Case Name: Ely, Clapp, &c., vs. Hair, Nugent & Co.
Court: Kentucky Court of Appeals
Jurisdiction: Kentucky
Decision Date: 1855-10-06
Citations: 16 B. Mon 230
Docket Number: 
Parties: Ely, Clapp, &c., vs. Hair, Nugent & Co.
Judges: 
Reporter: Kentucky Reports
Volume: 55
Pages: 230–242

Head Matter:
Ely, Clapp, &c., vs. Hair, Nugent & Co.
APPEAL PROM LOUISVILLE CHANCERY COURT.
x. The execution of a deed of trust by one member of a firm, with the-assent of the other, is valid, and isa waiver of any lien; and partnership creditors can assert no lien which- he could not assert.
2. A provision in a deed of trust that the trustee shaBl “sell at fair and reasonable prices,” is not such a restriction on the power of the trustee to sell as renders the deed fraudulent.
3. Nor is a deed of trust which conveys all and every description of property belonging to the grantors to be regarded as fraudulent because of the farther provision, “that the property will be more particularly set forth in an inventory to be made out.”
4. Nor is it fraudulent in a deed of trust that it provides that after the-payment of specified debts, the surplus, if any, shall be paid to the grantors. This it would be the duty of the trustee to do independently of any express provision- on the deed to that effect. The interest of the grantor, in a deed of trust, is analogous to that of a mortgagor.
5. Any interest which a mortgagor or grantor has in a deed of trust can be subjected to his debts.
The facte of the case are stated in. the opinion of the Court. Rep.
Bullitt Sp Smith for appellants—
The appellees, Hair & Nugent, made an assignment of property to the defendant O’Neal, for the payment of debts due to a part of their creditors —one of whom is preferred over the others — which assignment the appellants seek to set aside as fraudulent, and made with the intent to defraud them and other creditors of the grantors. No depositions were taken. To prove the fraud the appellants rely upon upon the face of the deed and facts appearing in the pleadings. The chancellor dismissed the petition so far as it sought to vacate the assignment, of which appellants complain.
1. It is insisted that the provision in the deed requiring the assignee to sell “at fair and reasonable prices, and to the best adivantage,” is evidence of fraud.. The effect of the provision of the deed is that the trustee, who is bound to pursue the mode of sale prescribed by the deed, (1 Pet. 138,) cannot sell the property except “for fair and reasonable prices, and to the best adventage.”
2. The creditor has the right to have the property sold for the best price it will bring, and if the deed require a delay of sale to get high prices, the deed will be fraudulent. (Hart vs. Craine; 7 Paige’s Chancery Reports, 37.) A deed was held to be fraudulent because it was recited upon its face that it was made to prevent sacrifice. (Ward vs. Trotter, 3 Monroe, 1.) Creditors have the right to sacrifice the debter’s property, if sacrificed it must be; to sell it for what it will bring, and any attempt to deprive them of that right is fraudulent. In the case of Vernon vs. Morton <Sf Smith, 8 Dana, 247, a deed containing a provision for a sale “at fair and reasonable prices, and to the best advantage,” was sustained by this Court; but that deed was attacked upon other grounds. The provision just cited does not appear to have been noticed by either counsel or court, and the question was not decided.
3. The deed conveys to O’Neal all the property of the grantors, of every kind and description, “which shall be more fully set forth in an inventory, which shall be hereafter made out, and in which the property aforesaid shall be described.” This conveyed no more property than might be specified in the inventory to be made out. 1. If it be regarded as a conveyance of all the property of the grantors it is void, because it provides only for part of the creditors, and reserves the surplus to the debtors, not by express words but by implication and operation of law, which gives the grantors the surplus, as though it had been reserved.
It is alleged in the amended petition, and not denied, that the grantors owed other debts to a large amount not provided for. Only part of plaintiffs’ demands are provided for by the deed.
