Alabama Life Insurance & Trust Co. v. Pettway

GOLDTHWAITE, J. The circumstances under which the bill in the present case originated, were as follows : Sterling H. Gee, who resided in Halifax County, North Carolina, and Charles J. Gee, who lived in Wilcox County, Alabama, were partners in buying and selling slaves, and also in planting. They did not use a firm name, but the business was usually conducted in the individual name of the partner who transacted the business. They became embarrassed in the fall of 1845, and on the 22d November of that year made a deed of trust, of specific property in Alabama, for the purpose of securing certain debts enumerated therein. The complainant, Pettway, was the largest beneficiary and the trustee in this deed, although there were other creditors preferred to him ; and the right of the trustee to sell the property was dependent upon a default to happen in January, 1846. Before the default, the property was levied on by creditors, some of whom had liens paramount to those of the trustee, and some of a subsequent date. Pettway then filed his bill, as trustee, on behalf of himself and the other beneficiaries in the deed, to protect the property from pursuit; setting out the deed of trust, the danger to which the property was exposed from a sale under levies from attaching and execution creditors; and praying an injunction (which was granted), and also a — 562 — foreclosure under the direction of the court. A supplemental bill was filed, the object of which'was to bring in other creditors, to suspend legal proceedings against the property, and to settle the liens. The creditors who had levied upon the property, contest the deed as fraudulent; and this is the only substantial ground of defence; for, if the deed is valid, it is clear that the bill is well filed, not only on the ground of preventing a multiplicity of suits, and removing a cloud upon the title of the property, but also upon the well settled ground that a mortgagee, although he has the power to sell, may yet come into a court of chancery to foreclose. The mere power to sell cannot deprive equity of its jurisdiction, especially when the power is embarrassed by other claimants to the property or its proceeds. Regarding the question of fraud in the execution of the deed, as the only one presented upon the record, we proceed to the consideration of that question. One of the debts enumerated in the deed, and which it was intended to secure, is described as the balance due on a note payable to Benjamin Edmonds, made by the Gees as principal, and Pettway as surety, which had been paid by the latter; and it is insisted, that the evidence shows that this amount, instead of being paid by Pettway, was in fact paid with the funds and effects of the Gees. The testimony proves that the amount was paid, in part, by notes which were borrowed of William R. Clarke by Sterling H. Gee, and that in payment of the notes he gave a bond signed by himself as principal and Pettway as surety. As between the parties to the transaction, it assumed the shape of a loan to Gee, upon the security of Pettway ; but it was competent for Gee and Pettway to change their relation to each other. The recital in the note does not affect them (Pollard v. Stanton, 5 Ala. 451); and upon the issue offraud we must look to the intent of the parties. Here, in addition to the facts we have stated, the evidence shows that the loan was made on the credit of Pettway, — that Gee is insolvent, — that Pettway has paid a portion of the note given to Clarke, and has given individual security for the balance. The note to Clarke is treated, both by the Gees and Pettway, as the debt of the latter, by including it in the mortgage as his; and whether it be considered as an actual debt of Pettway, or a — 563 — liability which he was under for the Gees, can, when viewed in relation to the question of fraud, make no difference ; it being obvious, that it was the intention of the parties to provide for it in either shape. We think, however, that the evidence shows a change of position, as between Gee and Pettway, as to this note, and so far as they are concerned, it may properly be regarded as the debt of the latter. It is also insisted, on the part of the plaintiffs in error, that a note, included in the mortgage as a debt to Pettway by note of S. H. Gee, for $2617 53, is not proved. This note is dated in August, 1843 ; and the signature is proved by the witness Pritchett to be that of S. H. Gee. The same witness, also, proves that seven negroes, a horse, mule, and two carts, the property of Pettway, were delivered by him to Gee before that time in the same year, which were carried by the witness, by the directions of Gee, to Alabama, and there delivered to him. He also proves-the hire of a negro by Pettway to Gee the same year ; and these circumstances, taken in connection with the peculiar relations which the parties are shown to have occupied towards each other, we regard sufficient. It is urged, however, that the witness who proves these facts is incompetent from interest, and that under the agreement which it appears from the record was entered into by the counsel, to the effect that illegal evidence should not be considered by the court, this evidence should be