Opinion
(December Term, 1859.)
1. In a deed of trust to indemnify sureties by giving them a preference, the debt of the creditor supplies the consideration to support the deed; the creditor's interest is therefore the primary object to be protected in equity, and the sureties' indemnity, though expressed to be first, is but secondary and incidental to the other object.
2. Where a surety intended to be indemnified by a deed of trust made a composition, in writing, with the creditors, by which they agreed to take, and did take, a part of their debt, retaining the right to enforce their claims against others bound for the same debts, but discharging the said debtor from all further liability for the debt, it being left doubtful in the said writing which party should have the benefit of the security afforded by the deed of trust, it was Held that the nature and purposes for which the law allows deeds of trust preferring creditors at all are very weighty considerations in determining the question.
3. A steamboat used exclusively for the purposes of navigation between the ports or towns of any State, without going out of the State, is not a vessel of the United States, and is not required to be registered in order to a valid transfer thereof.
4. Where a point in a former suit was pretermitted, which, if tenable, would have determined the judgment of the court the contrary way, it is no ground for impeaching the former judgment that the point was not made in the former suit.
(185) APPEAL from the Court of Equity of BEAUFORT from an interlocutory decree made by Saunders, J.
Warren for plaintiffs Wiswall, etc.
Rodman and Shaw for banks.
Fowle for Blackwells.
Benjamin F. Hanks being largely indebted to several persons, on 17 September, 1856, executed a deed of trust to Joseph Potts, Richard S. Donnell, and R. L. Myers to indemnify the sureties on these liabilities, conveying much valuable real estate, also considerable personal property, and amongst the rest a steamboat called the Postboy. This deed of trust was registered on 18 September, 1856.
Hanks carried on the business of sawing and planing lumber and of shipping and selling the same and of distilling spirits. These operations were carried on in his own name, but one John Blackwell, who lived in the town of New Bern, was a secret partner in the business. This copartnership was formally dissolved on 23 August, 1856, when Hanks acknowledged a debt due to Blackwell, his partner, of $20,000, and gave five several notes of $4,000, due at different dates, and executed a mortgage deed to secure the payment of the same. This mortgage conveyed to Blackwell much of the same property, which was afterwards conveyed in the deed of trust above mentioned, amongst other things, the steamboat Postboy. At the time of this transaction, John Blackwell was indebted to his brothers, Robert M. Blackwell, Josiah Blackwell, and James M. Blackwell, all of the State of New York, in several sums, amounting to $20,000, and on the day of the dissolution and of the execution of the notes and mortgage, to wit, 23 August, 1856, he assigned the mortgage to them to secure these debts. The deed of trust to Potts, etc., and the mortgage deed and the assignment to his brothers were all registered on the same day, the latter a short time before the other. The debts mentioned in the deed of trust and those to the Messrs. Blackwells (the brothers) are admitted to be just. It was contended, in the suit of Potts v. Blackwell, 56 N.C. 449, that the debt confessed by Hanks to John Blackwell, and the mortgage to secure it, were fraudulent, but the Court held that if that had been so, as the assignment to the Messrs. Blackwells was for a full consideration to secure an honest debt, without any notice of such fraud to the assignees, (186) the assignment was valid, and that the property embraced therein, including the Postboy, passed to them, and a decree passed the Court accordingly. The property conveyed in the deed of trust not taken to satisfy the mortgage was sold by the trustees, and the fund in their hands is held subject to the claims of the creditors. The Postboy was also sold by an agreement of the parties and the proceeds held by them, also, subject to the decision of this cause.
The plaintiffs in the first bill, Wiswall, Brooks, etc., are sureties with the defendants to the several banks on the paper of Hanks, and the debts are mentioned in the deed of trust. The clause in the said deed under which they claim is as follows: "To indemnify and save harmless Richard S. Donnell, Howard Wiswall, etc., from all loss and damage by reason of their endorsements and suretyship in several claims, drafts, and notes designated in Class No. 2; and if the funds be not sufficient, then to apply it to indemnify and save harmless the said endorsers and sureties pro rata." They allege that they entered into a composition with the several creditors, the banks of Washington, Cape Fear, etc., by which they agreed to take a part of their debts and to release them from the remainder, and that they paid the sums agreed on in the stipulation, and that they (the banks) each executed a release, of which the following is a copy, viz.: "In consideration that Howard Wiswall has given to Martin Stevenson, cashier of the Bank of Washington, his notes in the aggregate amount of $8,817.37, payable in one, two, three, and four years after date, each one bearing interest from date and each note dated 1 January, 1857, the said Martin Stevenson, cashier of the said Bank of Washington, does hereby remise, release, and forever discharge the said Howard Wiswall from all further liability, claim, or demand against him for and on account of his having become surety to B. F. Hanks upon any bills or notes due the said Bank of Washington, retaining, nevertheless, full right to proceed in any way against the said Hanks and all cosureties with the said Wiswall in said notes or (187) bills of said Hanks, and to collect and retain the full residue of all claims against him and them as fully as if this discharge were not given. 24 February, 1857."
