"This is a creditor's bill, filed by complainants as
judgment creditors of defendant Thomas H. Frost, seeking to
have a certain note and mortgage executed by him to defendant
C.N. Cartwright to be declared fraudulent and void, and, in
the alternative, to have it declared a general assignment for
the benefit of creditors under the statute, as being a
conveyance of substantially all of said debtor's property
subject to execution. The bill, while filed on behalf of
complainants alone, prays that, in the event the note and
mortgage be found to be a general assignment for the benefit
of creditors, it be so declared 'for the benefit of all
the creditors' of Frost. After the bill was amended, C.N
Cartwright filed an answer thereto, in which he sets up that
he was not then, nor was he at the time the bill was filed
the owner of the note and mortgage mentioned in the bill, but
that on January 16, 1923, he had transferred them to L.P
Cartwright, G.H. Wood, and R.N. Cartwright, Jr., for value
and that they were the owners in due course, and without
notice of the indebtedness owing by Frost to complainants
thereupon complainants amended their bill by making said
parties defendants to said bill and praying process against
them, but without changing the
averments as originally made in the bill as first amended.
"Thereupon these new-made defendants filed an answer to
the bill as amended, setting up that they were bona fide
purchasers of the note and mortgage on January 16, 1923,
holders in due course, for value, and without notice, etc. It
is averred that complainant James Supply Company obtained its
judgment against Frost on March 21, 1922, and that
complainant American Bank of Commerce & Trust Company
obtained its judgment on March 22, 1922. While complainants
aver that they are judgment creditors, the bill is not filed
under section 7338 of Code of 1923, as they do not aver that
execution has been issued and returned "no property
found"; so it must be held as having been filed under
section 8038 of Code of 1923, as simple contract creditors,
with a lien only from the date their respective judgments
were recorded in the office of the judge of probate. Code, §
7875.
"The facts are these: The Fulton Cotton Mill Company was
indebted to defendant R.N. Cartwright for cotton sold by him
to it in the sum of $5,918.69; this indebtedness was
evidenced by the note of said company of date December 15,
1920. The defendant Frost was an officer of the Fulton Cotton
Mill Company; and, some of the creditors of said company
insisting that it reduce some of its home indebtedness,
Frost, on May 31, 1921, went to R.N. Cartwright and proposed
that, if Cartwright would enter a credit on his note against
the Fulton Cotton Mill Company of $2,500 he, Frost, would
make him a note and mortgage covering Frost's homestead,
being a house and lot. This was agreed to by both Frost and
R.N. Cartwright verbally. Cartwright entered the credit of
$2,500 on the Fulton Cotton Mill note, and said company took
credit for it on its own books. In other words,
Cartwright's debt against the Fulton Cotton Mill Company
was reduced $2,500. Frost did not carry out the verbal
agreement made on May 31, 1921, until December 24, 1921, when
he executed to R.N. Cartwright his note for $2,500, payable
January 1, 1925, and a mortgage on his homestead to secure
it. In other words, Frost carried out his verbal agreement
made with R.N. Cartwright, but did not do so until December
24, 1921,
"On January 16, 1922, in consideration of their assuming
his liability on what is called the 'McClellan
property,' R.N. Cartwright transferred and assigned,
without recourse on him, the said note and mortgage to L.P.
Cartwright, G.H. Wood, and R.N. Cartwright, Jr. It will be
noted that this was before complainants obtained their
several judgments against Frost.
"While
it was once held that a bill of this character could not be
filed in a double aspect (Green v. Wright, 160 Ala.
476, 49 So. 320), after the adoption of section 3095, Code
1907, it is now uniformly held that seeking to have a
conveyance declared fraudulent and void, or, in the
alternative, as a general assignment for the benefit of
creditors, does not render a bill multifarious. Smith v.
Young, 173 Ala. 197, 55 So. 425; Wilson v. First
National Bank, 209 Ala. 70, 95 So. 340; Killian v.
Trigg, 209 Ala. 352, 96 So. 409; Hard v. American
Bank, 200 Ala. 264, 76 So. 30; Burnwell Coal Co. v.
Setzer, 203 Ala. 395, 83 So. 139.
"The
first question that I see proper to consider is this: Are
these new defendants (L.P. Cartwright, G.H. Wood, and R.N.
