Wiley, Banks & Co. v. Knight

CHILTON, C. J. The proof, which we have carefully examined, satisfies our mind, that at the time of the execution of the mortgage in question, the firm of J. A. & W. H. Knight was insolvent; and the circumstances are such as, when taken together, to fix notice of their inability to pay all their debts upon Wiley, Banks & Co. -This last named firm resided in Charleston, where the Messrs. Knight had purchased their goods to carry on their mercantile concern, which was located'at Auburn in this State, at which place they were largely indebted when the mortgage was given. Some of these debts were due in 1850, others in 1851, and the notes given for them had been protested. The demands due from them to the complainants were past due ; one of them, for $1280, being due for over 18 months anterior to the execution of this deed. Besides this, some seven thousand dollars of demands, existing in favor of Charleston merchants, were then actually in suit in Macon county; and one of the complainants was at Auburn in said county, where ho remained near a week, doubtless endeavoring to collect the demands which he held against the Knights; shortly after which, the claims were sent to Mr. Eeese, at Auburn, an attorney at law, for collection or security. Now, although Mr. Eeese, as he testifies, “ did not know positively, at the time of the execution of the mortgage, that the Knights wore in failing circumstances,” Ee certainly had, as he testifies he presumes his clients, the complainants, had, reason to believe that such was their condition. He knew of the Wimberlcy mortgage for a large debt, which covered their property; he knew of other demands against them, and — 345 — himself had endeavored to secure them from collaterals ; he knew that the bond for the house in which they resided had been turned over to a creditor, for whom he was attorney ; that the debts, accounts, &c., due said firm, had been so culled over, as that the whole surplus remaining were almost worthless. Knowing all these facts, he certainly had very strong reasons to believe, what he swears he soon afterwards ascertained, that at the time he took this mortgage the Knights were insolvent. Mr. Reese does not state that he did not believe, and had not sufficient evidence on which to found a rational well grounded conclusion, that they were in failing circumstances : the contrary is fairly inferable from his testimony, and his conduct in the negotiation. It -is incredible that, with a belief of their ability to pay their debts, this attorney would have manifested the zeal and energy, and would have submitted to the sacrifices, which were made to secure these mortgage debts, rather than sue upon the demand. According to his testimony, he “insisted and entreated that the Knights should execute to complainants a deed of trust, with power of sale, making the. limitation of said deed the first of January, 1853; which the Knights refused. He then proposed different and shorter times .than granted as shown by the mortgage ; but the Knights, particularly John A. Knight, who owned most or nearly all the property mentioned in the mortgage, utterly and positively refused to execute a mortgage, with powers of sale, and that unless complainants would grant six years, he would not sign any conveyance- of his property ; and despite the entreaty of witness, the Knights refused auy other terms than those granted as shown by the mortgage and that witness, rather than lose so large a debt, or even jeopard it, at length agreed, through necessity, to allow the time demanded.” The Knights also required that the large debt to Wimberley should be paid, as a condition precedent to the execution of such security. It seems, therefore, that such was the necessity for securing the demands of complainants, that the Knights were allowed to dictate the terms, — terms which are irreconcilable with the idea that complainants believed that they could have collected their demands by suit at law. The truth is, that this agent thought lie saw the cloud which threatened to overwhelm this firm,— — 346 — he saw the danger his clients were, in, and, doubtless influenced solely b.y a laudable desire to save them, he was prepared to make sacrifices commensurate with the necessity for security ; and hence he submitted to the extraordinary terms required by the Knights, in order to obtain for them this deed. It is wholly immaterial whether notice of the Knights’ insolvency, or failing condition, be brought home to the complainants personally, if their agent or attorney had notice ; for, upon general principles of policy, it must be taken for granted that the principal knows whatever the agent knows. Per Ashurst, J., in Fitzherbert v. Mather, 1 T. R. 16; Paley on Agency, 199. If such were not the law, notice might be avoided in every case by the employment of an agent. Amb. 626. And this principle applies equally in law and in equity. — Paley on Agency, 199 ; Doe ex d. Willis v. Martin, 4 T. R. 66. . Having ascertained that on the 9th February, 1852, when this mortgage was made, the mortgagors were insolvent, and the mortgagees took it under such