Lane v. Newton , 140 Ga. 415 ( 1913 )

Lumpkin, J.

(After stating the foregoing facts.)

1. Where creditors seek by equitable petition to cancel a deed made by a husband to his wife, it is necessary to make the grantor a party defendant. Palmer v. Inman, 122 Ga. 226 (50 S. E. 86) ; Paulk v. Ensign-Oskamp Co., 123 Ga. 467-469 (51 S. E. 344). If he is dead, his legal representative must be made a party, or a sufficient reason shown to excuse the failure to do so. In this case the plaintiffs brought their petition against the wife of the decedent and three of his sons, who were alleged to be adults, but it does not appear that these were all of the children. On the contrary, it was alleged that Lane died leaving a widow and “several children among whom were” the three who were made defendants. It was alleged that the defendants were insolvent and unable to answer in damages, but it was not alleged that the estate of Lane was.insolvent, or that there would be no administration and no need for any. In the answer of the defendants they denied that there was no administration, and stated who was the administrator. It nowhere appears in the record that it was shown that there was no administration,' or that the administrator was made a party; nor was any excuse advanced for the failure to do so. No diminution of the record was suggested, but in the brief of counsel for defendants' in error it was alleged, that, “when administration was granted on his estate, the administrator was made a party.” Upon reading this, we issued an order to the clerk of the superior court, requiring him to send up. a certified copy of the order making the administrator a party; but the clerk certified that he had made diligent search of the records and had found that “there was never an order taken making the administrator of T. J1 Lane a party to said suit.” The bill of exceptions recited that the case- was between the plaintiffs and Mrs. Lane and her three sons, and it contained no intimation that an administrator was ever made a party. As the administrator of Lane and Mrs. Lane were the two necessary parties defendant, the failure to make the administrator a party defendant in error and to serve him, if he was a defendant in the court below, would have been fatal. But no such point was made or suggested. Counsel for the plaintiffs in error, in effect, stated in his brief that he insisted on all of the grounds of error taken by him. Thus we have, so far as this record shows, a case where a deed has been adjudged to be fraudulent and has been decreed to be canceled without the presence of the maker of it, or his adminis-. trator, or all of his heirs. This necessitates a reversal.

2. One ground of the demurrer attacked the allegations of the plaintiffs that they were subrogated to the right of Daniel Sons & Palmer Company to attack the deed by Lane to his wife, because it was a voluntary deed made to hinder, delay, and defraud that company, and because when such company was pressing for the collection of the indebtedness to it, and had brought suit thereon, the plaintiffs were induced, on representations of Lane, to advance the money to pay off the pressing indebtedness. There is a difference between the status of creditors of an insolvent person existing at the time when a voluntary deed is made and that of subsequent creditors. First National Bank of Cartersville v. Bayless, 96 Ga. 684 (23 S. E. 851). After declaring broadly the existence of the distinction, even where the subsequent creditor loans money with which to pay the prior debts, still, in the opinion on pages 687-8, it was said: “If when he [a husband] made the conveyance [to his wife] he had an intention to borrow money and pay off his existing indebtedness, knowing that he was in embarrassed or failing circumstances and probably would not be able to repay the money thus borrowed, and intending by-this scheme to save the house and lot to his wife, the conveyance would have been fraudulent, and the bank [the subsequent creditor] would have been subrogated to the rights of the pre-existing creditors whose debts were paid with the money borrowed from the bank.” The “subrogation” referred to exists so far as concerns attacking the conveyance for fraud. Four authorities are cited in that case as sustaining the right of a person from whom money is borrowed in order to pay off an existing indebtedness to be subrogated to the status of the creditor whose indebtedness is thus paid, as to attacking for fraud a voluntary conveyance made while the first debt was in existence but before the second was created. The first of these is Wait on Fraudulent Conveyances (3d ed.), § 103, which reads as follows: “A device to which fraudulent insolvents often resort consists in making a voluntary conveyance and following this up by paying all the antecedent or existing creditors, practically with the moneys derived from the credit extended by subsequent creditors. Savage v. Murphy [34 N. Y. 508, 90 Am. D. 703] was such a case. It is a most unsubstantial mode of paying a debt to contract another of equal amount. It is the merest fallacy to call such an act getting out of debt, and the case should be treated as if the prior indebtedness had continued throughout, or as a case of a continued or unbroken indebtedness.” The second authority cited is Bump on Fraudulent Conveyances (4th ed.), § 296. It is there said: “The general rule in regard to voluntary conveyances undoubtedly is that they are void only so far as may be necessary to satisfy prior creditors, and that if they are paid the conveyance will stand. The mere fact, however, that the prior debts have been paid off will not alone render the transaction valid, though it is entitled to great weight. A great deal will depend upon the mode in which such debts are paid. Paying off one debt by contracting another is not getting out of debt. . . In such instances the subsequent creditors are subrogated to the rights of the creditors whose debts their means have been used to pay. Any other rule would simply permit the debtor to take the property of subsequent creditors and give it to his donee.” The other two authorities sustain the same doctrine. Rudy v. Austin, 56 Ark. 73, (19 S. W. 111, 35 Am. St. R. 85); Savage v. Murphy, 34 N. Y. 508 (90 Am. D. 733).

