Greil v. Durr , 203 Ala. 644 ( 1919 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] In handling the funds of the city of Montgomery the city treasurer was an agent of the city; and, although he was an insurer of their safety when he deposited them in the bank of Morris Co. (Billing), and might personally hold the depositee to an accounting therefor, yet the city, as beneficial owner, also had the same right. In such a case the right of the city was paramount to the right of the agent, and the intervention of the city as claimant of the deposit account in the bankruptcy court superseded the right of the agent to prosecute a personal claim of his own. 2 Corp. Jur. 899, 900.

The result, therefore, of the composition and discharge of Billing's liability to the city was the extinction of any independent right of action in favor of the city treasurer or his bondsmen against Billing for the same cause of action. So, when Durr and Wiley answered their liability as the treasurer's bondsmen by paying $1,500 to the city, this could not and did not revive the old claim against Billing, nor create a new one by equitable subrogation; for the basis of subrogation had been destroyed by the composition and discharge in bankruptcy.

Hence it must be concluded that the conveyance by Billing of all his scheduled property to Greil in order to procure the means required for his proposed composition — all of which was done under the eyes of his scheduled creditors, and with the approval of the court — could not have been fraudulent as to existing creditors, whatever may have been the value of the property conveyed, and whatever reservation may have been made in favor of Billing or his wife. The complainant has no standing for the impeachment of that transaction, as a then existing creditor.

But Billing afterwards recognized his moral obligation to the bondsmen of the city treasurer, by executing to them his promissory note for the amount they had paid to the city on account of their principal's liability superinduced by Billing's own default. Thus Durr and Wiley became subsequent creditors of Billing.

As subsequent creditors, they claim the right to impeach the conveyance to Greil: (1) Because it was in fact a mortgage, and they are entitled to the benefit of the residuary proceeds of the Billing property after the repayment to Greil of the amount justly due him; and (2) because, though not a mortgage, there was fraudulently reserved, by a separate, unrecorded agreement, a beneficial interest for Mrs. Billing in the nature of a secret trust, largely in excess of the value of her inchoate dower interest, the relinquishment of which was the consideration for the benefit so reserved.

As to the first proposition, we entertain no doubt whatever but that the conveyance to Greil was absolute, and in no sense intended to operate as a mortgage or security for any debt. Nor was its absolute character altered by the fact that a trust was ingrafted upon it in favor of Mrs. Billing. "It is essential to a mortgage that there must be a binding, continuing debt, and where there is no debt a mortgage is impossible." Johnson v. Hattaway, 155 Ala. 516, 46 So. 760. The evidence does not show any conduct on the part of Greil which should estop him from now denying that it was not an absolute conveyance, since all that he did was perfectly consistent with his claim to the contrary. Complainant can take nothing upon the theory of an equity of redemption in Billing, of which Durr and Wiley became the assignees.

The second proposition invites a more serious scrutiny.

As said in Sandlin v. Robbins, 62 Ala. 477, 485:

"There never was a time when a debtor could convey his property directly, or in secret trust, for his own benefit, or for the use of his family, and thereby defeat his creditors of their lawful demands."

In that case, quoting from the text of Bump on Fraud. Con. (2d Ed.) 208, it was said of such transactions:

"The effect of the trust is not a subject for consideration. Its mere existence avoids the transfer and destroys the title as against creditors existing or subsequent."

In the instant case there was no reservation of benefit for the grantor, Billing; nothing placed in trust for his use or advantage. But it is contended for complainant that the reservation for Mrs. Billing was the same in fraudulent effect as if made for Billing himself. As to existing creditors this proposition is sound enough, if it be assumed that the reservation was a mere gift. Huggins v. Perrine, 30 Ala. 396,68 Am. Dec. 131; 12 R.C.L. 543, § 68. As to subsequent creditors, though it were a gift, such a reservation in trust would be void only in case it were made by the grantor with the intention of hindering, delaying, or defrauding such creditors; that is, it must be tainted with actual fraud. Huggins v. Perrine, supra; Smith v. Pitts, 167 Ala. 461, 52 So. 402; Echols v. Orr, 106 Ala. 237, 17 So. 677.

But very clearly the reservation in trust for Mrs. Billing was not a gift. On the contrary, it was the consideration which induced her to relinquish her inchoate dower interest in her husband's lands, which she might have asserted contingently against any title derived from him through execution sale at the suit of creditors. Such a relinquishment was a valuable consideration which may or may not have been adequate for the quite problematical return for which she stipulated.

But, however this may be, we do not find in the circumstances of this transaction, and the situation of the parties, any sound basis for the conclusion that Billing had in view the circumvention of a future creditor, whose existence he then had no reason to anticipate, and the creation of whom was, on his part, but the voluntary recognition of a moral obligation, which does not seem to have been at that time apparent. Nor does it appear that Mrs. Billing, a purchaser for value of the benefit reserved, was a participant in any such fraudulent purpose, even if her husband entertained it.

We come then to the final aspect of complainant's right to relief, viz. his right to enforce the written agreement made by Greil, along with his indorsement of the Durr and Wiley note, to pay the same out of surplus funds in his hands from the Billing property, when there was a surplus sufficient for that purpose.

