First National Bank v. Acme White Lead & Color Co.

TYSON, J. The right of the complainants to maintain this hill depends upon whether the facts alleged, without reference to the conclusions averred by the pleader which cannot be taken into consideration, if true, constitute such a fraud upon their rights as creditors of the Supply Company as entitles them to have the judgment lien owned by the Bank upon the property of the Supply Company declared fraudulent and void. • The theory of the bill is that the judgment obtained by the Bank against the Supply Company was the result of a collusive suit in which the judgment assailed was obtained, and that the judgment suffered was alike collusive, and the whole proceeding which resulted in the judgment and the establishment of the lien thereunder had its inception in an express or implied understanding btween the Bank and the insolvent debtor, the Supply Company, by which the Bank was to secure to itself an unlawful preference in the payment of its debt. There are many facts alleged in the bill, some of them occurring before the rendition of the judgment and some afterwards; which tend very strongly to show that it was the purpose of the Bank and the Supply Company, that the Bank if possible should acquire the first lien upon its property. It is apparent from the allegations that there was a race of diligence engaged in by numerous creditors of the insolvent corporation to secure liens upon its property, some resorting to attachments, and others to suits by summons and complaint. It is also beyond controversy that all these creditors, including the Bank, knew that their common debtor, the Supply Company, was totally insolvent. No one doubts that a creditor may resort to all lawful means to procure the payment of a bona fide debt by an insolvent debtor, even though the result Avill be to entirely strip the debtor of all available means to pay liis other creditors. And this he can do, without having his conduct and the lawful means employed resulting in a preference, declared fraudulent, notwithstanding it may have been the purpose of his debtor to hinder, delay or defraud his other creditors, and notwithstanding the creditor may participate in the intent of [357] his debtor to hinder, delay or defraud his other creditors, provided his debt is a bona fide one and the property conveyed to him in absolute payment of his debt does not exceed in value the amount of .such indebtedness. But all this is only true where there- is an absolute conveyance by the debtor to his creditor in absolute payment' or discharge of his debt.. If the result of the attempt on the part of the creditor having a bona fide debt, goes beyond the payment of lrs debt, or if the means employed by him are such as to hinder, delay or defraud other creditors of his insolvent debtor, go beyond those that should be fairly employed by him in procuring the payment of his debt,-such as by suit commenced, or judgment suffered by collusion with- his insolvent debtor, then the preference thus acquired by him is fraudulent and prohibited by section 2156 of the Code. This principle was recognized and enforced in the case of Comer v. Heidelbach, 109 Ala. 223, where it is said: “It can make no difference that the bill does not aver that the alleged indebtedness of the defendant to the plaintiff in attachment was fictitious or simulated and not bona fide. If the plaintiff and the defendant in attachment colluded together for the purpose of transferring the property of the latter, the effort to resort to such judicial machinery, as was said in the case we have just cited [Cartwright v. Bamberger, Bloom & Co., 90 Ala. 405] may be characterized as an ‘attempt’ to make such fraudulent transfer. It is the collusive and fraudulent use that is attempted to be made of the processes of the court in such cases, so opposed to the whole spirit and policy of the statutes, which the law abhors and denounces. If an attaching creditor fairly and honestly outstrips other creditors in a race of diligence in suing out his attachment, to secure a first lien on an insolvent debtor’s effects, liable to attachment, the law upholds his effort and rewards him, in according to him the preference of payment thus acquired. But such a creditor should come into the court with clean hands when he seeks such a right. The law will not sanction a secret, deceitful arrangement and agreement between him and the defendant in attachment, the direct effect [358] of which is to hinder, delay and defraud his other creditors, by means of which his property is transferred to the attaching creditor, possibly in the interest of the debtor.” It can be of no consequence that the lien acquired by the preferential creditor is by attachment; if the lien is acquired under a judgment, the result of -collusion, in fraud of the rights of other creditors, the lien must of,necessity be fraudulent. It is the fairness and honesty of the race of diligence engaged in by the creditors in the prosecution of their respective claims to judgment, that secures to the most diligent of them a preferential lien. How can the race be said to be fair, free and entirely honest when the insolvent debtor collusively with one creditor, in order to aid him in securing a first lien, assists him by obstructing others in reducing their debts to judgments by having an attorney appear in order to delay judgments being rendered by default against it on default day so that the Bank, its preferential creditor, might and did get the first lien to which it was not entitled, either in priority in point of time as to suit brought or in priority in point of order in the arrangement of the causes upon the docket? The mere statement of the inquiry avoids the necessity for an answer. To uphold such a preference, would be to require courts of conscience to approve the collusive arrangement of the Bank and its insolvent debtor to the end of hindering, delaying and defrauding the other creditors of the Supply Company; to sanction an advantage obtained by the Bank unfairly and to reward it as the winner of the race of diligence, Avon by unfair assistance as against its competitors. We know of no case" decided by this court which in the remotest degree militates against the principles quoted above from Comer v. Heidelbach. The case of Warren v. Hunt, 114 Ala. 506, relied upon by appellant certainly does not. The writer of the opinion clearly differentiated it from Cartwright v. Bamberger, Bloom & Co., and Comer v. Heidelbach. It is true that in Warren v. Hunt this court declined to declare a judgment obtained by confession, upon a mere allegation that it avus confessed, fraudulent, as a judgment suf [359] fered. It did not appear, however, that the judgment creditor had knowledge o” notice of the insolvency of his debtor, nor was there, as here, any averment in the hill, that the judgment creditor was actively aided by the insolvent debtor in securing the judgment after the suit had been brought. All that was done by the judgment debtor was to accept service of the summons and complaint and consent to the rendition of the judgment against him. All of this could have been accomplished without his consent or acquiescence. In, the case under consideration, the Bank could never have obtained its judgment first in point of time thereby securing the first lien, without the co-operation of the Supply Company in delaying the complainants in- obtaining their judgments. There was nothing in the conduct of the attorneys of the Bank in procuring the clerk of the circuit court to sign blank summons and complaints without informing him for what purpose they desired to use them, nor in filling them out in duplicate, and after doing so, delivering them to the sheriff instead of the clerk with instructions to serve the copy and return the original to them, and not deliver the original to the clerk, saying they did not wish it- placed on the docket of the court, which violated any rule of law or professional ethics. If this fact stood alone, the bill -would confessedly be without equity. It is the aggregation of the many facts in the hill showing collusion and the potent one showing the consentive assistance rendered by the Supply Company to the Bank in securing the first lien upon its property that gives the bill equity. What we have said disposes of all the contentions insisted upon in argument of appellants’ counsel. A special prayer for relief must-assentially depend upon the proper form and structure of the bill, and the court can grant such relief only as the case stated will justify. A complainant can have no greater relief than the facts alleged in his bill warrant.- — Story Eq. PL, § 42. The demurrer to a portion of the bill raises the sufficiency of its allegations as to a matter wholly immaterial and unnecessary to be alleged to give it equity. We must, therefore, decline to reverse the decree of the lower court in overruling it. The decree of the court must be affirmed.