The difference between claiming subrogation to a contract oí to a lien, and claiming the right to attack a voluntary deed as fraudulent, if'money borrowed from the attacking party was used to pay off antecedent debts, and without knowledge on his part of the making of the conveyance, is clear. The decisions relied on by counsel for the plaintiffs in error (McCowan v. Brooks, 113 Ga. 532 (39 S. E. 115), Sackett v. Stone, 115 Ga. 466 (41 S. E. 564), and Ragan v. Standard Scale Co., 128 Ga. 544, 546 (58 S. E. 31)) were in cases where an effort was made by one who advanced money to pay off and discharge a lien or security to be subrogated to the rights of the holder thereof. What we are now discussing is the making by an insolvent creditor of a voluntary conveyance,- and then borrowing money from another and discharging prior debts, as creating substantially a continuing indebtedness rather than a cessation of debt and the creating of a distinct subsequent debt. It seems to the writer that the decision in the ease of First National Bank of Gartersville, above cited, does not go as far as the authorities on which it relies, and that it does not clearly distinguish between the status of independent subsequent creditors of an insolvent who makes a voluntary conveyance and that of a subsequent creditor who lends money to pay prior debts which are thus discharged. That decision requires an actual fraudulent intent by the grantor in such a deed toward 'a subsequent creditor in order to obtain subrogation to the position of prior creditors paid with the money furnished by the subsequent creditor, although the prior creditor could attack a voluntary conveyance by an insolvent without showing actual fraudulent intent. Eeally the entire mat-tor of attacking such conveyances rests on the ground of fraud. In some instances the law declares that certain acts are fraudulent without proof of intent, such as a gift of his property by an insolvent as against creditors (primarily meaning existing creditors). In other instances (such as sales or gifts, relatively to subsequent creditors generally), the intent to defraud is a necessary element. Such an intent may be inferred from circumstances. What circumstances will authorize such an inference need not now be dis-. cussed. The ground for holding that in some instances a subsequent creditor is subrogated to the status of a prior creditor as to attacking a voluntary deed for fraud is that his money went to pay the debt antedating the gift, and therefore, relatively to the person furnishing the 'money, in substance there was a continuity of debt rather than a discharge from debt and the creation of a new debt. 1 Moore on Fraud. Conv. 268-270, and notes. The writer does not deem it necessary to consider here whether “subrogation” is the most apt expression in such cases, or whether it is more strictly a continuous state of indebtedness; but the authorities use that term.

If a trap were set by a husband and wife for the purpose of defrauding a subsequent creditor and he were defrauded, it would not seem that he needed any subrogation in order to attack the fraud. If only the intent of the husband is deemed necessary, this would make'the subrogation of a subsequent creditor depend on an intent of one party to a voluntary conveyance. See, in this connection, note to Hagerman v. Buchanan, 14 Am. St. R. 732, 739, 745 (45 N. J. Eq. 292, 17 Atl. 946). But, under our statute, the decision above cited stands as the law unless modified on formal review.

There is also a statement, in one of the grounds of the motion for a new trial, that the question of subrogation was abandoned, though much of the allegation of fraud was on that subject. The charge of the court should have distinguished between prior and subsequent creditors.

If the reconveyance from Mrs. Lane to her husband was a deed of gift, and it was delivered, then the plaintiffs acquired a good title, and the deed from Lane to his wife does not need to be canceled. Perhaps there may be a decree declaring the fact and requiring a record. Wdiat is said in Martin v. White, 115 Ga. 866 (42 S. E. 279), covers the question as to the effect of recording a dead which is in fact voluntary, relatively to a subsequent purehasar for value without notice.

As we find it necessary to reverse the judgment for want of proper parties, which point was raised both in the demurrer and in the answer, and because of the failure to make any distinction in the charge between • antecedent and subsequent creditors, which infected much of the charge, we deem it unnecessary to discuss in detail the various grounds of the motion for a new trial.

Judgment reversed.

All the Justices concur.