National Bank of Fredericksburg v. Conway

HUGHES, District Judge. There is no question here of actual fraud or of moral wrong-doing. The transaction of the 20th of July, 1S75, was between men of the highest character, socially and in their pecuniary dealings. There is but one question in the case, which is, whether the writing, signed and acknowledged on the 20th of July, 1S75, kept in the iron safe of Conway, Gordon & Garnett until the paper of Slaughter & Son had gone to protest on the loth of October, 1875, and on the afternoon of that day recorded, is valid under section 5128 of the Revised Statutes of the United States. This statute is not a statute of frauds, but of disabilities. It establishes a policy. It makes it against the policy of the law for men, knowing the insolvency of their debtors, to exact or take deeds of preference from them. State laws permit this, and indeed encourage it. But congress declares a different policy, and places failing debtors -in the same condition as to deeds, grants, and conveyances of preference, in which state laws place minors and femes covert as to contracts, and in which state laws place all adults who are in debt, but sui juris, as to deeds of gift. The word “fraud” occurs but once in this section 512S, and then not as implying moral or actual fraud, but only as implying a breach of the policy of the law just mentioned; the phrase in which the word occurs being “in fraud of the provisions of this act.” I have nothing to do, therefore, with fraud as a--crime, moral or legal. I have only to inquire whether the writing between M. Slaughter and Walter P. Conway, trustee, signed and acknowledged on the 20th of July, 1875, was in violation of the policy of section 512S, Rev. St., and therefore void. . . The question whether . this ■ writing was properly acknowledged or not, which was so ably and elaborately argued at bar, is only a seco’ndaiy one in the case. The primary question is, when did this writing become a deed as between the grantor ¡and grantee? The acknowledgment of the writing by the grantor had reference only to its being recorded, and thereby made valid as against- his creditors. If the question were only as to acknowledgment, I should decide, without hesitation, that it was properly acknowledged; for the teaching of the cases cited at bar seems to me plainly to be, that an interested person may take the acknowledgment of a deed when the act is merely ministerial; though if the act be judicial, such as taking the acknowledgment, after privy examination,' of a mai'-ried woman, an interested person cannot take it. Harkins v. Forsyth, 11 Leigh, 294; Carper v. McDowell, 5 Grat. 212; Horsley v. Garth. 2 Grat. 471; Taliaferro v. Pryor, 12 Grat. 277; Johnston v. Slater, 11 Grat. 321; Turner v. Stip, 1 Wash. [Va.] 319; Hampton v. Stevens [1871] 10 Am. Law Reg. 107; Boswell v. Flockheart, 8 Leigh, 364; Dimes v. Grand Junction Canal Co., 16 Eng. Law & Eq. 63. Though the acknowledgment of this writing of the 20th of July, 1875, were good, that fact might not invalidate the deed; for it has been recently decided, by the supreme court of the United States, in Sawyer v. Turpin, 91 U. S. 114, that the recording of a deed may be within the period of prohibition imposed by the bankrupt law, and yet the deed itself be good against an assignee in bankruptcy. if executed before the period. Were it necessary, I should hold that that decision does not govern this case. A clear distinction may be drawn between this case (relating to real estate) and that decided in Sawyer v. Turpin (relating to personalty), founded on the distinction between the respective laws of Massachusetts and Virginia relating to fraudulent conveyances. The law of Massachusetts, on which the decision in Sawyer v. Turpin was rendered, declares that mortgages of personal property shall not be valid against any other person than the parties thereto, unless, etc., etc., the- mortgage be recorded, etc. Whereas, the law of Virginia decláres that every deed of trust, conveying real estate or goods and chattels, shall be void as to creditors, until and except from the time it is duly recorded. The deed of Montgomery Slaughter, signed and acknowledged the 20th of July, 1S75 was void as to creditors, and was not a deed at all, until the 15th of October, 1875; and I doubt if the supreme court of the United States would hold that it took effect any earlier as to the assignee in bankruptcy representing the general creditors of the bankrupt. But, assuming that the decision in Sawyer v. Turpin governs this case, as to deeds which have become deeds between the parties to them, previously to the period of two months before bankruptcy, but recorded within that time, the further question is, when did this writing of. the 20th of July, 1S75, become a deed, good as between M. Slaughter and W. P. Conway, the parties to it? It cannot be claimed that this writing was, in the hands of W. P. Conway, until the 15th of October, 1875, an escrow; for, in strict law, an escrow is a deed delivered to a stranger, which is to become valid on the happening of some definite future contingency. From this writing having been delivered to the grantee by the grantor, and not to a stranger, it cannot be called, with technical accuracy, an escrow. But was it in truth and in law a deed, so delivered and so accepted, until the day it was recorded in the office of the corporation of Fredericksburg? This I assume, of course, to depend upon the understanding or contract as to it, which was had between M. Slaughter and "W. P. Conway, either tacitly or expressly, on the .day it was signed. The transaction of the 20th of July, 1875, is stated by Conway, Gordon & Garnett, in their answer, to have been “precisely similar” to numerous [1205] others that had preceded it for five or six years. These writings had never been treated as passing title, but as papers which might be treated as nullities after awhile and can-celled. No previous one of these writings had been recorded; no previous one had been