
133 U.S. 670 (1890)
PETERS
v.
BAIN.
GRIFFIN
v.
PETERS.
Nos. 87, 198.
Supreme Court of United States.
Argued November 7, 8, 1889.
Decided March 3, 1890.
APPEALS FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE EASTERN DISTRICT OF VIRGINIA.
*683 Mr. Theodore S. Garnett and Mr. William J. Robertson, for Peters.
Mr. Richard Walke and Mr. James Alfred Jones, (with whom was Mr. Legh R. Page on the brief,) for Griffin, Old, and Jenkins, trustees.
*685 MR. CHIEF JUSTICE FULLER, after stating the case as above, delivered the opinion of the court.
The opinion of the late Chief Justice clearly delineates the grounds upon which the Circuit Court proceeded and minimizes our labors in the disposition of this case.
The deed of assignment was attacked as fraudulent in law and in fact.
The statute of Elizabeth, c. 5, against fraudulent conveyances has been universally adopted in American law as the basis of our jurisprudence on that subject, (Story Eq. Jur. § 353,) and reënacted in terms, or nearly so, or with some change of language, by the legislatures of the several States.
In Virginia the statute reads as follows: "Every gift, conveyance, assignment, or transfer of, or charge upon any estate, real or personal, every suit commenced, or decree, judgment, or execution suffered or obtained, and every bond or other writing given with intent to delay, hinder, or defraud creditors, purchasers, or other persons of or from what they are or may be lawfully entitled to, shall, as to such creditors, purchasers, or other persons, their representatives or assigns, be void. This section shall not affect the title of a purchaser for valuable consideration, unless it appear that he had notice of *686 the fraudulent intent of his immediate grantor or of the fraud rendering void the title of such grantor." Virginia Code, 1873, 896, c. 114, § 1.
In controversies arising under this statute, involving, as they do, the rights of creditors locally, and a rule of property, we accept the conclusions of the highest judicial tribunal of the State as controlling. Jaffray v. McGehee, 107 U.S. 361, 364; Lloyd v. Fulton, 91 U.S. 479, 485; Allen v. Massey, 17 Wall. 351.
We understand counsel to contend that the deed contains certain provisions which must so hinder, delay and defraud creditors that fraud in its execution is to be conclusively presumed without regard to the intention of the parties.
The doctrine in Virginia, settled by a long and uninterrupted line of decision, is that, while there may be provisions in a deed of trust of such a character as of themselves to furnish evidence sufficient to justify the inference of a fraudulent intent, yet this cannot be so except where the inference is so absolutely irresistible as to preclude indulgence in any other. Hence provisions postponing the time of the sale and reserving the use of the property to the grantor meanwhile, though perishable and consumable in the use; permitting sales on credit; for the payment of surplus after satisfaction of creditors secured; the omission of a schedule or inventory; and the like, have been regarded as insufficient to justify the court in invalidating the deed for fraud in point of law. The fraudulent intent is held not to be presumed even under such circumstances, and in its absence the fact that creditors may be delayed or hindered is not of itself sufficient to vacate the instrument, while the right to prefer one creditor over another is thoroughly established. Dance v. Seaman, 11 Grattan, 778; Brockenbrough v. Brockenbrough, 31 Grattan, 580; Young v. Wilson, 82 Virginia, 291, 293.
When, then, it is claimed in this case that the deed is fraudulent in law, "because it appropriates partnership assets to pay individual debts in preference to the debts of the partnership," we should naturally expect to find that the Supreme Court of Appeals had held that where, as here, the conveyance included all the property of the grantors as partners and individually, *687 for the benefit of partnership and individual creditors, it should be construed distributively, and the partnership assets be applied to the payment of partnership debts and the individual assets to individual liabilities. And such is the fact. McCullough v. Sommerville, 8 Leigh, 415; Gordon v. Cannon, 18 Grattan, 388. And, as pointed out by Mr. Chief Justice Waite, the difficulty, at the time the assignment was made, attendant upon any attempt to separate the partnership and individual assets, and the partnership and individual debts, would be considered under the view of the state courts, in passing upon the question of intent to defraud in failing to specifically distinguish between them.
