Kennedy v. First Nat. Bank of Tuscaloosa

• Decision Date: 20 June 1895
• Citation: 107 Ala. 170,18 So. 396
• Parties: KENNEDY v. FIRST NAT. BANK OF TUSCALOOSA.
• Court: Alabama Supreme Court

18 So. 396

107 Ala. 170

KENNEDY v. FIRST NAT. BANK OF TUSCALOOSA.

Supreme Court of Alabama

June 20, 1895

On rehearing. For former report, see 12 So. 617.

The First National Bank of Tuscaloosa, as a judgment creditor of John S. Kennedy, filed a bill against the said John S Kennedy and his grantees to set aside as fraudulent a conveyance of land by said John S. Kennedy to his co-respondents, and to subject said lands to the satisfaction of the judgment. The grantor debtor and his grantees answered the bill, each denying the alleged fraud; the grantor denying that he had or owned any interest in the lands conveyed, and the grantees asserting that they were bona fide holders of the same. On the submission of this cause, on the pleadings and proof, the chancellor decreed that the complainant was not entitled to the relief prayed for. From this decree an appeal was taken to the supreme court, and, upon the hearing of the cause in this court, the decree of the chancery court was reversed, and a decree here rendered granting the relief prayed for, and ordering the conveyance of the lands set aside, and directing that a sale of the same be made, and that the proceeds thereof be paid in satisfaction of the judgment recovered by the First National Bank of Tuscaloosa against John S. Kennedy. After the rendition of this decree by the supreme court, John S. Kennedy filed his petition in the chancery court, claiming certain described portions of the lands conveyed in the deed from him to his grantees as exempt to him as a homestead, and prayed that if a homestead of the value of $2,000 could not be carved out of said property, that $2,000 from the proceeds of the sale of said real estate be paid to him as the value of his homestead exemption. Upon the hearing of this petition, the chancery court decreed that the petitioner was not entitled to a homestead exemption in said property, and ordered that his petition be dismissed. From this decree of the chancellor the petitioner prosecuted an appeal to the supreme court. On November 25, 1892, this decree of the chancellor was affirmed. 12 So. 617. After the rendition of this decree of affirmance, the appellant filed an application for rehearing and the opinions, as now announced by the court, are in response to this application for rehearing.

H. M Somerville, Fitts & Somerville, A. B. McEachin, and John S Kennedy, for appellant.

Frank S. Moody and Cabaniss & Weakley, for appellee.

McCLELLAN and HARALSON, JJ.

