Bush v. Bush

The opinion of the court was delivered by HortoN, C. J.:

It is claimed by the trustee and guardian of Harry Rigg and Dora Rigg, minors, that upon the pleadings, evidence and conclusions of fact, they are entitled to a decree that under the trust deeds executed March 14, 1881, and April 25, 1881, the debt intended to be secured thereby is a prior lien to the attachment liens of T. G. Bush & Co. and the Planters and Merchants Mutual Insurance Company upon all the lands in controversy. The judgment rendered by the trial court was in effect that the trustee and guardian of Harry and Dora Rigg, minors, had a prior lien upon the lands of A. H. Bush and E. T. Bush jr., correctly described in the trust deed of March 14, 1881, and as to the lands intended to be, but which were not, correctly described therein, that the attaching creditors had the first lien. We think the claim of the trustee and guardian of the minor children well founded. 0 The trust deed or mortgage of March 14, 1881, as against A. H. Bush and E. T. Bush jr., the grantors therein named, was valid without recording; and although there was a mistake made in the description of the land intended to be mortgaged, the same might have been reformed at any time before the land had passed to purchasers for a valid consideration without notice. If the attaching and judgment creditors, without notice of the defect in the first trust deed, had become the purchasers of the land, a different question would be presented ; but the lands have not yet been sold under the orders of sale. The only liens that T. G. Bush & Co. and. the Planters and Merchants Mutual Insurance Company obtained under *563 their attachments were upon the lands and tenements of the debtors they sued, and such attachments were not liens upon the lands and tenements not in fact belonging to the debtors at the date of the attachment. (Holden v. Garrett, 23 Kas. 98 ; Comp. Laws 1879, ch. 22, §§ 20, 21; Code, §§ 190, 193 ; Harrison v. Andrews, 18 Kas. 542 ; Swarts v. Stees, 2 id. 236; National Bank v. Wentworth, 28 id. 183.)

After the execution of the trust deed of March 14, 1881, which was followed up by the execution of the trust deed of April 25, 1881, to correct the description in the original trust deed, the lands in controversy were in equity the lands of the grantees therein for the purpose of securing the payment of the $5,000 mentioned in the deeds. The evidence, we think, clearly shows that the trust deed of March 14, 1881, was intended to transfer for the security of the debt therein named, all the real estate in Atchison county, in which E. T. Bush jr. and A. H. Bush had any interest. Upon this point, it was in substance as follows:

“In making the trust deed of March 14,1881, to James C. Bush, E. T. Bush jr. and A. H. Bush intended to convey the northeast quarter and the southeast quarter of section 21, and the southeast quarter and the northeast quarter and the northwest quarter of section 20, all in township 7, of range 19, in Atchison county, Kansas. In making such deed, they took the description from a tax receipt, and by mistake described one of the quarters as being in township 7, of range 18; and one as being in township 7, of range 17; but it was the intention of the grantors and James C. Bush, the trustee, to make the trust deed convey the lands in said county, formerly owned by E. T. Bush sr., deceased.”

There are some decisions that a mistake concerning matters as to which the parties had “means of knowledge,” or “might have ascertained the truth,” will not be relieved from; and the trial' court seems to have decided the case upon this theory, as one of its findings shows that “the work of securing preferred creditors was done in such haste as not to admit searching for all papers necessary to insure correctness.” These decisions have been expressly overruled, and the conclusion *564 from the best authorities seems to be, that every negligence will not stay the hand of a court and prevent a reformation or •correction of a written contract, deed, or mortgage. The neglect must amount to a violation of a positive legal duty. The highest positive care is not demanded. (2 Pomeroy’s Eq. Jur., §856.)

On the part of T. G. Bush & Co. and the Planters and Merchants Mutual Insurance Company, attaching creditors, it is urged that there was no consideration for the note of $5,000, executed on March 14, 1881. The findings are otherwise. On the books of the firm of Bush, Yates & Co., E. T. Bush jr., as guardian, was charged with the sum of $7,000; this was money which came into his hands as guardian, and had been used iu the business of the firm. It is immaterial whether any share of the minors had been set apart to them, or not. The findings show that the amount of their distributive share had been estimated at a sum in excess of $20,000, and if the guardian of the minors had received $7,000, or any other sum in excess of $5,000, from the administrators of the estate of E. T. Bush sr., and held the same as the guardian of the minor children, or had used the same in the firm of Bush, Yates & Co. as the money of said minor children, such minors were certainly entitled to such money so received and used as their property.

It is next insisted by the attaching creditors that the words “gd. Harry and Dora Bigg,” in the note of March 14, 1881, are descriptive only of the said E. T. Bush jr., and that the note conclusively shows that E. T. Bush jr. attempted to withdraw his property from the reach of the creditors of Bush, Yates & Co.; in other words, that E. T. Bush jr. executed the note to himself, and the mortgage on his individual property to the trustee to secure the note he had executed to himself. The lien of the trustee aud guardian of Harry and Dora Bigg is based not merely upon the note of March 14, 1881, but upon the trust deed executed upon that date, and upon the later trust deed of April 25, 1881, correcting the description in the original trust deed. These trust deeds are to James C. *565 Bush as trustee of Harry and Dora Bigg, and recite that said conveyance is made in trust for the. folio wing purposes only, namely:

“The first parties [A. H. Bush and E. T. Bush jr.] are justly indebted to the third parties [Harry Bigg and Dora Bigg] in the sum of $5,000, evidenced by the promissory note of Bush, Yates & Co. bearing even date herewith and due and payable January 1st, 1882 — said A. H. Bush and E. T. Bush being members of said firm — said note being payable to E. T. Bush, guardian of Harry and Dora Bigg, which indebtedness the first parties desire and intend by this deed the more effectually to secure and make certain the payment thereof. Now if the first parties shall pay off and discharge said indebtedness at maturity, with all interest and cost and expenses then incurred, said deed is to be entirely void, and the second party [James C. Bush] is to take such steps as may be necessary in law to effectually recover said property to the first parties. If default should be made in the payment thereof, the second party, as trustee aforesaid, shall, at the request of said third parties, take possession of said property,” etc.