a deed of trust is rendered void by any benefitreserved to the debtor. (1 American Leading Cases, 81.) There is a conflict between the authorities on the question whether reserving the surplus to the debt- or, either expressly or by implication, after payment of part of his creditors, is such a benefit reserved as should render the deed void. Most of the cases may be reconciled by considering the distinction between a general and partial assignment. A man may dispose of his property as he please, if he retain enough to pay his debts; but if he owe more than he is worth his power to dispose of his property becomes limited and restrained by law — he cannot dispose of any part of it except for the benefit of his creditors. If he convey the whole in trust for part of his creditors, reserving a surplus for himself, it is obvious — 1 st. That to the extent of the surplus the deed is for the benefit of the debtor. 2d. That he retains nothing whereby to pay debts not provided for in the deed; the deed therefore shows upon its face ah intention to defraud or to hinder and delay the pretermitted creditors, and is void. The distinction just adverted to is recognized in Harris vs. Sumner, 2 Pick. 129, 134; Eastwick vs. Cailland, 5 Tenn. Reports, 420; Wilkes vs. Farris, 5 John. Reports, 335. In the last case an assignment providing for only a part of the assignor’s creditors, and reserving the surplus to the assignor, was sustained expressly upon the ground that it conveyed only a part of the assignor’s property. In Rehn vs. McElrath, 6 Walts, 151, an assignment of all the debtor’s property for the benefit of part of his creditors, and expressly reserving the surplus to the debtor, was sustained.— This is the only case referred to on that side of the question in the 1st edition American Leading Cases, 82. In a late edition of that work two other cases are referred to as holding the same doctrine — Hindman vs. Dill 4‘ Co., 11 Alabama Reports, 689; Austin vs. Johnson, 7 Humphreys'1 Reports, 191. In both of these cases the assignments embraced part only of the debtor’s property. On the other side of the question stand Syda?/i Sp Jackson vs. Martin, Wright, 898; Goodrich vs. Downs, 6 New York Reports, 438, in which the surplus was expressly reserved to the assignor, after paying the dets of his creditors, and Dana vs. Lull ¿f Co., 2 Washburn, (Vermont,) 390; which is like the present case. Hooper vs. Tuckerman, 3 Sandford’s C. C. R., 311, shows that an implied reservation has the same effect as if expressed.
4. It is insisted that the deed is void not merely as to the surplus, but entirely void, and whether there appear to be a surplus or not. ~
In the case of Brady if Davis vs. Halbert <f Hall, MSS. opinion of January, 1852, that a debtor may lawfully prefer such of his creditors as may release their demands within a certain (reasonable) time, provided the surplus is appropriated to those who refuse to release ; but without such provision the deed would be void, because the surplus, after paying the creditors who release, results to the debtor instead of being appropriated by the deed to the other creditors. We insist this deed is void because a benefit results to the debtor himself.
But the deed in this case did not convey all the property to O’Neal, but only such property as was described in the inventory afterwards made out. No inventory was filed with the deed. It was made out more than a month afterwards. It embraces only a part of their property. The assignors owned property at Cincinnati of considerable value, not embraced therein nor delivered to O’Neal, as is alleged in the second amended petition, and not denied. It appears, from a deed filed with the answer, that after making the inventory Hair & Nugent conveyed the Cincinnati property to another assignee in trust lor all their creditors.
It is insisted that the true construction of the deed is that only such property passed as is described in the schedule. As to the language of the conveying clause it is a principle of construction that if a gen erai clause is followed by special words which accord therewith, the deed shall be construed according to the special matter. This rule applies to this case. (See WilJces vs. Faris, 5 Johnson’s Reports, 335; Wood vs. Roiocliff, 5 Law and Equity Reports, 471; Driskall vs. Fiske, 21 Pick., 503.) The inventory is a limitation on the conveyance. O’Neal so regarded the inventory, and did not take possession of any property not set out therein. The assignors so regarded it, and did not deliver to O’Neal the Cincinnati property, but conveyed it to another trustee on a different trust.
Any attempt by a debtor to place his property in a position which may enable him to force his creditors into a compromise of their demands, or any attempt to retain a control over it, after conveying it to a trustee, is fraudulent. Thus a power to revoke either in whole or in part, either as to the property or as to the creditors to be'paid, or the right to change the order of preference, or gives the trustee such right, or giving the trustee the right to compromise with creditors, is fraudulent. {Murray vs. Riggs, 15 Johnson’s Report, 571; 2 lb., 565; Grover vs. Wake-man, 7 Wendell, 187; Grayam vs. Pointts, 4 Alabama Reports, 374.) So where a debtor confessed judgment for $25,000 to secure $2,850, and such other debts as he might designate, was held fraudulent. {Sewell vs. Russell, Paige’s Chancery Reports, 175.) So a deed providing for the payment of such debts as should be specified in a schedule within sixty days, and annexed to the deed, was held fraudulent. {Averill vs. Lucks, 6 Barbour Sup. C. R., 475.) So reserving the right to retain possession and make sales, accounting to the trustee, is fraudulent. {Long vs. Lee, 3 Randolph, 410.) So conveying the possession to a trustee without the title. {Whallon vs. Scott, 10 Watts.) In the latter case the court say, in substance, that courts can keep this right to make assignments within proper bounds, and prevent the introduction of new fangled devices and contrivances, which may run into licentiousness and abuse; and while he may grant preferences to favored creditors, on the other hand he must part with his property and the possession, free from control over, or interference with it, and without any power, upon any contingency, to resume it at as his pleasure.
