Hall & Farley v. Alabama Terminal & Improvement Co.

• Decision Date: 11 May 1905
• Parties: HALL & FARLEY ET AL. v. ALABAMA TERMINAL & IMPROVEMENT CO. ET AL.
• Court: Alabama Supreme Court

39 So. 285

143 Ala. 464

HALL & FARLEY ET AL. v. ALABAMA TERMINAL & IMPROVEMENT CO. ET AL.

Supreme Court of Alabama

May 11, 1905

Appeal from Chancery Court, Montgomery County; A. D. Sayre Chancellor.

"To be officially reported."

Suit by Hall & Farley, as trustees, and others, against the Alabama Terminal & Improvement Company and others. From a decree dismissing the bill, plaintiffs appeal. Reversed.

Rehearing denied June 30, 1905.

The object of the bill is to subject to the judgment held by complainants the unpaid subscriptions to the capital stock of the Alabama Terminal & Improvement Company given by defendants, which it was alleged in the bill had been transferred or assigned with the intent to hinder, delay, or defraud the creditors of said terminal company. After setting out the various subscriptions by the several defendants, the bill as to Wiley & Murphree alleged that the subscribers with intent to defraud, had transferred their subscriptions to known insolvent persons, and by false representation that they had been paid prevailed upon the complainants to surrender the notes given for the subscription, which had been prior to that time assigned to them as collateral security for the debt of said terminal company. As to some other of said subscribers to the capital stock, the bill alleged that an agreement was made between them and the terminal company, for the purpose of shielding the subscribers and defrauding the creditors of said company, by which the subscribers paid the amount of their subscription in cash, and thereupon the company immediately bought of them their shares, giving therefor certain bonds owned by the terminal company, issued by the Alabama Midland Railway, at a valuation of 85 cents on the dollar. As to others, the allegation was that the terminal company had purchased the shares from the subscribers, giving its notes therefor, and delivering as collateral security assets of the company, and that such notes had been paid by devoting the collaterals thereto. As to some, the allegation was that the notes or obligations given for the subscriptions had been fraudulently satisfied by giving fictitious credits to the subscribers.

W. A Gunter and Horace Stringfellow, for appellants.

R. L Harmon, O. C. Wiley, Wiley & Murphree, and W. S. Thorington, for appellees.

McCLELLAN C.J.

The statute of 13 Elizabeth, entitled "An act against fraudulent deeds, gifts, alienations, etc.," was in a sense the progenitor and is the prototype of our statute on the same subject, which is now embodied in section 2156 of Code of 1896. By that statute--St. 13 Eliz.--it was "declared, ordained, and enacted * * * that all and every feoffment gift, grant, alienation, bargain and conveyance of lands, tenements, hereditaments, goods, and chattels, or any of them, or of any lease, rent, common or other profit or charge out of the same lands, tenements, hereditaments, goods, and chattels, or any of them, or of any lease, rent, common or other profit or charge out of the same lands, tenements, hereditaments, goods and chattels, or any of them, by writing or otherwise, and all and every bond, suit, judgment and execution at any time had or made sithence the beginning of the Queen's majesty's reign that now is, or at any time hereafter to be had or made, to or for any intent or purpose to hinder, delay or defraud creditors and others of their just and lawful actions, suits, debts, accounts, damages, penalties, forfeitures, heriots, mortuaries and reliefs, shall be from henceforth deemed and taken (only as against that person or persons, his or their heirs, successors, executors, administrators and assigns, and every of them whose actions, suits, debts, accounts, damages, penalties, forfeitures, heriots, mortuaries and reliefs, by such guileful, covinous or fraudulent devices and practices, as is aforesaid, are, shall or might be in any ways disturbed, hindred, delayed or defrauded) to be clearly and utterly void, frustrate and of none effect; any pretence, colour, feigned consideration, expressing of use, or any other matter or thing to the contrary notwithstanding."

