Court Opinion

ID: 3232395
Source: CourtListenerOpinion
Date Created: 2016-07-05 16:07:40.341642+00
Date Added: 2024-06-11T07:40:16.844407
License: Public Domain

The bill in this case was filed by simple contract creditors of a partnership composed of Brantley  Crawley to reach and subject funds of that partnership appropriated by the respondent bank to the separate debts *Page 348 
of each in about the same amount. It alleges the insolvency of the partnership and of the partners at the time.
One aspect of the equity of the bill is dependent upon a principle stated as follows: "A sale and conveyance of partnership property, the partnership being insolvent or in failing circumstances, in payment of the separate debt of one of the partners, to whom the partnership is not indebted, is a fraud upon partnership creditors." Goetter v. Norman, 107 Ala. 585,594, 19 So. 56, 58; Pritchett v. Pollock, 82 Ala. 169,2 So. 735.
But if the partnership is not insolvent, the parties who collect their individual debts must have participated in a scheme to defraud partnership creditors if their debts are adequate and bona fide, unless such partnership creditor can enforce the lien which each partner has to require the partnership property applied to partnership debts. Metcalf v. Arnold, 132 Ala. 74, 32 So. 763; Bump on Fraudulent Conveyances, § 369; Wait on Fraudulent Conveyances, § 216; Chandler v. Johnston, 169 Ala. 495, 53 So. 993. But the partner may, and does, by consenting to the appropriation, waive that lien, thereby preventing its enforcement by the partnership creditors. Metcalf v. Arnold, supra; Remington v. Pilcher,216 Ala. 58, 112 So. 339.
It is claimed that such a transaction is a voluntary conveyance, and is void as to existing creditors for that reason, regardless of solvency, fraud, or intent.
We recognize the rule that when a debtor voluntarily (that is, without valuable consideration) conveys his property, an existing creditor can subject it to his debt. Kratz v. Bonner,228 Ala. 607, 155 So. 77; Waites v. First National Bank,227 Ala. 684, 151 So. 847; Kuykendall v. Terry, 227 Ala. 227,149 So. 687; Birmingham Property Co. v. Jackson Securities  Inv. Co., 226 Ala. 612, 148 So. 316.
But when a partner uses assets of a solvent partnership with the consent of all his copartners to pay an individual debt, it may be voluntary from the partnership to the partner, but it is not so as to the creditor receiving payment. An existing debt is a valuable consideration for a payment of money. Harmon v. McRae, 91 Ala. 401, 8 So. 548; Steiner v. Lowery, 98 Ala. 208,13 So. 320; Smith v. Collins, 94 Ala. 394, 10 So. 334; 27 Corpus Juris 543, § 227. And our decisions have fixed the principle that a fraudulent intent is necessary under those circumstances when the partnership is solvent.
The cases cited by appellant (Cannon v. Lindsey, 85 Ala. 198,3 So. 676, 7 Am. St. Rep. 38, and Bank of Luverne v. Alabama Bank  Trust Co., 217 Ala. 635, 117 So. 219) are not in conflict, since they relate to a situation in which all the partners do not consent to the arrangement.
There is no difficulty about the clear statement of the rule in our cases. When no actual fraud is alleged, the principle does not apply unless the partnership was at the time insolvent or thereby made so. The allegation of insolvency is made in the bill. That is essential to relief, in the absence of fraud. The bill also charges a fraudulent intent, participated in by the bank. So that it shows a right to relief if the allegation of insolvency is proven, or, if not, upon proof of the intent to defraud in which the bank participated, as is alleged, assuming as true the other allegations of the bill.
It also alleges that one or both of the partners consented to the appropriation by the bank of the firm funds to their individual debts to the bank; that if both consented to it, then the transaction was fraudulent and void, and if only one of them consented the other has a lien to which complainants are due to be subrogated. But such lien is waived when both agree to the use of the funds for payment to their individual creditors. Remington v. Pilcher, supra.
The partnership debts to complainants grew out of a road contract with the state, in which they made bond with the Consolidated Indemnity  Insurance Company, as surety, conditioned to pay all such debts as these of complainants by pursuing the statutory procedure. It was on October 23, 1931, that the partners paid to appellee bank $2,500 for one, and $2,464 for the other, partner to be applied on their individual debts to it, and $1,000 for the partnership on a debt due on their secured farm debt. The partnership had recently completed the performance of its state contracts, and been paid, and the amount had been deposited in the bank. They had two such contracts in Alabama, and one in Mississippi. All had been completed and paid for by the states, each respectively. On that day they had in defendant bank $12,324.05, all of which came from the Mississippi project, if that is material.
After the payments, of which complainants complain, they had left on deposit $6,335.22. The debts of complainants were in the aggregate approximately $7,000. They had other assets in Alabama, but all were mortgaged to their full value. They had personal property *Page 349 
in Mississippi of the value of approximately $8,000 to $9,000, and owed in all about $10,000, including complainants, not secured except by the liability bond. The liability bond was then in full force and effect, with $6,335.22 on deposit in appellee's bank. Was the partnership insolvent on that day, after making the payments sought to be vacated?
