McKenzie v. Thomas , 118 Ga. 728 ( 1903 )

Fish, P. J.

1. The petition was not subject to general' demurrer. It alleged, in effect, that Parker, while insolvent, conveyed to the McKenzie Brick Company the property in question, which covered all his visible assets, under an agreement with the company that he should reserve an undivided one-third interest in the property; that he should be employed at a stipulated salary as manager of the business in which the property was to be used, and receive one third of the profits therefrom ; that he should discharge his debt to Mrs. Gray, secured by the first deed he had given to the property ; that the company should pay his debt to the Commercial Bank of Augusta, secured by the second deed ; and that this consideration to be paid by the company for the land was much less than its value. If this transaction amounted to an assignment or transfer within the meaning of the first paragraph of section'2695 of the Civil Code, which declares fraudulent and void, against creditors and others, “ every assignment or transfer by a debtor, insolvent at the time, of real or personal property, or ehoses in action of any description, to any person, either in trust or for the benefit of, or in behalf of, creditors, where any trust or benefit is reserved to the assignor or any person for him,” then the petition was not subject to general demurrer. Moreover the petition was saved from a general demurrer by the following allegation : “ That by said action said Parker attempted to convey his property beyond the reach of his other creditors, to hinder and delay them in the collection of their debts, which intent was knoiyn to his grantee, if any he legally had; and said bank, a creditor of said Parker, was thus attempted to be preferred; all being done while he was insolvent, and in contravention of the bankrupt law, and within four months before the filing of said petition in bankruptcy against him, said Parker.” Bankruptcy Act, 1898, ch. 111, sec. 2; Boyd v. Lemon, 114 Fed. 647.

2. If the conveyance made by Parker to the McKenzie Brick Company be treated as an assignment or transfer under the Civil Code, § 2695, par. 1,because made by him, while insolvent, for the purpose of preferring the Commercial Bank of Augusta, one of his creditors, he reserving a benefit to himself, it was not necessary that the petition should allege that the Brick Company knew of' Parker’s insolvency at the time the conveyance was executed. If Parker was insolvent at that time, and such assignment or transfer gave a benefit or preference to the bank, and he reserved a benefit to himself, the conveyance was void as to his other creditors, and, being void, could be set aside at their instance or at the instance of Parker’s trustee in bankruptcy, who represented them, notwithstanding the fact that the McKenzie Brick Company may not have known of Parker’s insolvency at the time. The statute (Civil Code, § 2695), above quoted, does not say that such assignments and transfers as therein mentioned, when made by an insolvent debtor, shall be fraudulent and void provided the assignee or transferee shall know of the debtor’s insolvency at the time of the assignment or transfer, but it broadly declares that every such assignment or transfer made by an insolvent debtor shall be fraudulent in law against creditors and others, and as to them null and void. In Coleman & Burden Co. v. Rice, 115 Ga. 510 (2), it was held without qualification that “ An assignment or transfer by a debtor, insolvent at the time, of any kind or character of property, when any trust or benefit is reserved to the assignor, is fraudulent and void.” See Mitchell v. Stetson, 64 Ga. 442; Park v. Battey, 80 Ga. 353. In none of these cases was any reference made to knowledge by the assignee or transferee of the insolvency of the debtor, though in all of them an assignment or transfer by an insolvent debtor was assailed as fraudulent under the code section referred to above. The absence of any reference, in paragraph 1 of the section, to notice or knowledge of the debtor’s insolvency on the part of the assignee or transferee is quite significant, in view of the provisions of paragraph 2, that a conveyance made by a debtor with intention to delay or defraud his creditors shall be void when such intention is known to the party taking.

While a bona fide conveyance made by an insolvent debtor for a fair and valuable consideration, and free from any trust, is valid, an assignment or transfer by such a debtor, either in trust, or for the benefit of, or in behalf of, a creditor, when any trust or.benefit is reserved to the assignor or any person for him, is fraudulent and void as against other creditors, though the assignee or transferee may have no notice of the debtor’s insolvency.

3. The proposition in the third headnote was announced in Cribb v. Bagley, 83 Ga 105, and requires no elaboration.

4. The plaintiff claimed no rights or benefits under the agreement alleged to have been made between Parker and the McKenzie Brick Company, but assailed the same as fraudulent and void against Parker’s creditors, whom the plaintiff, as his trustee in bankruptcy, represented, and for that reason sought to have it set aside. It was therefore not necessary that the petition should allege that Parker had complied with the terms of that agreement or that the plaintiff was ready to do so.

5. We do not deem it necessary to decide whether the McKenzie Brick Company was legally organized and was capable of acquiring title to the property in question, or whether the plaintiff could collaterally attack the validity of its corporate existence. The deed from Parker to the company was good as against him, and put the title in the company, either as a corporation or as a partnership composed of its incorporators. Especially is this so in view of the terms of the agreement made in connection therewith, viz.: “ All rights and obligations herein created and entered into are for the benefit of said brick company, though they may be all enforced in the names of the parties hereto, should said company not be incorporated.” Therefore, if the deed were not void for other reasons alleged in the petition, it could not be successfully assailed and the property subjected to the payment of the debts of Parker’s creditors, merely because of some irregularity or defect in the organization of the company.

6. While the petition was sufficient to withstand the demurrers filed thereto, and his honor was right in holding it in court that the whole case might be passed on by a jury, we think he erred in granting an interlocutory injunction. The petition alleged: “ That whether said so-called corporation or association of promoters is able to pay its debts is unknown to petitioner; but petitioner, upon information and belief, charges that upon an investigation of its affairs it will be found to be insolvent.” "Where insolvency of a defendant is necessary to the equitable relief prayed, it should be expressly charged, and an allegation of insolvency upon information and belief is not sufficient. McLendon v. Hooks, 15 Ga. 533. The answer expressly denied that the McKenzie Brick Company, or either of the McKenzies, or Boardman, was insolvent, and averred that each of them was amply able to pay the entire indebtedness of Parker, and that this was known, or might readily have been known, to the plaintiff when the petition was filed. There was no evidence of the -defendant’s insolvency submitted on the hearing. So far as appears from the record, none of the creditors represented by the plaintiff as trustee in bankruptcy held a judgment or other lien, or had any claim to the property affected by the injunction, by reason of fraud in the creation of his demand or otherwise. The case, therefore, is controlled by the rulings in Mayer v. Wood, 56 Ga. 427; Stillwell v. Savannah-Grocery Co., 88 Ga. 100; Turnipseed v. Kentucky Wagon Co., 97 Ga. 259; Guilmartin v. R. Co., 101 Ga. 569.

Judgment reversed.

All the Justices concur, except Lamar, J., disgualijied. and Turner, J., who did not preside.