
    SUTTON v. BESSENT.
    (Filed December 1, 1903.)
    1. ASSIGNMENTS FOR THE BENEFIT OE CREDITORS — Deeds of Trust — Payments—Preferred Creditors.
    
    A creditor whose debt is secured by a deed of trust is entitled to payment in preference to another creditor who has a subsequent deed of trust, the funds being in the hands of a trustee under a subsequent assignment for the benefit of creditors.
    2. ASSIGNMENTS FOR THE BENEFIT OF CREDITORS — Preferred Debts — Schedules—Acts 189S, ch. 453.
    
    An assignment for the benefit of creditors, preferring a creditor Secured by a deed of trust on the same property, does not provide for a real preference within the act of 1893, requiring the filing of a schedule of preferred debts.
    3. ASSIGNMENTS FOR THE BENEFIT OF CREDITORS — Preferred Debts — Schedules—Acts 1893, ch. 453.
    
    An assignment for the benefit of creditors, preferring a claim void for want of consideration, does not provide for a real preference within the act of 1893, requiring the filing of a schedule of preferred debts.
    ActioN by R. M. Station and others against J. O. Bessent and others, heard by Judge Walter H. Neal, at March Term, 1903, of the Superior Court of Forsyth County. From a judgment for the defendants the plaintiffs appealed.
    
      Lmdsay Patterson and Louis M. Sivink, for the plaintiffs.
    Glenn, Manly & Hendren, for the interpleader.
    
      J. 8. Grogan, for the defendants.
   MontoomeRT, J.

It was agreed by all the parties that the Court should find the facts and thereupon adjudge the law upon their rights. The defendant Kennie Bose executed three different deeds of trust to secure certain indebtedness in each deed mentioned, upon the same property, to-wit, his stock of goods, wares and merchandise in his store-house in Winston, N. C., and other personal property. The first deed was executed to W. N. Reynolds, to secure a debt of $500 due to H J. Reynolds, and was registered on November 11, 1893. The second deed was executed to Henry O. Kinsey to secure a debt of $750, due to R. M. Sutton & Co-, for goods already sold and delivered to him, and also to secure the payment of other goods that' Slutton & Co. might sell to the grantor, and was registered on August 27, 1901. And the third deed was made toi J. O. Bessent, and was registered on August 26, 1901. The last deed of trust was in the nature of an assignment for the benefit of creditors generally, and contained a reservation of the debtor’s personal property exemption.

His Honor further found as: facts that $130' had been paid by the debtor on the Reynolds note; that the deed to Bessent was not executed for the purpose of hindering, delaying and defrauding the plaintiffs R. II. Sutton & Co., or any other person ; that the Reynolds debt mentioned in the deed to Bessent was the mortgage debt referred to in the answer of R. T. and W. N. Reynolds; that the debtor, Rose, in reference to the Btessent deed “has not complied with the terms and provisions of the General Assembly, Acts 1893, ch. 453, in that he failed to file any sworn schedule of the alleged preferred debts”; in that last-mentioned deed the following provisions are made: “3. P’ay to R. J. Reynolds of Winston, N. C., the amount due on a note for $370, secured by mortgage on the above stock of merchandise. 4. Pay to J. S. Grogan, attorney, of Winston, N. C., $25 for professional services due by acceptance. 5. The balance to be paid and distributed pro rata, amongst each and every one of my creditors according to their respective claims”; that the entire indebtedness of Rose at the time of his assignment to Bessent was $2,300, in wbicb is included tbe debts due to Sutton & Co. and tbe Reynolds debt. Bessent, claiming as trustee, took possession of tbe property and bas sold it, as we understand from tbe findings of fact, and bas in band as tbe proceeds of tbe sale about $1,200 toi be applied as tbe Court might direct.