The only other ground of objection on this branch of the case relates to the following clause in the deed:
"And the said trustees, for the purpose of executing this trust, shall at once take charge of all the property and effects hereby conveyed, and make an inventory thereof, and proceed to collect the choses in action and all evidences of indebtedness, and to convert the real and personal property into cash as soon as possible, and they may make sale of the real and other personal estate hereby conveyed, at public auction or private sale, at such time or times and place or places and after such notice as to them shall seem best, and they may make such sale upon such terms and conditions as to them shall seem best, except that at any sale of said property, real or personal, at public auction, any creditor secured by this deed in the second class above enumerated shall have the right to purchase any part or parcel of said property so sold and pay the said trustees therefor at its full face value the amount found due such purchaser secured by this deed, or so much thereof as may be necessary to enable such creditor to complete the payment of his purchase money, and to enable as many creditors as possible to become bidders on these terms, the said trustee may have the real estate hereby conveyed, or any part thereof, laid off into lots or parcels, as they may think best. And upon the conversion of the said property hereby conveyed into money the said trustees shall distribute the same to the creditors hereby secured in the order herein *688 before named with all diligence, and in the distribution between those creditors who may have purchased property and paid for the same under the provisions of this deed with a part of the money found due them respectively, and those who made no purchase, the trustees shall observe such rule of equality as will be just and proper."
But can it be properly concluded that this provision is irreconcilable with any other inference than that of fraud? And even if so much of it as allows the creditors in the second class to bid and use their claims as purchase money were invalid, ought the whole instrument to be therefore declared of no effect? We agree with the Circuit Court that, as respects fraud in law as contradistinguished from fraud in fact, where that which is valid can be separated from that which is invalid, without defeating the general intent, the maxim, "void in part, void in toto," does not necessarily apply, and that the instrument may be sustained notwithstanding the invalidity of a particular provision. Denny v. Bennett, 128 U.S. 489, 496; Cunningham v. Norton, 125 U.S. 77; Muller v. Norton, 132 U.S. 501; Darling v. Rogers, 22 Wend. 483; Howell v. Edgar, 3 Scammon, 417, 419.
Nor are we able, in view of the current of decisions in Virginia and all the terms of the deed taken together, to concur with the receiver's counsel that fraudulent intent is a necessary deduction from the permission to the creditors in the second class to avail themselves of their claims in bidding in the manner prescribed. The deed expressly stated that it was given to secure the costs and expenses, and then the payment of the indebtedness enumerated in the first class; "and after the payment of the hereinbefore mentioned sums and claims, to secure, secondly, the following creditors to be paid equally and ratably if the property hereby conveyed shall be insufficient to pay them all, but with the privilege as to bidding on such property as may be sold at auction as hereinafter provided." This contemplates the payment of the creditors in the first class before the bidding clause could take effect, and precludes the operation of that clause to the prejudice of those creditors. The record discloses that the total amount *689 secured in the first class was less than fifty thousand dollars, of which the bank held more than four-fifths, and that the cash assets were much more than enough to cover the costs and expenses and this amount, without any sales; so that the facts correspond with the intention deducible from the language of the deed. The first-class creditors are to be paid before the second-class creditors can exercise the right to bid if sales by public auction ever take place. The bank is a creditor in the first and second classes and the sole creditor in the third class, but it has no ground of complaint as a third-class creditor, as the operation of the clause can only be for its benefit as such.
The second-class creditors are all treated alike, and, as the counsel for the trustees says, are placed in exactly the same legal relation to the subject matter. If it could be said that the clause might operate to create a preference as between them, the grantors had a right to prefer; but inasmuch as each can bid, and the trustees have power to divide the property into parcels to enable as many creditors as possible to become bidders, and are charged with the duty to observe such rule of equality between those who purchase and those who do not, as will be just, it is not easy to see how a preference could be obtained. The question is not whether the trustees might prove unfaithful  a contingency of which there is no intimation here  but whether the provisions of the deed, if carried out according to their apparent intent, would be fraudulent in their operation. It seems to us, as it did to the Circuit Court, that such is not the reasonable inference, and that the manifest object was to stimulate bidding, prevent a sacrifice of the property, and benefit the creditors, and this without any advantage to the assignors other than that involved in having their assets go as far as possible in payment of their debts. It is not they who reap a pecuniary benefit, but their creditors.
Without further elaboration, we are of opinion that the deed is not void in law because of the insertion of the provision in question.
