Supreme Court of North CarolinaDec 1, 1859
52 N.C. 300 (N.C. 1859)

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(December Term, 1859.)

Where a debtor included several feigned notes in a deed of trust, it was Held that such deed was void, in toto, as against creditors, notwithstanding there were other bona fide debts included, and there was no evidence of any complicity in the fraud on the part of the trustee.

TROVER, tried before Caldwell, J., at Fall Term, 1859, of STANLY.

Ashe for defendant.

No counsel appeared for plaintiff in this Court.

The plaintiff declared for the conversion of three negroes and a wagon. The plaintiff offered in evidence and proved the execution of a deed of trust bearing date 7 March, 1856, from one John Stoker, conveying to him all his property, including the three negroes and wagon in controversy, to secure the payment of a number of debts set forth in said deed of trust, of various amounts and due to different persons, amounting to about $3,000 the most of which were proved to be just debts.

The defendant proved that John Stoker, the vendor in the deed of trust, at the time of the execution of the deed of trust, was indebted to one Caleb A. Heilig by note for the sum of $1,300, which was put in suit against him in Rowan County Court and reduced to a judgment at May Term, 1856, of said court, upon which judgment a fieri facias, tested as of that term, was issued to the defendant, who was then sheriff of Stanly County, and was by him levied on the three negroes and wagon which were sold by him according to law and the proceeds of the sale applied to the satisfaction of the execution. It was also in proof, on the part of the defendant, that in 1853 and 1854 John Stoker and one James Kirk were merchants and partners in the county of Rowan; that Stoker was the business man of the concern, attended regularly at the store, kept the books, money, etc., while Kirk lived 10 miles distant, and was there only occasionally; that they dissolved the copartnership in the fall of the same year, 1854, owing a considerable northern debt at the time. On the dissolution Kirk bought out the store and the goods on hand, and Stoker agreed to pay all the debts of the (301) concern, but failed to do so, and they were paid by Kirk to an amount over $3,200, as admitted by Stoker, who, however, insisted at the time that Kirk had received enough of the copartnership fund to indemnify him, but this was denied by Kirk.

It was further in proof by the defendant that Stoker told one Kendall, a witness, some few months before the execution of his deed, that he was worth $2,000 or $3,000. It was also in proof by him that three of the notes given by John Stoker, and secured in the deed of trust, one of date 29 February, 1856, for $600, payable to his brother, one A. T. Stoker, one of date 26 February, 1856, for $200, payable to James Roseman, and another payable to the same, for $300, and bearing the false date of 26 June, 1854, its true date, as proved, being 26 February, 1856, were fraudulently made without any consideration, and that there was an express agreement in relation to the two last notes between Stoker and James Roseman, the payee therein, that he should collect the same from the trustee, and deducting certain commissions for his services, pay over the residue of their proceeds to John Stoker, and that some two years ago, since the pending of this suit, Stoker offered to give Roseman $100, if he would swear they were genuine.

There was no evidence that the trustee had any knowledge of the said Stoker's fraudulent conduct. The defendant's counsel insisted that if the deed of trust was made with the fraudulent intent of hindering or delaying the creditors of Stoker, or for his ease and benefit, that the deed was void under the statute of 13 Eliz., although there were some just debts secured therein.

The court charged the jury, as a general rule, it was true that a deed of trust made to defraud creditors, or for the ease and benefit of the trustor, was void; but in this case, if they believed the debts were true debts, as set forth in said deed, save the three alleged to be founded, in fraud and there was no collusion between the trustor and trustee, and there was no evidence of any, as to the trustee, the estate vested in the trustee, and he could maintain the action. Defendant (302) excepted.

Verdict for plaintiff. Judgment. Appeal by defendant.

If a conveyance be made upon several considerations alike moving the maker, one of which is against law, the whole is void. But if the consideration be good, and there is attached to the conveyance several conditions or trusts, separate and independent of each other, some of which are good and some bad, the deed will be supported as to the good. The difference is that every part of the deed is induced and affected by the illegal consideration; but when the consideration is not thus tainted, but some of the considerations only are illegal, the illegality of the bad does not contaminate the good, except in some peculiar cases where they are inseparable or dependent. This distinction is taken and supported by a number of cases cited in the note to Collins v. Blantern, 1 Smith Leading Cases, 169.

