Douglass Cotton Oil Co. v. Alabama MacHinery & Supply Co.

BROWN, J. This bill is filed by the complainants [appellees here], as contract creditors of the Samson Cotton Oil, Gin & Fertilizer Company, against the appellant Douglass Cotton Oil Company, to avoid an alleged sale and conveyance of property by the debtor to the appellant on the ground that it was in fraud of their rights, and to subject the property to sale under decree of the court, for the payment of their claim, and for relief in other respects which will be hereafter noticed. After several amendments were made to the bill, the appellants interposed demurrers to the bill in its several aspects, and to certain parts thereof, questioning the sufficiency of the averments to bring the ease within the influence of Code of 1907, § 3739. The demurrers were overruled, and this ruling presents the only question brought here for. review. [1] One of the questions presented, and the one most strenuously urged in argument, is that to bring the case within the influence of this statute there must be shown an actual intent on the part of the debtor, participated in by the purchaser or grantee, to hinder, delay, and defraud creditors; and that the mere showing that the conveyance was voluntary and without consideration,, or the equivalent, that the conveyance was made on a “fictitious and simulated” consideration, is not sufficient to sustain a bill filed under this statute. The rulings here seem to be uniform that the purpose of section 3739 was to give to simple contract creditors the same remedy in a court of equity that is afforded judgment creditors with a lien by section 3735. Morris v. Fid. Mtg. Bond Co., 187 Ala. 262, 65 South. 810; Hall & Farley v. Ala. Co., 143 Ala. 480, 39 South. 285, 2 L. R. A. (N. S.) 130, 5 Ann. Cas. 363. That constructive fraud, or fraud arising as a presumption of law from the fact that an insolvent or embarrassed debtor has made a voluntary conveyance of his property, is 'as effective to avoid a transfer thereof at the instance of an existing judgment creditor as fraud in fact cannot now be doubted. Seals v. Robinson, 75 Ala. 363. And if the purpose of section 3739 is, as declared in the repeated rulings of this court, to afford to simple contract creditors the same right and remedy as is secured to judgment creditors by section 3735 of the Code, it necessarily follows as a logical consequence that a voluntary conveyance of property by an insolvent or embarrassed debtor may be successfully assailed and avoided by simple contract creditors by a bill for that purpose filed under this statute. We find nothing in Jones v. Massey, 79 Ala. 370, that opposes this view. In that case there seems to have been no averment that the conveyance there assailed was voluntary, or that it was made on a fictitious consideration, and no other facts were averred from which the law would raise the presumption of fraud. The holding in that case was that the mere averment of a conclusion that the conveyance was made with intent to hinder, delay, and defraud, was not sufficient in the absence of averments of facts to sustain this conclusion. In Marble City Land & F. Co. v. Golden, 110 Ala. 377, 17 South. 935, the court merely held that the complainant had failed to prove the averments of the bill. So these cases in no sense conflict with the conclusion above stated. [2] One alternative of the bill in short alleges that respondent Samson Cotton Oil, Gin & Fertilizer Company, subsequent to the time it contracted the debts due the complainants, which were due and unpaid at the time of the filing of the bill, conveyed to the appellant all its property, both real and personal, of the value of $75,000 in payment of debts claimed to be due to appellant, but which were in fact “simulated and fictitious” — the effect of which was to render it insolvent and without property out of which complainants could coerce the payment of the debts due them. We hold that these averments were ample to sustain the conclusion drawn by the pleader that the conveyance was fraudulent and void as to complainants. Matthews v. J. F. Carroll Merc. Co., 195 Ala. 501, 70 South. 