His Honor also found as a fact tbat tbe debt of $25 due to Grogan “was not a pre-existing debt and was created for tbe purpose of paying bim, tbe said Grogan, for professional services to be rendered tbe said Bessent, trustee, in executing tbe trust.”

Upon tbe facts bis Honor concluded as matter of law, first, tbat out of tbe funds in tbe bands of Bessent, Reynolds was entitled to be paid tbe amount of bis debt, principal and interest, and tbat be was entitled to tbis payment “by virtue of bis mortgage, wbicb was executed and recorded long and prior to tbe other transactions herein referred to”; second, in tbe deed of trust made by Rose to Bessent, trustee, Rose reserved bis personal property exemption; tbis exemption not having passed to tbe trustee remained in Rose, and was still covered by tbe mortgage or deed in trust to Kinsey, trustee, for R. M. Sutton & Co.; so, then, after paying the Reynolds debt, Sutton & Co. are entitled to receive $500 of tbe fund; third, the deed in trust from Rose to Bessent is not void except as to tbe alleged preferred creditor, Grogan. If A makes a deed of trust to B¡, prefers certain creditors, M and N, having at tbe same time other creditors, X, T and Z, and tbe grantor A fails to file bis sworn statement or schedule provided for by the act of 1893, tbe deed will be void so far as N and M are concerned, but it will be good as to X, T and Z; tbat is to say, tbe purpose of tbe act of 1893 was not to prevent tbe execution of deeds in trust, but to throw such safeguards around them tbat if any creditor was preferred, then tbe other creditors might have some data by which to verify or test the integrity of the preferences; fourth, so', then, Bessent, the assignee, who now has the fund, will pay (1) the Reynolds debt, (2) the sum of $500 on the debt of Sutton & Co., (3) he will, after paying costs and expenses and attorneys’ fees, pay the balance pro rata■ among Rose’s creditors, allowing Sutton & Co. to participate pro rata for that part of their debt in excess of $500. Judgment accordingly. Filed September 19, 1903, at 10:25 o’clock A. M. The plaintiff excepted to his Honor’s rulings of law, and assigned errors as follows: “ First, for that his Honor erred in that he held the deed of trust from' Rose to Bessent is not void except as to the alleged preferred creditor, Grogan. Second, for that his Honor, upon the facts found, failed to hold that the deed of trust to Bessent, trustee, was null and void as to' the plaintiffs Sutton & Co. Third, for that his Honor erred in failing to hold that after the payment of the Reynolds debt the plaintiffs were entitled to the whole fund in the hands of Bessent, trustee.”

As between the plaintiffs and the creditor, Reynolds, upon the findings of his Honor, there could be no doubt that Reynolds is entitled to his money. The debt was not disputed, and it was secured by a lien upon the same property registered long before the debt of Sutton & Co. had any existence. Reynolds in his answer claimed the property or the proceeds of the sale of the property to the amount of his debt, and even if the deed of trust to Bbssent was void, for any reason, yet B'essent had taken the property as trustee and sold it, and had the proceeds of the sale in hand under the control and direction of the Court, and he was bound to return it to its owner, Reynolds. If, however, the debts mentioned in the deed of trust to Bessent are really preferred debts in the sense of the law, then the deed of trust would be void for the reason that Rose, the assignor, failed to file his schedule of those debts as is required by the act of 1893, and the balance in tbe bands of Bessent, after paying tbe Reynolds debt, would belong to tbe plaintiffs, Sutton & Co., under tbe deed of trust made by Rose to Kinsey for tbeir benefit.

