Hall, Moses & Roberts v. Heydon , 41 Ala. 242 ( 1867 )

A. J. WALKER, C. J.

The mortgage executed by Mary Keiffer, the judgment debtor of the appellants, to the defendant in garnishment, was fraudulent. The defendant in the judgment was indebted to the garnishee, in the sum of two or three hundred dollars, for groceries, and in a note for three hundred dollars; and the garnishee was surety for such defendant, on a note for about three hundred dollars. During the year 1855, the two notes above named were paid off by the income of the defendant’s blacksmith-shop, which the garnishee received; and at the end of the year the two notes were cancelled. In October of the same year, the defendant informed the garnishee, that she desired to make to him a mortgage on her house and lot, worth $1,600 or $1,500, for the purpose of preventing some execution creditors of herself from levying their executions upon sueh house and lot, and subjecting the same to the-payment of their debts. The garnishee assented to the proposition ; and a note for five hundred dollars was executed to him by the defendant; and a mortgage, with a power of sale, to secure the payment of the note was given. The garnishee answers, that he expected, when he took the mortgage, to sell groceries to the. defendant, and that the payment for them would be secured by the mortgage. The mortgage, however, is not given to secure any prospective debt, and is given alone for the security of the payment of a subsisting note of five hundred dollars. Neither the note for three hundred dollars, held by the garnishee on the defendant, nor the note on which he was surety for-her, was secured by the mortgage; and they were paid, as above stated, from the income of the blacksmith-shop. The only debt for the security of which the mortgage was given, was the debt of two or three hundred dollars, for groceries. It follows, that the note for five hundred dollars was in part a simulated debt. The mortgage was made by the mortgagor to prevent the collection of her debts out of her property. This fraudulent purpose was communicated to the garnishee, who agreed to take it, knowing the purpose of its execution ; and besides, the garnishee became a party to an arrangement, by which a note, simulated as to a part of its amount, was drawn and secured by the mortgage. We cannot hesitate to decide, without looking farther, that the mortgage was made to hinder, delay, and defraud creditors. There was, therefore, within the meaning of section 2523 of the Code, “ actual fraud,” as defined in the case of Price v. Masterson, 35 Ala. 483. We must further decide, that the garnishee was guilty of the actual fraud ; for it is correctly held, in the same case, that the mortgagee who takes a mortgage, knowing of the mortgagor’s fraudulent intent, is a participant in the fraud.

[2.] It is held in Price v. Masterson, supra, that the provisions of section 2523 of the Code, although mentioning only trustees, apply to mortgagees with a power of sale. It is further held, in the same case, that such a mortgagee, the mortgage being in fact fraudulent, if himself guilty of actual fraud, cannot retain, from the proceeds of the sale of the mortgaged property, a debt due to himself, as against the mortgagor’s creditor, who has sued out process of garnishment against him.

It results from what we have said, that the court below erred in discharging the garnishee, and ought to have rendered a judgment against him for the entire amount at which he sold the mortgaged property.

Reversed and remanded.

Judge, J., not sitting, having been of counsel.