Greene v. A. & W. Sprague Manufacturing Co.

Carpenter, J.

When this case was before us on a demurrer it appeared that the Franklin Institution for Savings was a non-assenting creditor. It now appears that on the 15th daj- of April, 1874, the treasurer of that institution, being authorized so to do by a vote of-the board of trustees, and also by a vote of the standing committee, received from Chafee, the trustee, the new notes of the A. & W. Sprague Manufacturing Company for the full amount of their claims as collateral thereto, pursuant to the votes and upon the terms expressed in the trust deed. The institution then and thereby assented to the deed, unless such action was illegal for some of the reasons urged by the plaintiff’s counsel.

The first is that the votes of the trustees and of the standing committee authorizing such assent were illegal, for the reason that the board of trustees and the standing committee were not legally constituted.

It is hardly necessary to examine the proceedings with a view to ascertain whether they are technically legal or not, because the proceedings clearly show that the trustees and the standing committee were in fact the only persons who could, act, or who pretended to act, for the institution. They were clearly officers de facto, and their acts were binding upon the institution so far as other parties are concerned. Upon this point we entertain no doubt.

The objection to the application of this principle on the ground that the extension of credit was without consideration, is not well founded. It was not a mere naked extension. By it the institution was brought within the terms of the mortgage deed and was in a condition to participate in the security. That of itself is a sufficient consideration.

But a valuable consideration is not necessary. The acceptance of the trust deed by the savings bank presumably influenced the other creditors to accept it. So far as any considerable number of creditors refused to accept the deed and thus placed themselves in a position of hostility to it and became interested in setting it aside, it would constitute a serious objection to the acceptance of the deed *360by the others, and each addition to the number who accepted it would become a consideration with the others for accepting it. When therefore one creditor had accepted the deed and therebj^ induced others to do it, he could not be permitted to revoke or nullify his acceptance on the ground that there was no consideration for his act. The savings bank in this case could not set up against the other creditors who accepted the deed, either the want of consideration, or irregularity of the appointment of its board of trustees.

But various reasons are urged why the assent should not operate to prevent the plaintiff from impeaching the deed to which the corporation was a party.

1. It is objected that the trustees had no power or authority to do what they assumed and undertook to do in the then condition of the bank; that the institution was a mere naked trustee for the depositors, having no beneficial interest in the property; that the depositors were the creditors of the corporation and cestuis que-trust; that the corporation was in fact insolvent; that the conveyance of the Sprague property to Chafee was a scheme to postpone creditors; and that under the circumstances an assent to it by the corporation was in violation of the trust.

On the assumption that the Sprague notes and acceptances could not be collected, the corporation was in fact insolvent. But they were then supposed to be collectible inside a period of three years ; that the corporation would continue its business and be able to pay dividends; that at most the embarrassment was temporary; and that they would ultimately be able to pay all the depositors in full.

In that condition of things it was undoubtedly the duty of the trustees, in the exercise of a sound discretion, to do all that could be done to protect the interests of the depositors. Acting upon the light they had, they deemed it best to accept the provisions of the trust deed, and avail themselves of such payments as the trustee might be able to make. They may have misjudged, their action may have been unwise, but we cannot say that it was a gross breach *361of trust, so much so as to raise a presumption of fraud. On the contrarjr, as the courts of that state have since determined that the deed was not fraudulent, a contrary course might have been open to severe criticism if not censure. They were charged with the duty of managing the affairs of this embarrassed institution, of caring for its assets and collecting its notes and securities. They are not to be judged- wholly by subsequent events. If they acted in good faith, without negligence, and according to their best judgment, we cannot say that their acts were unauthorized. We are not satisfied that they did not believe, and did not have good reason to believe, that what they did was for the best interests of the depositors.

It is to be considered that, though the institution was embarrassed and had suspended payment, and its condition had been made the subject of an investigation and report by a committee appointed by the governor of the state, yet the trustees were the sole persons who represented the institution and had any power to act. A receiver had not yet been appointed. The whole responsibility as well as power rested with them. The condition of the bank had no effect upon their rights and duties beyond its presenting a reason for cautious and well-considered action. The question before the trustees was wholly a prudential one, and not at all one of power.

2. But it is said that the receiver, who represents the depositors, may repudiate the action of the trustees, and that their assent is not binding on him.