But we think that tbe Reynolds and Grogan debts were not preferred debts in tbe proper sense of tbe term.. Tbe Reynolds debt bad a real preference through tbe deed of trust made by Rose in 1893, because of tbe fact that it was secured upon tbe same property embraced in tbe deed to Bessent and was referred to in the last-mentioned deed as being secured on tbe same property. If it bad not been secured on tbe same property, then it would have stood on an equal footing with other unsecured creditors of Rose, and it would have been necessary to have scheduled it under tbe statute. His Honor’s finding of fact in reference to tbe Grogan debt carried with it a conclusion of tbe law that it was void for want of consideration and was invalid. Tbe Bes-sent deed was in operation as to that claim, but, tbe others being valid, the deed is sustained as to them. Morris v. Pearson, 79 N. C., 253; 28 Am. Rep., 315. Bteoause of tbe illustration given by bis Honor in reference to tbe debt of Gro-gan, it is necessary to sa,y that tbe cases of Bank v. Gilmer, 116 N. C., 684, and Friedenwald v. Sparger, 128 N. C., 446, have not been overruled by this Court. Tbe illustration given by bis Honor was not in consonance with tbe law.

Tbe judgment is

Affirmed.

WaxjoíR, T.,

concurring. I concur in the result reached by the Court, but I cannot assent to tbe statement, which, by tbe way, is not in my opinion necessary to tbe decision of tbe case, that tbe illustration of tbe presiding Judge in reference to tbe debt of Mr. Grogan was not a correct or proper one in law. While it is decided in Bank v. Gilmer, 116 N. C., 684, and other cases affiiming that decision, that a failure to file a schedule of the preferred debts will vitiate the assignment under the Act of 1893, ch. 453, in the more recent cases of Brown v. Nimocks, 124 N. C., 417, and Friedenwald v. Sparger, 128 N. C., 446, and Hall v. Gottingham, 124 N. C., 402, it is held that if any one or more of the preferred debts are invalid or insufficiently described in tbe schedule, the assignment is not void as a whole by reason thereof, but will have effect and be enforced as to' those debts which are valid, and which, if preferred, are properly scheduled. The case of Brannock v. Brannock, 32 N. C., 428; 51 Am. Dec., 398, and Morris v. Pearson, 79 N. C., 253, are cited in support of the principle, and I think they clearly sustain it. The doctrine of these eases is: that there being; m> good reason why an honest creditor whose claim is valid in every respect should lose or suffer because of the invalidity of some other debt secured by the assignment, one bad debt will not, therefore, be allowed to invalidate the assignment as a security for those debts which are good. If the principle is applied to assignments with preferences, as it is in some of the cases, and is carried to its logical and legitimate consequence, it must be that when all of the preferences are invalid, either inherently or by reason of failure to file a schedule of them, the conveyance is still g'ood as to all the other valid debts, though not preferred. I do not see why it should be good as to some of the preferred debts when others are invalid or schedules of them have not been filed, and not good as to valid debts secured by the assignment when all of the preferred debts are invalid or a schedule of them has not been filed. The same reason which applies to the one must be applicable to the other, and the same rule of law, therefore, should govern in both cases. I doubt very much if it was the intention of the Legislature that the provision of the statute as to filing schedules should be mandatory to the extent of invalidating the assignment if it is not complied with as to any of tbe preferred debts. I rather think that the provision was either directory or mandatory only in the sense that a failure to comply with it will not affect the validity of the assignment, but only deprive the preferred creditor who fails to comply with its requirements of any priority in the payment or distribution of the assets of the insolvent under the deed of assignment. There is abundant authority, I think, in support of this view.

This much has been said in order that my concurrence in the opinion of the Court will not be misunderstood as to the matter herein considered, or construed as an assent to the criticism of the Court upon the illustration given by the Judge in his charge to the jury.

OoNNon, J., concurs in the above concurring opinion.

Douglas, J.,

concurring. If it were an open question I would feel inclined to concur in the opinion of Justice Walker, but I found the question settled when I came upon the bench, and yielded my personal views to the authority of adjudicated precedents. At the same time I did not think it necessary to carry it any further. In this spirit I wrote, for a unanimous Court, the opinions in the cases of Brown v. Nimocks, 124 N. C., 417, and Hall v. Cottingham, Ibid., 402, by which I must abide.  