The plaintiffs insist that by virtue of this release they are entitled to their share of the trust fund to indemnify them for the sums they have paid and secure to the said banks as sureties of B. F. Hanks, and that that was the understanding at the time the composition was entered into, and they pray that the trustees may account and pay over to them whatever they are entitled to on this agreement.
The banks, who are the defendants in the first suit and plaintiff in the cross-bill, protest against the claim thus set up by the sureties. They insist that it was not the meaning or intention of the paper-writing referred to secure anything to the said parties by way of indemnity; that it was well known that the amount paid and secured to be paid by Wiswall, etc., would be short of satisfying the claim with what might be made for the creditors under the deed of trust, and that it was by no means the understanding of the parties or the intention of the instrument that they should give up to the sureties what they could or might be able to realize under the deed of trust. The cross-bill prays for an account with the trustees, and that in taking such account the money in their hands for the sale of the Postboy may be allowed to the claimants under the deed of trust. It was insisted by both Wiswall and Brooks in their bill and by the banks in their cross-bill that the steamboat called the Postboy, not having been registered, was not conveyed by the mortgage, etc., according to the act of Congress, and that nothing passed by it to the Blackwells. The sureties intended to be indemnified, the banks whose debts are intended to be secured, and the trustees and B. F. Hanks, John Blackwell, and the Messrs. Blackwell of New York, are made parties both to the bill and cross-bill.
The question raised being the same in each suit, they were heard together upon the pleadings, former decrees, and the exhibits, one (188) of the latter of which was the certificate of the enrollment of the Postboy at the custom house at Washington.
In the court below, his Honor decreed in favor of the banks, and that the sureties were not entitled to have anything for their indemnity until the whole of the debts were satisfied, and that no title passed to John Blackwell by the mortgage. The plaintiffs in the first bill (Wiswall, etc., and the defendants the Messrs. Blackwells) appealed to this Court.
1. As to the legal effect of the release. Is the surety who paid part of the debt entitled to receive the dividend under the deed of trust for his entire indemnity, or is the creditor entitled to receive the dividend, to be applied to the payment of the residue of the debt?
The Court is of opinion that the creditor is entitled to the dividend. The question depends upon the construction of the deed of trust, and this must be arrived at not merely by a consideration of the words used in the instrument, but of its nature and the purpose for which and the extent to which the law allows such conveyances to be valid against creditors. The words in which the trust is declared are "to indemnify and save harmless Richard Donnell, Howard Wiswall, etc., from all loss or damage by reason of their endorsements and suretyship in the several claims, drafts, and notes designated in Class No. 2; and if the fund be not sufficient, then to apply it to indemnify and save harmless the said endorsers and sureties pro rata." Judging by these words, there could be no doubt that the purpose of the debtor was to declare a trust in favor of his sureties, and he seems not to have bestowed even a passing thought upon his duty to the creditors whose money he had obtained. But the law supplies this want of a proper sense of justice on his part, for it does not tolerate a voluntary conveyance by a debtor as against creditors, and will not allow him to put his property out of their (189) reach by conveying it in trust to provide against some contingent event before the happening of which there is no debt. In the case of a surety, it may be he will never pay the original creditor so as to become a creditor himself, for he may be insolvent or may, in like manner, put away his property in trust for a surety, and thus the actual creditor will be hindered, delayed, and defrauded. So that in order to make this deed valid, it is essential that the debt of the creditor shall supply the consideration to support it, consequently the creditor must be considered the primary object of the trust, and the indemnity of the surety is secondary, to follow, as an incident, the payment of the debt to the creditor out of the funds which his debtor has provided. It is only upon this principle that such deeds are supported by the adjudications of our courts, which are opposed to the English decisions, where such deeds, even those made expressly in favor of creditors, are treated as voluntary. See Ingram v. Kilpatrick, 41 N.C. 463. It was decided in Jackson v. Hampton, 30 N.C. 457, "a deed of trust for land which has no consideration except that the land should be sold for the payment of debts for which the bargainee was bound as surety of the bargainor will not operate as a bargain and sale." This is a rule in a court of law, and equity cannot support such a deed even though a nominal consideration of one dollar be expressed in order to pass the legal title unless there be a substantial consideration, which can only be supplied by the creditor, who thereby is made the party entitled to receive the proceeds of the trust fund, as we have decided at this term, Murphy v. Jackson, ante, 11; see, also, Ferrer v. Barrett, 57 N.C. 455. So the plaintiff must be content, in order to prevent the deed from being treated as fraudulent, to take a back seat and be considered secondary to the creditor who supplied the consideration, which construction is adopted by the courts for the purpose of giving effect to the right of a debtor to make a preference among his creditors, provided he does so honestly. In the view we take of the question, the plaintiff would not be entitled to claim the (190) benefit of the deed of trust unless the release had contained a clause expressly assigning it to him.