circumstances as to.charge them with notice of that fact, we proceed to inquire whether the deed can be supported. Upon this point, the bare statement of the proposition is at once the solution of it. An insolvent firm, with a large amount of debts in suit against it, which in a short time will go into judgments, is importuned by one of its creditors for security. This firm consents to give the security, by a mortgage on all the effects of the partners, as well as firm effects, upon condition that the grantors, or mortgagors, shall retain the possession of the property for six years. This property is more than sufficient to pay the mortgage demand ; and the mortgage embraces, in addition to other property, live stock, provisions, &e., which must, in the contemplation of the parties, have been intended to bo used by the mortgagor and his family, who have no other means of support, and a part of which must be consumed in the use. But it does not stop here : — the mortgage is made to cover all the corn and cotton which may be raised by the mortgagors until the law day, or payment of the mortgage debt; by which provision, we suppose, was intended the surplus after supporting the — 347 — family of the mortgagors. Such, evidently, is Mr. Reese’s understanding of the agreement; for, in his deposition, he states, that .he called on the mortgagors for the proceeds of the crop ; and that Knight informed him (as he believes, truly) that by reason of his having to .pay high for provisions and rent of land, no surplus remained. It must be borne in mind, also, that the debts thus secured were all past due when this mortgage was executed. What is the necessary effect of such a deed ? We answer, If the contract is allowed to stand, and is to be carried out, the insolvent debtor, in consideration of a preference given to one among many creditors, has purchased a living for himself and family for six years, at the expense of all but the preferred creditor; he will have hindered and postponed the collection of all the demands against him for that length of time, enjoying all the while the possession of all his estate. As was said in Montgomery v. Kirksey, 26 Ala. R. 185, “ It is not permissible for any one thus to avail himself of a part of his indebtedness, to tie up all his property and exempt it from liability to satisfy his other debts, while he has the temporary benefit of the use of it,” &c. The preferred creditor and the insolvent debtor agree to appropriate the whole of the debtor’s property, which is more than sufficient to pay the preferred debt, to their mutual and exclusive benefit for six years, to the hindrance, delay, and 'utter exclusion of all other creditors; and, not content to limit this exclusion to the property itself, they embrace, under cover of their deed, the issues and profits thereof. It will not do for the preferred creditor to say, ‘ I was influenced by no fraudulent or improper motive — >all I desired was to secure an honest debt, and I made the very best arrangement with my debtor the most urgent entreaty could obtain.’ At this point the law interposes, and says, ‘ Every man is presumed to intend the natural and necessary consequences of his acts ; and the courts must presume the intention to exist when the consequences must necessarily follow, and will not listen to an argument against it.’ — Pope v. Wilson, 7 Ala. R. 694. The law allows an honest preference to be given by a failing debtor to a creditor ; but it utterly repudiates the idea, that such a preference way be obtained by — 348 — tying up all the debtor’s property, which is more than sufficient to secure the debt, exempting it for an unreasonable time from all his other creditors, while it is provided (or results as matter of law in the absence of a provision) that the insolvent, in the meantime, shall reap a permanent benefit from it, by retaining the possession. In such case, the arrangement is; as a conclusion of law, fraudulent and void, as it operates a fraud on the other creditors ; and whether the parties actually intended to defraud or not, is wholly an immaterial inquiry. None of the numerous cases cited by the counsel for appellants are analogous to the case before us. The cases which hold that it is competent for the court of equity to control the action of a mortgagee, whose mortgage becomes oppressive to a third party, apply to mortgages fairly made, and not to those which operate in the nature of assignments by insolvents of all their property. The cases relied upon by the learned chancellor, especially, The Farmers’ Bank v. Douglass, 11 Smedes & Mar. R. 469, sustain the view he felt constrained to take of this case ; which view', upon a full investigation of the record, wo think is in perfect consonance with the law. That the complainants have discharged the mortgage debt to Wimberley, as a prerequisite to obtaining the mortgage under consideration, gives them no right upon the allegations of this bill, to insist upon that mortgage which has been satisfied. They paid it as part of a contract by which they were to become the creditors of the mortgagors, the Knights, to the extent of such payment; the same to be extended to the first day of January, 1858, being blended with the previous indebtedness of the Knights to the complainants. As between the complainants and the Knights, this deed, and the arrangement on which it is based, are valid. The deed is only void as to the creditors whose debts are delayed, hindered, &g. — 6 Ala. R. 367 ; 5 ib. 31 ; 10 ib. 804 ; 24 ib. 513; ib. 531. Neither party to it can say it is void for fraud. The reply of the Knights to such an allegation might be, ‘It is only void, by the statute, as to creditors defrauded — as between us, the parties to it, it is valid.’ Besides this, there is no averment that the Wimberley mortgage was assigned — 349 — to complainants, or that it is subsisting. The bill-is not filed to set it up, but virtually concedes that it is discharged, and claims the sum paid as secured by complainants’ mortgage. But it may be said, that the court may hold the mortgage to the complainants as a valid security to the extent of the amount paid to extinguish the Wimberley mortgage — that a deed may be good in part, and bad in part, as was decided in Anderson v. Hooks, 9 Ala. R. 704. Without disputing the authority of that case, we think it has no application to the one before us. There, the deed Secured separate demands alleged to be due to different individuals. One was simulated, the other Iona fide; and it was held to be a valid security for the honest debt, but void as to the simulated one. The honest creditor, who did not in any way participate in the fraud of the grantor, and who accepted a provision fair and bona fide on its face, was not held affected by the fraud of the grantor by, inserting and professing to secure a simulated demand. In this case, there is no party to the deed unaffected by its infirmity. This infirmity goes to the instrument as a whole, and equally affects all its parts. If it avails at all, it must avail according to its terms. If it be held as security for part of the demand, because that was the price of extinguishing an incumbrance which constituted a lien older than that of the creditors, it must operate according to its terms, or else we must make a new contract of security for the parties ; and if it is so .to operate, why then the deed effectually delays, hinders, and defrauds the creditors, to the extent of this payment. But it is argued, that the creditors set up this agreement to extinguish Wimberley’s mortgage, and, having gotten rid of that, seek to invalidate the mortgage which, to that extent, they have made available for their benefit. The answer to this is, that the creditors do not set up either deed. They merely repose upon their legal rights. It is the complainants, as we have said, who set up the deed, and who ask the court to become active in relieving them against the creditors — to decree an injunction, in virtue of a deed which is fraudulent as to those creditors ; and if this cannot be done, then, under the general prayer for relief, to rid them of the dilemma in which they have placed themselves, by refunding — 350 — the amount-they wefe compelled to pay in order to obtain such deed. We have seen no case which goes to this extent. To proceed and render a decree, setting up the Wimberley mortgage, and pronouncing that void which is set up in the bill, would be to render a decree, which would not only be unsupported by the allegations of the bill, but predicated upon a state of facts precisely the opposite of those which are charged; for it would be to declare null and void a deed which the complainants set up as valid and effectual, and on which they ground their title for relief, and to set up a deed as subsisting which the complainants allege has been fully paid and discharged. So that, without intending to decide whether the complainants can have any relief on account of their payment of the mortgage to Wimberley upon a proper application, it is clear they can obtain no relief under the case as now presented. — 1 Danl. Ch. Pr. 431; Litt. Sel. Cases, 146 ; 16 Peters, 182; 13 Ala. R. 693 ; 22 ib. 106; 2 Dev. R. 44 ; 2 Paige, 396 ; 4 ib. 538. To set up the Wimberley mortgage, would be to take the defendant entirely by surprise, as it is only mentioned for the purpose of corroborating the plaintiff's right to the relief specifically prayed. 1 Danl. Ch. Pr. 437 ; 2 Paige, 397. Upon the whole, while we feel satisfied that the agent of the complainants, who procured this mortgage, was influenced solely by an honest desire to secure the demands of his principals, which were in danger of being lost, he has suffered his zeal to obtain for them a preference, and the obstinacy of the grantors which refused peremptorily any terms but those contained in the deed, to betray him into an arrangement, which, however free from any fraudulent intention on his part, operates necessarily a fraud on the other creditors ; and as the circumstances are such as reasonably to bring home notice to him, and consequently to his principals, of the nature and operation of such deed, the law affixes the intent as contemplating the necessary result, and stamps the deed as fraudulent and void. Let the decree be affirmed.