The authorities are well-nigh uniform in support of the proposition, that where there is a fraudulent conveyance of property constituting or including the homestead, which is subsequently annulled at the suit of a creditor, the grantor is not estopped as against the creditor to assert his right of homestead in the premises. And the reason for this doctrine is found in the creditor's want of interest in that which is not liable for debt. Thus, it is said by Judge Thompson: "It has been frequently held that a conveyance by husband and wife of real estate in which the wife has an inchoate right of dower, subsequently set aside as being fraudulent as to creditors, will not operate to bar an assignment of dower. The theory of the case appears to be that a conveyance thus set aside at the suit of creditors for fraud, is to be treated as a mere nullity-as though it had never been made-and that the wife's inchoate right of dower is, therefore, wholly unaffected by it; that whilst, the conveyance subsisting, she would be estopped to assert her right of dower as against the fraudulent grantee, yet, the conveyance being annulled, the creditors of her husband can, as against her, derive no advantage from it. *** Do the same principles apply also to the right of homestead? Most of the cases answer this question in the affirmative, and hold that a conveyance set aside for fraud, at the suit of the husband's creditors, does not estop the grantor, or his wife, from claiming homestead in the premises thus conveyed. Such a conveyance does not constitute an abandonment of the homestead such as opens it to creditors. Two general reasons for this rule may be deduced from the cases: First. That the homestead privilege is created for the benefit of the wife and children, as well as for that of the husband and father; and, therefore, it is not right that the former should be prejudiced by the wrongful act of the latter. Second. That, the conveyance being void as to creditors, it stands as to them as though it had never been made. If it had not been made, the debtor, or his wife, could have asserted the right of homestead in the premises against them; and they cannot assume the inconsistent positions the nullity of the conveyance and claiming a right under it. In other words, a fraudulent conveyance does not enlarge the rights of creditors, but leaves them to enforce the rights they would have had if no such conveyance had been made. Expressed in still another way, the interest which a creditor has in the property by virtue of his lien is a derivative interest, proceeding from the debtor and depending upon his title. Hence a creditor cannot acquire a right under the debtor's title and at the same time impeach that title. He cannot sell, under his execution, the debtor's title, and at the same time deny the debtor's right of homestead on the ground that the latter has no title. If the premises are actually occupied by the debtor as a homestead, it can make no difference, so far as the creditor is concerned, by what sort of title the debtor occupies. By attempting the sale the creditor affirms that the debtor has a salable interest; and the law means that that interest should not be taken away, and the debtor disturbed in his possession by sale under judicial process. If a conveyance of land is procured by an insolvent debtor to his wife and children, it will be treated in equity as having been made to himself, and, if with his family he occupies it as a homestead, it will be protected as such; since a title which, if the property were not homestead, could be subjected by creditors is sufficient to support the homestead right. Besides, the fraud does not consist in conveying the homestead; but the creditor could not have reached that with his execution had the debtor retained it. The fraud consists in conveying the other part of the land that the creditor can reach by his execution. But as to the homestead he has no concern. That matter rests between the fraudulent grantor and his grantee. This appears to be the most satisfactory ground upon which the rule has been placed. It resolves itself into this: that as to exempt property there are, within the meaning of the statute of frauds, no creditors. Statutes creating exemptions were not designed to imprison the debtor in his homestead, nor to fetter the transfer of his chattels. There being, then, no legal restraint upon the debtor against conveying or selling such property, *** the motives with which such transfers are made are of no concern whatever to the creditor. If he procures a conveyance to be set aside as fraudulent, he takes what is vendible under his execution; the title to the rest is a question to be disputed between the debtor and his grantee." Thomp. Homest. & Ex. §§ 405, 408-412. The same views are expressed by Waples in his work on Homesteads and Exemptions (pages 531-534). And in succeeding sections Judge Thompson discusses the few adjudged cases which are supposed to announce a contrary doctrine, and demonstrates, we think, that they either turn upon statutory considerations, and are, therefore, not in reality opposed, except perhaps in matters of dicta, to the views expressed in the text, or proceed upon some misconceived idea of the abstract rights of the creditor and grantor-debtor in such cases,-and are, therefore, wholly unsound. The great majority, indeed nearly all, of the adjudged cases fully support the text we have so fully quoted, as will appear from the following collation of some and citation of most of them.

In the case of Smith v. Rumsey, 33 Mich. 183, it is said (page 191) by the supreme court of Michigan: "The homestead was not subject to execution. *** It was, however grantable. It was capable of transfer by deed executed by husband and wife, and since creditors could enforce no process against it, could no more pursue it for their debts against him, (the fraudulent grantor), than they could pursue for the same purpose the absolute property of the government, the law will not allow it to be said that the transfer of it, if any were made, operated to defraud creditors. When the law declares that a debtor's disposal of his property with intent to defraud his creditors shall be voidable at the instance of his creditors, and at the same time declares that specific property of the debtor shall be exempt as against his creditors' adverse claims, the provisions are in pari materia, and must be construed together, and the latter provision must be held to exempt this exempt property from the operation of the former provision. Certainly it would be very inconsistent to say that a debtor's disposal of property, and which property, in so far as the creditor and his claims are concerned, may be said to have no existence at all, is a fraud upon the creditor." To the same effect it is said by the supreme court of Maine: "No creditor can be, in legal contemplation, defrauded by a mere conveyance, made by his debtor, of any of his property which such creditor has no right by law to appropriate, or even to touch, by any civil process." Legro v. Lord, 10 Me. 165. And by the supreme court of Wisconsin: "A conveyance of homestead, by the husband to the wife, cannot be held fraudulent as to creditors, for the reason that, being exempt, it was no...