Cartwright v. West

ANDERSON, J.

This is the third appeal in this case. — 155 Ala. 619, 47 South. 93; s. c. 55 South. 917. Upon the first appeal the bill failed to charge that the conveyances made were with a convinous intent, and could therefore be assailed only by existing creditors, and it was therefore necessary for the bill to charge a fraudulent intent, or else that the creditors were existing or antecedent. In other words, the bankruptcy act gives the trustee the power to set aside any conveyance that could be avoided by a creditor; therefore, if the conveyance is attacked as being only voluntary, the bill by the trustee must show that there were existing creditors, as this is essential to defeat such a conveyance. If, however, the bill charges such a fraudulent intent as would avoid the sale by subsequent creditors, we do not think it necessary for the bill to name all of said creditors, or to specify and describe their respective debts. Tbe adjudication of bankruptcy is a determination of the insolvency of tbe bankrupt and tbe existence of creditors, not necessarily creditors antecedent to tbe conveyance, but at least subsequent thereto. Neither is it essential, in a bill filed by tbe trustee, to aver that tbe demands are due. Tbe averment is essential when tbe bill is filed by a creditor, as be has no right to institute tbe suit until tbe obligation matures; but such is not tbe case as to a trustee in bankruptcy, for tbe reason that tbe debts of tbe bankrupt mature, under tbe terms of the act, immediately upon tbe adjudication. It may be true that tbe trustee can avoid only those conveyances of tbe bankrupt which could be avoided by a creditor. Section 70e of tbe Bankruptcy Act (Act July 1, 1898, c. 541, 30 Stat. 565 [U. S. Comp. St. 1901, p. 345]). If tbe property was conveyed in fraud of tbe act, tbe trustee bad tbe right to recover tbe same for tbe benefit of tbe bankrupt estate, and all that is necessary is to show tbe existence of such a creditor or creditors as could avoid tbe conveyance. If tbe bill does not charge a fraudulent conveyance, but simply a voluntary one, then it should show an existing creditor or creditors; but, if it charges a fraudulent conveyance, it would be invalid both as to existing and subsequent creditors, and tbe existence of one or more would give tbe trustee tbe right to avoid tbe sale, and to recover tbe property as an asset of tbe estate to be distributed by tbe bankruptcy court. It is not necessary for tbe bill to set up a schedule of all of the creditors, or to describe all of tbe debts, as it is not only not practical, but tbe act does not require it. In tbe first place tbe creditors have a year within which to file and prove their claims, and to require the trustee to give a list and description of all creditors in bis bill would necessitate a possible delay. When such a bill is filed in a state court, tbe trustee need only show a right to set aside the conveyance, that is, that there was such a creditor as could (avoid same, and all that the state court can do' is to set it aside, and which vests all title or interest in the trustee to be administered and distributed in the bankrupt court. — Dickens v. Dickens, 174 Ala. 305, 56 South. 808.

The Supreme Court of the United States, in the case of Eau Claire Nat. Bank v. Jackson, 204 U. S. 522, 27 Sup. Ct. 391, 51 L. Ed. 595, shows very clearly that it is an immaterial consideration in a suit by a trustee as to how the fund is to be administered, or who is to get the benefit of it. It is there said: “This action, as we have indicated, is simply one of trover to recover the value of property which, as is alleged, was in fraud of the bankrupt act, wrongfully converted by defendant to its own use. Whether there was one or more classes of creditors, and in what manner the property sought to be recovered, would, if the suit were successful, be administered, did not vary in the least nor in the slightest degree the legal rights of the plaintiff. If the property was -obtained by the defendant in fraud of the bankrupt act, plaintiff was entitled to recover the same, and this is the only qv,eslion involved. The bank also contends in effect that in such suit the validity of all other claims against the bankrupt can be litigated, and whether they have received voidable preferences, and have not been required to surrender them, the broad effect of the contention repels it as unsound. To yield to it would transfer the administration of a bankrupt’s estate from the United States District Court to the state court.” We do not question the soundness of the holding upon the first appeal (155 Ala. 619, 47 South. 93), that, so long as the bill did not charge fraud, it had tó show existing creditors; but we do question the holding in so far as it applied the same rule as to the necessity for setting out and describing all the claims against the bankrupt, as heretofore existed with reference to a creditor’s bill. Of course, in a general creditor’s bill, the debts should be described and shown to be ¡due; but, when a bill is filed by a trustee in bankruptcy, he need only set up enough to show that the conveyance is invalid as to any one or any number of creditors of the bankrupt, for, if such is the case, he can avoid the conveyance, and it is not necessary to set out all of the creditors, or to fully describe' the claim of each of them, or to state that they are past due, as the bankruptcy matures them. He need show only a right to avoid the conveyance, and he is then entitled to the property as an asset of the estate to be disposed of and distributed by the bankrupt court. — Miller v. New Orleans Co., 211 U. S. 496, 29 Sup. Ct. 176, 53 L. Ed. 300.

