Dickinson v. National Bank of the Republic

HEAD, J. Section 3544 of the Code, reads as follows : “A creditor without a lien may file a bill in Chancery to discover or to subject to the payment of his debt any property which has been fraudulently transferred or conveyed by his_debtor,” [548] H. Dickinson, a debtor by simple contract merely, to the complainant, The National Bank of the Bepnblic, as the bill avers, with intent to hinder, delay or defraud his creditors, sold and transferred to his co-defendants the stock of goods and other property mentioned in the bill, of value more than sufficient to pay complainants’ debt, which property the said fraudulent purchasers afterwards sold, and appropriated the proceeds thereof to their own use. The averments of the bill make a clear case of fraudulent disposition of the property by Dickinson, participated in by the purchasers. The bill prays for an accounting to ascertain the amount of complainant’s demand, and also to ascertain the value of the property which went into the possession of said purchasers, under the fraudulent sale, .and, on final hearing, for personal decrees against the defendants, for the amount found due complainant, and for general relief. The question is raised by demurrer whether the statute above copied should be so interpreted as that the remedy therein provided can be made to reach the proceeds of property fraudulently conveyed by the debtor, in the hands of the purchaser, who, after the sale, converted it; or whether the remedy is confined to a subjection of the property itself, to the payment of the creditor’s demand. Prior to this statute, a creditor by simple contract had no remedy, by bill in equity, to reach and subject property fraudulently transferred by his debtor. Only, creditors who had reduced their demands to judgment and exhausted their legal remedies against the debtor, could obtain such relief in the Chancery Court. The statute was enacted to cure that disability. It is remedial in its nature, and must receive that liberal construction and enforcement which will give full effect to the beneficial objects the legislature intended to be accomplished. It will not be expounded by any narrow-or strict rules of interpretation tending to impair the efficiency of the remedy given. 2 Br. Dig. 461, §§ 16, 17. Jones v. Smith, 92 Ala. 455. Thus construed, it is manifest the purpose was to confer upon simple contract creditors the same rights and remedies which judgment creditors, who had exhausted their legal remedies, then had to reach, through the Chancery Court, property of the debt- or, liable to satisfy debts, which had been fraudulently conveyed, or attempted to be fraudulently conveyed by the debtor. Weiss v. Goetter, Weil & Co., 72 Ala. 259; Bromberg Bros. v. Heyer Bros. 69 Ala. 22; Reynolds v. Welsh, 47 Ala. 200; Evans v. Welsh, 63 Ala. 250. In determining [549] the question now presented, we may, therefore, have recourse to precedents and adjudged cases touching the rights and remedies of such judgment creditors, in respect of the subjection by bill in equity of the proceeds of fraudulently assigned property, in the hands of the fraudulent grantee or donee. In Ferguson v. Hullman, 55 Wis. 190, the court, in a case in principle like the present, used this language : “If the fraudulent grantee in possession of the property of the debtor can not be protected for the money or other consideration he may have given for the transfer, as against the creditors of such debtor, it would seem to follow as a necessary consequence that such grantee can not be protected in the possession of the proceeds of such property received by him on a sale thereof. The property in the hands of the fraudulent purchaser is held by him in trust for the creditors of his fraudulent vendor, and when the property is converted into money, the money is impressed with the same trust. The original conveyance being void as to creditors, no title as them ever passed to the grantee; and if he sells it and receives the money, he must hold the money for the benefit of creditors. In equity, such money in the hands of the fraudulent grantee is held for the benefit of the creditors; and, although they may not be able to maintain an action at law for money had and received for their use, because they were never the owners of, or had the title to the property which has been converted into such money, yet a court of equity, having all the parties interested before it, may make such order as to the application thereof as would be just. If the court, in a proper case, would have the power to order the fraudulent grantee to pay money received by him in satisfaction of the debt of a creditor, then the fact that it directed a personal judgment to be rendered against him for the money so received, and that the amount be collected on execution, would be a mere matter of form, which does not prejudice his rights, and of which he can not complain.” This doctrine is fully sustained by the following authorities: Fullerton v. Viall, 42 How. Pr. 294; Gillett v. Bate, 86 N. Y. 87; Quinby v. Strauss, Ib. 664; Murtha v. Gurley, 90 N. Y. 372; Post v. Stiger, 29 N. J. Eq. 558; Solinsky v. Lincoln Sav. Bank, 85 Tenn. 372; Waite Fraud. Conv. § 177, et seq. Bump on Fraud. Con., citing many authorities, states it as follows : “The grantee is construed to be a trustee for the creditors, and as such is responsible for all his acts in disposing of the property fraudulently conveyed to him, If he [550] lias parted with it lie must account for tbe value. Is autem dolo malo emit, bona fide autem emeriti vendidit, in solidumpre-iium rei quod aocepit ienebitur. A court of equity follows tbe proceeds of tbe property and affords a remedy by turning tbe legal' owner into a trustee for tbe benefit of creditors. Tbe proceeds may be followed into any property in which it has been invested so far as it can be traced. The grantee is liable for property which be has converted to bis own use. If be sells the property and receives insufficient security, tbe loss falls upon him and not upon tbe creditors. If be impedes tbe creditors by unnecessary litigation, be will be held to make good all loss which may be occasioned by bis unjust interference. When be gives notes as a consideration for tbe transfer, be furnishes tbe debtor with facilities for defrauding bis creditors and will therefore be held liable for tbe notes that are misapplied. If tbe property has been mixed with other property of tbe grantee so that tbe proceeds can not be ascertained be may be charged with tbe value and interest thereon.” Bump on Fraud. Conv. 608. We are entirely satisfied with tbe correctness of tbe principles here stated, and bold that, under our statute, they apply in behalf of a simple contract creditor, proceeding by bill in equity, to tbe same extent that they are applicable in behalf of judgment creditors who have exhausted their legal remedies. Tbe proceeds of tbe property fraudulently conveyed, in tbe bands of tbe fraudulent vendee, may be condemned and ordered paid to tbe creditor, or tbe right enforced against tbe vendee by personal decree and execution. So, also, if tbe goods have been otherwise converted or appropriated by tbe fraudulent vendee, be is liable, upon an accounting, by personal decree and execution, to pay tbe value thereof, in discharge of the. claim of tbe creditor. Tbe bill contains equity, and tbe demurrer was properly overruled. Affirmed.