The premises in dispute had belonged to The Clarendon Iron Works Company, a corporation existing by virtue of certain letters patent dated 26 September, 1854, issued by the Governor, under the provisions of the act of the General Assembly, entitled "An act to encourage the investment of capital for mining and agricultural purposes," ratified 22 December, 1852.
The capital stock of the company was $300,000, and the corporators were Adrian H. Van Bokkelen, Robert B. Drane, Alexander MacRae, and the defendants Parsley and Latimer. The plaintiff gave in evidence a deed from the sheriff of New Hanover to the lessor of the plaintiff, for the premises sued for, dated 14 March, 1857, and made by virtue of a levy and sale under certain executions against the said company, issued on judgments against said company at June Term, 1856, of New Hanover County Court. These judgments, amounting to $11,000 or $12,000, were founded upon debts owing by said company, and upon which suits were pending at and before the making of the assignment hereinafter referred to, all of which debts were included in the fourth class of debts in the deed of assignment. Upon these judgments, or some of them, executions were issued, returnable to September Term, 1856, alias executions to December Term, and pluries executions to March Term, 1857, under which last the lessor of the plaintiff purchased at the price of $5,000. *Page 243
The defendant then gave in evidence a deed of assignment (314) from the said company to Levi A. Hart for the premises sued for, dated 6th of June, and proved and registered on the same day. The defendants then produced a deed from the said Levi A. Hart to themselves, dated in December, 1856.
It was admitted on the part of the defendants that of the capital stock of the said company only $50,000 had been called for or paid in, and it was admitted by the plaintiff that all of the debts of the company set forth in the deed of assignment were just.
It was in evidence that the trustee, Hart, on 19 September, 1856, caused to be inserted in the two daily papers published in Wilmington an advertisement for the sale of the premises sued for, by public auction, on 12 November, 1856, which advertisement was continued from day to day in said papers up to 12 November, 1856, when the said premises were sold upon the terms set forth in the deed of assignment, and the defendants became the purchasers of the sum of $28,000, and having complied with the terms of sale, received from the trustee, Hart, the deed above referred to. And it was also in evidence that of the capital stock of the company. A. H. Van Bokkelen had subscribed for $192,000, and paid in $32,000; R. B. Drane had subscribed for $30,000, and paid in $5,000; Alexander MacRae had subscribed for $18,000, and paid in $3,000; and each of the defendants had subscribed for $30,000, and paid in $5,000; that at and before the organization of the company the corporators had agreed among themselves that they would commence their operations in manufacturing under the letters patent upon a capital of $50,000, and that no greater amount of the capital stock should be called for without the assent of all the corporators, as the business being new, they did not know how far it might prove profitable; and if, upon trial, they should find it did prove profitable, they could then increase it if they chose, without the necessity of taking out new letters patent; that the business of the company was the manufacturing of iron machines and machinery, and almost all kinds of iron manufactures; that the business of the company, after it had been conducted for some (315) time, six or eight months, proved to be unprofitable, and the corporators wished to stop the business and sell out their shops and machinery, which had cost them $50,000, and advertised them for sale in the cities of New York, Philadelphia, Baltimore, and other places in the United States; and the president of the company made a visit to the northern cities to look for purchasers, but failed to find one; that in conformity to the advertisements referred to, the premises used for, and in addition thereto the machinery and tools of the establishment, among which were two large lathes, which cost $3,000, were offered for sale at public auction in the town of Wilmington on 18 April, 1856, *Page 244 upon the following terms, to wit, $7,500 cash, $7,500 at ninety days, $7,500 at six months, and the balance at nine, twelve, eighteen, and twenty-one months.
