Riley v. Carter

Roberts, J., delivered the opinion of the Court. The demurrer to the bill of complaint in this case presents for the consideration of this Court, questions of more than ordinary interest and importance. The appellants on the .22nd of January, 1892, in their own right, and in behalf of all creditors becoming parties thereto, filed their bill in the Circuit Court of Baltimore City, for the purpose of setting aside two deeds, which were exact duplicates, and had been on the 14th of January, 1892, executed by Johns H. R. Nicholson, in his own right, and as surviving partner of the firm of J. J. Nicholson & Sons, to John M. Carter, and Matthew Iv. Aiken, trustees, for the benefit of the firm creditors of J. J. Nicholson & Sons, and the individual creditors of Johns H. R. Nicholson.

The deeds on their face profess to convey to the trustees, all of the property and estate of Johns H. R. Nicholson, and also all the estate of the late firm of J. J. Nicholson & Sons. The bill seeks to have said deeds set aside as being void against creditors, and asks the appointment of a receiver to distribute the assets of said firm and of Johns J. R. Nicholson. The firm of J. J. Nicholson & Sons, composed of Johns H. R. Nicholson, and Andrew J. Nicholson, bankers doing-business in Baltimore City, was dissolved on the 5th of January, 1892, by the death of the said Andrew J. Nicholson. The surviving partner took possession of the firm’s assets, and continued the business.

Shortly after ⁵⁹² the death of the said Andrew, the said John M. Carter and Rebecca T. Nicholson were, by the Orphans’ Court of Baltimore City, granted letters of administration on his personal estate. Andrew, the deceased partner, resided in Baltimore City, where one of said deeds was filed for record. Johns H. R., the surviving partner, resided in Baltimore County, where the other of said deeds, was a few hours later filed for record. Since the execution of said deeds, and within twenty days thereafter, to wit, on the 24th of February, 1892, the said Johns H. R. Nicholson, was by the Circuit Court for Baltimore County, adjudicated an insolvent, under the involuntary provisions of the insolvent laws of Maryland, and Samuel D. Schmucker was elected by the creditors, and approved by the Court as his permanent trustee, and duly qualified as such trustee.

The said trustees, Carter and Aiken have taken possession of the property, estate, and assets of said firm, and the. individual assets of the said Johns H. R. Nicholson, and are now engaged in the administration of the trusts sought to be created by said deeds, under the orders of the Circuit Court of Baltimore City, passed upon an ex parte petition filed by said trustees. There is exhibited with said petition a copy of the deeds of trust recorded in Baltimore City. Before we proceed with the consideration of the various questions which the record presents, we desire to state that although it may not be necessary that all of the questions before us on this appeal should receive judicial interpretation, yet many, if not all of them, are of importance to the commercial interests of the State, and have been argued with marked ability, exhibiting careful research, so that we deem it only just and proper to review and pass upon all the questions property before us. 1. The first questions which suggest themselves to our consideration arise out of the execution of the two deeds which have been,assailed.

It is contended by the ⁵⁹³ appellants that a surviving partner has no authority to execute such a deed., and that Johns H. R. Nicholson, the surviving partner in this cause, being non compos men tis, was legally incapacitated to execute and deliver the deeds in question. The authority of a surviving partner to execute a deed for the benefit of creditors, was at one time seriously controverted, and .the decisions were by no means uniform; but the question has of recent years received the fullest consideration, and must now be regarded as practically determined in favor of the right of the surviving partner to assign, if in so doing he does not violate any of the provisions of the insolvent laws of the State of Maryland. It was a question in Gable vs. Williams, 59 Md., 52 , and this Court through its Chief Justice said; “It may be conceded that G-able, as surviving partner, could lawfully make a general assignment of partnership property to trustees for the payment of debts, provided such assignment be in all respects just and equitable, and made for the equal benefit of all the creditors interested in the deed. While such right in the surviving partner has not been in all cases approved, it would seem to be sanctioned by several well considered cases of high authority.

