Opinion
8 Div. 127.
November 21, 1918. Rehearing Denied December 21, 1918.
Appeal from Circuit Court, Morgan County; Robert C. Brickell, Judge.
E. W. Godbey, of Decatur, for appellant.
Sample Kilpatrick, of Cullman, Eyster Eyster, of Albany, and Thomas W. Martin, of Birmingham, for appellees.
The bill in this case is filed by plaintiff as trustee in bankruptcy of the estate of J. R. White, and seeks to set aside, as in fraud of creditors, certain conveyances and declare certain transactions void, and to hold the parties accountable therefor. The substance of the bill's averments will not be here stated in this opinion, but will be sufficiently set out by the reporter in his report of the case. We will only state so much thereof as suffices for a general understanding of the questions here determined.
It is earnestly insisted in the first place by all the respondents that the bill is multifarious, in that it seeks to have the transfer of the payment of $6,000 by the Alabama Power Company to Alred declared fraudulent and void as against creditors; and likewise to have declared fraudulent and void the business arrangement made by the bankrupt with the respondents Milton and Archie Hood in the business known as the Hartselle Stave Heading Company, and also seeks to have set aside the mortgages to the respondents Doss and Turney as fraudulent and void as against creditors. It is further insisted there is no connection as to any of these transactions, one with the other, and that therefore the bill is multifarious citing, among other authorities, Truss v. Miller, 116 Ala. 505, 22 So. 863; Hitt Lbr. Co. v. Cullman Property Co., 189 Ala. 22, 66 So. 720; A. G. S. R. R. Co. v. Prouty, 149 Ala. 71, 43 So. 352; Ford v. Borders, 200 Ala. 70, 75 So. 400; Bentley v. Barnes, 155 Ala. 659, 47 So. 159.
We are of the opinion, however, that the bill sufficiently shows a scheme on the part of the bankrupt to defraud his creditors, and that resort was had to the various transactions, as set up in the bill, for the consummation of this one purpose; and that the bill is not multifarious for having made respondents those parties charged with participation or knowledge of the fraud, although in separate transactions which had no connection one with the other. We think the bill in this respect comes within the influence of the following authorities, and that the demurrer taking this point should not be sustained: Henderson v. Farley Nat. Bk., 123 Ala. 547, 26 So. 226, 82 Am. St. Rep. 140; N.W. Land Ass'n v. Grady, 137 Ala. 219, 33 So. 874; Hill Bros. v. Moone, 104 Ala. 353, 16 So. 67; Ellis v. Vandergrift, 173 Ala. 142, 55 So. 781; Mitchell v. Cudd, 196 Ala. 162, 71 So. 660.
The bill seeks to have the respondent Alabama Power Company account for $6,000, which it paid to said J. R. White, bankrupt, on August 4, 1915, as part of the purchase price of the municipal electric lighting plant, in the town of Hartselle, Ala., owned by the bankrupt. It is charged in the bill that said White had previously executed a mortgage on said lighting plant in the sum of $6,000 to respondent Alred, his brother-in-law, who resided in Cullman county, and which mortgage was withheld from record, and which the said White was permitted to have in his possession and borrow money thereon; that, in fact, it represented but a pretended loan, without consideration, and was made for the purpose of shielding White's property and revenue from his creditors.
We are of the opinion that the bill sufficiently charges actual fraud as to White, and his brother-in-law Alred, in the execution of this mortgage; that it sufficiently shows a fraudulent diversion of the assets of the bankrupt from his creditors, and was sufficient as against the demurrers interposed thereto by the respondent Alred. We are therefore of the opinion that the court committed error in sustaining the demurrers of the respondent Alred.
As to the respondent Alabama Power Company, however, we think the court properly sustained its demurrer to the bill as amended. It is shown that the lighting plant was sold for $8,000, and, in the absence of averments to the contrary, it must be assumed this was a fair value for the same; that during the negotiation White made affidavit as to incumbrances against the plant, which disclosed the mortgage to Alred, and it is charged that the power company in paying for the plant made out a check for $6,000 payable to White, stipulating that he should pay the same on said mortgage indebtedness to Alred. It is not charged that the power company had any knowledge or notice whatever of any fraudulent conduct on the part of White and Alred in the execution of said mortgage, or that it participated in any manner with said Alred or White in the perpetration of any fraudulent diversion of said funds from the creditors of said White. On the other hand, as we construe the bill, it appears that the said company paid fair value for said plant, and through business caution requested the cancellation of the mortgage thereon. It is, of course, well understood that money is leviable property, and may be reached by a creditor's suit when fraudulently disposed of. Exchange Nat. Bank v. Stewart, 158 Ala. 218, 48 So. 487.
Charging said power company with knowledge of the fraud, however, the complainant seems to rely upon the averments that the mortgage had not been recorded; that White had been left in the possession and enjoyment of the plant and its revenues; that White was related to Alred, and had been left in possession of the mortgage, and had negotiated a loan thereon, and had notice that said White was heavily indebted, and the plant otherwise mortgaged to the General or Western Electric Company.
