Price v. Masterson's , 35 Ala. 483 ( 1860 )

STONE, J.

It must be regarded as settled in this State, that garnishment is a legal proceeding ; “ and that the ouly moneyed demands, which can be reached by this process, are those which are of such a nature, that they might be recovered in an action of debt, or indebitatus assumpsit.” It has also been frequently asserted, “that the garnishee may retain for any debt which he shows to be due to himself, from the defendant in the original suit.” Powell v. Sammons, 31 Ala. 552; Thomas v. Hopper, 5 Ala. 442 ; Travis v. Tartt, 8 Ala. 574 ; Walke v. McGehee, 11 Ala. 273; Loftin v. Shackleford, 17 Ala. 455; Cook v. Walthall, 20 Ala. 334; Self v. Kirkland, 24 Ala. 275; Lundie v. Bradford, 26 Ala. 512; Hall v. McGehee, 27 Ala. 414; Lewis v. Dubose, 29 Ala. 219.

In the case of Hazard v. Franklin, (2 Ala. 349,) the deed under which the garnishee received and held the funds, was fraudulent on its face; yet this court said, “so far as the trustee had, bona fide, disposed of the assets under the deed, previous to the service of the garnishment, he would doubtless be protected; so, also, would he be permitted to retain for a debt due himself; but, beyond these, the deed would not protect the effects of Stowe in his hands, against the claims of his creditors.”

So, also, in the case of Cummings & Cooper v. McCullough, (5 Ala. 324, 338,) the court said: “ The deed of assignment, though fraudulent and void as to creditors, is at least a power of attorney from Cummings to the trustee, to pay and discharge his debts, out of the effects placed in his hands for that purpose.” The court added, “ The trustee must, therefore, in the account, be allowed credit for all payments made to the creditors of Cummings, previous to the filing of the bill.”

Of similar import are the following authorities: Thomas v. Goodwin, 12 Mass. 140; Hutchins v. Sprague, 4 N. H. 469 ; Ames v. Blunt, 5 Paige, 13; Butler v. Stoddard, 7 Paige, 163; Smith v. Hodson, 4 T. R. 212; Ripley v. Severance, 6 Pick. 474.

There is, also, a principle settled in this State, which bears an analogy to the question we are considering. It is this : when a creditor pursues and seeks to condemn money or a debt which is the product of a fraudulent sale, he can only claim the money as a debt, and will not be permitted to dispute the rightful change of title to the property. — Butler v.,O’Brien, 5 Ala. 316; Sheppard v. Buford, 7 Ala. 90.

In the present proceeding, the issue was, whether Price was indebted to Bostwick on account of the gqbds trans/pr?;ferred by Bostwick to Price, and sold by the la|te£. y^or such debt, Bostwick could have maintained %¿éf)ñkñi!^p ^ assumpsit against Price; but, in that action, Priee'%iuld have defended, to the extent of Bostwick’s indebtedness to him. — See the authorities supra. It results from these principles, that Price was not liable in this proceeding, beyond the surplus funds in his hands, unless his liability is changed by section 2523 of the Code. That section reads as follows :

“Money or effects of the defendant, in the hands of a trustee, may be attached, and held subject to the validity of the instrument creating the trust; or the excess remaining in the trustee’s hands, after the execution of the trust, if valid ; but, if the deed be held void, the trustee, if not guilty of actual fraud, may retain for a debt due himself, and must be protected, so far as he has acted in goodfaith under the trust, before the levy of the attachment.”

It is contended for appellant, that this section provides for the specific case of a trustee, while the money or effects are in his hands as trustee; and applies only to the case of a trust deed, and not to a mortgage. ¥e cannot assent to this entire proposition as stated. ¥e hold, that it embraces a mortgage, with a power of sale, as well as a trust deed proper. The one is as much within the spirit.. of the enactment as the other; and moreover,a mortgagee, with power of sale, is, for many purposes, a trustee.

We suppose that the legislature, in adopting this section of the Code, intended to accommodate the statute law of the State to the adjudged cases, as stated in a previous part of this opinion, with perhaps a slight exception. Yet, in construing the section, we must extract the sense from the language employed, rather than from the sup posed intention of the law-making power. Taking the language for our guide, we hold that the words actual fraud, found in the section, relate to the act of accepting the trust, or being made trustee; while the words, so far as he has acted in good faith, relate to the execution of the trust. The provisions of the section, then, may be thus stated : Money or effects in the hands of a trustee, held under a mortgage or trust deed, may be attached in a proceeding at law. If the deed or mortgage be pronounced valid, then only the excess or surplus can be condemned. If the deed or mortgage be pi’onounced fraudulent, then the entire money or effects in the hands pf the trustee will be condemned, with the single exception, that if the trustee is a bona-fide creditor, and has not been guilty of actual fraud in taking or accepting the deed, -he will be allowed to retain for such debt. If the deed be fraudulent, the trustee, although guilty of actual fraud in accepting the deed, will be protected so far as he has acted in good faith in the execution of the trust.