It should also be observed that the trustees are rendering *690 their reports under the direction of the court, and ask in their cross-bill "the aid and direction of this honorable court in the ascertainment of all and every the copartnership property and the individual property standing in the names of the individual members of the said copartnerships, or any of said members; and in the application of the trust funds to the payment of the debts secured; and in the administration of this their trust; and they are advised that it is their right and privilege to file this their bill, and to apply to this honorable court as a court of equity for the purpose aforesaid." So that the receiver, having invoked the interposition of a court of equity, can find there, either on his own application or that of his adversary, a remedy for any injurious results he may apprehend in the administration of the trust. The court will see to it that, as far as practicable, partnership assets are applied to partnership liabilities and individual assets to individual liabilities, and that the bidding clause shall not be put into operation unless in consonance with equity and good conscience.
It is earnestly argued, however, that the deed should be set aside because fraudulent in fact. We have patiently, but without success, examined this record in the effort to discover what specific acts are made out by the proofs establishing, in connection with the deed itself, actual fraud in its execution. The inquiry is not whether the grantors had been previously guilty of fraud or embezzlement, but whether this particular conveyance was made with a fraudulent intent known to the trustees or beneficiaries. Evans v. Greenhow, 15 Grattan, 153: Emerson v. Senter, 118 U.S. 1. It appears that the Bains were indebted to the bank and also to their depositors in several hundred thousand dollars. It is said that they indulged in wild speculations in real and personal estate, stocks, bonds, mines, railroads, etc.; but that applies as well to the squandering of the seven hundred thousand dollars and upwards of deposits with them as a banking firm, as it does to the money that they absorbed from the bank; and in any view, the violation of their fiduciary relations to the bank, of which they were officers, or their treatment of the depositors in the banking *691 firm of which they were members, does not render the assignment of all their property for the benefit of their creditors therefore fraudulent.
The bank and the banking house suspended on the second day of April, 1885, and the assignment was made on the sixth day of April. On the 31st day of March preceding, Bain & Bro. transferred to the bank certain securities of the estimated value of $570,000 in reduction of their indebtedness, and some other assets, as collateral to their guaranty of any deficiency which might result when the securities were realized on. When they transferred all their property, partnership and individual, of every kind, by the deed in controversy, they provided for the payment in the first instance of some $49,881.61, of which the bank held $42,288.49, and then for the payment in full, or ratably, of their own depositors, and certain notes aggregating $102,000, held by the bank; and they put the remaining indebtedness to the bank in a third class. They had a right to make preferences, and it is evident that their effort in the assignment was to equalize as between what they owed their own depositors and what they owed the bank, taking into consideration what the bank had already obtained. There was no fraud in this, of which the bank could complain as between it and the other creditors.
Counsel contends that the deed was in contravention of sections 5151 and 5234 of the Revised Statutes of the United States, which provide that the shareholders of every national banking association shall be held individually responsible for its debts to the extent of the amount of their stock, and, additional thereto, and that the Comptroller may enforce that individual liability. It is insisted that the capital stock is a trust fund of which the directors are the trustees, and that the creditors have a lien upon it in equity; that this applies to the liability upon the stock of a national bank; and that no general assignment of his property for the payment of his debts can lawfully be made by a shareholder, certainly not when he is a director. Undoubtedly unpaid subscriptions to stock are assets, and have frequently been treated by courts of equity as if impressed with a trust sub modo, in the sense that neither *692 the stockholders nor the corporation can misappropriate such subscriptions so far as creditors are concerned. Richardson's Executor v. Green, ante, 30, 44. Creditors have the same right to look to them as to anything else, and the same right to insist upon their payment as upon the payment of any other debt due to the corporation. The shareholder cannot transfer his shares when the corporation is failing, or manipulate a release therefrom, for the purpose of escaping his liability. And the principle is the same where the shares are paid up, but the shareholder is responsible in respect thereof to an equal additional amount. There was, however, no attempt here to avoid this liability, and the fact of its existence did not operate to fetter these assignors in the otherwise lawful disposition of their property for the benefit of their creditors.
Some other transactions are referred to in the bill as indicating fraud in fact, but they are not insisted upon in argument and require no special consideration. One of them relates to a deed of Wallace & Son to Bain & Bro., executed April 6, 1885, and referred to by counsel in another connection.
We think the Circuit Court was right in finding "no evidence whatever of any actual fraudulent intent on the part of the firm, or either of the partners, to hinder and delay their creditors."
