Merchants & Farmers Bank v. Paulk

TYSON, J. — Prior to the amendment of the statute, absolute conveyances by a debtor of substantially of all of liis property to his creditors in payment' of pre-existing debts, were not within its terms, notwithstanding a preference Avas effected in ílrvor of such grantees in the conveyances and the debtor stripped .of, all his property thereby. — Ellison v. Moses, 95 Ala. 221, and author-I'Hpci thp-ppi-n pifprl By the act of February 21, 1893, (Acts 1892-93, p. 1046), the statute Avas amended by incorporating into it these Avords: “or a conveyance by a debtor of substantially all of his property' in payment of a' prior debt.” The statute as thus amended constitutes áection 2158 of the Code, and reads as fol'loAvs: “Every general assignment made by a debtor, or a conveyance by a debtor, of substantially of all of his property in pay-' ment of a prior debt, by which a preference or priority of payment is given to one or more creditors, over the remaining creditors of the grantor,.shall be and enure to the benefit of all the creditors of the grantor, equally,” etc. In Gay, Hardie & Co. v. Strickland, 112 Ala., 572, after quoting the language of the statute before the amendment, it Avas said: “The purpose and policy of the statute in its origin Avas, to AvithdraAV ,from the debtor, making a transfer of substantially all of hi [593] property as a security for tlie payment of debts the power he had at common law to discriminate or create preferences among and between his creditors. Such transfers are but seldom, if ever made, except in the presence of actual or apprehended insolvency; and in such an event, the law favors equality among creditors. Experience demonstrated that absolute sales in payment of debts were often resorted to, in evasion of the policy and purposes of the statute; and generally, in favor of confidential credHom, as they were termed; creditors who had furnished the failing debtor with means of obtaining credit to which he was not entitled, involving in loss the unsuspecting and fair dealing creditor. The purpose of the amendment of the statute,- is to draw -all such sales, all conveyances of substantially all of the property of a debtor, in payment of a pre-existing or prior debt, within its operation; placing such sales or conveyances upon the same footing with instruments of assignment, or of other form of security for the payment of debts; engrafting upon each the same trusts — trusts for the equal benefit of all creditors. The sale or conveyance is not annulled; nor is it regarded-as fraudulent. It is preserved, as the assignment or other form of security for the payment of debts is preserved. At the (‘lection of other creditors, it inures to their benefit — the vendee becomes a trustee, holds the title passing by the sale or conveyance., but holds it for the equal benefit of all creditors, as if such had been the expressed purposes and objects of the sale or conveyance. The same construction of the statute in reference to these sales or conveyances, must be adopted, which prevailed in reference to assignments, or other instruments of security for the payment of debts. The statute was amended, drawing the sale or conveyance within its operation, with the knowledge of the lawmaker of the prevailing construction, and the presumption must be, with the intention to adopt that construction. As to assignments or other forms of security having the qualities of an assignment, they Avere read and construed, as if the priorities or preferences they created were blotted out, as if the statute Avere incorporated, and instead of the priorities or preferences, a security-for the benefit of all creditors equal [594] ly, was expressed. — Price v. Mazange, 31 Ala. 701; Rapier v. Gulf City Paper Co., 64 Ala. 330; Danner v. Brewer, 69 Ala: 200. Tlie rights of creditors attached at the time of the execution of the assignment, and were incapable of diminution or destruction by any subsequent act of the assignor or assignee, had and done without notice to them, and without their assent. It is a trust, pure and simple, the statute creates, cognizable only in the courts of equity. '* * * The trust is in the nature of a lien, the enforcement of which is deemed to lie within the pecu- • liar province of a court of equity. — Holt v. Bancroft, 30 Ala. 193; Danner v. Brewer, supra.” The case made by the bill, which is filed in behalf of all of the creditors of Paulk, may be stated to be that prior to July 11th, 1896, Paulk became indebted to the complainant in the sum of $2,131.40 evidenced by two notes maturing respectively Oct. 28 and Nov. 1, 1896, and that about the date of the contracting of these debts, lie became indebted to Mrs. Lynch in the sum of $1,000. That at the time of making these debts he was solvent and owned certain real estate described in the bill; but at their maturity he was insolvent and this real estate constituted substantially all of Ms property. That on the 31st day of December, 1896, he executed to Ms wife, Jane Paulk, in payment of a past due debt owing to her, a deed to a certain parcel of this real (‘state; that about the 1st day of Jaunary, 1897, he executed to his wife a deed to a certain other parcel of this real estate in payment of a past due debt, and that on the 4th day of February, 1897, he conveyed to Mrs. Lynch in payment of the debt he owed her, the remaining portion of this real estate, which conveyance to Mrs. Lynch was effectuated by an intermediate conveyance executed by Paulk to one Pitts, who on the 3rd day of March, 1897, made a deed to the lands to Mrs. Lynch upon and for no other consideration than the payment of the debt due to her by Paulk. That the deed was made to Pitts and by Pitts to Mrs. Lynch to hide the real transaction. It is alleged that each of said conveyances was made in contemplation of the other, and all were [595] parts and parcels of one scheme or design for the purpose of giving a preference or priority of payment of the debts due by Faulk to his wife and Mrs. Lynch. The bill also alleges that Mrs. Faulk after acquiring title to tin; lands executed two mortgages upon them — one to Bernheinier and the other to the Bullock County Bank. As to these mortgages, it is averred that at the time of the execution of the respective mortgages held by each of them, they, “knew how the said'Mrs. Jane Faulk acquired title to the lands, and the consideration paid for the same, and knew the insolvent condition of Faulk at the time he conveyed the said real estate to his said wife.’’ The respondents to the bill are Faulk, Mrs. Faulk, Mrs. Lynch, Bernheinier and the Bank. Applying the principles above ([noted from the case of Gay, Hardie & Co. v. Strickland to these facts, it is clear that there was error in dismissing the bill for want of equity. It is evident from the opinion of the chancellor that, lie overlooked the amendment of the statute. It is insisted in one ground of the demurrer that Pitts is a necessary party. lie was a mere conduit and the trustee under the averments of the bill is Mrs. Lynch. It is she, who holds the lands described in the deed from Pitts to her in trust for the equal benefit of all the creditors of Faulk, of which she is one. If it be true as alleged that the mortgagees, Bernheinier and the Bank, knew that Mrs. Paulk acquired the lands from her husband in such manner as to make her a trustee for his creditors, then no act of hers or theirs can destroy the right of such creditors to enforce this trust against the lands, held by her for their benefit. Complainant's rights as a creditor attached at the elate of the execution of the deeds, and from that moment the grantees in the conveyances became trustees. As such trustees they could not impair or destroy complainant’s equitable lien upon the lands by mortgaging or otherwise disposing of them, to persons who had notice of such facts as would have [iut them upon inquiry as to the true state of the title. The objection taken to the bill by the Bank that it is exhibited against several defendants for several and distinct matters and canses, in which it is in no way in596 forested or concerned and that the bill is multifarious, is without avail. The fact that Paulk made separate conveyance of parcels of his lands to several persons, in contemplation of each other and were parts and parcels of one scheme or design for the purpose of giving preference or priority to the grantees in such conveyances as creditors does not require separate bill to be fded by his creditors to subject each parcel conveyed. On the contrary, all the grantees in the various conveyances sought to be charged as trustees should be proceeded against in the same cause, and all subsequent assignees of any one of them with notice of the complainant’s equity. The bill was not subject to any of the grounds of demurrer assigned to it- The decree dismissing the bill must be reversed, a decree entered overruling the motion to dismiss for want of equity and the demurrers and the cause remanded. Reversed, rendered and remanded.