Walker v. Miller & Co.

11 Ala. 1067

• Court: Supreme Court of Alabama
• Decided: January 15, 1847
• Status: Published

Opinion

COLLIER, C. J.

It is insisted for the plaintiff in error, that the cause should have been repudiated Ijy the chancellor, as there is no sufficient ground shown for the interposition of equity. The suit, if sustainable, must be as a bill quia timet which is said to be in the nature of a writ of prevention, and intended to accomplish the ends of precautionary justice. Such bills are usually applied to prevent wrong, or anticipated mischiefs, and not merely to redress them when done. Courts of equity sometimes interfere in such cases by the appointment of a receiver to receive rents or other income ; sometimes by an order to pay a pecuniary fund into court; and sometimes by the mere issuing of an injunction ; thus adapting the relief to the precise nature of the particular case, and the remedial justice required by it.

In regard to equitable property, the jurisdiction is equally applicable to cases where there is a present right of enjoyment, and to cases where the right of enjoyment is future, or contingent. “ The object of the bill in all such cases is to secure the preservation of the property to its appropriate uses and ends; wherever there is danger of its being converted to other purposes, diminished, or lost by gross negligence, the interference of the court becomes indispensable. It will accordingly take the fund into its own hands, or secure its due management and appropriation, either by the agency of its own officers or otherwise. Thus, for instance, if property in the hands of a trustee for certain specific uses, or trusts (either express or implied,) is in danger of being diverted, or squandered, to the injury of any claimant, having a present or future fixed title thereto, the administration will be duly secured by the court according to the original purposes, in such manner as the court may in its discretion, under all the circumstances, deem best fitted to the end; as by the appointment of a receiver; by payment of the fund, if pecuni-ry, into court; or by requiring security for its due preservation and appropriation.” [2 Story’s Eq. § 826-7.]

The remedy by bill quia timet, is appropriate, where there is any danger of loss, or deterioration, or injury to personal property, which is in the hands of the party entitled to the present possession, and in which another person is entitled to a future right of enjoyment. It applies where a future interest in personal property is assigned by a debtor to his creditors ; in such case the latter may come into equity to have the property secured to their future use. In Johnson v. Mills, 1 Ves. Rep. 282, Lord Hardwicke said, that nothing was better settled than, wherever a demand was to be made out of assets certainly due, but payable at a future time, the person entitled thereto might come against the executor to have it secured for his benefit, and set apart in the meantime, that he might not be obliged to pursue those assets through several hands : Further, that there w,as no ground for a distinction between a legacy and a demand by contract. See also, 2 Ves. Rep. 619; 1 Chan. Cas. 223; 2 Johns. Ch. Rep. 561; 4 Id. 132; 6 Ves. Rep. 734; Jeremy’s Eq. Jurisd. 354, et post; 1 Bro. Ch. Rep. 108; 2 Id. 321; 2 Story’s Eq. 129 to 146 ; Ired. Eq. Rep. 42; 2 Id. 573; 7 Dana’s R. 232; 6 Ala. R. 463 ; 1 Freem. Ch. Rep. 273; 10 Ves. R. 161; 7 J. J. Marsh. R. 409; 5 Litt. R. 180.

A mortgagor, it is said, will not be allowed to do any acts injurious to, or diminishing the security of the mortgagee ; and if he should commit, or attempt to commit acts of waste, he will be restrained therefrom by process of injunction. In Call v. Scott, 4 Call’s Rep. 402, it was held, that where A gave a mortgage to C, to indemnify the latter against his in-dorsement for the former, a bill quia timet, will lie at the instance of C, against A’s representatives, for a decree that they shall pay the indorsee, and indemnify C against his indorsement. So it has been decided, that equity will not, except under special circumstances, entertain a bill for the specific execution of a contract respecting a chattel; yet where a trust is concerned, which is peculiar to equity, it will interfere and relieve when it is ended, or is likely to be abused. [3 Marsh. Rep. 477.]