These trust deeds therefore show that the purpose of their execution was in effect to secure the indebtedness due to Harry and Dora Bigg, and not to withdraw the property of E. T. Bush jr. from the reach of his creditors. Further, it appears that on June 8, 1881, said E. T. Bush jr. was removed as guardian of Harry and Dora Bigg. On June 9,1881, M. A. Bush was appointed as his successor, and this note of $5,000 was transferred to her as the property of her said wards.

It is urged further, that there was no consideration for the trust deed, because E. T. Bush jr. as guardian had no authority to loan funds in his hands belonging to Harry and Dora Bigg to the firm of which he was a member; that the note executed by him could not take the place of the official bond given by him to protect his wards; and that if he did loan to Bush, Yates & Co. any moneys of his wards, it was a misappropriation of trust funds, for which he alone is responsible ; that as a guardian, E. T. Bush jr. had no right to substitute his note for his official bond. This point is not well taken. If a guardian, or other trustee, who is a member of a *566 firm, uses the trust funds in the partnership business, with the knowledge of the other partners, it becomes a partnership debt to the cestui que trust, and the latter may follow the trust fund so used and recover the same. (Ellicott v. Barnes, 31 Kas. 170 ; Market v. Smith, ante, p. 6,6.) If the loan to Bush,Yates & Co. by E. T. Bush jr. was improper, the guardian of the wards who succeeded E. T. Bush jr. had the right to elect to consider the money so used as a loan, or to hold the former guardian responsible on his official bond. (Gully v. Dunlap, 24 Miss. 410 ; Wood v. Stafford, 50 id. 370.) In this case it appears that the amount due the minor children was $22,782.51; the official bond of E. T. Bush jr. as guardian was $15,000 only, and said guardian is insolvent. Under these circumstances it was the duty of M. A. Bush, as guardian ,of the minors, to elect in favor of the securities executed by A. H. Bush and E. T. Bush jr.

It is finally insisted, that as the indebtedness to the minors was a little over $22,000, and as one note for $19,540 was executed and another for $5,000, that there was included in the notes $2,540 more than was due to the minors, or their guardian ; and therefore the trust deed must be regarded as fraudulent, as tending to hinder and delay creditors. Bump on Fraudulent Conveyances is cited to the effect that there is no difference in principle between fraud in fact and fraud in law; and it is sought to apply this principle to the trust deeds executed to secure the minors. The cases cited by Bump are voluntary assignments, with an unlawful intent appearing on the face of the instruments. (Bank v. Talcott, 19 N. Y. 146 ; Gere v. Murray, 6 Minn. 305 .)

The rule stated in those cases is, that—

“When upon the face of the assignment any illegal provision is found, the presumption at once conclusively arises that such illegal object furnished one of the motives for making the assignment; and it is upon this ground adjudged fraudulent and void. The result is the same when the illegal design is established by other evidence. The inquiry is as to the intention of the assignor. When it appears that among the inducements operating upon him, there was an intention'to violate *567 any of the duties owing by him to any of his creditors, the whole instrument is tainted, and will be set aside at the suit of any creditor: the rule applied to instruments of this character being, that they must be wholly valid or they are entirely void.”

This rule is not applied in case of a mortgagor securing the debt of a bona fide creditor, where by mistake merely the amount of the debt secured by the mortgage is slightly overestimated. Mr. Jones, in his work on Chattel Mortgages, says: “But the mere fact that the mortgage secures a greater sum than was actually due, is not conclusive of fraud.” (Sec. 339.)

In Wood v. Scott, 55 Iowa, 114 , it is held that where a mortgage is given by an insolvent person for more than is due, and the fact of the insolvency is known to the mortgagee, such mortgage is a badge of fraud, but is not conclusively presumed to be fraud. In that case, Chief Justice Adams, speaking for the court, says:'

“Now while such a transaction is not to be commended, it is evident that there might have been no actual intent upon the part of the plaintiff to defraud the creditors of his mortgagor. It is insisted, however, that as this mortgage had the effect to conceal Lovetf s property and hinder and delay his creditors, no honesty of intention on the part of the plaintiff should prevent a court from holding the mortgage fraudulent and void. Whatever the rule may be in other states, we think that such cannot be held to be the rule in this.”

(See also Hughes v. Shull, ante, p. 127; Minor v. Sheehan, 30 Minn. 419 ; Tulley v. Harloe, 35 Cal. 302 ; Willison v. Desenberg, 41 Mich. 156 ; Berry v. O’Conner, 31 Alb. L. J. 357.)

In Wallach v. Wylie, 28 Kas. 138 , the mortgage was held void because of the intention participated in by all the parties to overstate the amount of the debt secured, with the fraudulent intent to hinder, delay and defraud creditors. For the same reason, the written instrument in Winstead v. Hulme, 32 Kas. 568 , was held void.

In regard to the execution of the mortgage of March 14, •1881, a reasonable explanation may be found for the overstate *568 ment of the debt secured, owing to the haste in which it was executed; and it is clearly apparent to us, from the record, that there was no actual intent on the part of any of the parties executing this trust deed to overstate the debt to defraud any creditors. The judgment of the district court will be modified so as to make the trust deed executed to James C. Bush, as trustee, on March 14, 1881, a first and prior lien upon all the lands in Atchison county intended by the parties thereto to be described therein.

All the Justices concurring.