In the assignments to pay debts, the debts secured from the consideration for the deed. In the case now before us, some of these are admitted to be fabricated and fraudulent. They are inseparably connected together, and as a whole, constituted the consideration which moved the debtor to make the conveyance. The Code declares that every conveyance made with the intent to delay, hinder, or defraud creditors, as against such creditors (and only as against them), shall be utterly void. Rev. Code, ch. 50, sec. 1.

The intention of a conveyance is to accomplish the objects that moved the maker to execute it, and if any of these latter be convenous the intent is necessarily so.

The charge of the judge below cannot, as we think, be sustained. In substance, it was that no matter for the fraudulent purpose of (303) the grantor, if the trustee did not participate in that purpose, and there were honest debts secured by the trust, the deed should be upheld. The enactment of the Legislature is that every conveyance made with the intent to delay, hinder, or defraud shall be void. The intent of the maker is the criterion, and if that intent be bad, the trustee, however innocent, cannot hold as against creditors.

In Harris v. DeGraffenreid, 33 N.C. 89, it was held that a bona fide purchaser for value, from a trustee holding under a fraudulent deed, would get a good title; for there was a legal title in the trustee as against the grantor and others (not creditors), which was transmissible, and which would be effectually transmitted to one who buys without notice of the fraud and for value. This decision is in accordance with a number of cases in which it has been held that although a deed may be void, for fraud, as against creditors, yet, if the assignees were free from participation in the fraud, their acts, done in good faith, would be ratified and protected.

And so it has been held, and we take that to be clear law, too, when there is no trust implied, but a debtor conveys directly to his creditor in payment of a bona fide debt, the conveyance should be upheld, notwithstanding the debtor made it with a fraudulent intent. The cases of this class rest upon the ground that the creditor was not a party to the fraud, but received the conveyance in good faith, in payment of an honest debt; and in conformity to the rules of law which govern the case of an ordinary vendee who is without fraud and pays value, the creditor is not affected by the fraud of his vendor.

But the rule which exists as between vendor and vendee has never been applied, so far as we know, to a case like the one now under consideration. Assignments of this kind, preferring creditors, can only be made by an insolvent debtor. They are not favored when preferences are given. The law only tolerates them when honestly made for the purpose of giving the preference and devoting the property of the debtor to the payment of his debts. If, then, there be in the mind of the debtor a purpose to defraud or make provision for himself (which is a fraud), the assignee who is selected by him to carry out his (304) fraudulent designs cannot hold as against the creditor. The assignment is void under the provision of The Code referred to (the stat. 13 Eliz.).

The conclusions here reached are supported by the cases in our own reports of Hafner v. Irwin, 23 N.C. 490, and Flynn v. Williams, 29 N.C. 32, and the case in New York of Rathburn v. Platner, 18 Barbour, 272. Brannock v. Brannock, 32 N.C. 428, does not conflict with Hafner v. Irwin and Flynn v. Williams, though relied on for that purpose. By referring to the reasoning of the Court in that case, it will be seen that is made to turn upon the distinction taken by Smith in his leading cases between bad considerations that are inseparable from the others and furnish the bad motive for the deed, and bad considerations that are separable and independent, and inserted without covin or malice. In the former case the whole is tainted, and the conveyance is void under the statute in toto; in the latter, the bad may be eliminated by the creditors, and the conveyance upheld as to the good. In Brannock v. Brannock, supra, the objection to the assignment was the insertion, among the debts secured, of some that were founded upon usurious considerations, not covinously inserted, but, as the case supposes, bona fide, with intent to have them paid. On this state of facts the deed was upheld for the good debts upon the distinction stated.

The case now before us for decision is between the assignee and the sheriff. The former claims as trustee under an assignment made by the debtor with an intent to defraud; the latter justifies under a fi. fa. of a judgment creditor. As between these parties, we think the assignment clearly void, notwithstanding the freedom of the trustee from any participation in the fraud, and notwithstanding there were some honest creditors secured in the deed.

PER CURIAM. Venire de novo.

Cited: Johnson v. Murchison, 60 N.C. 292; Blair v. Brown, 116 N.C. 644; Commission Co. v. Porter, 122 N.C. 698.

Dist.: Carter v. Cocke, 64 N.C. 242; Lassiter v. Davis, id., 500; Hicks v. Skinner, 71 N.C. 558.

Overruled: Morris v. Pearson, 79 N.C. 258; Woodruff v. Bowers, 104 N.C. 207; Ballard v. Green, 118 N.C. 392.