Smith v. McCadden & McElwee

• Decision Date: 10 July 1903
• Citation: 36 So. 376,138 Ala. 284
• Court: Alabama Supreme Court
• Parties: SMITH ET AL. v. MCCADDEN & MCELWEE. [a1]

36 So. 376

138 Ala. 284

SMITH ET AL. v. MCCADDEN & MCELWEE. ^[a1]

Supreme Court of Alabama

July 10, 1903

Appeal from Chancery Court, Madison County; Wm. H. Simpson Chancellor.

Bill by McCadden & McElwee against O. A. Smith and others. From a decree overruling demurrers to the bill, defendants appeal. Affirmed.

Tyson J., dissenting.

This cause is before this court upon an appeal from a decree overruling demurrers filed in the court below in behalf of W F. Struve, Jr., and O. A. Smith, respondents. The original bill was filed in behalf of McCadden & McElwee, a New Jersey corporation, and of all other creditors who might become parties complainant and contribute to the costs and expenses of the suit, against Wilfred Paley and Robin L. Paley individually and as partners composing the firm of the British Furniture Company, O. A. Smith, and William F. Struve, Jr. A brief summary of the facts as alleged in the bill is as follows: That the complainant is a nonresident corporation engaged in the furniture business; that Wilfred Paley and Robin L. Paley are nonresidents of Alabama; that on the 20th day of May, 1902, and for more than 12 months prior thereto, the Messrs. Paley were doing business as partners under the name of the British Furniture Company in the city of Huntsville; that prior to the 12th day of April, 1902, said firm of British Furniture Company borrowed from a bank in Huntsville the sum of $1,000, witnessed by a promissory note payable on August 18, 1902, upon which the defendant Struve became indorser and surety; that O. A. Smith was the manager and in possession of the books, accounts, and effects of said firm, and was fully aware at all times of the true financial status of same; that on the said 20th day of May, 1902, the said British Furniture Company was indebted to complainants, McCadden & McElwee, in the sum of $122.13, and to other creditors in various and sundry sums; that on the said 20th day of May, 1902, the British Furniture Company, with the knowledge and consent of defendant Struve, conveyed and transferred to O. A. Smith, their manager and bookkeeper, all of their stock of goods, accounts, leases, and choses in action, with the understanding and agreement that the said Smith should execute to said Struve a mortgage in payment of said indebtedness or liability of said Struve as the indorser of said note of $1,000, borrowed from the bank by the British Furniture Company, and upon the further condition that the said William F. Struve should pay to the said British Furniture Company the sum of $150 in cash; that, as a fact, the said Smith paid no money or other valuable considerations for said property, but was to have any surplus that might be left after paying off said sum of $1,000 to defendant Struve; that in pursuance of such agreement the said Smith executed to the defendant Struve the mortgage conveying all of said property of the British Furniture Company in payment of said indebtedness of $1,000. The bill further avers that this mortgage recites that the sum of $1,000 was for purchase money advanced by Struve to the said Smith to purchase the said property of the said British Furniture Company, but in truth and fact the same was given and executed but to pay and secure the sum of $1,000, and the said sum of $150 was paid merely with the view to avoid the provisions of section 2158 of the Code of Alabama of 1896, making a conveyance of substantially all of a debtor's property to one or more creditors of the same force and effect as a general assignment; that O. A. Smith owns no property other than that acquired in said agreement between the parties. The bill further avers that by the execution of said mortgage a priority of payment is given to the defendant Struve over the other creditors of the said British Furniture Company; that the defendant O. A. Smith at the time of the filing of the bill was in possession of said property conveyed by said mortgage, and that he was duly disposing of same, and, under the agreement made with Struve, was paying over to said Struve each week the entire amount of the proceeds in said business. A copy of the mortgage is attached to the bill as an exhibit. The prayer of the bill is for an injunction to issue, restraining the defendants Smith and Struve, or their agents, from further disposing of said property, for a receiver to take charge of and preserve said goods and property until final decree, and for a decree declaring the said mortgage to inure for the benefit of all creditors who might join in same, and requiring an accounting from said Struve and Smith, and payment to the register of all moneys arising from sale of goods or the conduct of the said furniture business since the execution of the mortgage. To the bill as filed the defendants Smith and Struve separately demurred upon the following grounds: "(1) The object of said bill is to set aside a mortgage made by the defendant O. A. Smith to this defendant, and the complainants, and other creditors named, are shown not to be creditors of the said mortgagor. (2) It appears from said bill that said mortgage was executed in good faith, and to secure a debt contracted contemporaneously with the execution of said mortgage. (3) It is not shown by said bill that this defendant had any knowledge of the alleged relations existing between the defendant O. A. Smith and the defendant British Furniture Company. (4) It is not alleged in said bill that in the execution of said mortgage any benefit was reserved to the defendant O. A. Smith or the defendant British Furniture Company. (5) The object of the said bill is to have declared a general assignment a certain mortgage executed by the defendant O. A. Smith to this defendant, and it appears from the said bill that the complainants are not creditors of the said mortgagor, but are creditors of other parties, from whom it is alleged said mortgagor purchased said stock of goods. (6) It is not shown by said bill that the defendants British Furniture Company, Wilfred Paley, and Robin L. Paley are insolvent. (7) It appears from said bill and the exhibits thereto that said mortgage was given to secure a debt contracted contemporaneously with the execution thereof. (8) It appears from said bill and the exhibits thereto that the money with which to purchase said stock of goods was advanced by this defendant to said defendant Smith for the purpose of purchasing said property for which said mortgage was given on the same day the said mortgage was executed. (9) It appears from said bill that the debt said mortgage was give to secure was contracted contemporaneously with the execution of said mortgage by said defendant Smith, and the money so advanced him at that time was used by him in the purchase of said stock of goods, and it does not appear from said bill that this defendant knew of the relations alleged to exist between said defendant Smith and said British Furniture Company." Upon the submission of the cause upon the demurrers to the bill, the chancellor rendered a decree overruling them.

Cooper & Foster, for appellants.

King & Bankhead and S. S. Pleasants, for appellees.

TYSON J.

The other members of the court hold that the bill is well filed; that the facts alleged make a case within section 2158 of the Code of 1896. It is their opinion that Smith was a mere conduit, and was used as a mere instrumentality for evading the statute, and that Struve's attitude toward the furniture company, the debtor, was that of a creditor, within the meaning of the statute. I cannot concur in these views.

The object sought to be accomplished by the bill is to have a certain mortgage executed by Smith to Struve, both of whom are respondents, declared a general assignment for the benefit of complainants and all other creditors of Wilfred Paley and Robin L. Paley, partners doing business under the name of the British Furniture Company, who are also defendants. It appears that on the 12th day of April, 1902 the British Furniture Company became indebted to a bank in Huntsville in the sum of $1,000, evidenced by their promissory note, indorsed by Struve. On the 20th day of May following, the British Furniture Company, with the knowledge and consent of Struve, conveyed to Smith their entire stock of goods, book accounts, etc.--being substantially all of their property--with the understanding and agreement that Smith would execute to Struve a mortgage in payment of his liability as indorser on the note held by the bank, and upon condition that Struve should pay the furniture company the sum of $150 in cash. In pursuance of this agreement, and at the time of the conveyance to Smith of the property, and as part of the same transaction, Struve paid the $150 in cash, and Smith executed the mortgage upon the property conveyed to secure the payment of his note in the sum of $1,165, which mortgage is made an exhibit to the bill. It is also averred that Smith paid no money or other valuable consideration for the property, but was to have any surplus that might be left over after paying the $1,000 to Struve. In...