N. Wolfe for appellee—
The plaintiffs, now appellants, filed their bill to set aside a deed of trust made by appellees to O'Neal, for the benefit of their creditors. The grounds assumed by them are—
1st. That the deed did not transfer to the assignee all the property of the grantors.
2. That the deed required the assignee to sell the property conveyed, “at fair and reasonable prices, and on the most advantageous terms.”
3. That the deed of assignment was made by Nu-gent alone, and not by Hair and Nugent. And for these reasons it is asked that the deed be set aside as fraudulent.
The appellees contend — 1st. That all the property of Hair and Nugent was transferred to O’Neal, the assignee, by the deed to him. That the deed expressly conveys to him all the property of Hair & Nugent of every description. They owned no real estate. Their property consisted of dry goods, and in order that their creditors might have the full benefit of their property, Hair made a conveyance in Cincinnati for the benefit of their creditors there.
2. That Hair, by parol, authorized Nugent to execute a deed of assignment, conveying the property of the firm for the benefit of their creditors, and in addition thereto, before this institution of the suit, executed a writing confirming the deed of assignment, which was known to plaintiffs’ counsel before the suit was brought.
The deed is according to the usual form of such deeds. It reserves no property to the grantors; all is conveyed unconditionally to the trustees. It is similar in its provisions to the deed in the case of Vernon Averill vs. Wilcox <§• Lynde, 8 Dana, 248, which this court held to be valid.
It is said that Hair, the other partner, made a similar deed in Cincinnati, to pay the debts of the firm, and that this fact is not denied. And from this it appears that Hair & Nugent conveyed all their property, both in Louisville and Cincinnati, for the payment of their debts.
The trustee, O’Neal, took immediate possession of the goods, and was proceeding to execute the trust when this suit was brought. The fact that the goods in Cincinnati were not included in the schedule, cannot affect the validity of the deed. By the terms of the deed all the property of the firm passed to the trustee, and although the schedule may have omitted a part of the goods, the right of the assignee is not thereby restricted to such as are set out.
But it is objected that by the terms of the deed which authorizes a sale of the goods “for fair and reasonable prices, and in the most advantageous manner,” that such provision was calculated to give too great latitude to the trustee, and to hinder and delay creditors. To this it is answered that the deeds in the case of Vernon óf Averill vs. Wilcox Lynde, supra, containing a like provision, almost in the same words, was held to be valid; and in the case of Christopher vs. Covington, 2 B. Monroe, 357, this court held a deed of assignment to be valid, which provided that the trustee should sell after three months. In that ease the court said, “in every such assignment some delay is unavoidable. It is not, therefore, the fact of delay, but its character and the motive which actuated it, that is deemed fraudulent.”
To the objection made, that the deed was made by Nugent alone, it is answered, that the answers of both Hair and Nugent show that it was agreed that the assignment should be made b3r Nugent before it was made. It is further shown that Hair, after the deed was executed, and before the institution of this suit, confirmed the deed which had been made. This should dispel all doubts, if any ever existed, as to the binding effect of the deed. An express authority, by parol, by one partner, will be sufficient to bind him even by a sealed instrument. (See McGoit vs. Lewis, 2 B. Mon. 267. See, also, 1 Hall, New York Rep. 262.) The power of one partner to make a deed of assignment of personal effects, in the absence of his co-partner, is unquestionable. The following authorities are cited: (See Robinson vs. Crowder, 4 McChord’s L. R., 519; Mills vs. Barber, 4 Day, 428; Harrison vs. Sterry, 5 Cranch, 300; Anderson vs. Tompkins, Brockenborough, 456.) In this case Chief Justice Marshall affirms the authority of one partner to make an assignment of partnership effects for the benefit of creditors.