White vs. Union Ins. Co., 1 Nott and McCord, 556; Shanks vs. Klein, 104 U. S., 18 ; Burrill on Assign., (3rd Ed.,) sec. 39. In some cases the right to make such general assignment would seem to be questioned, unless it appears that such assignment had been made with the assent of representatives of the deceased partner. Hutchinson vs. Smith, 7 Paige, 35; Egberts vs. Wood, 3 Paige, 520 ; Barecroft, et al. vs. Snodgrass, et al., 1 Coldw., 441 .” The following authorities directly sustain the views of this Court.

Emerson vs Senter, 118 U. S., 3 ; Atchison vs. Jones, (Ky.,) 1 S. W., 406 ; Williams, et al. vs. Wheedon, 109 N. Y., 336 ; Patton vs. Leftwich, 86 Va., 421 ; Hanson vs. Metcalf, 46 Minn., 25 ; Haynes, et al. vs. Brooks, et al., 116 N. Y., 489 ; Wall ⁵⁹⁴ ing, et al. vs. Burgess, et al., 122 Ind., 299 , and 22 N. E., 419 ; Burnside, et al. vs. Merrick, et al., 4 Met., (Mass.,) 531. 2. In this case a serious question attaches to the right to assign, which involves the right of a lunatic to execute a deed. The pleadings in the cause concede that Johns H. R. Nicholson, at the time of the execution of the two deeds, was,non compos mentis. It is contended on the part of the appellants that Colegate D. Owings’ Case, 1 Bland, 390 , and Corrie’s Case, 2 Bland, 490 , have determined, that the deed of a lunatic is not voidable, but absolutely void, and they cite Dexter vs. Hall, 15 Wall., 9 , as affirming the doctrine of those cases.

But we cannot concur in this view, nor has this Court ever so decided. The Supreme Court in passing upon the questions under consideration in Dexter vs. Hall, did not have before them the validity of a deed of conveyance, but of a power of attorney. Infants and lunatics stand very much upon the same plane, so far as Courts of equity are concerned, and it has been universally held that the power of attorney of an infant is absolutely void, and so the Supreme Court, in Dexter vs. Hall, held that the power of attorney of a lunatic was void, and rested their decision on the analogy existing between the rights of infants and those of lunatics, and says: “In fact we know no case of authority in which the-letter of attorney of either an infant or a lunatic has been held merely voidable." This they could not have said respecting deeds of conveyance, as the Reports of the State Court contain numerous decisions affirming the view that the deed of a lunatic is not void, but only voidable. The firm of J. J. Nicholson & Sons had been for a long series of years engaged in the business of banking in the City of Baltimore; a member of the firm having died, a dissolution of the partnership was the consequence.

Business complications soon followed, ⁵⁹⁵ and, for the purpose of settling up the affairs of the firm, the surviving partner executed the deeds in question. In this State it has never been doubted that a debtor in failing or embarrassed circumstances had the right to execute a deed of trust for the benefit of creditors, when he dedicated all his property and estate to the payment of his debts. The question of a lunatic’s authority under certain circumstances to execute a valid deed has, on more than one occasion, received judicial interpretation by this Court. In Evans vs. Horan and Preston, 52 Md., 610 , this Court speaking through the late Justice Miller, said: “The exact question which the record presents is this : Is a deed of bargain and sale of real estate made upon a valuable consideration, duly acknowledged, and duly enrolled or recorded under our registry Acts, void or merely voidable by reason of the fact that at the time it was executed, the grantor was non compos mentis '!

Without advancing or at all sanctioning the broad doctrine that every act of a lunatic or infant is voidable, and not void, we are of opinion that the deed in question does not belong to that class which the law deems absolutely void. This, we think, has been established as the law of this State, whatever may be the conflict of authority elsewhere. AVe refer to the cases of Key’s Lessee vs. Davis, 1 Md., 32 , and Chew & Goldsborough vs. Bank of Baltimore, 14 Md., 299 , and the reasoning and authorities cited and relied on by the Court in those decisions. The cases of Wait vs. Maxwell, 5 Pick., 211; Jackson vs. Gumaer, 2 Cowen, 552, and Breckinridge’s Heirs vs. Ormsby, 1 J. J. Marshall, 236, are directly in point.