2. This Court is of opinion that the creditors are entitled to a dividend of the trust fund according to the amount of the debts, and that no notice can be taken, in making the division, of the subsequent arrangements which any of the creditors have been induced to make in case of the sureties. That is a matter between them, which in no way prejudiced the rights of the parties and in which they can take no benefit. In other words, it is a matter in which they have no concern. Should the dividend received in any instance be so large as to leave an excess after satisfying the debt, by including the amount accepted upon giving the release, the surety will be entitled to such excess as a sum justly applicable to his further indemnity, according to the proper construction of the deed of trust.
3. The defendants, the Blackwells, are entitled to the fund arising from the sale of the steamboat, which was sold under an agreement of the parties concerned. This conclusion is supported on two grounds. After the boat became the property of Hanks, it was used exclusively for the purposes of inland navigation in the waters of this State; it was consequently a North Carolina boat and not a vessel of the United States within the operation of the act of Congress passed in pursuance of the power "to regulate commerce with foreign nations and among the several States and with the Indian tribes." This clause in the Constitution of the United States, it is admitted, by necessary implication, comprehends "navigation also," and confers a power on Congress to pass an act requiring all vessels trading with foreign nations and from State to State to be recorded in the custom house, but it does not embrace a vessel or boat going from place to place within any one State, for that is a matter which concerns the State alone, as is settled by the case of Gibbon v. Ogden, 9 Wheaton, 197. So the Postboy was not a vessel of the United States, but a boat of the State of North Carolina, to which the act of Congress had no more application than the boats plying from Wilmington to Fayetteville, or from Washington to (191) Greenville, or from Edenton to Plymouth.
But it is said Hanks, while he was the owner, did register the boat under the name of the "Postboy" in the custom house, and it was by the force and effect of this registration made a vessel of the United States. We are unable to see how that consequence follows. It may be that Hanks did so under the expectation that he might afterwards send the boat to another State and wished to provide for the contingency, but he in fact never did so, and of course the act of registration was a mere matter of supererogation. It is the fact that a boat trades to two or more of the States or to a foreign country which makes it a vessel of the United States, and the act of registration in the custom house is an incident necessary to give it the privilege conferred thereby. But so long as it remains in the State and never goes out of its jurisdiction, the law in regard to the transfer and devolution must depend upon the laws of the State, for it is strictly a State right to make rules and regulations in respect thereto. And so far as registration is concerned, as that was unnecessary while it remained a vessel of North Carolina, it might with as much force be contended that the fact of registering a bill of sale for a horse would enable the party to read in evidence a copy from the register's book under the act of Assembly.
But in the second place, we think that the plaintiff is concluded by the decree in the former suit, which is set up by the answer as a bar. The steamboat is expressly referred to in the opinion then delivered, and the question suggested how far the plaintiffs could assert the right of a subsequent purchaser under the statute 27 Elizabeth, and the decree embraces it as well as the other property mortgaged to the Blackwells. To the suggestion that the want of registration in the custom house was not drawn in issue in that suit, the reply is: it either was or ought to have been, for if it could not have been drawn in issue in that suit, there is no additional reason why it can in this. The object there was to put the mortgage out of the plaintiff's way, and could have been (192) done as well then as now upon sufficient ground being shown. There must be an end of litigation.
PER CURIAM. Decree accordingly.
Cited: Bank v. Jenkins, 64 N.C. 732; Harrison v. Styres, 74 N.C. 295; Mast v. Raper, 81 N.C. 335; Matthews v. Joyce, 85 N.C. 266; Ijames v. Gaither, 93 N.C. 363; Sherrod v. Dixon, 120 N.C. 64, 67; Blanton v. Bostic, 126 N.C. 421.
Dist.: Lawrence v. Hodges, 92 N.C. 679.