McDowell v. Steele , 87 Ala. 493 ( 1888 )

STONE, C. J.

The testimony is very satisfactory in support of the proposition, that in March, 1884, McDowell was indebted to Pritchett, and to Mrs. McDowell, in the sums severally claimed by them. We think, also, that the property mortgaged to them was not excessive in value, taking into account the amount of the indebtedness. It is also well settled, under our system, that a failing debtor, who is unable to pay all his debts, may elect whom he will pay, and pay them in full, although he thereby disables himself to pay any thing to his other creditors. But this last principle has its limit, which is as well defined and universal as the principle itself. It is this: The arrangement or adjustment by which the creditor secures, or attempts to secure his own claim, must not stipulate for, or openly or secretly secure or provide, any benefit to the debtor beyond what the law, without such agreement, would secure to him. If the security transcend this boundary, it is fraudulent as to the failing debtor; and if the secured creditor knows of other debts unprovided for, or, what is the same thing, has information calculated to put him on inquiry, which, if followed up, would lead to the discovery of other debts, then it is fraudulent as to him. 3 Brick. Dig. 517, § 137; Hodges v. Coleman, 76 Ala. 103; Pope v. Wilson, 7 Ala. 690; Wiley v. Knight, 27 Ala. 336; Reynolds v. Welch, 47 Ala. 200; McWilliams v. Rogers, 56 Ala. 87; Lehman v. Kelly, 68 Ala. 192; Seaman v. Nolen, Ib. 463; Pritchett v. Pollock, 82 Ala. 169; Hopkins v. Campbell, ante, p. 179; Lukins v. Aird, 6 Wall. 78; 3 Brick. Dig. 679, § 10; Tillman v. Thomas, ante, p. 321.

It is contended that McDowell, after making these mortgages, retained sufficient unincumbered property to pay the debt which the bill seeks to enforce. We have examined all the testimony bearing on this question, and, without commenting on it, we hold it wholly insufficient to make this contention good. We hold that, at and before making the mortgages, Mr. McDowell was practically insolvent. Else why want twelve years within which to work out and pay his debts ?

Is there sufficient eyidence that Pritchett had actual knowledge, when he obtained his mortgage, that McDowell was otherwise indebted than to him, Pritchett, and to Mrs. McDowell ?

Pritchett testifies that, at that time, he did not know that McDowell owed any other than the two debts; the one to himself, and the other to Mrs. McDowell, his mother. The questions may naturally arise, why should he demand a mortgage security of McDowell, if the latter owed no other debts ? and, on what principle could he account for McDowell’s wish to obtain twelve years indulgence, and his own consent to grant him more than nine ? McDowell, Pritchett’s witness, sheds light on this. He testified as follows: “The last of November, or first of December, 1883,1 had been trying to sell the Pail plantation, to meet that debt [the chief consideration of the mortgage made to Pritchett, March 14, 1884], but could not effect a sale of it. So I proposed to him [Pritchett], as he had money, that he would pay up said decrees, and give me time to pay him, and to pay up my other debts. He asked what time I wanted. I told him, if he gave me twelve years, I thought I could pay him some along every year,-and pay up my other debts. He said, ‘No; but I tell you what I will do: if you will give me a mortgage on more lands than the Fail place, I will give nine years.’ ... I told him I would do it, and that was agreed to by both of. us.”

Pritchett’s testimony of this transaction is as follows: “I wanted to help him [McDowell], if possible, by giving him time, and, at the same time, wanted to secure the money for my ward; and not knowing of any other debts, I thought he could eventually pay me out.” In another place he says: “McDowell asked for twelve years time, on additional security that he was to make me. I told him I would give him nine years time; so we agreed on this.”

Mrs. McDowell testified that, when her husband asked her to unite in the mortgage to Pritchett (the night before its execution), he stated “that Pritchett would give him nine years to pay it in, and he thought it would enable him to pay up all his other debts. This is the only way he spoke to me of other debts.” It is not shown that Pritchett was informed of this.

The present suit grew out of Dawson’s guardianship of'D. A. Steele. McDowell was one of Dawson’s sureties on his bond as guardian. The settlement of the guardianship was had in Wilcox Probate Court March 13, 1884, and a decree was rendered, against the guardian for something over twenty eight hundred dollars. Judge Purifoy, then judge of probate of Wilcox, testified, that in the evening of .the day on which the settlement was made, Pritchett inquired of him if Dawson had attended the settlement; and on being informed that he had not, he became irritated, and used some harsh expressions. He testified further that he then informed Pritchett of the result of the settlement. Pritchett testified this conversation occurred March 15, 1884.

The mortgage from .McDowell and wife to Pritchett was executed and filed for record March 14, 1884. The debt of six thousand dollars was divided into nine equal installments, due December 1, severally and annually, commencing with 1885, and ending with 1893, with a provision that the entire accruing interest was to be paid annually; and if the mortgagor made default in paying the third note at its maturity, December, 1887, then the mortgagee was empowered to foreclose the mortgage by sale.

The testimony is very strong, that Pritchett, at and before he took his mortgage, had knowledge that McDowell owed a debt or debts, other than those he owed to him, Pritchett, and to his mother,'Mrs. McDowell. Be this as it may, the testimony and the surroundings clearly convince us that he had sufficient notice to put him on inquiry, which would have led him to a discovery of such debt or debts. Finding this to be the fact, the conclusion is irresistible, that the long delay granted to McDowell, during which the possession and use of the property were proposed to be secured to him, and other creditors denied the right to enforce the collection of their demands, rendered the mortgage doubly fraudulent : First, in securing a valuable benefit to McDowell, and, second, in delaying and hindering all other creditors in the assertion of their claims.

Forbearance and generosity to an embarrassed and struggling debtor, are highly praiseworthy; but the law’s stern morality can not permit their exercise, when the palpable effect of thus favoring the debtor is to hinder and obstruct other creditors in the enforcement of their equally meritorious claims. When there is a conflict between the mandate of justice and the instinct of charity, the latter must yield, in all human tribunals.

The chancellor’s reasoning and conclusions in this case are striking and convincing. His decree is in every respect affirmed.