At this sale the highest bona fide bid was under $23,000. The corporators were willing to take $30,000, but at a meeting which they had the evening before the sale it was stated that certain parties might be willing to give more than $30,000; whereupon it was agreed that Parsley and Van Bokkelen, two of the corporators, should run the property up to that sum, and accordingly on the next day they continued to bid against each other after the price of $23,000 was reached, until they ran it up to $39,000, at which price it was knocked off to one of them; and Mr. Van Bokkelen stated in his evidence that this was done to prevent the price of the property from being injured in the market; that efforts for the sale of property were continued until the date of the deed of assignment; that the said deed conveyed all the property of the company which could be reached by an execution, and also all the debts due to the company; that the usual terms of sale of valuable real estate in Wilmington, in 1856, were upon a credit of one, two, and three years, with interest from date, and the more valuable the property, the longer the credit; that the premises in dispute would not have sold for more than $15,000 or $16,000 at a cash sale; that they were unfit for (316) any other purposes than those for which they were constructed, and could not be used for any other purpose without an expenditure of much money; that the provision in the deed of assignment authorizing the assignee to make a private sale of the premises before the first of November, 1856, upon such terms as might be agreed on by all the corporators, was inserted in the deed because the corporators were unwilling to leave the price to the sole discretion of the trustee at private sale; they wanted the property sold for a fair price, and to that end they wished to be consulted, and to exercise their own discretion; that the corporators, at and before the making of the assignment, had full and frequent conferences with their counsel in reference to the making thereof, and were fully advised that they were individually liable to the creditors of the company to the extent of the balance uncalled for and unpaid on their respective subscriptions to the capital stock of the company; that their object, as stated to their counsel, in making the assignment was that they considered certain of their creditors more meritorious than the rest, and wished to prefer them in the order afterwards set forth in the deed, and also because they wished to make the property bring a fair price and prevent it from being sacrificed; that they were advised by their counsel that they had the right to make an assignment of the property and estate of the company for the benefit of the creditors of the company, and that the provisions of this deed *Page 245 were submitted to their counsel, and they were advised by him that there could be no objection to them; that they were fair and reasonable, and creditors could have no objection to them; that the debts referred to and set forth in the assignment embraced all the debts due by the corporation, except possible some small bills which were not remembered; that the property and estate conveyed by the deed of assignment were, at the time of its execution, supposed to be worth more than the debts due by the company, but from bad debts and other causes the trustee had failed to realize enough to pay all the debts; that the defendants, at the time of their subscription and at any time since, could have raised $30,000 each, the amount of their subscription; that Van Bokkelen, (317) at the time of his subscription, supposed himself to be worth $100,000, but became insolvent in the fall of 1855; that Robert B. Drane was always a man of very moderate means, and that Alexander MacRae, though possessed in June, 1856, of a considerable property, was thought to be considerably involved by reason of a large railroad contract in Florida, which afterwards turned out profitable; that the company had not filed in the office of the clerk of New Hanover County Court any exhibit of its receipts and disbursements and liabilities and credits; that at the sale by the sheriff, when the lessor of the plaintiff purchased, the defendant Parsley was present and forbade the sale, and that one Cassidy, at that sale, bid several thousand dollars as the agent of the defendants, said Parsley having requested him to bid, stating that his object in bidding was to save any lawsuit about the property, if possible.
The judge charged the jury that, taking the whole of the evidence in the case together, written and unwritten, there was a presumption of fraud, and that there was no sufficient evidence to rebut that presumption; and that if the jury should find the facts according to the evidence, written and unwritten, then the law pronounced the deed fraudulent, and the plaintiff would be entitled to their verdict. Defendants excepted.
Verdict for plaintiff. Judgment. Appeal by defendants. The effect of every deed of trust like that under consideration is "to hinder and delay" creditors, because it deprives them of a direct and prompt mode of collecting their debts by fieri facias and sheriff's sale.
A debtor, at any time before his creditors obtain a lien, has a right to make a preference in favor of some to the exclusion of others.
In order to reconcile these two conflicting rights, the law, as established by the adjudications of our courts, allows a debtor (318) *Page 246 who is in failing circumstances to make a deed of trust, and will not impute to him an intent to defraud, provided he does so with a single eye to the exercise of his right to make a preference and without any purpose, either directly or indirectly, to secure to himself any benefit or advantage. Palmer v. Giles (in equity, decided at this term), 58 N.C. 75. But to entitle himself to this indulgence he must see to it that there is no sinister design, with a view to his own interest.
To rid our case of any unnecessary complication, we concede, at the outset, the position assumed by the counsel of the defendant, i. e., a corporation has the same right to make a deed of trust that an individual has, and in making this concession we assume that it follows that a corporation, in the exercise of this right, is subject to the same limitations and restrictions as when it is exercised by an individual. It is unnecessary to refer to the many authorities cited on the argument; such is the conclusion fairly to be deduced from them.
