES.
Judges: 
Reporter: North Carolina Reports
Volume: 58
Pages: 75–79

Head Matter:
SOPHIA M. PALMER by her next friend against HENRY M. GILES.
A stipulation in a deed of trust, giving a preference to such of the .creditors as will, on receiving one half of their debts release the other half, makes it fraudulent and void.
All persons attempted to be secured in a deed of trust, fraudulent on its face,, who claim a benefit under it, become participes criminis, and are precluded from such benefit.
A purchaser, even for a full consideration, under a deed, fraudulent on its face, gets no title.
Whether a deed, which is void on account of fraud in respect to some of the trusts, not apparent on its face, may not, under certain circumstances, be valid to pass the title — quere ?
Cause removed from the Court of Equity of Orange county.
The main question in this case arises upon the construction of a deed of trust, made by James M. Palmer, to secure certain creditors therein named. The deed conveys to the trustee, M. J. Palmer, several tracts of land, town lots and personal chattels, among the rest, the house and lot in the town of ITillshorough, which is the subject of this controversy, and provides that the same shall be sold, on certain terms, and the fund disposed of;
1st. In the payment of debts, in which he had given security.
2ndly. In the payment of a note of one hundred dollars, due Thomas Lutterloh, (and several other notes and accounts to persons named).
3rclly. In payment of five hundred dollars to Mcllvaine, Brownly & Co.
4thly. And lastly, to pay the debts due from the said J as. M. Palmer to Drummond and "Wyche and others, enumerating some twenty other creditors.
In a subsequent clause of this deed, it provided as follows: “ And if there shall be a balance, it is to be applied to the .payment of the debts due in the cities of Petersburg, Baltimore, and Philadelphia 'and elsewhere, named in the 4th class ; and if there shall not be a sufficiency to pay the same in full, they are to be scaled and paid pro rata, or in equal proportions, according to their amount, including interest to the time of the execution of the deed, any one or more of them giving in « discharge upon the pa/yment of fifty cents of their debts, to be preferred in this class, and if it should happen, which is not anticipated, there should not be a sufficiency to pay all the debts in the first class, they are to be scaled in like manner.”
Under this deed of trust the house and lot, in question, were sold and convoyed by the trustee, to one Thomas Lutterloh, at its full value, and the money paid by him to the trustee. Lutterloh, who was the father of Mrs. Palmer, in order to provide a home for her, and her children, three in number, conveyed the house and lot, so purchased, to the debtor, J. M. Palmer, in trust for their sole interest, benefit and support. Afterwards, the property in question was levied on and sold under a judgment and execution against J. M. Palmer, as his property, and a sheriff’s deed made to the defendant, Giles, for the same. The purchaser, Giles, brought an action of ejectment to recover possession, treating the deed of trust as ■fraudulent and void, and recovered judgment, upon the ground, that the plaintiff was entitled to recover the legal estate, which the defendant in the execution had in the land, even though he held it as trustee, irrespective of the question of fraud attempted to be made by the parties; see Giles v. Palmer, 4 Jones’ Rep. 386. This bill was filed to enjoin the plaintiff, at law, from enforcing the "writ of possession issuing upon this recovery, and praying that the sheriff’s deed may be surrendered for cancellation; and for general relief. The defendant answered, alleging the fraud on the face of the deed of trust, in the particular above quoted.
Graham, for the plaintiff.
Fowle and Bailey, for the defendant.
This case was one of those decided at the last term, and taken out by Judge Ruitin, to draw the opinion, which he was prevented by indisposition from doing.

Opinion:
Peaesof, C. J.