Though this agreement is not as explicit as it might be, we think that there can be no serious doubt as to its true meaning and intent. Construing the terms of the agreement in the light of the known conditions, and of Greil's indorsement of the note, we think it is reasonably clear that Greil intended by his indorsement to assume primary responsibility for the payment of the note, but only upon the conditions expressed in the agreement, viz. that he, at the maturity of the note, or at some future time, had on hand sufficient of the surplus funds (for which he was accountable in trust to Mrs. Billing) to make such payment, and that Billing, and Mrs. Billing, and her trustee, Roman, requested him in writing to do so. We think also that there was an implication, essential to Greil's good faith in his undertaking, that he would execute the trust in favor of Mrs. Billing, or her assignees, Durr and Wiley, without unreasonable delay.

The record shows that Greil received the stipulated request in writing from the three persons named. He accepted the order from Mrs. Billing to pay to her husband's creditors, Durr and Wiley, $1,500 out of funds which he held for her in trust expectant, whenever that amount was realized under the provisions of his trust.

The order to pay, and Greil's acceptance of the order, operated as an equitable assignment pro tanto of the trust fund in being or in potential expectancy by Mrs. Billing to Durr and Wiley. Wells v. Cody, 112 Ala. 278, 20 So. 381; Canterbury v. Marengo Abstract Co., 166 Ala. 231, 234, 52 So. 388,139 Am. St. Rep. 30; Lee v. Wimberly, 102 Ala. 539, 15 So. 444; Hanchey v. Hurley, 129 Ala. 306, 30 So. 742; Harris v. Clark, 3 N.Y. 93, 51 Am. Dec. 352; 2 R.C.L. 621, § 29. And, of course, after Greil's acceptance of the order, and his assumption conditionally of the obligation to pay the Durr and Wiley note, Mrs. Billing could not, apart from the statutory inhibition against her suretyship for her husband's debt, revoke her order and annul the assignment. Lee v. Wimberly,102 Ala. 539, 15 So. 444.

We must, therefore, consider the contention by Mrs. Billing that this assignment by her was but a pledge of her money or property for the payment of her husband's debt, a question which, as we have viewed the case, is vital to complainant's right to relief.

Was Mrs. Billing's order, when accepted by Greil, an absolute appropriation of her property to her husband's debt, which is not inhibited by the statute (Hall v. Gordon, 189 Ala. 301,66 So. 493), or was it in substance and effect a conditional appropriation merely, and hence no more than a pledge for that debt's future payment, if it were not otherwise discharged?

If a creditor accepts an order on a third person for money or goods as payment of his debt the debt is unquestionably discharged in the absence of fraud or mistake. Harrison v. Hicks, 1 Port. 423, 27 Am. Dec. 638; Moore v. Briggs, 15 Ala. 24. But, if such order is not accepted as a payment, its effect is that of a conditional payment only; that is, it operates as a payment and extinction of the debt only when the money or goods is paid to the creditor by such third person, responsively to the order. Until that event the debt persists, and the creditor has his remedy against his debtor, though he might also proceed against the third person if the latter has accepted the order.

It is clear, therefore, that Mrs. Billing's order to Greil, accepted by him, was but a conditional payment of her husband's debt to Durr and Wiley up to the moment when Greil should actually pay them; and it is equally clear that, had Billing's debt to Durr and Wiley been previously satisfied from some other source, this would have revoked Mrs. Billing's order, and would have discharged her funds or property in the hands of Greil from their conditional subjection to Billing's debt.

It follows that Mrs. Billing's assignment of her property, though absolute in form, was in fact but a collateral security for her husband's debt, which is not binding upon her, and which she may properly repudiate. See the case of Horton v. Hill, 138 Ala. 625, 36 So. 465, which, though lacking in the element of an accepted assignment, is persuasive by its analogy.

Mrs. Billing's revocation of her order to Greil to pay money to Durr and Wiley on account of Billing's indebtedness to them destroys the foundation upon which rested Greil's obligation to pay them out of Mrs. Billing's funds, since that obligation was conditional upon the continued force and authority of her order.

We do not overlook the contention of complainant that Greil became liable because of his wrongful payments of money to Mrs. Billing in anticipation of his future collection of funds for her account. But his obligation to Durr and Wiley was in no wise affected by his advances to Mrs. Billing, unless he actually had funds in hand which he refused to pay to them before Mrs. Billing withdrew his authority to do so. The evidence is convincing that Greil has not yet collected any funds which would upon accounting have been due to Mrs. Billing.

The considerations above set forth must result in a denial of relief to complainant as against Greil and Mrs. Billing upon any aspect of the case. And, since Billing had no beneficial or residuary interest of any character in the property conveyed to Greil, or in the reservation in trust for Mrs. Billing, the bill of complaint is without equity as to Billing, and his debt to Durr and Wiley is barred by the statute of limitation of six years.

Let the decree of the circuit court be reversed, and a decree here rendered denying the relief prayed for and dismissing the bill of complaint.

Reversed and rendered.

ANDERSON, C. J., and McCLELLAN and THOMAS, JJ., concur.