At the time of this enactment (1570), and for more than two centuries afterwards, choses in action were not leviable by execution or other process under English law. Nor was that species of property strictly within the letter of the statute. Upon these considerations, and mainly upon the first, the act being intended to aid creditors to the subjection only of fraudulently conveyed or transferred property, which could have been levied upon in the hands of the debtor, it was uniformly held, so long as there was no right or remedy given the creditor against the choses in action of the debtor, that such property was not within this statute, and, of consequence, that transfers of choses in action were in no wise affected by it. It was while this state of law obtained, and with reference to this immunity of choses in action from process for the payment of debts that Lord Thurlow, declining to annul as fraudulent the transfer of a chose in action, used the expression quoted in the opinion of the chancellor in this case: "It would be preposterous and absurd to set aside an agreement which, if set aside, leaves the stock (indebtedness) in the name of the person where you could not touch it." The justness of this declaration is obvious in view of the then nonliability to the debt of the choses in action, even in the hands and name of the debtor. That was the consideration which constrained the Lord Chancellor to refuse to set aside the transfer, and in doing so he acted in consonance with the settled doctrine of the English courts in the premises.

So the law stood in England till the reign of Victoria. But by the "judgment act" of 1 & 2 Victoria choses in action of the debtor were made liable for his debts, and provision was made to reach and subject such property by a special sort of levy and return, and "a charging order" of the court thereon. Since this enactment it has with like uniformity been held that choses in action are to be considered as "goods and chattels" under the act of 13 Elizabeth, and that covinous transfers of them are "void, frustrate and of none effect" against creditors of the transferror. This conclusion was reached, and has been steadily adhered to, notwithstanding such property is neither "goods" nor "chattels" strictly speaking, upon the consideration that the broad purpose of the act of 13 Elizabeth was beneficent to the suppression of fraud, and the conservation of the rights of creditors against all property subject to execution in the hands of the debtor by giving them a remedy to pursue and subject all such property which shall be fraudulently conveyed or transferred by the debtor, and that to these ends the statute should be liberally construed so as to extend its operation to any species of property not leviable at the time of its enactment, but made so by subsequent acts of Parliament. Thus, it has been said of this act--St. 13 Eliz.--that "its simplicity and (if the expression may be allowed) its expansiveness have enabled the judges to bring within its scope and extend its operation to almost every kind of transaction resorted to by debtors to the prejudice of their creditors," and that it "cannot receive too liberal a construction or be too much extended in suppression of fraud." So, in Twyne's Case, it was resolved that, "because fraud and deceit abound in these days more than in former times, all statutes made against fraud should be liberally and beneficently expounded to suppress fraud." And the doctrine of the extension of the statute has been thus concretely stated: "The principle is that to convey away any property against which execution can issue is a fraud on creditors, but not a conveyance of that which they could not (but for the conveyance) have touched, so that by successive statutes giving creditors power over different kinds of property, the operation of St. 13 Eliz. c. 5, has been gradually extended." This intangible property--choses in action--being thus brought within the act of 13 Elizabeth through the leviable quality attached to it by the act of 1 & 2 Victoria, the remedy of the judgment creditor upon the fraudulent transfer of such property was and is, in the law of England, the same remedy that he had and has to the subjection of tangible property--goods and chattels, strictly so called--fraudulently transferred by the debtor, namely, by bill in chancery, upon the return of an execution "no property," to set aside the transfer and subject such choses in action to the satisfaction of the judgment. Nor was it ever supposed, but the ruling has been to the contrary, that the existence of a remedy by special statutory proceeding at law for the subjection of such property operated to exclude the remedy in equity for its application to the judgment.

It is also the settled law in England that, under the statute of 13 Elizabeth, since choses in action were made leviable by the act of 1 & 2 Victoria, "the forgiveness by a debtor of a debt due to him"--that is, the covinous cancellation and surrender as paid of a bond or note, for example, by the judgment debtor to his debtor--involving as between them the discharge of the latter from the obligation, is a fraudulent transfer, which the judgment creditor may have set aside in equity, and thereupon hold his debtor's debtor to account for the amount of said debt. Each of the foregoing propositions is supported by the text and citations of Worthington on Fraudulent Conveyances & Statutes of Elizabeth, pp. 1, 2, 4-6, 17, 18, 20-24, 33, 555. It is of no importance to us whether the statute of 13 Elizabeth was the ordination of original law or merely declaratory of...