In regard to the respective interests of the mortgagor and mortgagee, it has been held that the mortgagee of personal property may maintain trover against the attaching creditor, thoqgh he stipulated with the mortgagor that he should retain possession and sell the property to pay the debt. [3 Fairf. Rep. 282.] So if the mortgagor cut and carry away timber trees, he is liable to the, mortgagee in possession in an action of trespass for their value. [4 Munf. Rep. 382; 2 Greenl. 132, 173, 387.] It may be regarded as the settled law of this State, that the mortgagor’s interest, even in personal property mortgaged by him, of which he retains the possession, may be levied on under execution, and if the mortgage has not become forfeited, so as to entitle the mortgagee to interpose a claim at law, his remedy is in equity, where the interests of the mortgagor may be ascertained and separated from that which he asserts. [2 Ala. Rep. 318; 4 Id. 469; 5 Id. 770; 6 Id. 27.]

Walker admits that he stipulated to insure the “ Dallas,” for an amount equal at least to the notes in which the complainants are his sureties, and to assign the policy to them. Thus far his answer is responsive, but in affirming that he did insure, even for a larger sum, for the benefit of all concerned; that the policy to the extent of the complainant’s liability inured to them in the event of a loss, and that they were well satisfied with it, the answer attempts to avoid a strict compliance with the respondent’s undertaking, and its allegations should be proved. In the condition of the record, must we not conclude that Walker failed to comply with his stipulation in respect to the insurance ? This being the case, may not a court of equity entertain the complainants’ bill, and give them the indemnity which the insurance would have afforded ?

Again: the assignees of Walker deny the right of the complainants as mortgagees — claim under the assignment an exclusive and absolute right in the steamboat to enable them to execute the trust conferred upon them — avow their purpose to employ or sell it, without regard to the complainants’ lien, and admit their inability to make good anjr loss which may be sustained by the destruction of the boat, or result from its condemnation under the statute to satisfy the demands of shippers of merchandise, persons furnishing supplies, &c. This being the case, we cannot doubt that the complainants may well apprehend the security afforded them by the mortgage is in jeopardy and may become unavailable, and that it is competent for chancery to interpose its extraordinary powers and make the mortgaged property subservient to the lien. This, we think, is so obvious a sequence from the law as we have stated it from the books, that argument is not necessary to illustrate it. See Lyon, et al. v. Hunt, et al. at this term.

We are now brought to consider whether the failure of the complainants to have their mortgage recorded, postponed its operation, so as to give priority to the assignment made by Walker for the benefit of his creditors. The act of 1828, “ more effectually to prevent frauds and fraudulent conveyances, and for other purposes,” enacts that “all deeds and conveyances of personal property in trust, to secure any debt or debts, shall be recorded in the office of the clerk of the county court wherein the person making such deed or conveyance shall reside, within thirty days, or else the same shall be void against creditors and subsequent purchasers, without notice.” In Smith & Co. v. Zurcher, 9 Ala. 208, it was decided that mortgages were within the meaning of the act, just as much as conveyances, which in technical language were called deeds of trust. [See also 4 Ala. R. 469.] The questions arising under this branch of the cause are— First — Do the assignees or the beneficiaries under the deed stand in such a predicament as purchasers or creditors, as entitles them to defeat the operation of the mortgage because it was not recorded in due season ? Second — If so, does it not appear, although the mortgage was not registered in time, that the assignees had notice of it, when they received the deed of assignment.

In Dickerson v. Tillinghast, 4 Paige, 215, the question arose as to what was necessary to constitute a bona fide purchaser within the meaning of the registry act of New York. The chancellor said he was one who had actually parted with his property on the credit of the estate, so as to give him an equitable claim or specific lien thereon, without notice of a prior equity, and had also clothed that equitable lien with the legal title, by taking a deed or mortgage. Such a purchaser would not be divested of that legal title or lien, in favor of a prior equity. But if he had notice of a prior equity at any time before he had parted with his property on the credit of the estate, and before he had united the subsequent equity with the legal title, he was not considered as entitled to protection against the prior equity as a bona fide purchaser: Further, the words “ bona fide purchaser,” were intended to be used in the registry acts according to the established meaning thereof, and must receive the construction which had been previously placed on them in the court of chancery in reference to the principle of equity here stated. It was added, that, if the subsequent purchaser merely takes the legal estate in payment of, or as security for a previous debt, without giving up any security, or divesting himself of any right, or placing himself in a worse situation than he would have been, if he had received notice previous to his purchase, of the title or lien of a third person, chancery will not permit him to retain the estate he has thus acquired to the prejudice of such person. [See also 2 Paige’s Rep. 300, and the citations in each of these cases.] So it has been held that a purchaser under a quit-claim deed without any covenant of warranty, is not entitled to protection in a court of equity as a purchaser for a valuable consideration without notice — that such vendee takes only what his vendor could lawfully convey. [3 How. Rep. (U. S.) 333.]

