1. Assignments for Benefit of Creditors — Debtor and Creditor — Insolvency — Preexisting Debts — Mortgages — Deeds of Trust.
A deed of trust by an insolvent debtor to secure a preexisting debt or debts, omitting others, though in the form of a mortgage with a defeasance clause, will be construed as an assignment for the benefit of creditors, requiring that the provisions of the statute on the subject to have been complied with for it to be valid; and this interpretation is not affected by the fact that a small portion of the debtor's property was not included
in the assignment in this case, an equity of redemption ascertained to have no value.
2. Same.
The debtor, owning lands in two counties, gave a mortgage to secure the balance of the purchase price on the lands in the first county, and a second deed of trust on this land to another to secure borrowed money, which was sold under the first mortgage and found insufficient to pay it off. The debtor gave a deed of trust on the lands in the second county to secure preexisting debts, attempting, also, to mortgage the crops to be grown thereon for three years; and later, and as further security, gave a mortgage on the crops to be grown thereon for a certain year. The property thus dealt with was practically all the debtor owned, and he was insolvent:
Held, his mortgage of the land and crops in the second county was in effect an assignment for the benefit of his creditors, and for noncompliance with the statute void as to the unpaid balance due on the mortgages, and of the other creditors.
3. Actions — Parties — Bankruptcy — Trustees.
The trustee in bankruptcy may come in to an action brought prior to the adjudication by a creditor of the bankruptcy, to the end that the rights of creditors, secured and unsecured, may be represented and their priorities determined by the final judgment in the action.
STACY, J.
After stating the case: We concur in the view taken by his Honor with regard to the purported bill of sale executed on 16 August, 1922; and further, upon all the facts appearing on the record, we are of opinion that the instrument of 13 December, 1920, should be declared and held to be a deed of assignment for the benefit of creditors. It is conceded that under this holding said assignment is rendered void for want of compliance with the provisions of C.S., ch. 28. See Odom v. Clark, 146 N.C. 544, and cases there cited. True, the deed of assignment did not purport to convey the assignor's one-half interest in the equity of redemption in the Lee County land, but this, it appears from his Honor's finding, was of no value; hence, we apprehend the principle announced in Brown v. Nimocks, 124 N.C. 417, and Bank v. Gilmer, 116 N.C. 684; S. c., 117 N.C. 416, should be held as controlling. In substance, the effect of these decisions was to declare that where an insolvent debtor makes an assignment of practically all of his property to secure one or more preexisting debts, omitting others, such an instrument will be considered an assignment for the benefit of creditors, and held to be controlled by the statutes bearing upon the subject. This result was not changed in those cases simply because a small portion of the debtor's property was not included in the assignment, nor by virtue of the fact that the instrument was drawn in the form of a mortgage having a defeasance clause; and, for the same reason, we think the omission of an interest in an equity of redemption, admittedly of no value, should not be allowed to affect the result in the case at bar. Odom v. Clark, supra; Powell v. Lumber Co., 153 N.C. 52.
The court, in declining to set aside the instrument of 13 December, 1920, for the reason that the defendant, J. W. Bowman, was "substantially secured," as to his debt by a deed of trust on the Lee County land, overlooked the fact that the Buchan debt of $8,000 was entirely unsecured. And while the Bowman debt at that time may have appeared to be substantially secured, yet as a matter of fact this appearance proved somewhat wanting in substance, as witness the deficiency later determined by suit.
The trustee in bankruptcy of O. W. Eakes, by permission and without objection, has intervened and made himself a (178) party to this proceeding, to the end that the rights of the creditors, secured and unsecured, may be represented and their priorities determined by the final judgment in this action. Garland v. Arrowood, 172 N.C. 591.
From the foregoing it follows that on plaintiffs' appeal the judgment must be affirmed, and on defendant's appeal the judgment will be reversed.
On plaintiffs' appeal, affirmed.
On defendant's appeal, error.
Cited: Cowan v. Dale, 189 N.C. 686.