At any time before creditors have obtained a lien on bis property, a debtor is allowed to malee a preference and to devote his property to the satisfaction of one or more of his creditors to the entire exclusion of others, and although a deed, conveying the property to a trustee, necessarily has the effect " to hinder and delay creditors," still it is not considered fraudulent, prqvided it be made with a single eye to the honest exercise of this right of making a preference, and without any stipulation or intent that it shall inure, in any way, either directly or indirectly, to the benefit of the debtor, for any such stipulation or intent, whether expressed in the deed, or to be inferred from circumstances, " taints it with fraud." This Court has not, before the present case, been called on to decide whether a stipulation, giving a preference to such of the creditors as will, on receiving one half of their debt, execute a release as to the other half,, falls within the application of the general principle. But from the numerous cases, in which the principle lias been stated and applied, among others, Hafner v. Irwin, 1 Ired. Rep. 496; Kissam v. Edmonston, 1 Ire. Eq. 180, it follows, as a matter of course, that a stipulation of this kind does fall within the prohibition of the principle, and does " taint the deed with fraud," because it is for the benefit of the debtor. Creditors are at liberty to make a composition, and upon receiving a part, may release the residue, but a debtor is not at liberty to pervert his right to make a preference into a means of coersion, or use it as a bribe, whereby to secure a benefit for himself. Accordingly, we find it settled by many cases in our sister States, where the point was directly presented, that a stipulation of this kind vitiates a deed of trust; Grover v. Wakeman, 11 Wendall, 189; Ingraham v. Wheeler, 6 Conn. Rep. 297; Atkinson v. Jordan, 5 Hammond, 293; Brown v. Knox, 6 Missouri Rep. 302, and others, cited on the argument. In short, it could not be held otherwise, without running counter to the whole current of decisions in our reports, and those of the other States in respect to deeds of trust.
It was then insisted, that by the deed under consideration, this stipulation is confined to the "fourth class" of creditors, and the deed may be void in respect to the trust declared in their favor, but remain valid as to the others. There is ground to contend, that by a proper construction, this stipulation extends also to the "first class" of creditors, whose debts, if need be, are " to be scaled in lil&e mmvn&r." But, waiving this view of it, the stipulation being expressed, in the face of the deed, the trustee, and all the creditors, who are presumed to have accepted the deed, by claiming to take benefit under it, are fixed with a complicity and concurrence as partieeps criminis in this unlawful intent of the debtor, to impose terms on some of the creditors, and secure a benefit to himself; so that this fraudulent intent pervades the whole, and spoils all; like one rotten egg broken into the same bowl with many good ones.
Whether a deed, which is void on account of fraud in respect to some of the trusts declared, may not, under certain circumstances, be valid to pass the title, and support trusts declared in favor of other creditors, is a question of much difficulty, and about which there is, seemingly, a conflict of the cases. See Brannock v. Brannock, 10 Ired. Rep. 428; Hafner v. Irwin, sup. Eor instance, suppose a debtor has a secret understanding with some of the creditors that he will insert their debts in the trust, provided they will only claim one half, and release the residue; or suppose the debtor, without the privity of the trustee, or the creditors, inserts a feigned debt, with an intent that the supposed creditor shall draw the amount, and hold it on a secret trust for him: does this avoid the deed i/n toto? On the argument of this case, this was the point mainly discussed, but we are relieved from the necessity of deciding it, because the fact, that the stipulation is set out in the face of the deed, fixes the trustee and all the creditors, claiming benefit under it, with a concurrence in this unlawful intent,.and thus makes the deed void in toto. Eor this view of the case, wé are indebted to Judge Roefin, who conferred with us as one of the Court, at our last June term.
It was also insisted on the part of the plaintifis that, admit- ting a creditor might have treated the deed as void in toto, as against the trustee, and the creditors claiming under it, it was otherwise in respect to the plaintiffs who claim under a purchaser at public sale, made by the trustee for a full and valuable consideration, and without notice of an alleged fraud.
We will not enter upon the question how far a purchaser from the trustee, for valuable consideration, and without notice, may be entitled to protection, in a case where the fraud does not appear on the face of the deed, but is an open question of fact for a jury, or is to be adjudged by the Court upon the finding of a fraudulent intent by the jury upon the distinction pointed out in Hardy v. Simpson, 13 Ired. Rep. 132, because ours is a case of fraud, manifest on the deed, to be adjudged as matter of law by the Court, and with which the jury has nothing to do. It is settled that a purchaser is presumed to know the contents of the deed under which he derives his title, and is fixed with notice of every condition, provision, stipulation, and other matter therein set out. So, the person under whom the plaintiffs claim, must be taken to have bought with full notice of the stipulation which makes this deed fraudulent, as a matter of law; consequently, they do not stand in this Court as innocent purchasers, but take the title tainted with fraud. Indeed, it was owing to the circumstance that the person to whom the title was assigned in trust for them, happened to be the debtor and the defendant in the execution, that this Court acquired jurisdiction, otherwise, the alleged fraud was a subject fit for investigation in a court of law; Giles v. Palmer, 4 Jones' Rep. 386, and that circumstance does not at all affect the merits of the case.
Bee Cueiam, Let the bill be dismissed.