Cartwright, Jr.), under the allegations of the bill as
amended and the proof, liable in this case? The bill makes no
charge of fraud against them; the suits of complainants
against Frost were not notice to them (Acts 1915, p. 122);
the doctrine of lis pendens does not apply (2 Pom. Eq. [3d
Ed.] §§ 636, 635, 640; Hailey v. Ano, 136 N.Y. 569,
32 N.E. 1068, 32 Am.St.Rep. 764); they are not shown to have
had actual notice; they paid a consideration by releasing
R.N. Cartwright from liability on the McClellan property;
they bought commercial paper before maturity. As said in
Burnwell Coal Co. v. Setzer, 203 Ala. 396, 83 So.
139, so far as these defendants are concerned: "This
case must therefore be considered under the rule relating to
fraudulent grantees for a new or subsequent consideration, as
distinguished from those who purchased as creditors, or for
an antecedent debt."
"No fraud is alleged or proved against these three
defendants, and when we consider the case under its alternate
allegations--that is, as a general assignment--complainants
show no right of recovery against them. For it is said:
'When the relation between grantor and grantee and the
form of the transaction do not on their face import an
arrangement to which the statute assigns a particular
operation and effect, without regard to the intention of the
parties, as where it purports to be a sale to a person not a
creditor, but the transaction is in truth nevertheless a
disposition of all the grantor's property, with intent to
pay debts and evade the statute, it becomes necessary to aver
its true meaning and intent.' Elliott v. Kyle,
176 Ala. 379, 58 So. 309. (Italics supplied.) There is no
such averment in this case. On the averments and proof, I am
of opinion, and so hold, that these three defendants are not
liable in this case, but that they are innocent purchasers
for value of the note and mortgage involved in this suit.
"As
the defendant Frost suffered a decree pro confesso to be
rendered against him, the only remaining question in the case
is: Is R.N. Cartwright liable? In answering this question,
the first theory of the bill, that the conveyance was
fraudulent and void, will be considered. It is urged by
complainants, and so the bill charges, that there was no
consideration for the contract between Frost and R.N.
Cartwright, but this contention cannot be sustained. 'It
is enough that the creditor sustains the detriment, which
follows from the extinguishment of his demand against the
original debtor. *** A debt may be paid by a stranger, or by
the debtor, and as between the debtor and the creditor, the
demand is extinguished by the payment, no matter from whom it
proceeds.' Underwood v. Lovelace, 61 Ala. 157.
The discharge of $2,500 of the debt of the Fulton Cotton Mill
to himself is sufficient consideration for the new promise.
Perry v. Gallagher, 17 Ala.App. 114, 82 So. 562;
Howard v. Rhodes, 17 Ala.App. 26, 81 So. 362.
"There
are some badges of fraud in the case, among others, the
omission to record the conveyance; but this of itself is not
evidence of a fraudulent intent, 'for the mere omission
may consist with good intentions.' Mathews v. J.F.
Carroll Mer. Co., 195 Ala. 505, 70 So. 144.
"After a consideration of the undisputed evidence, I am
of opinion that the averment of the
bill that the conveyance was executed for the purpose of
hindering, delaying, or defrauding the creditors of Frost has
not been proven; especially is this true when the bill only
charges that it was fraudulent and void because it is alleged
that the conveyance was without consideration, and not
because of any fraudulent intent participated in by R.N.
Cartwright.
"Did the execution of the note and mortgage by Frost
constitute under the statute a general assignment which will
inure to the benefit of his creditors? This statute (section
8040, Code 1923), is not intended to declare conveyances
fraudulent and void, but simply to blot out intended
preferences or priorities. Dadeville Oil Mill v.
Hicks, 184 Ala. 371, 63 So. 970. By the very terms of
the statute itself it does not apply to 'mortgages or
pledges or pawn given to secure a debt contracted
contemporaneously with the execution of the mortgage, or
pledge or pawn and for the security of which the mortgage, or
pledge or pawn was given.' This statute, being in
derogation of the common law, must be strictly construed.
Smith v. McCadden, 138 Ala. 292, 36 So. 376; 25
R.C.L. 1056.
"If the note and mortgage had been executed by Frost to
Cartwright on May 31, 1921, it would have been
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