It is said to be a general rule of law, that a person cannot by any voluntary act of his own, transfer to another a right which he does not himself possess. And it has been accordingly decided, that, where an insolvent debtor has made a fraudulent transfer of his property, or has discharged his own debtor from liability for the purpose of defrauding his creditors, so that he cannot reclaim the property or sustain a suit for the debt in his own name, he cannot by an assignment which is wholly voluntary on his part, take away the right of his creditors generally to set aside the fraudulent transfer, or to recover the debt fraudulently discharged, and transfer that right to his own assignee for the benefit of preferred creditors ; or even for the benefit of all his creditors equally. [10 Paige, 211, 219.]

In protecting the interest of subsequent purchasers without notice, against the effect of prior unregistered conveyances, the language employed in the statutes of the different states, if not identical, is substantially the same : consequently, the decisions of one state as to the character of a bona fide purchaser within the meaning of the registry acts, are at least persuasive evidence of the law in every other state. The prefix “ bona fide ” does not essentially change the meaning of the statute, and cannot warrant an interpretation different from what it would receive if they were omitted; for no purchaser is in a condition to controvert the rights of creditors, or of persons having equitable liens, or an incomplete legal title, unless his purchase was made in good faith and without notice.

An assignment by a debtor in failing circumstances for the benefit of all his creditors is regarded as voluntary on his part, and it will be thus regarded, although it prefers some of the creditors to others. It must be considered rather as a devotion of the property conveyed to the payment of the grantor’s debts, than a sale of it to trustees or the beneficiaries under the deed. Though the debtor has parted with his estate, and thus invested his assignees with the legal title, that they may dispose of it for the benefit of others, yet neither the assignees nor creditors can in popular parlance be said to have purchased it. The assignor has merely substituted the assignees to his own rights, and made them the depository of the title which he had, and nothing more. By such a transaction, it cannot be intended that the debtor contemplated the divestiture of rights, which he had previously transferred; but the reasonable inference is, that he proposed to substitute the assignees to the same situation in respect to the property as he himself had occupied, and not to confer a greater or less estate. And as neither the assignees nor the creditors advanced money or other thing of value as an inducement to the assignment, but were most probably passive, their understanding in respect to the interest conveyed must have har-monised with the intention of the assignor. We need not however extend this course of reasoning, for it is perfectly clear, that, although the assignees have the legal éstate, yet they have no interest apart from the trust with which they are invested by the deed. The beneficiaries have not accepted in satisfaction of their demands any specific property, and retain their character of creditors — looking to the assignment as a mere security. [See 3 Kinne’s L. Comp. 42 to 49, and citations there.]

The cases cited 'upon this question, are directly in point, and we think are well supported by reason. The citations from 2d and 4th Paige, establish that a purchase within the meaning of the registry acts, is one who has parted with his property on the credit of the estate without notice of a prior equity, and who by taking a deed or mortgage has clothed himself with the legal title. 10th Paige maintains that a person cannot by an assignment for the benefit of creditors, which is merely a voluntary act of his own, transfer to another a right which he does not himself possess. The case in 3d Howard decides, that a vendee under a quit-claim deed takes only what his vendor could lawfully convey, and is not entitled to protection in equity as a purchaser for a valuable consideration without notice:

In the case at bar there is no pretence that any consideration other than Walker’s indebtedness, induced the making of the assignment; and it is clear from the terms of the statute, that the mortgage to the complainants is good as between the mortgagor and themselves: such is the uniform current of decisions in the construction of kindred enactments. It therefore follows', that the assignment did not defeat the mortgage.