The argument is pressed that the trustees were neither bona fide purchasers for value nor purchasers without notice, because they must have had knowledge, for the reasons given, of the previous conduct of Bain & Bro. But, as we have already seen, that previous conduct did not render the assignment in itself fraudulent, although it is quite true that all the circumstances should be taken into consideration in passing on that question. It is urged that the trustees knew that Bain & Bro. had no right to make the deed, because on the 31st of March, when they transferred to the bank certain stocks and bonds of the face value of $640,000 and an estimated value of $570,000, a member of the concern verbally promised that they would not make an assignment giving preferences against the bank. The transfer of these securities rendered the bank just so much better off, and counsel for the receiver concedes that *693 the advice of the bank's former counsel in regard to it, "in the condition of the affairs of the bank at that date . . . was wise and proper, and did secure to the bank whatever can be realized from the sale of the securities delivered under the agreement of March 31, 1885." The verbal promise not to make preferences constituted no lien upon Bain & Bro.'s property, and its disregard did not affect the validity of the deed. Nor is any issue in regard to it made upon the pleadings. It is noticeable that Bain & Bro. declined to incorporate that pledge in the written agreement transferring the securities, and we are not called upon to examine into the circumstances under which the promise so given failed to be carried out.
The receiver assigns for error that the Circuit Court held that he was entitled to a surrender of such of the property which it was found had "actually been purchased with the moneys of the bank as he elects to take, but of no other." In other words, it is insisted that the receiver is entitled to a charge upon the entire mass of the estate, with priority over the other creditors of Bain & Bro.
It was said by Mr. Justice Bradley in Frelinghuysen v. Nugent, 36 Fed. Rep. 229, 239: "Formerly the equitable right of following misapplied money or other property into the hands of the parties receiving it depended upon the ability of identifying it; the equity attaching only to the very property misapplied. This right was first extended to the proceeds of the property, namely, to that which was procured in place of it by exchange, purchase, or sale. But if it became confused with other property of the same kind, so as not to be distinguishable, without any fault on the part of the possessor, the equity was lost. Finally, however, it has been held as the better doctrine that confusion does not destroy the equity entirely, but converts it into a charge upon the entire mass, giving to the party injured by the unlawful diversion a priority of right over the other creditors of the possessor. This is as far as the rule has been carried. The difficulty of sustaining the claim in the present case is, that it does not appear that the goods claimed  that is to say, the stock on hand, finished and unfinished  were either in whole or in part the proceeds of any money unlawfully *694 abstracted from the bank." The same difficulty presents itself here, and while the rule laid down by Mr. Justice Bradley has been recognized and applied by this court, National Bank v. Insurance Company, 104 U.S. 54, 67, and cases cited, yet, as stated by the Chief Justice, "purchases made and paid for out of the general mass cannot be claimed by the bank, unless it is shown that its own moneys then in the fund were appropriated for that purpose." And this the evidence fails to establish as to any other property than that designated in the decree, although it is claimed, on behalf of the receiver, that the sum of $105,000 due to the bank upon certain notes of Wallace & Son, which had been discounted by Bain & Bro., and which were rediscounted for the latter by the bank, should have been traced into certain property conveyed by Wallace & Son to Bain & Bro. The circumstances, so far as necessary to elucidate this claim, are as follows: Bain & Bro. owed the Richmond Cedar Works $31,885.71. The Exchange National Bank held the interest of Bain & Bro. in these works under the transfer of Bain & Bro. to the bank, of March 31, 1885. The Richmond Cedar Works owed the Exchange National Bank $140,000, upon which Wallace & Son were endorsers. Wallace & Son owed Bain & Bro. over $300,000. By a deed dated April 3, 1885, Wallace & Son conveyed certain property to the Richmond Cedar Works for $55,000, receiving in payment the Cedar Work's check on Bain & Bro. for $31,885.71, due from them to it, and the notes of the Cedar Works for the balance, which were turned over to Bain & Bro. By this transaction the indebtedness of Bain & Bro. to the Cedar Works was extinguished, and Wallace & Son's indebtedness to Bain & Bro. reduced by the sum of $55,000. This left Wallace & Son still debtors of Bain & Bro. to the extent of over $245,000, and on the 6th day of April, 1885, they executed a deed of their remaining property to Bain & Bro., for the expressed consideration of $151,800, which property has passed under the assignment in this case. None of this property, so far as appears, was purchased with the money of the bank, but counsel for the receiver contends that because Bain & Bro. had rediscounted the notes of Wallace and Son to the *695 amount of $105,000 at the bank, and because the deed of Wallace & Son to Bain & Bro. was in payment of their indebtedness to the latter, in whole or in part, therefore it ought to be held that the bank's money purchased Wallace & Son's property for the benefit of Bain & Bro. We do not understand that the bank was entitled to the assets of Bain & Bro.'s debtors, and can perceive no ground for holding that Bain & Bro., in receiving the deed from Wallace & Son, were purchasing property with the money of the bank.
