Brown v. Deford , 83 Md. 297 ( 1896 )

Briscoe, J.,

delivered the opinion of the Court.

On the 19th of May, 1891, Henry C. Brown and Mathew S. McKinney, trading as Brown & McKinney, made an assignment of all their property to the appellants, Brown and Trail, in trust for the benefit of their creditors. This firm was engaged in the tanning business in Frederick, Maryland, and for some years prior to their failure shipped their leather to the appellees, Deford & Co., of Baltimore, who sold the same on commission, but permitted the consignors to draw drafts in advance of the sales of the leather. In this way, Brown & McKinney became largely indebted to Deford & Co., and on the 24th of July, 1888, the following agreement was entered into between the two firms :

“It is understood and agreed between Deford & Co., of Baltimore City, and Brown & McKinney, of Frederick City, all in the State of Maryland, that all money advanced to Brown & McKinney by Deford & Co., is for the purpose of purchasing hides and bark which is contained in the tannery and on the premises of Brown & McKinney, situated at Frederick City, Md.; and that the said hides are to be tanned into leather, and the leather is to be sent to Deford & Co., Baltimore, to be sold on commission, and after Deford & Co. deduct their commissions and charges, the net amount is to be placed to the credit of Brown & McKinney to pay the indebtedness due Deford & Co.

“ It is further understood that the hides and leather referred to above is the property of Deford & Co., and they are authorized at any time to come forward and take possession of the same, and there are no other parties furnishing us money for the purpose of buying hides or bark. Brown & McKinney. Baltimore, July 24th, 1888. Weaccept the above. Deford & Co. Witness : H. Hough, W. II. Russell.”

It is admitted that there was at the time of the execution of the deed of trust a large balance due Deford & Co. which was, however, subsequently reduced to the sum of $5,631.28 by sales of leather then on hand and which had been shipped by Brown & McKinney. There was on the premises of Brown & McKinney, at the time of the assignment, a large number of hides, which were afterwards sold by an agreement between the parties, and the fund derived therefrom- is now the subject of this controversy.

The appellees contend that the hides, in their green state, were purchased with money furnished by them, and under the terms of the contract of July 24th, 1888, continued their property at the time of the assignment to the trustees. This claim is, however, contested on the part of both the trustees and the Farmers’ and Mechanics’ National Bank, one of the creditors of Brown & McKinney. The sole question in the case, then, is whether the appellees are entitled to the fund, under the agreement of July, 1888, to the extent of their claim. By an agreement between the parties, this fund is to be dealt with here, as if no sale of the property had taken place.

It is manifest that the trustees have no standing in a Court of Equity to contest the validity of the appellee’s claim. Conventional trustees claiming under a deed of trust for the benefit of creditors cannot impeach a prior conveyance executed by his grantor, even though that conveyance be fraudulent against- the grantor’s creditors. They stand in the shoes of the assignor and take the property subject to all the equities against the assignor. Ratcliff v. Sangston, 18 Md. 391; Devries v. Hiss, 72 Md. 564; Riley v. Carter, 76 Md. 610.

There is nothing in the case of The Building Association v. Willson, 41 Md. 506, in conflict with this view as applicable to the facts of this case.

Nor can the contention that the agreement of July 24 is a fraudulent and prohibited preference under the insolvent law, and is, therefore, void against the trustees, avail them here. This is not a-proceeding against Brown & McKinney under the insolvent law, nor have they applied for its benefit. In the case of Castleberg v. Wheeler et al., 68 Md. 276, it was said that such conveyances and transfers as are here provided against, if in all other respects valid, are perfectly good if the debtor be not proceeded against or he' does not become an applicant under the insolvent law within the time prescribed and is not declared an insolvent.

This brings us, then, to the main question in the case, and that is, what is the operation and effect of the agreement of July 24, 1888.. Its validity could not be sustained, if in prejudice of subsequent creditors or purchasers in good faith, without notice. This, however, is not the case here. On the contrary, the proof shows that the bank, the contesting creditor, was such prior to the execution of the agreement. By the express terms of the contract the hides and leather to be purchased by Brown & McKinney were to be the property of Deford & Co., and they were authorized at any time to come forward and take possession of the same. And it was further stipulated that there were no other parties furnishing them money for the purpose of buying hides or bark. “ Now, it is a familiar principle,” says this Court, in the case of Roberts & Co. v. Bonaparte, 73 Md. 204, “ that Courts, in the construction of contracts, look to the language employed, the subject-matter and the surrounding circumstances.” We think that under the contract of July 24th the stock on hand at the time of the assignment was the property of Deford & Co., and we fully concur with the learned Court below when it says : “In view of the construction placed upon this agreement by the parties themselves, as evidenced by their course of dealing and their conduct, and in view of the fact that the chief creditors of the extinct firm were such prior to the date of the agreement, we do not feel warranted in placing upon that agreement a construction or in giving to it an interpretation which will take the funds realized from a sale of the property bought with the money of Deford & Co., and will apply those funds ratably amongst pre-existing creditors, to the prejudice of Deford & Co. The agreement of July the 24th stands directly across the path of such a proceeding. Its force and effect reach and bind the fund into which the property has been converted.” Gibson v. Warden, 14 Wall. 244.

For these reasons the order of Court passed on the 24th of July, 1895, directing the auditor, in stating an account, to allow in full the claim of Deford & Co. out of the funds in the hands of the trustees, will be affirmed on both appeals.

The appeal from the order passed on the 30th of November, 1895, allowing interest to Deford & Co. on the principal sum to the 27th of July, 1895, will also be affirmed. It is manifest that if the appellees were the owners of the property at the time of the assignment and the sale, they are entitled to interest thereon to the 27th of July, 1895.

The remaining appeal is from an order of the Court sustaining exceptions to testimony taken to the audit after the case had been submitted and decided. The order of the Court dated 27th of July, T895, had been passed, directing the claim of Deford & Co. to be paid. There was no error in sustaining this exception.

(Decided March 27th, 1896).

It follows, then, that each of the orders appealed fr.om will be affirmed, and the cause remanded with costs.

Orders affirmed, with costs.