wholly disregarded. We agree, that if the witness is interested, his evidence goes for nothing; but we are unable te perceive that he has any interest in the event of this suit. He states, that he holds two notes upon the Gees, on which there is due about $260; but these notes are not embraced in the mortgage, which it is the object of this suit to foreclose; and although they are in the deed of trust to Perkins, made in April, 1846, this cannot affect his competency, as no debt is secured by that mortgage which is contained in the Alabama deed, to which he occupies the position of a general creditor; and, if interested at all, it is in defeating it. Objections are also urged, upon the same ground, to two other claims enumerated in the deed ; the one referred to as a note to Pettway, as executor of John Powell, for $1717 14, and the other as a note to the executors of Sterling Johnson. The first note is not proved; but a note answering the descrip — 564 — tion in every respect except that it is for $1616 14, is fully established by the evidence; and although it may be that the allegations of the bill are not sufficient to a decree of foreclosure upon the note proved (a point which the deficiency of the mortgaged property to meet the other demands of Pettway, renders it unnecessary to decide), we are satisfied that the evidence was proper, as tending to repel the imputation of fraud which might otherwise arise. The question upon that issue would be, simply, whether the note described in the mortgage was simulated ; and if the evidence shows that it was merely misdescribed, it repels every prejudicial inference which might arise if such proof was not made. The debt due the executors of Sterling Johnson, is fully proved by the witnesses R. B. Price and Wade Johnson. The mortgage, it is true, dees not specify the amount of this note with particularity, but the debt to which it refers is clearly established. The only remaining objection to the validity of the deed, is, the conduct of Pettway in connection with the purchase of the slaves from S. H. Gee. These slaves were thirty-six in number ; the purchase was made in North Carolina; the price was $15,000, for the payment of which Pettway gave his bond, which was in the possession of Gee at the date of the mortgage, and during the progtess of the suit. The indebtedness of Pettway to Gee is not referred to in the deed of trust, nor does it appear from the bill or the other pleadings in the cause ; and the transaction, taken in connection with these facts, is strongly pressed by the plaintiffs in error, to show that the deed was fraudulent as to Pettway. The answers of the Alabama Life Insurance Company, as well as the answers of several others of the defendants below, refer to this transaction, and, without impeaching its integrity, insist upon it as an assignment made by Sterling H. Gee for the benefit of Pettway, with the object of driving him to seek relief from that fund, instead of the indemnity provided by the deed in Alabama. We do not, however, give to this statement the same effect that the counsel for the defendant in error seems to attach to it. It may he, that if Pettway had obtained adequate indemnity in North Carolina, the creditors of the Gees in Alabama might, under some circumstances, have forced him to look to that security, rather than to the fund — 565 — provided here; and it was doubtless the object of the defendants to do so, if the transaction referred to should assume that shape. But it must also be remembered, that every answer, by an express allegation, assails the deed for fraud; and if the transaction standing alone, or in connection with other circumstances, sustains this allegation, we are not prepared to say that it could not be used for that purpose. Be this, however, as it may, there are other defendants, claiming adversely to the deed, whose answers impugn its integrity, without referring to this transaction at all; so that, upon these answers, we are forced to a consideration of its influence, either by itself, or in connection with the subsequent conduct of Pettway, precisely the same as we would be obliged to consider any other facts established by the evidence in the case. We do not understand that it is the object of any of the defendants to impeach this sale. So far as the parties to it were concerned, there is nothing in the evidence to show that it was not perfectly fair and in good faith ; the purchase having been made by Pettway with the view of securing himself, either in whole or in part, against the liabilities he was under for the Gees. The argument, on the part of the plaintiffs in error, is, that instead of the mortgage made on the 22d November, 1845, showing the actual amount of the indebtedness of the Gees to Pettway, it in fact showed $15,000 more than was really due, and that this fact, coupled with the failure of the latter to disclose this amount of indebtedness on his part, must be regarded as fraudulent. Upon the law applicable to the question, we entertain no doubt that if the Gees were in a failing condition, and if the object of the conveyance was connected, on the part of the makers, with the intent of saving to themselves any portion of the property embraced by it, it would be fraudulent against creditors, as to any party who, by assenting to the intent, participated in the fraud.