treated as a deed of conveyance requiring release. All had been treated as writings that might become deeds in the option of- the trustee, or of the holders of the notes of M. Slaughter & Son. All of them had been held privately by W. P. Conway, and by him torn up and cancelled whenever he so elected to do. Now, the very question in this case is, whether the writing of the 20th of July, 1S75, signed and acknowledged by M. Slaughter, and delivered by him to W. P. Conway, with the understanding that it was to be cancelled on the payment of the notes which it secured, was intrusted to him in a way that made it a nullity from the beginning, except in ease of default; was intrusted to him in a way to pass no title and requiring no release except on default. I say the very question is, whether such writing was a deed, to be taken and treated, as a deed as of the 20th of July, 1875. Was it a deed at all until the 15th of October, 1875, when W. P. Conway elected to treat it as such? I see no reason and know of no precedent which requires a paper, in form a deed, but delivered upon condition that if is not to be treated as a deed passing title, except on the future election of the holder of it, to be held in law as an absolute deed from its date, contrary to the intention of both grantor and grantee in making it. In the case before me, the intention of both grantor and grantee was, that the deed was not only not to go upon record, to bind creditors, but was not to be a deed passing title, in such a way as to require a release of title, until the grantee should elect so to treat it. I do not think that a paper in form of a deed, which both parties to it agree is not to be treated as a deed except upon a future contingency, can become a deed until the happening of that contingency. I therefore hold that the paper which was signed and acknowledged by Slaughter, and accepted by Conway on the 20th of July, 1875, did not become a deed until Conway, on the 15th of October, elected to treat it as such, and put it ..upon record. Section 5128 makes void any '.conveyance which, directly or indirectly, absolutely or conditionally, creates a preference of one creditor over others within two months before the filing of the petition. As the deed in question was void by law as to creditors until the 15th of October, 3S75, and, as between parties, was a private, inchoate, de-feasible writing until that date, I think that it did not take the character of a deed of conveyance or pass any title until that date; and. therefore, that it falls within the inhibition of section 5128 of the Revised Statutes. I so decide; and will sign a decree in accordance with the prayer of the bill, declaring the deed of Slaughter to Conway void, and setting it aside. Prom that decree an appeal was taken, on the hearing of which the chief justice decided as follows: WAITE, Circuit Justice. The supreme court of the United States decided at its last term, in Sawyer v. Turpin [91 U. S. 114], that if a mortgage to secure a pre-existing debt was executed more than four months before the filing of a petition for the adjudication of the mortgagor a bankrupt, it would be good as against the assignee in bankruptcy when appointed, if recorded before his rights attached but within the four months. This case arose before the act of June 22, 1874 (18 Stat. 180), changing the time of the prohibited preference to a period within two months next preceding the filing of the petition, instead of four, as it originally stood. Upon the principle established in that case, this deed of trust is not invalid under the provision of section 35 of the bankrupt act as amended and enforced at the time of its execution. The deed was delivered to Conway when it was executed, and held by him as security for the notes it described. The testimony is clear upon this point. The failure to record previous deeds of the same character, their surrender for cancellation without a formal reconveyance after payment of the notes, and their acknowledgment before the defendant Garnett as a notary, are all circumstances proper for consideration when determining what the real character of this transaction was; but, in our opinion, they are not sufficient to overcome the positive testimony of all the parties to the effect that the delivery was complete, that the object on both sides was to secure the debts provided for, and that Conway, the trustee, was fully authorized to cause the record to be made whenever he or his beneficiaries thought it desirable to do so. The deed was good as between the parties without record, but until recorded it was void against creditors. Code Va. 1873, p. S97, c. 114. No deed can be admitted to record until proved or acknowledged in the manner provided for. Id. p. 905, § 117. A record without the requisite proof or acknowledgment does not affect creditors. A deed may be acknowledged by the grantor before a notary public, and, upon the certificate of the notary to that effect in proper form, recorded. The form of the certificate in this case is correct, but it is insisted that because Garnett, the notary, was interested as one of the beneficiaries in the trust, he was incompetent in law to receive and certify the acknowledgment. This presents the principal question in the case for our consideration. The law provides only for the acknowledgment of a deed before a notary public. It does not require, in express terms certainly, that he shall be disinterested. A notary public is an officer provided for by statute. He [1206] must give bond for the faithful performance of his-duties. Code Va. 1873, p. 903, c. 116. It has been frequently’ decided that an acknowledgment before a grantee named in a deed was of no effect Beaman v. Whitney, 20 Me. 413; Wilson v. Traer, 20 Iowa, 233; Stevens v. Hampton, 46 Mo. 404; Groesbeck v. Seeley, 13 Mich. 345. It has also been held that a party interested in a deed cannot take and certify the acknowledgment of a married woman requiring a privy examination. Withers v. Baird, 7 Watts, 228. The