143. [3] By the other alternative the pleader concedes that the debts due the appellant were bona fide and justly due, and were secured by a valid mortgage on all the property, but insists that the property conveyed in payment of the debts exceeded the debts by $35,000, and therefore the consideration for the conveyance was so grossly inadequate to the value of the property as to raise a presumpiion of fraud as a matter of law, and that those averments were sufficient to sustain the conclusion drawn by the pleader that the conveyance was fraudulent and void as to the complainants. In' one of our cases it was said: “The effect of the rule fixing the burden of proof as to adequacy of consideration upon the *54 defendant in this class of eases, and prescribing the boundaries beyond which the ereditqr of an insolvent debtor cannot go in taking property in payment of his debt, is to raise up, for all practical purposes, a presumption of the mala fides of the sale which purports to be in discharge of the debt; and to meet this presumption, and impress the transaction with the attributes of fair dealing and good faith, as against attacking creditors, a valuable and, at least, measurably adequate consideration must be shown. Moog v. Farley, 79 Ala. 252; Calhoun v. Hannan, 87 Ala. 277. If this is shown, „all inquiry, as had been many times ruled by this court, into the actual intent of the parties, is foreclosed. If it is not shown, bad intent is presumed, and the question as to what purpose really actuated the parties becomes immaterial. So that it seems to be a necessary resultant from our decisions, that the inquiry into the good or bad faith of the parties as a matter of fact, and disassociated from presumptions of law, is, for all practical purposes, wholly eliminated in cases like this. Badges of fraud may doubtless be looked to, when they tend to impeach the consideration, but not as establishing a covinous intent having no connection with the character or sufficiency of the price paid. “The conclusion, to which the authorities referred to thus lead us, is, we think, supported by the logic of the situation, so to speak. If the debt thus sought to be paid is in point of fact unjust, I apprehend that the utmost good faith, the most implicit belief in its correctness, on the part of both buyer and seller, would not validate the transaction. On the other hand, if the debt is just, hut in amount only one-half or one-third of the value of the property, should the purchasing creditor be allowed to thus pay himself twice or thrice over, merely because it is shown, ever so clearly, that he acted in good faith, and, owing, it may be, to .some particular opinion of his as to the value of property, or of the particular property, or ignorance of its value, honestly believed he was paying an adequate price for it? In all reason, it would seem that other creditors are entitled to some protection against the ignorance or intellectual idiosyncracies of such a purchaser, and that this protection should be found in the judgment of the jury, as to whether the buyer has received greatly more than he has paid for by the satisfaction of Ms debt, or, what is the same thing, hsfS satisfied a debt grossly less in amount than the value of the thing he has received. And while ‘the law will not weight considerations in diamond scales,’ nor so- closely balance the property against the price as to leave no room for the ordinary differences of opinion as to values; yet, when the jury can see that the disparity amounts to a gross inadequacy, their verdict should he against the transaction.” Mobile Savings Bank v. McDonnell, 89 Ala. 434, 446-447, 8 South. 137, 140 (9 L. R. A. 645, 18 Am. St. Rep. 137). These observations are here pertinent and sustain the conclusion that the' averments of the bill, in either aspect of the case, are sufficient. See, also, Chance v. Chapman, 195 Ala. 513, 70 South. 676. [4] If the debt due appellants is a bona fide debt secured by a valid mortgage, tbe fact that the conveyance subsequently made may be found to be fraudulent does not destroy the superior lien of appellants (Kennedy v. First Nat. Bk. of Tuscaloosa, 107 Ala. 170, 18 South. 396, 36 L. R. A. 308); and whether it is essential to the equity of the bill on the second aspect of the case above considered, that the c.omplainants offered to pay the mortgage debt or tendered the amount due thereon, is not a question presented on this appeal, and as to which we express no opinion. Tiie bill’shows that subsequent to the alleged fraudulent conveyance of the property to appellant, appellant caused certain parts of the property to be insured against loss by fire, and that thereafter some of the property ■ — just what portion does not appear — was destroyed by fire. The insurance company issuing this insurance are made parties, and the bill seeks to have these policies of insurance impressed with a trust for the benefit of complainants. The equity of the bill as to this phase .of the case is not presented by demurrer, and on this question we express no opinion, as whatever might be said would be mere dictum; On the whole we are of the opinion that none of the demurrers assigned against the bill, or the specific portions thereof, were well taken, and the decree of the circuit court overruling the demurrers will he affirmed. Affirmed. ANDERSON, O. X, and SAYRE and GARDNER, JJ., concur.