The bill, as last amended, charges that the conveyances were fraudulent and void as to subsequent as well as existing creditors, and was not subject to the demurrers interposed or the respondent’s special pleas.

The case of Stevenson v. Bird, 168 Ala. 425, 53 South. 93, is not opposed to, but rather supports, the present holding. The opinion states that the trustee could only maintain a bill which would inure to the benefit of all the creditors, but did not say that all of said creditors had to be set out, or that the trustee could not maintain the bill, unless all of the creditors were set out, and all were entitled to avoid the conveyance. What the court intended to guard against holding was that a trustee could set aside a conveyance solely for the benefit of one creditor, if there were others entitled to share in the fruits of the litigation; but, as no point was made in the lower court as to the substitution of the trustee for a single creditor, this court would not interfere in this respect.

In order that we may not be misunderstood, we hold: First. That, when a bill is filed by a trustee to set aside a voluntary conveyance made by the bankrupt, he need only show one existing creditor who could have avoided the conveyance, and the state court will set aside the conveyance in favor of all existing creditors who file and prove their claims in the bankrupt court, and which last fact is to be determined and the fund distributed by said court. Second. When the trustee files a bill to set aside a conveyance as fraudulent and void as to subsequent as well as existing creditors, the averment of bankruptcy is sufficient to charge the existence of creditors, and that their demands are due, and, if relief is granted, the conveyance will be set aside as to all creditors of the bankrupt, and the property will become assets of the estate, and subject to the claims of all creditors who have properly filed and proven their claims, and which last fact is to be determined by the bankrupt court.

The chancery court, by its final decree, set aside the deeds made by Herbert Cartwright to his stepmother— one dated January 3, 1903, and which conveyed the east half of lot 374, and which said deed was recorded January 22, 1903, and a deed executed March 31, 1905, conveying lot 375, also brick store lot, and which said deed was not filed for record until December 28, 1906, nearly two years after its execution.

We concur in the holding of the chancellor that the deed conveying lot 375 and the brick store, dated March 31, 1905, and not recorded until December, 1906, was fraudulent and void as to all the creditors of Herbert Cartwright, as said transaction falls within the influence of Diokson v. McLarney, 97 Ala. 389, 12 South. 398; Sims v. Gaines, 64 Ala. 396; Seales v. Robinson, 75 Ala. 372; 20 Cyc. 790; McGehee v. Rational Bank, 93 Ala. 196, 9 South. 734; McFadden v. McFadden, 134 Ala. 337, 32 South. 719.

As to the deed of January 3, 1903, conveying the east half of lot 374, we are not impressed with the soundness of the holding of the chancery court, that it was fraudulent and void as to the creditors of Herbert Cartwright. He only owned the lot, valued at $1,100, as the house which was moved, on said lot belonged to the grantee, and she had a high moral as well as legal right to be paid for same, and it is more than probable that it was so moved with the understanding that her son would deed her the lot. Again, the deed was not withheld from the record, as was the case with the other one, for the purpose of misleading the public as to the financial standing of the grantor, but was immediately recorded. We also find that the grantee very soon after the conveyance borrowed money on the property, and lived in the house for some time after the purchase. Nor does the subsequent use or control of the house and lot by the grantor after the conveyance necessarily convince us that it was understood that he was to reserve' a secret ownership to or benefit in said house and lot, especially when taken in connection with the relationship of the parties and the surrounding circumstances. The mother owned other houses, and naturally let her son occupy and use the one in question as her agent or tenant, and authorized him to use the rent in reducing or extinguishing the indebtedness on the property created by her with the Building & Loan Association.

The decree of the chancery court is affirmed as to the conveyance of March, 1905, but is reversed as to the one of January, 1903, and one is here rendered to the effect that said deed is not inoperative and void as to the creditors of Herbert Cartwright. The cost of this appeal will be taxed one-half to the appellee and one-half to the appellant.

McClellan, Somerville, and de Graffenried, 33., concur. Dowdell, Mayfield, and Sayre, JJ., concur in the holding as to the deed of 1903, but dissent as to the other one, and think that the chancery court erred in setting same aside. They also dissent as to any modification or qualification of the opinions upon the former appeals. •