Again: the assignment, as we have seen, only operates as a quit-claim of the assignor’s interest. This being so, there is no express warranty, and none can be implied; consequently, the assignees, or the cestuis que trust, cannot be regarded as purchasers within the meaning of the registry acts.

In Daniel v. Sorrells, et al. 9 Ala. 436, we decided that the statutes which declare that an unregistered deed shall be imperative against creditors without notice, does not mean creditors at large, but such as have obtained a lien by the recovery of a judgment, &c. Here, the only lien which it is pretended the creditors have acquired, is that resulting from < the deed of assigument, and this we have seen merely transfers the interests of the assignor in the same plight and condition in which he had them — without creating a lien upon, or divesting the rights of third persons in property he had disposed of. The cestuis que trust, or the assignees as their representatives, cannot in the character- of creditors postpone the complainants’ claim as mortgagees. Having attained these conclusions as to the effect of the failure of the complainants to cause their mortgage to be recorded, we need not inquire whether the assignees had notice of the mortgage when they accepted the assignment.

It is insisted by the plaintiffs in error, that the beneficiaries under the deed of assignment are necessary parties to the suit, and that for the failure to join,them, the demurrer contained in the answers should be visited on the bill. Lord Eldon said that “in most cases respecting trust property,” the cestuis que trust should be made parties ; but where the existence of the property is not affected, and the only object is to transfer it into the hands of the trustees, the latter need not bring the cestuis que trust into court. It has been held, that “trustees of real estate for payment of debts or legacies, may sustain a suit either as plaintiffs or defendants without bringing before the court the creditors or legatees for whom they are trusteesbut if the existence or due administration of the trust fund is called in question, then they must be made parties. So, it is laid down as a general rule, that in a bill founded on a contract, it is necessary to make only those persons parties, who are parties to the contract; yet it does not follow that a third person for whose benefit it was made, may not come into equity and compel its fulfilment. [Calvert on Part. 8, 212 to 219.] In Bifield v. Taylor, 1 Beat. Rep. 91, and 1 Mall. Rep. 192, it was decided, that when the intention of the person originating a joint beneficial interest in a fund, appears clear, to constitute-the party in whom the legal right of action is vested, completely the representative of the beneficiaries, that case forms an exception to the general rule, that in equity the cestuis que trust shall be parties to a suit instituted by their trustee, and entitles him to sue in equity without their being joined. This decision rests upon the ground that the legal title is vested in the trustees for the express purpose of enabling them to execute all the duties attached to the trust, without the intervention of the cestuis que trust. So, in Braker v. Devereaux, 8 Paige, 513, it was said, if the absolute title to aa undivided portion of the premises is vested in a trustee upon a valid trust, it seems not necessary to make the cestui que trust a party to a partition suit in chancery; but, that it will be sufficient to bring the trustee, who has the whole legal estate in the premises, before the court. Where a mortgage of lands has been executed to a trustee to secure the payment of debts to sundry persons, the trustee may maintain a suit in chancery to foreclose without making the ces-tuis que trust parties. [4 Stew. & P. 447. See also 2 B. Monr. 232; 1 Green’s Ch. R. 305.]

The rule which requires all persons interested to be made parties in chancery has other exceptions ; as where from the number interested, it would be impossible, or would produce great inconvenience. Thus, part of a crew are permitted to sue for prize money; and where the- creditors of a person are very numerous, it is not necessary that all should unite in a suit. [1 Wash. C. C. Rep. 517; 2 Mason’s Rep. 181.] And in Hallett v. Walker, 2 Paige’s R. 15, it was s’aid, that the rule requiring all persons materially interested in the subject matter of the litigation to be made parties to the suit, may be dispensed with, when it becomes extremely difficult or inconvenient. [See also 10 Wheat. 152.] Lord Hardwicke, in Yates v. Hambly, 2 Atk. R. 237, thus expresses himself: “ Where a mortgagee who has a plain redeemable interest, makes several conveyances upon trust in order to entangle the affair, and to render it difficult for a mortgagor or his representatives to redeem, there it is not necessary that the plaintiff should trace out all the persons who have an interest in such trust, to make them parties.” [See 2 Madd. Ch. 190.]

