Farnsworth v. Doom

Opinion op the coubt by JUDGE O’REAR Affirming. In 1862 Lewis & Mnrpliy, a co-partnership composed' of William F. Lewis and F. G. Murphy, made to A. G. Nall a general deed of assignment of all their property for the benefit of all their -creditors, conditioned (1) for the payment of the expenses of the trust; (2) for such specialties [796] as bad legal priority; and (3) the residue to general creditors pro rata. No reversion of surplus is provided for in express terms. Nall accepted the trust, and took possession of the assignors’ estate, including the land in controversy- — a lot of about 26 acres situated in Nelson county. The trustee instituted an action in the- Nelson Circuit Court soon thereafter to settle his trust. Debts of more than $30,000 were shown, and assets of about $4,000. Two distributions among creditors- are shown, aggregating about 14 per cent, of their claims. Then, in 1866, appears an order striking the -case from- the docket. The lot in controversy, of no great value, was not disposed of by the assignee. He died some years- ago without reconvey-ing it to the assignors, and without having conveyed it to any one. In the meantime both the assignors died intestate, and appellees are their heirs at law. In 1892 appellant, finding no one in possession — the lot having been apparently abandoned for many years' — took possession of it and fenced it. Appellees brought this suit to recover the possession.. Appellant defended on the sole ground that, the title to the land having been conveyed by Lewis & Murphy, their heirs had no claim, and consequently they should not recover it. He makes no question of Lewis & Murphy’s title before the execution of the deed of assignment to Nall. The circuit court adjudged the land to the heirs of the assignors. Appellant, in seeking a reversal, argues that the legal title to the land was- -conveyed to Nall, and is now in his heirs for the benefit of the -creditors of Lewis & Murphy; that, in any event, Lewis & Murphy conveyed the legal, or, as they termed it, the “fee-simple,” title to Nall, and made no provision for a reversion in any event; and thatj as it is shown that all debts- -are not paid in full, they [797] can not have any part of tlie assigned estate. In Ely v. Hair, 55 Ky., 240, objection was made by debtors to a deed of assignment for benefit of creditors because it expressly stipulated that, in the event of surplus after payment of debts, it should be paid over to 'the grantors. It was contended that such a reservation made the deed void in law. Said the court: "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.” The court further held in that case that the making of a deed of trust by a debtor and the making of a mortgage left in him the same estate in the property. In the first instance he merely created a lien for all or a specific number of creditors; in the other, for one only. In each it would require the intervention of a court of equity, or the further conveyance of the grantor, to devest him of the title. In Lyons v. Field, 56 Ky., 549, the court, further treating of this same subject (that is, the estate created by a deed of trust for creditors), said: "It was attempted, in the argument of the case, to draw a distinction between a deed of trust made to pay debts and one made to secure the payment of debts. There is not, however, any substantial difference between them. The object is the same (that is; that the property conveyed shall be applied to the payment of the grantor’s debts); and in either case he has the right to pay the debts, and thereby remove the incumbrance. In equity, the property conveyed, subject to the incumbrance on it created by the deed of trust, belongs to the grantor. Whatever remains [798] after the debts are paid belongs to him- — not, as is> contended, because he becomes a beneficiary to that extent under the deed, but because he is the owner of the property, and has comveyed it in trust for a special object, which being accomplished determines the trust, and by operation of law reinvests him with an equitable right to the residue of the property.” It being clear, then, that the grantor ini the deed owns the property, but has created an encumbrance upon it, how can this incumbrance be discharged, save by payment? Assuredly a composition by the debtor with all his creditors would satisfy the conditions of the trust, and reinvest him with the full title to his property. The deed of assignment being merely a lien or incumbrance to secure the payment of debts, the creditor must avail himself of the provisions of the law to enforce the payment. He must prove and present his demands to the assignee or the court for allowance, and seek to avail himself of the assignee’s or other creditor’s proceeding to marshal the assets and liabilities of the debtor for application under the deed. If he should fail to do this, he would manifestly lose his title or interest in the trust estate. Whether limitation will serve to discharge the debtor of his liability to creditors next arises. There, of course, is no question but he would be personally discharged at the time fixed by statute. But as to the trust it is said in Burrill, Assignm., 727: “Sometimes the trust will be considered a,s closed by lapse of time. As a general rule of equity, an assignee in trust can not set up the statute of limitations against his cestui que trust, such direct trusts not being within the statute. The possession of the trust fund in the hands of the trustee or assignee is the possession of the cestiú que trust for creditors, and is not held [799] adversely to them. But alter twenty years the law presumes the debts paid and the trust executed, so far as respects creditors.” In Pennsylvania the doctrine seems to be well settled that a trust results in favor of the assignor by operation of law as soon as debts are satisfied and that a legal presumption of payment of debts arises after t.wenty years. Ross v. McJunkin, 14 Serg. & R., 369; Webb v. Dean, 21 Pa. St., 32; Drysdale’s Appeal, 14 Pa. St., 534. And in the later case of Ralston’s Appeal, 169 Pa. St., 254, (32 Atl., 454), it is held that the personal representatives of the assignor a,re entitled, in preference to creditors, to undistributed and unclaimed dividends, consisting of a fund in the hands of the assignee, after twenty-one years. If, instead of appellant, Nall were in possession of the lot, his assignors, or their heirs at law, could compel restitution to them of its title and possession; for, if the lapse of time had discharged him and them from all liability to the creditors provided for in the deed, the trust is executed, and the assignors are entitled thereupon to be repossessed of their property. This being true, it follows that the existence of the deed of trust in this case made in 1862 was no hindrance to ap-pellees’ right of entry; and, the circuit court having so adjudged, its judgment is affirmed.