Many other more recent decisions of the State Courts to the same effect might be cited, but it is unnecessary, inasmuch as we consider the decisions of our predecessors as having settled the law of Maryland upon this subject A few brief quotations from the opinion in ⁵⁹⁶ Key’s Lessee vs. Davis, will show the grounds upon which the doctrine is rested, and how cautiously it is guarded and limited. ‘In England,’ says the Court, ‘it appears to he well settled, as it is in this country, where the common law has not been abrogated by statutory enactments, that the feoffment of a lunatic or idiot, in person, is only voidable, and not void. The reason assigned for this is, that the solemnity and formalities of livery of seizin, together with the necessary participation of others in the act, and its notoriety, presupposes that the incapacity of the party was not apparent.’ For this, reference is made, among other authorities, to the case of Thompson vs. Leach, Carthew, 435. The Court then adds: ‘In this State it has been adjudged by the Court of Appeals, in Matthews vs. Ward’s Lessee, 10 G. & J., 433 , that livery of seizin has been abolished, and that enrollment is equivalent to it, and has been substituted in its place. Indeed the Act of 1776 provides for recording deeds of feoffment, as well as other deeds, and the Act of 1715, declares the livery of seizin shall not be necessary where a deed is enrolled.

The propriety of this decision, and the result to which it leads, no one can controvert. If the acquiescence of those whose presence and participation, which are necessary to constitute a good livery of seizin, are sufficient to rescue the act of the lunatic from the presumption of being totally void, much more ought the attention of the magistrates who took the acknowledgment, and the clerk’s certificate of enrollment, which accompanies the deed of bargain and sale of the present day, have a similar effect. From this doctrine, it would seem to follow as a necessary consequence, that in this State the deed of bargain and sale of a lunatic, when it has been executed with all the usual formalities required 'by law, and duly enrolled, would in any case, like a feoffment in person, be only voidable and not void.” The view adopted by ⁵⁹⁷ this Court is in accordance with the generally accepted doctrine of numerous decisions of other States. Riggan vs. Green, 80 N. C., 236 ; Miles vs. Lingerman, 24 Ind., 387 ; Wait vs. Maxwell, 5 Pick., 217; Hovey vs. Hobson, 53 Me., 451; Dennett vs. Dennett, 44 N. H., 538; Eaton vs. Eaton, 8 Vroom, 108 ; Blakely vs. Blakely, 33 N. J. Equity, 508; Snowden vs. Dunlavey, 11 Penn.

St., 525; Ingraham vs. Baldwin, 9 N. Y., 45 , (5 Seld.); Breckinridge’s Heirs vs. Ormsby, 1 J. J. Marsh., 236; Fitzgerald vs. Reed, 9 Smedes & M., (Miss.), 94; Allis vs. Billings, 6 Metc., (Mass.), 415; Allen vs. Berryhill, 27 Iowa, 540 ; Elston vs. Jasper, 45 Texas, 409 ; 1 Chitty on Contracts, 188, (11 th Am. Ed.); Parsons on Contracts, 384. 3. It is a contention of the appellees that none but privies in blood or in estate or in law, can assail a deed of the character in controversy here, which is sought to be impeached on the ground that the surviving partner was a lunatic at the time of the execution of the same, and that creditors do not stand in such relation to said conveyances as entitle them to file a bill in the nature of this proceeding. That their relation is purely contractual, and in no sense that of privies.