taking of such an acknowledgment is, m some respects, a judicial act, and not ministerial only, but in the case of an ordinary acknowledgment it is purely a ministerial act. Truman v. Lore’s Lessee, 14 Ohio St. 144; Lynch v. Livingston, 2 Seld. [6 N. Y.] 434. Upon this principle it was decided in Dussuame v. Burnett, 5 Iowa, 95, that an acknowledgment before one not a grantee named in the deed, but interested in the conveyance, was good. The same distinction was recognized in Stevens v. Hampton, before cited. In October last the judge of the Rockbridge circuit court of Virginia held, in the case of Lady v. Lady [unreported], pending before him, that a grantee named in a deed, though a trustee only, was incompetent to take the acknowledgment of a married woman, the grantor, which required a privy examination. An acknowledgment of that kind, it was said, was of such sanctity as to make it necessary for the officer taking it to be disinterested. The recording acts are intended for the security of titles and the prevention of frauds. They are to be construed liberally to that end. As the record, when made, is constructive notice to all having the legal right to rely upon it for protection, public policy requires that it shall import as near absolute verity as is consistent with a due regard to the rights of the parties interested. A deed acknowledged before one named as grantee, carries upon its face notice of that fact, or, what is equivalent, notice of circumstances sufficient to put a reasonable man upon inquiry. But when the name of the officer taking the acknowledgment does not appear as grantee, or as otherwise interested, no such notice or presumption accompanies the deed or its record. A certificate of acknowledgment is required to perfect a deed for record. The grantor can select such authorized officer for that purpose as he chooses. He has full power to protect himself against frauds by interested parties as certifying officers, for he may refuse to make his acknowledgment -before them. The question we have now before us is not whether as between these parties the certificate can be impeached, but whether it is sufficient in law to authorize the record. It states only facts. The deed was actually acknowledged before a notary public. A recorder receiving it in its present form, and not knowing that the certifying officer was interested in the conveyance, would certainly be justified in putting it on record. The deed itself did not carry notice to him of the supposed disqualification any more than it did to others. It was no part of his duty to detect the secret interest of the certifying officer. If the instrument was apparently sufficient in form, he had nothing to do but to receive and record it. All this the grantor knew, or ought to have known. Every man is held responsible for the necessary consequences of his own voluntary acts. This is a familiar rule, and as old as thé principles of common honesty. A grantor acknowledges a deed for the purpose of putting it in a condition for record. The object of the record is to give public notice of what had been done with the property. The public are expected to examine and act upon this evidence. Having voluntarily acknowledged and delivered his deed, the grantor is presumed to have voluntarily consented to its record. He must, therefore, be charged with all the legitimate consequences of such an act. If his deed is found on record, apparently executed according to the forms of law, and without any circumstances of suspicion against it, the plainest principles of equity would hold him estopped from setting up an undisclosed interest of the officer before whom he made his acknowledgment, to defeat his conveyance, as against an innocent purchaser relying upon the record as the evidence of his title. But this defence would be open to him if his acknowledgment were actually void.- Void acts are as no acts; they bind no one. Voidable acts are good until avoided, and they cannot be avoided as against rights actually vested under them. As against the grantee, a deed is as much voidable after record as before. So far as he is concerned, the effect of the record is only to change the burden of proof, to some extent, from him to the grantor. After a record duly made, the law presumes that all has been done which is necessary, to give the instrument validity, but this presumption may always be rebutted as against the grantee. And as against third parties, it may be shown that a deed was never signed, sealed, or delivered. Clearly, therefore, it is against the policy of the recording acts to hold an acknowledgment void because of the secret interest of an officer taking and certifying it. The effort should be to prevent rather than allow hidden defects in the evidence of public records. If voidable only, it is sufficient to authorize the record, if not previously avoided. So, too, as has been seen, it may be avoided at any time after record and before the rights of third parties have attached. This, as it seems to us, furnishes the grantor with all the protection he has the right to demand as against the consequences of his own acts, and at the same time leaves to the recording acts their legitimate power and effect. We conclude. therefore, that the acknowledgment in this ease before Garnett was sufficient to au [1207] thorize the record of the deed to Conway. The acknowledgment may, however, as between these parties, be avoided for fraud if established. But there is no proof of fraud. On the contrary, all parties agree that the acknowledgment was freely and fairly made in the belief that it was in all respects sufficient to vest the title in the trustee for the purposes specified. The decree of the district court annulling the deed is therefore reversed; but inasmuch as the trustee named in the deed is interested in the debt secured by the trust, the sale advertised by him should be enjoined, and another trustee appointed to execute the trust in that behalf. A decree may be prepared in accordance with this opinion.