The receiver for most purposes represents and stands in the place of the corporation, and can enforce only such contracts and rights as it could enforce. But when acts have been done by the corporation in violation of law and in fraud of the creditors, the receiver, who for all beneficial interests connected with the trust is regarded as the representative of the creditors, may repudiate their acts, taking care, however, that third parties who are without fault do not suffer. Such cases, however, are exceptions to a general rule, and it should clearly appear that the case is within the *362exception. It does not so appear. Acts of this character are to be judged mainly from a cotemporaneous standpoint and not altogether by results. When men of character and intelligence and of acknowledged financial ability, aided by the advice of distinguished and learned counsel, deal with questions of this character, courts should be slow to condemn them. Such men* acting under a sense of their responsibility, and with due regard to their own interests, are not likely to act in violation of law or in fraud of others. We must require stronger reasons than exist in this case before deciding that they have so acted.

Upon- the question whether the trustees were assenting to a fraudulent deed, there is this further to be said. The Supreme Court of Rhode Island has since holden that the deed was not fraudulent, but valid. If it was so when the court so decided, it was so when the trustees accepted it. There can therefore be no invalidity in their action on the ground that they were accepting a fraudulent deed.

But it is said that the deed is fraudulent under Connecticut law, and so of no validity to carry real estate here. If that be so, it does' not affect the question we are considering, which is the validity of the action of the trustees in accepting the deed. The transaction being in the state of Rhode Island, where all parties resided, from whose laws the trustees received their power, and to -whose laws they were responsible, the sole question for them to consider was the validity of the deed there, and not its validity in every other state where there might be property of the mortgagors that the deed assumed to convey.

In Connecticut the question can be raised -of the sufficiency of the deed to carry the title to land here; but whatever question is thus raised stands wholly outside of and unaffected by any question as to the validity of the action of the trustees in accepting the deed. That question is governed by the laws of Rhode Island, and does not sway from one. side to the other with the differing laws of the different states where portions of the property mortgaged may happen to be situated.

*3638. The plaintiff says:—“ The receiver is at liberty to repudiate the assent because it was given by°the trustees under a mistake of fact. The trust deed purported to convey the Sprague property in Connecticut, whereas in fact it did not do so for want of description.” This objection fails, because, as we shall presently see, the deed was not void as to the Connecticut property, but was valid as to the assenting creditors.

4. The plaintiff also says:—“ The trustees assented to give time according to the terms of the trust deed and notes,• that is to say, they assented to what appeared on the face of the papers, and to that only. It appears from the finding of facts in the case that the deeds were merely a part of a fraudulent scheme between Chafee and the Spragues, designed not merely to carry out the provisions of the trust deed, but also to preserve the property in their possession, control and use, until they should be able to pay their creditors in full and have a surplus left for themselves.”

The authorities cited in support of this proposition are cases where there "was actual fraud, and the party claimed to be estopped was ignorant of the facts constituting the fraud. In this case the finding of fraud is in the following language:—“The said A. & W. Sprague Manufacturing Company executed the said trust mortgage deed with the intent and design to hinder and delay their creditors in the collection of their claims, by placing their property beyond the reach of ordinary civil process, and with the view of preserving said property in their control, possession and use, preventing shrinkage and loss, and continuing their manufacturing business by. and through the said Chafee, as trustee, until they should be able to pay their creditors in full and have left a surplus for themselves. And the said Chafee well understood that such were the intention, design and views of the said company at the time he accepted the trusts created by said deed.” And the same finding is applied to the assignment. How it is obvious that the fraud consisted in postponing creditors, by placing the property beyond the reach of civil process, and for the purpose of *364enabling tbe debtors ultimately to pay their debts in full, with interest, which they could not then do. There was no actual intent or desire to wrong any one. On the contrary, the transaction in fact contemplated an advantage to the creditors.

The real character of the transaction was apparent on the face of the papers. There were no extrinsic facts bearing upon the question of fraud except such as were apparent and known by all concerned. There was no attempt to deceive or mislead the trustees, and there is no pretense that they were in fact deceived or misled. In the cases referred to it seems to have been otherwise; there were facts of a fraudulent character of which the parties were ignorant. But the trustees knew that the acceptance of the deeds involved delay, but they, and all the other assenting creditors, doubtless believed that it would be better for them in the end.

The finding of fraud is evidently a legal conclusion, mainly from the fact that the deeds were calculated to hinder and delay creditors, and that only as to non-assenting creditors. Manifestly there is no fraud affecting the assenting creditors. As to them the transaction was open handed, no fact or circumstance of a fraudulent nature being concealed or withheld from them. Characterizing it as a “fraudulent scheme” does not change the nature of the real facts. The Supreme Court of Rhode Island, as we have before remarked, does not pronounce the transaction even legally fraudulent. How can it be said that a different view entertained by the courts of this state relieves the plaintiff of the consequences of the assent? We fail to see anything in this objection that destroys the force of the assent.