Confining our remarks in the present case to those provisions of the statute which the controverted points in this record bring befoie us, it will be seen that the statute introduces a new principle into the trustee’s right to retain for a debt due himself. While it secures to him this right, if he has not been guilty of actual fraud in accepting or taking upon himself the trust, by an irresistible implication, it withholds such right, even though he have an honest debt, if he has been guilty of actual fraud. It removes all doubt from his right to retain in the one case, while it positively denies the right in the other.

The true import of the words actual fraud, as employed in section 2523 of the Code, presents probably the most difficult question in this case. The phrase actual fraud is ■usually employed as the antithesis of constructive fraud. Constructive frauds are those transactions which the law pronounces fraudulent and invalid, in obedience to a sound public policy, irrespective of the intention of the parties. They are pronounced fraudulent, although there does not appear any evidence of actual mala fides. Of this class are purchases by trustees at their own sales, (Andrews v. Hobson, 23 Ala. 219; Charles v. Dubose, 29 Ala. 367;) gifts, and conveyances on consideration not deemed valuable, as against existing debts, (Miller v. Thompson, 3 Por. 196 ; Moore v. Spence, 6 Ala. 506 ; Read v. Livingston, 3 Johns. Ch. 481;) contracts in general restraint óf marriage, (1 Story’s i£q. Jur. §§ 258-291;) contracts in general restraint of trade, (16. '§ 292;) and bargains between those who sustain a fiduciary relation towards each other, such as guardian and ward, attorney and client, trustee and cestui que trust, &c — lb. §§ 307, el seq.

The language of section 2523 of the Code shows, that its provisions were intended to apply to mortgages, assignments, and trust deeds, made ostensibly to secure debts; and the enumeration given above of the leading classes of cases which come within the doctrine of constructive fraud, clearly shows that that doctrine can never arise in the contests for which section 2523 makes provision. Hence we hold, that the phrase actual fraud, in this section, is not used as the antithesis of constructive fraud.

Fraud of which creditors can complain, and from which they can obtain relief under section 2523 of the Code, is perpetrated in’conveyauces “ made with intent to hinder, delay or defraud creditors,” &c., according to section 1554 of the Code; and probably, those which come within sections 1550 and 1555 of the Code. These are not óf the class called constructive frauds. Under a classification into actual, or positive, and constructive frauds, they fall under the former class.

Coming, then, to the conclusion, that no question on the doctrine of constructive fraud can he presented, in any contest for which section 2523 of the Code makes provision, if we give to the language actual fraud its accustomed meaning, we may well inquire, what field of operation is left to that branch of the section ? Only actual fraud can invalidate and avoid a deed of trust, mortgage, or assignment, made to secure creditors. It is not enough that the grantor or maker of the instrument, the debts being bona fide, executed it with intent to hinder, delay or defraud his creditors. The grantee or beneficiary must have knowledge that such was the intention of the maker, and thus complicate himself in the fraud; else the instrument will be valid in law. — See Abercrombie v. Bradford,' supra. Having such knowledge, notwithstanding the debts be bona fide, the grantee, equally with the grantor, is guilty of the fraudulent intent in law, and the instrument is inoperative against creditors, because of actual fraud.

The statute clearly contemplates, that eases may arise in which the deed of trust, mortgage, or assignment, though made to secure bona-fide creditors, will be pronounced void, because the same is made with intent to hinder, delay or defraud creditors; and yet the trustee, though a beneficiary, be guiltless of the actual fraud which would deny to him the right to retain for his own debt.

In the case of Wiley, Banks & Co. v. Knight, (27 Ala. 336, 348,) our predecessors, in speaking of the mortgage in that case, said — “ The arrangement is, as a conclusion of law, fraudulent and void, as it operates a fraud on the other creditors ; and whether .the parties actually intended to defraud or not, is wholly an immaterial inquiry.” This case is an authority for distinguishing between those conveyances which are pronounced actually fraudulent, by legal intendment from certain facts and premises, and a positive intention to hinder, delay or defraud creditors. The one is a conclusion of law, indulged and acted on in promotion of a sound public policy, and may be free from all taint of corrupt design. The other is a fact, to be found as other facts are found. — Montgomery v. Kirksey, 26 Ala. 172, 185.

The language actual fraud, in this section, means intentional fraud; an actual as contradistinguished from aa implied intention, to hinder, delay or defraud. When this is the case, the trustee is not permitted to retain for a debt'due himself.

In passing upon an issue, such as is presented in this record, the trying body should first inquire, whether the conveyance was made with intent to hinder, delay or defraud the attaching creditor or creditors. — See Mazange v. Price, 31 Ala. 701; Hooks v. Anderson, 9 Ala. 704; Abercrombie v. Bradford, 16 Ala. 560. Finding the conveyance to be fraudulent, the next inquiry will be, was the trustee guilty of actual fraud in taking upon himself the trust, in the sense in which we have ascertained those words were employed? Was he guilty of intentional fraud ?

Several rulings of the city court are inconsistent with the principles declared above. We need not stop to particularize them, i We have sufficiently indicated our construction of section 2523 of the Code, to furnish to the city court a guide for a future trial.

The judgment of the city court is reversed, and the cause remanded.