The fact that the mortgage had not been recorded was no notice of any fraudulent intent as against the power company. Russell v. Bohlin, 76 So. 851. Nor was knowledge of the fact that the parties were related sufficient to give notice of any fraudulent intent. Marshall v. Croon, 60 Ala. 121; Dickson v. McLarney, 97 Ala. 383, 12 So. 398. The mere fact that White was heavily indebted did not of itself make the transaction fraudulent if based upon a good consideration as a bona fide sale. Skinner v. So. Gro. Co., 174 Ala. 371, 56 So. 916; So. Oil Co. v. Harris, 175 Ala. 323, 57 So. 854.
Much stress is made in argument of counsel for appellant upon the averment that the power company had notice that White had continued in possession and control of the lighting plant after the execution of the mortgage, citing Gray-Dudley Hdw. Co. v. Guthrie, 75 So. 320; Roden v. Norton, 128 Ala. 129, 29 So. 637; Christian-Craft Co. v. Michael, 121 Ala. 84, 25 So. 571, 77 Am. St. Rep. 30, among others.
These cases, however, dealt with transactions wherein the mortgagor was permitted to remain in possession of the mortgaged property, such as stock of goods or lumber, with the right to dispose of the same, as had been the previous custom, on his own behalf, and thereby reserving a benefit to the mortgagor, which rendered the mortgage fraudulent. These cases are, in our opinion, not in point in the instant case. The mortgagor here was not left in possession of the property with the authority to dispose of the plant in the ordinary course of trade, as in the case of a stock of goods, and the very nature of the property distinguishes it in every way from a stock of merchandise. The mere retention therefore by the mortgagor, in such a case, was not such a reservation of a benefit to him as invalidates the instrument against creditors. Rike v. Ryan, 147 Ala. 497, 41 So. 959. Nor do we think the fact that the mortgage was produced and in possession of the mortgagor sufficient to charge a knowledge of any fraud. As has been often said by this court:
"Fraud is never presumed, * * * and will not be imputed when the facts and circumstances from which it is supposed to arise may reasonably consist with honest intentions." Mathews v. Carroll Merc. Co., 195 Ala. 501, 70 So. 143.
We are of the opinion the averments of the bill as against the Alabama Power Company were insufficient as charging any participation or knowledge of fraud on its part in the transaction of the purchase and payment for the lighting plant, and that the demurrer taking the point was properly sustained.
As we construe the bill as against the respondents Milton and Archie Hood, it charges said White and these respondents with a fraudulent arrangement whereby the latter were to take over, or assume and pretend to take over, the proprietorship of the Hartselle Stage Heading Company, owned by the said White, and which had at that time valuable and profitable contracts for its output, that the said White was at that time insolvent, being sued and in desperate financial extremities, and that this scheme was arranged so that the profits and revenues from said stave business might be diverted from the creditors to the benefit of the said Hoods and White, and such was, in fact, the result, some of the revenues being diverted to the Hoods for services, for $100 per month, which sum was wholly out of proportion to the worth of the services rendered; the ex-orbitant hire of terms; the checking out of money by the said White for himself, as well as his withdrawal of goods from the commissary; and it is charged that the fruits and profits of said arrangement should be held as a part of the assets of said estate, and the respondents Hood should be made to account therefor.
Fraudulent design of all the parties is charged, and a diversion of the profits of a valuable contract is also shown, all in fraud of the creditors of said J. R. White.
"A debtor will not be permitted to donate the use of property belonging to him to another in fraud of his creditors; and, if he does so, the earnings of such property may be reached and subjected by his creditors." 20 Cyc. 361.
See, also, 20 Cyc. 406.
We are of the opinion the bill as amended is sufficient as against the demurrers interposed by said Hoods, and there was error in sustaining the same.
The averments of the bill as to the respondent Turney are in the alternative, and, as construed most strongly against the pleader, fail to show that the mortgage to said Turney was without consideration, but is to be construed as showing the same was based upon a valuable consideration, although not to the full extent as expressed in the face thereof. This also applies with equal force to the allegations of the bill as against respondent Doss.
These mortgages, therefore, as we construe the bill, were based upon a valuable consideration, and no actual fraud in their execution is shown. London v. Anderson Brass Works, 197 Ala. 16, 72 So. 359.
The argument of counsel for appellant seems to be based upon the assumption that the bill shows these mortgages were without consideration, and therefore void as to the existing creditors; but we do not so understand the bill, and we are therefore of the opinion that the demurrers of these respondents, taking this point, were properly sustained.
We are of the opinion that the respondent J. R. White was properly made a party respondent, and that his demurrer should have been overruled.
The purchase of the automobile is alleged to have been made with funds which were a part of the assets of the estate, and thus by him wrongfully diverted from his creditors; and it is here sought to follow such funds into the property thus purchased.
The suit is properly brought by the complainant as trustee of the bankrupt estate. Andrews v. Mather, 134 Ala. 358, 32 417 So. 738; Exchange Nat. Bank v. Stewart, supra; Collier on Bankruptcy (1910), p. 767.
Our conclusion, therefore, is that, as to respondents Milton and Archie Hood, Alred and J. R. White, the decree is erroneous, and in that respect will be reversed as to said respondents, and they will be here taxed with costs of this appeal. But as to the respondents Alabama Power Company, Turney, and Doss, we are of the opinion the demurrers were properly sustained, and the decree in that respect will be affirmed.
Affirmed in part, and in part reversed and remanded.
McCLELLAN, SAYRE, and SOMERVILLE, JJ., concur.