Suppose one, with ample resources to pay all his debts (with money enough in bank, if you please), some ten days before a creditor obtains judgment, should make a deed conveying all of his property which is subject to execution to a trustee for the payment of all his creditors, arranged in classes, one, two, three, four, would this deed be made with a single eye to the exercise of his right of making a preference among creditors? That is the question. Certainly not, for there was no occasion to make a preference, as he was able to pay all; so there could be no doubt his object was to secure an advantage for himself; he wished to have the privilege of paying his debts when it suited him, and to use his money for other purposes; he did not choose to have his property sacrificed at sheriff's sale, but intended to sell upon his own terms, and for that purpose he put his property out of the reach of an execution. It follows, there is nothing to relieve the deed from the imputation of being made with a fraudulent intent. This conclusion is so (319) palpable that a mere statement is the only argument that can be made about it.
Such is the case now before us for consideration. Besides the land, buildings, machinery, and debts due, The Clarendon Iron Works Company had a fund of $250,000, unpaid stock, from which it could, by a call upon the shareholders, have realized an amount which, in addition to its resources above set out, would have been much more than enough to pay off all its liabilities. Admit that Van Bokkelen had failed, and could answer the call to the amount of the debt due him; that MacRae was not, at the time, reliable; that but little could have been paid in by Drane: there were the defendants, Parsley and Latimer, bound for $25,000 each, and amply able to pay. So the purpose of the deed of trust, was not to prefer creditors, but to hold them off, at arms length, until *Page 247 the property could be disposed of and the other resources of the company be made available, and in that way secure a benefit to the shareholders by not calling on them for the portion of their subscription remaining unpaid! thus perverting an indulgence which the law extends to debtors, under certain circumstances, and making it a pretext in order to effect an object for the benefit of the debtor, which the law cannot tolerate. The debts were due; it was the duty of the company to pay them, and, although the creditors were at liberty to give further time, the debtor had no right to exact it in the manner attempted. The conclusion that a deed of trust made by a corporation, or an individual, for the purpose of gaining time, at the expense of creditors, in order to dispose of property to advantage, and prevent a sacrifice by a sale for cash, when the company or individual has the means and resources from which enough might be realized to pay all of the debts, is fraudulent and void as against creditors, is clearly deducible from principle, and we are glad to find, upon examination of the authorities, that it is fully supported by them. See Burrill on Assignments, (2 Ed., Pages 38, 39, and 40, where the cases are collected and referred to; Planck v. Schermerhorn, 3 Barbour Ch., 644; Ogden v. Peters, 15 Barbour, 560, and many others, all to the same effect. For the purpose of rebutting the imputation (320) of fraud, the defendants, on the trial below, and in the argument before us, relied on the fact that the corporators had agreed among themselves, as the business was new, to commence operations on $50,000, and if, upon trial, it proved profitable, other portions of the subscription could be called for. If the company had confined its operations within this limit, it would have been well enough; but, unfortunately, the agreement was not observed, for the operations were extended oncredit to a large amount, based on its unpaid stock; and when a creditor called for payment, it was no answer to tell him, "We had agreed among ourselves to make a trial on $50,000." The reply is, "True; but that was not done, and honesty requires that you should meet this extended credit by calling for unpaid subscriptions to an amount sufficient to pay your debts." An individual, under such circumstances, would hardly have the face to say to a creditor, "When I commenced this business, I determined with myself, as it is new, only to trade on a limited sum; true, I stretched my credit, but I do not feel bound to resort to my other resources to meet your debt, so you must wait until I can see what can be done for you out of the sum appropriated to the business!"
In Palmer v. Giles, 58 N.C. 75, the fraud was apparent on the face of the deed, and the jury had nothing to do with it; in this case it was necessary for the jury to find the facts upon which the law pronounced the deed to be fraudulent; but, notwithstanding that difference, the principle involved is the same, and the Court concurs with his Honor in *Page 248 the conclusion that, if the evidence was believed, there was a presumption of fraud, and there was no evidence to rebut it; and we also approve of the "fair and square manner" in which his Honor met the point, and submitted the case to the jury; for in cases where, as in this, there was no actual fraud, and the deed is void against the creditors only by intendment of law, upon the facts disclosed by the evidence, the due administration of justice requires that the judge should "take the responsibility" of announcing the law in a manner so plain and (321) direct that juries cannot misunderstand the instructions.
PER CURIAM. No error.
Cited: Winchester v. Reid, 53 N.C. 380; Cheatham v. Hawkins, 76 N.C. 338;Boone v. Hardie, 83 N.C. 475.