Whilst the authorities incline to this view of the question in their application to deeds of persons 'non compos mentis conveying estates unaffected by the rights of creditors, we have, after careful examination, been able to find no case applying this doctrine in which the rights of creditors have been involved. But independently of all considerations save a just and proper regard for the rights of creditors, touching a deed, which professes to have been executed solely for the payment of their claims, and the protection of their rights, it would seem to be an anomaly, that privies in blood, or estate, or in law, should alone enjoy the privilege of inquiring in a Court of equity, where the rights of lunatics are especially cared for, whether a deed, which practically builds ⁵⁹⁸ a Chinese wall around their claims, has not dealt fraudulently with their rights. If the lunatic he alive, and have no guardian, no one then but the lunatic himself is entitled to take action, and he is the one most unlikely to do so. It is only after death that the privies in blood or estate can exercise this right.

We think reason and justice alike demand that under such circumstances the creditors, unless restrained by the provisions of the insolvent laws, are entitled to proceed by appropriate remedy for the protection of their rights. It is not the policy recognized by the Courts of the present day to limit the right of inquiry; to the contrary, they seek to give practical application to the maxim, “ubi jus ibi remedium.” Chief Justice Holt in Ashby vs. White, 2 Ld. Raymond, 952, observes that when a man has a right, he must have a means to vindicate, and maintain it, and a remedy, if he is injured in the exercise and enjoyment of it. 4. We do not concur in the objection urged against these deeds by the appellants, which is set out in the sixth paragraph of said bill, to the effect that the said Johns H. R. Nicholson as surviving partner of J. J. Nicholson & Sons, “but not in his own right,” did on the 14th of January, 1892, execute said deeds which purport to convey to said trustees, their heirs, &c. all his, the said Johns H. R. Nicholson’s estate, &c.

In Moody vs. Downs, 63 N. S., 50, the Court says, “an assignment for the benefit of ‘my’ creditors, by a surviving partner of all partnership and individual property, was considered as an assignment of partnership property for the benefit of partnership creditors, and of separate property for the' benefit of separate creditors, and held valid. ” 5. It is also claimed by the appellants that, in consequence of t.he execution of two deeds, neither deed vested the whole property in the trustees, and that it is ⁵⁹⁹ impossible to put the two together, and make one valid deed out of two bad ones. (Appellants’ brief, fol. 8). Whilst it is true that if one of the deeds in question had been first recorded, and there had then been annexed to it a proper certificate of the official character of the justice, before whom it had been acknowledged, and then recorded in the proper office, there would have been accomplished the object in view quite as thoroughly as by the two deeds, but the legal effect of the two, being executed in duplicate, and in all essential respects exactly the same, cannot he other than to convey to the trustees the same interests and estate which they would have taken under the one deed.

It is not a practice to be commended, but there is no doubt as to its legal effect. Burrill in his work on Assignments, sec. 128, says, “A general assignment, though usually made by one deed or instrument, may be made as effectually by several instruments relating to the same subject-matter.” To the same effect is Kruse vs. Pindle, 8 Oregon, 153, where two conveyances operating as an assignment were executed at the same time, between the same parties, and relating to the same subject-matter, the Court held that they should be construed together as forming parts of a single conveyance. Sustaining the same view is the case of the South Branch Lumber Company vs. Ott, et al., 142 U. S., 622 . 6. The appellants, in the thirteenth paragraph of their bill, allege that the said two deeds, dated on the 14th of January, 1892, were made with “intent” to delay, hinder and defraud the creditors of the said firm of J. J. Nicholson and Sons, and of the said Johns H. R. and Andrew J. Nicholson, individually, and are therefore void.