5. Again, the plaintiff says :—“ Assent to an assignment is coupled with the implied condition that other creditors shall agree. The hands of one creditor cannot be tied by acquiescence, while all the rest are léft at liberty to prosecute their legal rights.”

This principle applies when the object is.a composition *365with all the creditors, or where there is a trust deed for the benefit only of certain specified creditors; but where, as in this case, the trust deed in terms is for the benefit only of such creditors as should accept, its provisions, it contemplates the probability that some creditors will not accept, and the principle has no application.

A similar claim is made in another part of the brief, which we will notice in this connection. The counsel say: —“ If by reason of the dissent of any creditor the trusts can be broken or the estate trenched upon, so that those who assent cannot get the benefit of the whole estate according to the deeds, then one who has assented is equitably entitled to be absolved of the assent he gave, and to treat his assent as null and void.” If this is so it practically obliterates in all cases the distinction between assenting and non-assenting creditors. But it cannot be so in a case like this, where the conveyance is in terms for the exclusive benefit of those who assent. What will be the consequences if a non-assenting creditor succeeds in setting aside this conveyance is a question we will not anticipate.

6. The proposition that the plaintiff is absolved from all obligation growing out of the assent, by the non-payment of the notes within three years, is not sound. In ordinary cases it is doubtless true that if a creditor gives time, and the debt is not paid within the extension, suit may be brought. But where an extension is accompanied by an extension by nearly all the other creditors, and, as a part of the transaction, all the debtor’s property is placed in the hands of a trustee for the benefit of such creditors, then, if the debts are not paid, while each creditor may perhaps sue and have a judgment against the debtor, yet he will not be permitted to attach the trust property and thereby have an advantage over the other creditors. He has cast in his lot with them, and must with them abide the result.

7. The plaintiff further says:—“ If without consideration the creditor says the transfer may stand, and the grantor does not act upon the statement in a manner different from what he would otherwise have done, or, if the circumstances *366are such that he can retract what he has said without prejudice to the grantors, he may still assail it.”

The principle involved in this discussion is not the ordinary doctrine of estoppel; it has a broader significance. It is not merely the question whether a party is to be estopped from denying or proving a thing because he has by his conduct misled another, but it is whether a party who has derived a benefit from his act may afterwards repudiate it and thereby escape any unpleasant consequences. The corporation did receive quite a sum of money from the trust fund as the direct result of their assent to the deed. .Now when that assent stands in the way of the receiver’s collecting the whole demand from another portion of the trust-property, he can hardly expect to be permitted to repudiate the assent on the ground that the debtor had not been misled or prejudiced-. The question does not so much concern the grantors as it does the large number of creditors. Moreover there is a principle of public policy involved that a party will not be permitted to impeach, for fraud, a deed to which he has voluntarily and knowingly become a party.

Our conclusion, therefore, is that not only the corporation but the receiver, is bound by the assent to the deed.

The plaintiff’s counsel suggest, rather than seriously argue, that the bank assented to the deed but did not assent to the assignment; and that the-plaintiff is how at liberty to impeach the latter and set it aside for fraud. If that is so, still the deed must stand and the plaintiff can only avail himself of the equity of redemption. We cannot see that that will be of any practical value to him.

But his position is hardly tenable. The mortgage deed was executed in November, 1873. On the 6th day of April, 1874-, the mortgagors assigned or released to the mortgagee the equity of redemption, which carried with it, of course, the right which was expressly reserved in the mortgage deed to “ the possession and use of said granted premises.”

The two conveyances vested the whole title in the trustee. The mortgage deed, however, was the principal thing; *367the equity of redemption was of nominal value only, and was, in some sense, a mere incident.

After these two conveyances were made the trustees of the bank voted, “that the standing committee be authorized to exchange the Spragues’ liabilities for the new notes of the A. & W. Sprague Manufacturing Company, indorsed by A. & W. Sprague, on the terms proposed in the trust deed to Z. Chafee.” The standing committee authorized the.treasurer to receive the new mortgage notes, and he did so on the terms and conditions contained in the mortgage deed. But there is nothing in the transaction expressly limiting its effect to that deed. The assignment, so far as it had any effect at-all, was beneficial to. the trust estate.

In accepting an interest in the trust • estate, in its then condition, we must presume that the bank intended to accept it as it was. ' There is no room for an assumption that it intended to accept the mortgage and repudiate the release of the equity of redemption. The trust estate was one entire thing; and the bank accepted it in its entirety. In doing so, it necessarily assented to the assignment as well as the mortgage.