1. The exe* cution of a deed of trust by one member of a firm, with the assent of the other, is valid, and is a waiver of any lien; and partnership ered itors can assert no lien which he could not assert.
Muir <§• Riley on the same side—
We will not repeat the argument of our co-adjutor.
The grantors stipulated for no delay in the sale of the goods. They imposed no conditions incompatible with the interest of creditors, nor in any manner to delay creditors in the collection of their debts.— The right to prefer creditors is undoubted.
The deed shows no other object but the payment of the debts and liabilities of the partnership. All intention of fraud is denied, and there is no proof of any. An affirmance is asked.
October 6.

Opinion:
Judge SuirsoN
delivered the opinion of the Court.
The deed of trust which was executed by Nugent, one of the members of the firm of Hair and Nugent, was made by him with the assent of the other partner, who subsequently ratified it by a written instrument expressly executed by him for that purpose.— The deed, however, having been executed by one partner, with the knowledge and assent of the other, was valid without such subsequent ratification. The creditors of the firm had no lien on the partnership effects, and any lien thereon which they would have derived through one of the partners, if the deed had been executed against his will, and without his assent, was lost by his act. He could not have asserted such a lien himself, inasmuch as he had waived it by assenting to the execution of the deed; and the partnership creditors can only assert a lien on the partnership effects, when it can be done by a member of the firm.
2. A provision in a deed of trust that the trustee shall "sell at fair and reasonable prices," is notsuch a restriction on the power of the trustee to sell as renders the deed fraudulent.
There is no extrinsic evidence of any fraudulent intent in the execution of the deed, but it is contended that the deed itself furuishes intrinsic evidence of the existence of such an intent; and several of its provisions are referred to as sufficient of themselves to render it illegal and void.
1. The authority conferred upon the trustees to take the effects conveyed into his possession, and to sell and dispose of them at fair and reasonable prices and to the best advantage, is objected to as being a restriction on his power, and equivalent in its legal effects to an express limitation on his right to sell, unless he could get a price fixed in the deed itself, if one had been named. We do not think that it is susceptible of such a construction, or that it imposes any restraints whatever on the power of the trustees. It is his duty to sell the property for a fair and reasonable price; and whatever price he can obtain for it, upon a sale fairly made, is in legal contemplation a fair and reasonable price. The law, independent of any such provision, would not permit him to sell the property at an unfair and unreasonably low price, when he could have made a sale at a better price, and one that would have been more advantageous to the creditors. Such conduct on his part would amount to a'breach of the trust, and render him individually responsible to the beneficiaries in the deed. The clause under consideration imposes no greater restraint upon him than the law itself does in the execution of the trust, and cannot be regarded as furnishing any evidence of a fraudulent intent.
3. Nor is a deed of trust, which conveys, all and every description of property belonging to the grantors to be regarded as fraudulent because of the further provision "that the property will be more particularly set forth in an inventory to be made out."
2. An objection is made to that part of the deed which describes the property conveyed, on the ground that nothing passed by it, except such articles as might be contained in the inventory thereafter to be taken, and that thereby the grantors in the deed were able to increase or diminish the quantity of the property conveyed at their discretion, until the inventory was made out. If such be the legal effect of the deed, it might be assimilated with great propriety, to that class of conveyances which have been deemed to be fraudulent; because the debtor reserved the power to revoke the deed, either as to the property conveyed, or as to the creditors to be paid, or reserved the right to change the order of preference, or gave the trustee the power to compromise with the creditors. (15 John. Rep., 571; 7 Wend., 187; 2 John. G. R., 565.) But we do not give such a construction to this deed. The language used is that "the par- " ties of the first part have granted, bargained, sold, " conveyed, assigned, and transferred, and by these " presents do grant, bargain, sell, convey, assign, and " transfer to James O'Neal, of the second part, &c., " all the goods, wares, merchandize, &c., and proper- " ty of every name and nature whatsoever, of, and " belonging to said party of the first part, which will "be more fully set forth in an inventory which will " be taken hereafter, and in which the property afore- " said will be described." The deed conveys all the property of every description which belonged to the grantors. The language is broad and comprehensive, and cannot be construed so as to limit the operation of the deed to such property as should be described in the inventory referred to. The office of the inventory was to describe the particular articles which constituted the property that had been conveyed by the deed. Its failure to contain a full and true description of such property could not diminish the legal effect of the conveyance. The deed conveys all the property of the grantors, and not merely that part of it which might be contained in- an in ventory thereafter to be furnished by them. This objection to the deed is therefore wholly invalid.
