Sutton v. Bessent

MontoomeRT, J. It was agreed by all the parties that the Court should find the facts and thereupon adjudge the law upon their rights. The defendant Kennie Bose executed three different deeds of trust to secure certain indebted [560] ness in each deed mentioned, upon the same property, to-wit, his stock of goods, wares and merchandise in his store-house in Winston, N. C., and other personal property. The first deed was executed to W. N. Reynolds, to secure a debt of $500 due to H J. Reynolds, and was registered on November 11, 1893. The second deed was executed to Henry O. Kinsey to secure a debt of $750, due to R. M. Sutton & Co-, for goods already sold and delivered to him, and also to secure the payment of other goods that' Slutton & Co. might sell to the grantor, and was registered on August 27, 1901. And the third deed was made toi J. O. Bessent, and was registered on August 26, 1901. The last deed of trust was in the nature of an assignment for the benefit of creditors generally, and contained a reservation of the debtor’s personal property exemption. His Honor further found as: facts that $130' had been paid by the debtor on the Reynolds note; that the deed to Bessent was not executed for the purpose of hindering, delaying and defrauding the plaintiffs R. II. Sutton & Co., or any other person ; that the Reynolds debt mentioned in the deed to Bessent was the mortgage debt referred to in the answer of R. T. and W. N. Reynolds; that the debtor, Rose, in reference to the Btessent deed “has not complied with the terms and provisions of the General Assembly, Acts 1893, ch. 453, in that he failed to file any sworn schedule of the alleged preferred debts”; in that last-mentioned deed the following provisions are made: “3. P’ay to R. J. Reynolds of Winston, N. C., the amount due on a note for $370, secured by mortgage on the above stock of merchandise. 4. Pay to J. S. Grogan, attorney, of Winston, N. C., $25 for professional services due by acceptance. 5. The balance to be paid and distributed pro rata, amongst each and every one of my creditors according to their respective claims”; that the entire indebtedness of Rose at the time of his assignment to Bessent was $2,300, [561] in wbicb is included tbe debts due to Sutton & Co. and tbe Reynolds debt. Bessent, claiming as trustee, took possession of tbe property and bas sold it, as we understand from tbe findings of fact, and bas in band as tbe proceeds of tbe sale about $1,200 toi be applied as tbe Court might direct. His Honor also found as a fact tbat tbe debt of $25 due to Grogan “was not a pre-existing debt and was created for tbe purpose of paying bim, tbe said Grogan, for professional services to be rendered tbe said Bessent, trustee, in executing tbe trust.” Upon tbe facts bis Honor concluded as matter of law, first, tbat out of tbe funds in tbe bands of Bessent, Reynolds was entitled to be paid tbe amount of bis debt, principal and interest, and tbat be was entitled to tbis payment “by virtue of bis mortgage, wbicb was executed and recorded long and prior to tbe other transactions herein referred to”; second, in tbe deed of trust made by Rose to Bessent, trustee, Rose reserved bis personal property exemption; tbis exemption not having passed to tbe trustee remained in Rose, and was still covered by tbe mortgage or deed in trust to Kinsey, trustee, for R. M. Sutton & Co.; so, then, after paying the Reynolds debt, Sutton & Co. are entitled to receive $500 of tbe fund; third, the deed in trust from Rose to Bessent is not void except as to tbe alleged preferred creditor, Grogan. If A makes a deed of trust to B¡, prefers certain creditors, M and N, having at tbe same time other creditors, X, T and Z, and tbe grantor A fails to file bis sworn statement or schedule provided for by the act of 1893, tbe deed will be void so far as N and M are concerned, but it will be good as to X, T and Z; tbat is to say, tbe purpose of tbe act of 1893 was not to prevent tbe execution of deeds in trust, but to throw such safeguards around them tbat if any creditor was preferred, then tbe other creditors might have some data by which to verify or [562] test the integrity of the preferences; fourth, so', then, Bessent, the assignee, who now has the fund, will pay (1) the Reynolds debt, (2) the sum of $500 on the debt of Sutton & Co., (3) he will, after paying costs and expenses and attorneys’ fees, pay the balance pro rata■ among Rose’s creditors, allowing Sutton & Co. to participate pro rata for that part of their debt in excess of $500. Judgment accordingly. Filed September 19, 1903, at 10:25 o’clock A. M. The plaintiff excepted to his Honor’s rulings of law, and assigned errors as follows: “ First, for that his Honor erred in that he held the deed of trust from' Rose to Bessent is not void except as to the alleged preferred creditor, Grogan. Second, for that his Honor, upon the facts found, failed to hold that the deed of trust to Bessent, trustee, was null and void as to' the plaintiffs Sutton & Co. Third, for that his Honor erred in failing to hold that after the payment of the Reynolds debt the plaintiffs were entitled to the whole fund in the hands of Bessent, trustee.” As between the plaintiffs and the creditor, Reynolds, upon the findings of his Honor, there could be no doubt that Reynolds is entitled to his money. The debt was not disputed, and it was secured by a lien upon the same property registered long before the debt of Sutton & Co. had any existence. Reynolds in his answer claimed the property or the proceeds of the sale of the property to the amount of his debt, and even if the deed of trust to Bbssent was void, for any reason, yet B'essent had taken the property as trustee and sold it, and had the proceeds of the sale in hand under the control and direction of the Court, and he was bound to return it to its owner, Reynolds. If, however, the debts mentioned in the deed of trust to Bessent are really preferred debts in the sense of the law, then the deed of trust would be void for the reason that Rose, the assignor, failed to file his schedule of those debts as is required by the act of 1893, and the balance [563] in tbe bands of Bessent, after paying tbe Reynolds debt, would belong to tbe plaintiffs, Sutton & Co., under tbe deed of trust made by Rose to Kinsey for tbeir benefit. But we think that tbe Reynolds and Grogan debts were not preferred debts in tbe proper sense of tbe term.. Tbe Reynolds debt bad a real preference through tbe deed of trust made by Rose in 1893, because of tbe fact that it was secured upon tbe same property embraced in tbe deed to Bessent and was referred to in the last-mentioned deed as being secured on tbe same property. If it bad not been secured on tbe same property, then it would have stood on an equal footing with other unsecured creditors of Rose, and it would have been necessary to have scheduled it under tbe statute. His Honor’s finding of fact in reference to tbe Grogan debt carried with it a conclusion of tbe law that it was void for want of consideration and was invalid. Tbe Bes-sent deed was in operation as to that claim, but, tbe others being valid, the deed is sustained as to them. Morris v. Pearson, 79 N. C., 253; 28 Am. Rep., 315. Bteoause of tbe illustration given by bis Honor in reference to tbe debt of Gro-gan, it is necessary to sa,y that tbe cases of Bank v. Gilmer, 116 N. C., 684, and Friedenwald v. Sparger, 128 N. C., 446, have not been overruled by this Court. Tbe illustration given by bis Honor was not in consonance with tbe law. Tbe judgment is Affirmed.