We assent to the proposition that there can be no presumption in aid of a deed which the statute prohibits, or which the law for any cause must pronounce void. But a distinction is to be observed in this regard between deeds which are void and deeds which are voidable merely. No presumption will give effect to the former, while it may to the latter. This assignment at most was voidable only. No statute of Rhode Island prohibits it, and the law of that state does not declare it void.; indeed, it is questionable whether in that state it can be regarded as voidable even. But assuming that it can, we see no reason why the ordinary presumption that an acceptance will be presumed when a deed is beneficial to the grantee, does not apply. It is hardly necessary, however, to resort to presumptions, for, as we interpret the votes of the trustees and the standing committee and the action of the treasurer, they amount to an intentional actual acceptance of the assignment.

*368We come now to consider the question whether these conveyances are inoperative as to the property in Connecticut for want of a proper description. In discussing this question we shall take no notice of the distinction between the mortgage and the assignment, but shall treat both conveyances as standing upon the same footing.

In another part of the brief and for another purpose, the plaintiff’s counsel say that the savings bank accepted the trust deed in the belief that it conveyed to the trustee the Connecticut property. We have no doubt that this is true, and that every other creditor accepted it in the same belief. That the grantors intended to convey that property, and that the trustee supposed that it was conveyed, there can be no manner of doubt. In that respect this case is distinguishable from the case of Herman v. Deming, 44 Conn., 124. In that case the land in question was a wood lot which belonged to the wife of one of the parties who had signed the mortgage deed with her husband for the purpose of creating a lien on another piece of property which she owned and which was particularly described, and which, it may be presumed the contract between the parties called for. But there was no evidence that the wood lot was in the minds of the parties, or regarded as at all material or intended to be embraced in the mortgage, except the fact that after describing several pieces of land belonging to the different grantors, the mortgage deed contains these words :—“ Also all such other lands as we the grantors, or either of us, own or have any interest in, situate in said town of Canaan; reference being at all times had to the land records of said Canaan and to the probate records for the district of Sharon for more particular description of the same.”

The present case more nearly resembles the case of Cake v. Peet, 49 Conn., 501, where it was shown, aliunde, that the parties intended by such general words to embrace an ore-bed,” which was not described, but which was taken possession of and held by the grantee. In that case the deed was reformed so as to carry into effect the intention of the *369parties. In this case the intention of the immediate parties to the deed to include in the conveyance the property now in question satisfactorily appears, not oniy on the face of the deed, but from all the circumstances attending the transaction. If necessary, therefore, in a ease of this importance, before rendering judgment for the plaintiff, and thereby defeating the intention of the parties, we should feel inclined to advise, as we have frequently done, that the defendants, on amending their pleadings, would be entitled to a judgment reforming the deed, and to a final judgment in their favor. But such a course is hardly necessary, because the plaintiff is not in a position to raise that question. His relation to this property is that of one of many grantees. He and the others, by accepting the deed, became in equity-parties to the contract therein expressed. That contract declares “ that said trustees or trustee for the time being may, at any time, or from time to time, before default or breach as well as after, enter upon said granted estates and property, or any part or parts thereof, and take and assume the full and absolute possession and control of the same, and in their or his discretion to continue to run and operate, or to close the mills or print-works of said manufacturing company, or any or either of them, as said trustees or trustee for the time being shall deem for the best interests of the creditors.”

Pursuant to the authority so conferred the trustee took possession of the property in question, and the same having been extensively damaged by a flood, expended in permanent repairs thereon of the trust money in his hands the sum of $250,000. We remark in passing, that if the plaintiff can now take this property from the trustee, on the ground that it was never conveyed to him, the other creditors must lose not only all right to participate in the property itself or its avails, but must also, for aught we can see, lose all their interest in the large amount of the trust money thus expended. And what they thus lose the plaintiff gains, inequitably as we think.

But to return. The contract provides:—“And it shall *370be lawful for said trustees or trustee for the time being, at anytime, or from time to time, before such default or breach, or with or without previous entry, in their or his discretion, to sell at public or private sale any part or parts of said granted estates and property, etc.” Again, the deed further provides, “ that in case default shall be made in payment of said notes hereby secured or any or either of them, or of the semi-annual interest due thereon, or breach shall be made of either of the covenants or agreements herein contained on the part of the said parties of the first part to be kept and performed, and such default or breach shall continue for the space of sixty days, then, in such case, the said trustees or trustee hereunder for the time being, in their or his discretion may, and upon the request in writing of the holders of one fifth in amount of the notes then issued and outstanding under these presents, said trustees or trustee for the time being shall, from time to time thereafter, either before or after entry as aforesaid, sell, either together or in parcels, the estates and.property aforesaid, or any part or parts thereof, etc.” The deed then declares that the trustee shall stand seized of all the purchase moneys to arise and be received from sales or otherwise under any of the trusts,, and that he is to apply and appropriate the same, first to the payment of expenses and charges, and secondly to the payment of the assenting creditors ratably.

