The trustee of an insolvent debtor in the District of Columbia
represents the creditors of the insolvent, and can take advantage
of a defect in a mortgage of which the insolvent himself could
not.
A bill in chancery was brought by W. Herbert, Jr., trustee for
the creditors of John Potts, an insolvent debtor under the act of
Congress for the relief of insolvent debtors within the District of
Columbia against the Bank of Alexandria to recover the proceeds of
a tract of land, the property of Potts, which had been sold by
consent and the money deposited in the bank. This land had been
conveyed by Potts to Ludwell Lee in trust to secure the payment of
money borrowed of the bank by Potts, but the deed of mortgage had
not been recorded within the time limited by the law of Virginia,
which governs this case and which declares that all deeds of
mortgage whatsoever, although good between the parties, shall be
void as to creditors and subsequent purchasers without notice
unless they be recorded within eight months after their date.
Page 12 U. S. 38
MR. CHIEF JUSTICE MARSHALL delivered the opinion of the Court as
follows:
In this case, a bill was brought in the Circuit Court for the
County of Alexandria by William Herbert, Jr., trustee for the
creditors of John Potts, an insolvent debtor, against the Bank of
Alexandria to recover the proceeds of a tract of land, the property
of Potts, which had been sold by consent and the money deposited in
bank.
This land had been conveyed by Potts to the bank to secure the
payment of a sum of money borrowed by him, but the deed of mortgage
had not been recorded until eight months after its date had
elapsed. The law of Virginia, which governs this case, declares all
deeds of mortgage whatsoever, though good between the parties, to
be void as to creditors and subsequent purchasers without notice
unless they be recorded within eight months from the date.
The question is whether this mortgage can be set up in favor of
the bank against the trustee for the creditors.
The circuit court decreed in favor of the trustee, and from that
decree there is an appeal to this Court.
For the appellant it is contended that the trustee may be
assimilated to the assignees of a bankrupt, and he has adduced some
cases from the books showing that in England a deed declared to be
void in law has been supported against the assignees in favor of
the particular creditor who holds a lien upon it.
The resemblance between the trustee for the estate of an
insolvent debtor in the District of Columbia and the assignees of a
bankrupt is admitted, yet a clear distinction exists between the
cases cited at bar and
Page 12 U. S. 39
that before the Court. In those cases, the deed was declared
void without any view to creditors. In this case, the deed is
declared void for the particular benefit of creditors. To set up
this deed against the creditors would be to defeat the very object
for which the law was made.
The counsel for the appellant is well apprised of this
distinction, and though he claims for his clients the benefit of
this deed against the trustee, he admits that it could not be
sustained against the creditors suing in their own names.
In reason, there can be no difference between this suit, which
asserts the right of the creditors in the mode prescribed by law,
and an assertion of that right in their own names. Nor does the law
distinguish between them. The cases cited did not turn on any
distinction between the rights of the assignee and the creditors,
but on the preference which ought to be given to him who has
trusted on the credit of the particular fund over those who had
trusted the general fund.
The decree is affirmed with costs.