The authority conferred upon the assignees of Walker contemplates their exclusive management of the property and interest transferred for the benefit of his creditors, and it is competent for the assignees to assert their rights under the deed without making the creditors parties to a suit in chancery. Being competent to sue if they take possession of property which belongs to others, or on which these persons have liens, they may be sued without bringing all the parties into court.

Besides, the beneficiaries under the trust deed are so numerous, that it would be exceedingly inconvenient, if not impracticable, to prepare a cause for hearing, in which they were all parties — to say nothing of the expense and delay consequent upon such a suit. The mortgage expressly au-thorises the complainants to take possession of the steamboat upon the failure of the mortgagor to pay either or all the debts against which it is intended to secure him,, to sell or otherwise dispose of it; and it cannot be that in a suit quia timet to restrain the removal of the mortgaged property so that it may be available to the mortgagees, that it is necessary to look beyond the assignees of the mortgagor who are in possession under an absolute legal estate. If the cestuis que trust have equitable interests against the mortgagees, they may become actors, and arrest a sale of the boat under the mortgage, or claim the proceeds. From this view, it results that the bill is not defective for the want of parties.

What we have said is decisive of the rights of the complainants and defendants, and indicates that the lien of thé complainants under the mortgage is paramount to the claim of the assignees of the mortgagor, or any one else growing out of the assignment. But the question has been raised at the bar, whether, admitting the superior right of the mortgagees, the decree as it affects the assignees is correct.

If the notes indorsed by the mortgagees were not paid as they matured, then they were authorised by the mortgage to take possession of the “ Dallas” and dispose of it, so as to pay them. In the mean time, the mortgagor stipulates that the steamer shall not leave the waters of the Mobile bay : Further, that he will cause her to be insured and so continued for an amount equal at least to all the notes, in some responsible office, and that he will indorse the policy to the mortgagees.

The interest of Walker in the steamer up to the time the mortgage became forfeited, according to repeated decisions of this State, could have been levied on and sold under a fieri facias; and if it could be thus disposed of to satisfy a creditor’s demand, we can perceive of no well founded reason, why the mortgagor should not be permitted to sell or assign it for the benefit of creditors. One who takes under such an assignment must be entitled to the entire interest which the mortgagor had, and has undertaken to convey. In respect to the property, he will stand precisely in the same situation as the mortgagor did; though perhaps upon a showing less strict, the mortgagee might hie a bill quia timet against the assignee and require security for his indemnity. But upon the allegation that the mortgaged property had been transferred for the benefit of creditors to insolvent assignees, a decree could not be rendered before the debt provided for by the mortgage matured, directing a sale of the property, unless the assignees entered into bond with sureties to pay all the notes according to their tenor and effect. Such a requisition upon the assignees does not conform to the contract between the mortgagor and mortgagee — instead of requiring them to give such security as will insure the benefit of the mortgage to the mortgagee, the decree directs the boat to be sold, unless they will stipulate for the payment of the debt; thus superseding the mortgage, or giving a new and independent security.

The decree should have required the assignees to enter into bond with sufficient sureties to keep the “ Dallas ” in good repair — not to remove her from the waters of the Mobile bay — to cause her to be insured, and assign the policy as agreed between the mortgagor and mortgagee, and until this was done, they and their sureties should stand as insurers ; and further, if the notes should not be paid as provided, then they would deliver the “ Dallas” to the mortgagees free from the liens of material-men or other persons, which could affect its sale at a fair price. In the event that such a bond was not given, the decree might have directed a sale of the boat by the sheriff, &c. as a means of preserving the fund until the debt matured, or conflicting liens were adjusted. We might here render the proper decree, but as we do not know what proceedings have taken place under that rendered by the chancellor, we think it safer to remand the cause, that it may be proceeded in according to the principles indicated. The decree is accordingly reversed, and the cause remanded.