All this, the party represented by the plaintiff, for a valuable consideration, agreed to in respect to every part and parcel of the property named in the trust deed. Notwithstanding said agreement, but in plain and palpable violalation of it, the plaintiff now seeks to withdraw from the operation of said trust a portion of said property to the value of $1,000,000, more or less, and to appropriate the same exclusively to the payment of his own -claim, correspondingly diminishing the trust property to the.prejudice of all the other creditors. We think he ought not to be permitted to do it. He cannot ask a court of equity to permit him to break his contract in order that he may *371gain an advantage over others whose equities are equal to his own.

But aside from any question of contract, express or implied, the plaintiff ought not to be allowed to allege that the trust deed is inoperative in respect to any portion of the trust estate. He and other creditors have accepted it as to all, and have thereby acquired certain rights and have received certain benefits. Good faith requires that each one shall stand by it as all understood it. No one now will be permitted to insist upon a different interpretation of the deed and thereby gain a further advantage at the expense of the others; for that would be inequitable and operate as a fraud.

A man will not ordinarily be permitted to impeach and set aside his own title. Obviously he cannot do that, if by so doing he at the same time takes and appropriates to his own use the title of others who stand upon the same legal and equitable plane with himself.

Neither the deed, therefore, nor the assignment was void for want of a more full descriptionj but as to the plaintiff both were operative.

Thus far we have assumed that an assenting creditor cannot impeach these conveyances for fraud. The proposition is abundantly sustained by the authorities cited by the defendant’s counsel, and it is admitted by the counsel for the plaintiff, the main contention being whether this case is within the rule. Having shown, as we think, that it is, we need only state the principle and refer to some of the authorities.

In ordinary cases the grantee has no occasion to assail the deed j he has only to refuse acceptance and it fails to become operative as to him. When he is associated with others in interest as grantee or as a beneficiary, the circumstances may be such that he may desire to avoid the deed in toto ; or his interest may be divided; in some respects it may be for his advantage to accept it, and in others to reject it. In all such cases, if he would avoid the deed, he must be careful not to accept it; for if he accepts he con*372sents that the deed shall operate according to its terms; and having consented knowingly the law will not permit him to retract to the prejudice of others. He cannot play fast and loose. Having made his election he must abide by it. This is especially so in all eases where acceptance carries with it certain advantages.

In bi-partite conveyances an acceptance is shown by the grantees’ signature to it. In deeds poll his acceptance will ordinarily be presumed, if he has knowledge of the deed and expresses no dissent.

These conveyances were for the benefit only of those who should accept, and they were required to manifest their acceptance by doing certain things. The party represented by the plaintiff, with knowledge of the facts complied with the conditions imposed and thereby accepted the deeds, and by accepting was entitled to receive and did receive a portion of the trust funds. In doing so the corporation impliedly agreed that the other accepting creditors should have just what the deeds purported to convey to them, or for their benefit. If now in violation of that agreement the plaintiff is permitted to appropriate a portion of the trust estate to his own exclusive use, it operates as a fraud upon all the other assenting creditors. Ex parte Alsop, 1 De G., F. & Jones, 289; Ex parte Stray, L. R., 2 Ch. App., 374; Bump on Fraudulent Conveyances, 460; Burrill on Assignments, § 503; Schuyler's Case, 3 Benedict, 200 ; Adlum v. Yard, 1 Rawle, 163; S. C., 18 Am. Decisions, 608; Bodly v. Goodrich, 7 Howard, 276; Clay v. Smith, 3 Peters, 411; Rapalee v. Stewart, 27 N. York, 310; Chafee v. Fourth Nat. Bank, 71 Maine, 514.

In a very recent case in the state of New York it was held that a party entitled to rescind a contract on the ground of fraud loses that right by bringing an action to . enforce the contract after knowledge of the fraud. Acer v. Hotchkiss, 97 N. York, 395.

For these reasons a majority of the court advise judgment for the defendants.

In this opinion Pakk, C. J., and Loomis, J., concurred.