—Lee v. White, 7 J. J. Marsh. 525; Bird v. Aikin, Rice’s Eq. R. 73; Maples v. Maples, ib. 300; Byrd v. Bradley, 2 B. Mon. 239, So, if a creditor should falsely insert in his mortgage a debt larger than was really due, that circumstance, we apprehend, would be conclusive as to a fraudulent intent; because no other motive could reasonably be ascribed to an act of that character. We concede, also, that if Pettway, knowing the insolvency of the — 566 — Gees, and being indebted to them in the sum of $15,000, was to take a mortgage securing all the debts due and liabilities he was under for them, without disclosing in the deed the fact of his indebtedness, it would be a strong circumstance against him ; and if the indemnity provided was fully adequate to the debts enumerated in the mortgage, it would probably be conclusive. If, however, it should clearly appear, that the mortgaged property was inadequate to secure the debts provided for, to an extent exceeding the amount of the indebtedness of Pettway : or if there were other debts or liabilities, not embraced in the mortgage, and exceeding his indebtedness to them, it would then be sufficient, in our opinion, to rebut every inference of fraud or dishonesty. The reasonable presumption, then, would be, that the debt was withheld to provide for his own security, which he had a perfect right to do, although its effect might be to defeat other creditors. What is the meaning of a fraudulent intent in respect to creditors ? It means that the design of the parties was to prevent the property of the debtor from being applied, either in whole or in part, to the payment of his debts (Nicholson v. Leavitt, 4 Sand. Sup. Ct. R. 252); and if that was not the object of the parties, the conveyance is not fraudulent. Suppose the Gees were indebted to Pettway, by other debts than those specified in the mortgage, to a greater amount than the purchase money of the slaves referred to ; and that his design in holding back the debt, was to set it off against the debts he held against them. Would that be fraudulent % No authority has been cited, and none can be found, which carries the doctrine thus far. Courts will not strain to force conclusions of fraud ; and if the circumstances relied on to sustain that allegation, arc fairly susceptible of an honest intent, that construction should be placed upon them. In relation to the question wre are now considering, we have made a careful examination of the record, and find these results: The debts and liabilities which the mortgage was made to secure, and which are proved by the evidence, were about $44,400 00 The sales of the mortgage property, made by the sheriff and register, amount to $69,000 00 — 567 — The debts preferred by the mortgage to Pettway’s, and the liens paramount to the mortgage, and not embraced in it, amount to about $39,900 00 Balance of proceeds of sale, to be applied to the payment of the secured debts, $29,100 00-$29,100 00 Amount not secured by mortgage, $15,300 00 In addition to this, the evidence establishes that Pettway was liable for other debts of the Gees, not included in the Alabama deed, amounting to upwards of $17,000 It appears, therefore, clearly, that the security provided for the mortgage executed 22d November, 1845, was insufficient to meet the debts owing to Pettway by the Gees, and the liabilities he was under for them, by upwards of $30,000. Under these circumstances, we cannot say that the keeping back the debt owing by Pettway, for the slaves purchased by him, was evidence of an intent on his part to defraud the creditors of the Gees, but must ascribe it to the more natural motive of securing himself against liabilities which far exceeded that amount. The vice of the former opinion was, in considering the security afforded by the deed of trust in Alabama as affording full indemnity to Pettway, which was a mistake of fact. If the failure to refer to the debt of $15,000, in the mortgage, cannot be regarded as a fraudulent act, we do not see how the failure to disclose it in the pleadings can bo so considered. The object of the suit was, the prutection of the trust property, —to settle the rights of creditors claiming under the deed, and those claiming under judgments, executions, and attachments, and to execute the trusts as they were disclosed. To do this, it was entirely unnecessary to set out any other transactions than as to the debts specified in the mortgage ; and if it would have been superfluous to allege it in the bill, the failure to do so affords no evidence whatever of a fraudulent intent. We say nothing in relation to the North Carolina deed of trust; for the — 568 — reason, that it was not executed until some months after the Alabama deed, and the evidence shows that the property included in it, if it had been appropriated to no other debts than the liabilities which it is proved Pettway was under for the Gees, would still, taking into estimation the inadequacy of the other mortgage, have failed to secure Pettway by a sum considerably greater than his debt. Our conclusion is, upon the whole evidence, that it proves no fraud, so far as Pettway is concerned. The decree of the Chancellor is affirmed.