4. Nov is it fraudulent in a deed of trust that it provides that after the payment of spec ified debts the surplus, if any, shall be paid to the grantors; this it would be the duty of the trustee to do, independently of any exprese provision in the deed to that effect. The interest of the grantor in a deed of trust is analogous to that of a mortgagor.
3. The deed provides that the surplus of the proceeds of the property, if any, after the debts are all satisfied, shall be paid over by the trustee to the makers of the deed. This, it is contended, is such a reservation for their benefit as renders the deed void in law; and cases have been referred to in which the courts in some of the states have so decided. (Dana vs. Lull & Co., 2 Washburn, (Vermont R.,) 390; Goodrich vs. Downs, 6 Hill's N. Y. R., 438, and other cases.) Á contrary doctrine has been held in the following cases: (Rehn vs. McElrath, 6 Watts, 151; Hindman vs. Dill & Co., 11 Alabama R., 689; Austin vs. Johnson, 7 Humphrey's Report, 191.)
Such a reservation as the one here objected to, does not invest the makers of the deed with an interest in the surplus which they would not have if the deed did not contain such a reservation. In such a case, if any of the trust fund remained after satisfying the trusts expressly created by the deed, there would be, as to such surplus, a resulting trust for the benefit of the grantors. Indeed the cases in which deeds of this description have been pronounced void, place those containing such a reservation, and those in which it is omitted, upon the same footing, unless the latter transfer the surplus, if any, to the general creditors. The principle upon which these decisions •are based, seems to be that a debtor has no right to make a conveyance of the whole of his property to secure one of his creditors, or any number of his creditors, so as to give them a preference over the others, unless in the same conveyance he secures the residue of the property that may remain, after the debts of the preferred creditors shall be discharged, so that it shall not return into his hands, but shall be •applied to the payment of the debts due to the other creditors.
This principle, which in effect determines that the debtor, although he may give to one class of creditors a preference over another class, cannot legally exercise this right without making a provision in the same conveyance, that the surplus, if any, shall be applied to the payment of his other creditors, so far from having been acted upon or recognized in this state, is in direct conflict with all the decisions of this court, and they are numerous, in which mortgages and deeds of trust that did not contain any such disposition of the surplus, have been sustained. Under the operation of this principle, if carried out to its legitimate results, a debtor could not mortgage his estate so as to retain an equity of redemption therein, at least until all his debts Avere first satisfied. A mortgage of his estate to one creditor alone would be void if he had other creditors, unless in the same deed he • made provision for the payment of their debts out of the estate mortgaged. Mortgages and deeds of trust, with respect to a sale of the property embraced by them, are placed substantially upon the same footing by the laws of this state. No sale can be made under a deed of trust without the intervention of a court of equity, unless it be made with the consent of the grantor. A sale of the mortgaged property may be made in the same way, the mortgagor and mortgagee concurring therein. Every reason then which can be urged in favor of the application of this principle to deeds of trust, will apply with equal force to mortgages. Its effect, if adopted, would be to alter essentially the right of the debtor to convey his property to secure any of his creditors, as this right has been heretofore exercised, and to introduce a new rule of law on this subject that has not hitherto had any existence in this state.
5. Any interest which a nftrtgagor or a grantor has in a deed of trust can be subjected to his debts.
The adoption here of such a principle is not necessary to the security of the rights of creditors. Any interest which the grantor has in the property mortgaged or conveyed in trust, can be'su&jected by them, under our laws, to the payment of their debts. The debtor can derive no advantage from the reservation to himself of the surplus that may remain, after the payment of the debts mentioned in the deed. If the effect of such a reservation would be to secure the surplus to the debtor, and deprive his creditors of the right to subject it to the payment of their debts, then, indeed, there would be an obvious propriety in the application of this principle. But no such effect is produced by it; on the contrary, the reservation is entirely nugatory inasmuch as it only appropriates the surplus in the same manner the law itself would, if no such reservation had been made, and such surplus, notwithstanding this appropriation of it, still remains liable for the debts of the grantor. The legality of the deed is not therefore affected by the reservation of the surplus, if any, to the grantors.
Wherefore, the judgment dismissing the plaintiffs' petition is affirmed.