This disposes of the errors assigned on behalf of the receiver, and leaves for consideration those assigned on behalf of the trustees upon their cross appeal. The principal contention is that it was error to decree that the receiver could take "such of the property hereinbefore set out and found to have been actually purchased with the moneys of the said bank as he elects to take; and by making said election and receiving such property the said receiver is not to be estopped from receiving the full benefit of the said deed of trust, or the provisions thereof, in favor of the Exchange National Bank." We do not concur in that view.
The doctrine of election rests upon the principle that he who seeks equity must do it, and means, as the term is ordinarily used, that where two inconsistent or alternative rights or claims are presented to the choice of a party, by a person who manifests the clear intention that he should not enjoy both, then he must accept or reject one or the other; and so, in other words, that one cannot take a benefit under an instrument and then repudiate it.
It cannot be assumed that there was an intention on the part of Bain & Bro. to dispose of that which was not theirs, or, even if they lawfully could, to cut the bank off from participating in the property assigned, in the order mentioned, by imposing the condition that the bank should purchase its share by parting with its own property; nor does any equitable implication to that effect arise. The other creditors cannot claim compensation for being deprived of what did not belong to Bain & Bro., or of anything transferred in lieu thereof. There existed no equity on their part which can be held to *696 estop the bank from receiving what may come to it under the assignment, and in doing so it will not occupy inconsistent positions. That it sought to have the deed set aside does not deprive it of its rights under it, upon the failure of its attack.
It was entirely competent for the court to adjust this matter upon equitable principles, and this it has done in its decree. Under the assignment the bank gets a preference of something over $42,000, and then ranks with other creditors to the extent of $102,000, while the balance of a very large indebtedness due to it is relegated to the third class; and it appears to be entirely just that it should have in addition the benefit of that which belongs to it, and to which the other creditors have no claim. And this, though amounting on its face to $149,372.21, we are informed by counsel for the trustees, has only an actual value of $20,177.18, to three items of which, amounting to $6840, the objection is made of failure of proof of their having been purchased with the bank's money.
We have examined the record with care, and are satisfied with the conclusion arrived at by the special master and the court as to these items, and shall not disturb the decree in that regard.
The trustees also demur to being held affected with notice as to the traced property, principally because the affairs of the debtors were in such a state as to render the task of disentanglement exceedingly onerous. As inquiry would have conducted the trustees to the same conclusion as that now reached, the fact that the conduct of the Bains rendered it difficult to accurately distinguish between one class of property and another, should not absolve them from the operation of the rule as to notice, if otherwise applicable.
While it is well settled in Virginia that the trustees and beneficiaries in a deed of trust to secure bona fide debts occupy the position of purchasers for a valuable consideration; Wickham v. Lewis Martin, 13 Gratt. 427; Evans v. Greenhow, 15 Gratt. 153, 156; Kesner v. Trigg, 98 U.S. 50, 53; yet they cannot hold with notice of the fraudulent intent of their grantor, or of the fraud rendering his title void. And it is equally well settled in the States of West Virginia and Virginia that notice *697 to the trustees is notice to the beneficiaries. Fidelity Co. v. Shenandoah Valley Railroad, Supreme Court of Appeals, West Virginia, February 25, 1889, 9 Southeastern Reporter, 181, 185; Beverly v. Brooks, 2 Leigh, 446; French v. Loyal Co., 5 Leigh, 627, 641.
The knowledge of the situation possessed by Mr. Old, one of the trustees, who was the Bains' attorney at the time of the assignment, and by whom it was drawn, was quite comprehensive, and was obtained in such a manner and under such circumstances that he must be presumed to have communicated it. It was knowledge obtained in the particular transaction. The Distilled Spirits, 11 Wall. 356, 366. There can be no doubt, also, respecting the duty of the trustees to inquire as to the rights of the bank, and that they are chargeable with a knowledge of all the facts that inquiry would have disclosed.
The decree directs that the costs of the suit be paid out of the trust funds in the hands of the defendant trustees, and as we agree with the results arrived at by the Circuit Court, we are of opinion that this direction was correct. The decree will be in all things
Affirmed.
MR. JUSTICE BREWER was not a member of the court when this case was argued and took no part in its decision.