It is contended by the appellees that the averment of the bill is only an inference and is not a fact, and that the demurrer does not admit the truth of the conclusion sought- to be drawn. We, however, ⁶⁰⁰ think the averment legally sufficient, and that it charges with certainty a fact which the demurrer admits. ’ There is no substantial difference whether it is charged that the deeds were made with “the intent,” or that they did actually delay, hinder, and defraud. Hilliard, in his work on Bankruptcy, p. 13, sec. 25, says, “It is in general expressly provided that acts of bankruptcy must be done with intent to delay creditors, and this intent, rather than the actual result, is held to constitute the essence of the act. If the allegation in the bill had omitted the intent and simply charged that the deeds, as executed, hindered, delayed and defrauded the creditors of the grantor, the legal effect would have been the same.” In the case of Schuman vs. Peddicord, 50 Md., 563, Robinson, J., delivering the opinion of this Court, said: “Nor is it necessary, in order to bring the conveyance within the spirit of the statute, that there should be an ' actual intent' on the part of the grantor to perpetrate a fraud.

If the necessary effect and operation of the instrument be to hinder, delay or defraud creditors, the legal presumption is, that it was made for that purpose. Grover vs. Wakeman, 11 Wend., 187 ; Sturdevant vs. Davis, 9 Iredell, (Law,) 365; Enders vs. Swayne, 8 Dana, 103 ; Nicholson vs. Leavitt, 6 N. Y., 510, (2 Seld.); Janes vs. Whitbread, 20 Law J. C. P., (N. S.), 217. Notions of right and wrong vary of course with each individual person, and in declaring that every one must intend the legal consequences of his own voluntary.act, the. law provides a more certain and reliable standard by which the intention is to be ascertained. Wherever then the effect of a conveyance is upon its face to hinder and delay creditors, it will be construed as void against such creditors,. without stopping to inquire what may have been the actual intention of the grantor.” This view has been generally accepted as the correct interpretation of the law.

In summing up the law on this point, Mr. Wall ⁶⁰¹ ace, in his notes to 1 Am. Leading Cases, (Ed. 1852), 96, says: “An assignment in trust for creditors, which by its provisions tends to hinder or delay creditors, is fraudulent and void in law.” 7. It is urged as an objection to the deeds that they do not convey all the property of the firm and of the individual partners, and, unless all such property has been conveyed, the deeds are void. In this case the two deeds “grant,” “convey,” and “assign ” unto John M. Carter, and Matthew K. Aiken, their executors, administrators, and assigns, all Ms, the said Johns H. R. Nicholson’s property and estate, real, personal and mixed, of whatever kind and wheresover situate, as also the property, estate, and assets whatsoever of the said firm of J. J. Nicholson and Sons, in trust, for the purposes therein set forth.

Can there be any reasonable doubt as to what those deeds convey? Under the decisions of this Court, of numerous other State Courts, and of the Supreme Court of the United States, it has been repeatedly heldt hat: “ The doctrine that real estate purchased with the partnership funds, for its use, and on its account, is to be regarded in a Court of equity as the personal estate of the company, for all the purposes of the partnership, stands upon a familiar and just principle. It is the clear case of an implied or constructive trust, resulting from the relation which the partners bear to each other, and from the fact that the estate was brought into the firm, or purchased with the funds of the partnership, for the convenience and accommodation of the trade. For this reason, in whosesoever name the legal title may reside, the estate is held, in the eye of a Court of equity, for the use of the partners, as the cestuis que trust: and if a partner dies, the legal estate of which he was seized as a tenant in common, passes to his heirs or devisees, clothed with a similar trust, in favor of the surviving partners, until the purposes for which it was ⁶⁰² acquired have been accomplished. ” Goodburn and Wife vs. Stevens, et al., 5 Gill, 27 .

And again, this Court in Ebert’s Ex’rs vs. Ebert’s Adm’rs, 5 Md., 388 , affirming Goodburn and Wife vs. Stevens, et al., says: “That real, property purchased with partnership funds, and for partnership purposes, is to regarded, upon the death of a partner, in a Court of equity, as between the partners and their creditors, personal estate, for the payment of partnership debts, and the adjustment and winding up of the partnership concerns.” This doctrine has been fully recognized in the case of Shanks vs. Klein, 104 U. S., 18 . Mr. Justice Miller., delivering the opinion of the Court, says: “It is an equitable