In a broad sense a debtor is insolvent when his property amenable to legal process is not sufficient to satisfy all his liabilities. Smith v. Collins, 94 Ala. 394, 10 So. 334; Hendon v. Morris, 110 Ala. 106, 20 So. 27; Pelham v. Chattahoochie Grocery Co., 156 Ala. 500, 47 So. 172; 27 Corpus Juris 501; Ala. Cent. Ry. Co. v. Stokes, 157 Ala. 202, 47 So. 336; 32 Corpus Juris 805. This includes all sorts of property that may be taken in mesne process, garnishment, attachment, or execution, Glenn on Fraudulent Conveyances, § 138; 27 Corpus Juris 501, 552, not exempt by law. Pelham v. Chattahoochie Grocery Co., supra.
The partnership had secured a liability bond for the benefit of complainants. On that bond complainants could on that day, and for some weeks thereafter, have sued and secured full payment of their debts. That was therefore an asset subject to legal proceedings for them, and of value equal the debts due complainants and all other claims otherwise unsecured. True, if the surety paid them, the partnership would owe that amount to it, and, therefore, it was indebted to the full amount of those claims. But the obligation of the partnership to the surety to indemnify it was not in the same degree of priority as was the right of complainants to enforce their claim against the surety. It was secondary to complainants. Their financial status as respects complainants was the material inquiry in a suit to enforce their rights, not their status, after complainants are paid. At the close of business on October 23d, the partnership had ample assets to pay all debts of the same primary status as those of complainants, not considering the Mississippi property as an asset.
But assuming otherwise, and that the liability bond should not be so treated, and that it is necessary to take into account the Mississippi property, we think the partnership was nevertheless solvent. The partners resided in Alabama, and their mules and construction equipment were merely temporarily left in Mississippi until some permanent disposition could be made, as we infer from the evidence. They were carried there for that job, and it was just then complete. We may infer a purpose to return the property to Alabama. It did not appear to have a permanent situs in Mississippi. Moreover, the situs of movable personalty is ordinarily the place of the residence of the owner, especially of intangibles. 12 Corpus Juris 470 et seq. The bank had financed the operations of the projects to the extent financing was necessary, both in Alabama and Mississippi. All funds were deposited in appellee bank in the same account. There was a commingling of all the finances, both as to loans from the bank and payments to it and in making its deposits and paying bills. There was no separate financing. But it so happens that all the money which was in the bank on October 23d, out of which the payments were made, which are sought to be vacated, came from the Mississippi project. And all the other free assets of the partnership were then temporarily situated in Mississippi.
Usually the question of insolvency is treated in the text-books as an element of fraud when all the circumstances are considered. So treated, it is important that property be reserved by the debtor which is ample in amount, and so situated that it is easily accessible, considering the facilities of the creditors. In that event, it is sometimes said that the property must be in the state where the debtor resides. Bump on Fraudulent Conveyances, § 259; Price v. Mazange, 31 Ala. 701. But even then, it is not the fact that it is in another state, but its inaccessibility to be subjected to the debts, which is the most important consideration. State lines are not made so much the criterion as the ease of access and the permanency of the situs, and that considered as an element of a fraudulent intent. Moore on Fraudulent Conveyances, p. 275; Baker v. Lyman, 53 Ga. 339; 27 Corpus Juris 552.
But when it comes to a sharply drawn issue of insolvency, vel non, not as an element of fraudulent intent, the ease of availability is not stated in the authorities as an element, nor is that of state lines controlling. It is not so defined in any of the authorities except in respect to statutory insolvency proceedings, and as an element of fraudulent intent. The broad definition of insolvency as set out in our cases is practically the same as that in the Uniform Fraudulent Conveyance Act, vol. 9, § 2, p. 171; Glenn on Fraudulent Conveyances, § 134, p. 185.
In the case of Price v. Mazange, supra, the question was whether a mortgage by a merchant on his stock of goods was fraudulent and void at the suit of other creditors. It is *Page 350 
true that in that case it was said that whether the mortgagor was insolvent or in failing circumstances was among the controverted questions. It was also said that evidence that he owned land in Texas was not material evidence. But the question of whether the transaction was fraudulent and void was the inquiry that was involved. The nature of his property and its easy accessibility was important on that inquiry. That seems to be the uniform view upon that question.
We do not think it is contrary to our case of Price v. Mazange, supra, to hold that the Mississippi property should be counted as an asset under the circumstances of this case, considering its easy accessibility, the admixture of the Mississippi operations with those in Alabama, the temporary nature of its presence in Mississippi, and the purpose for which it was used and there held.
With the partnership apparently solvent, leaving over $6,000 in cash to their credit in the bank in Alabama, and personalty worth over $8,000, only owing about $10,000 of unsecured debts, and with a guaranty bond to secure that, we see nothing in the transaction to show an intent to defraud, hinder, or delay the creditors by the partners in consenting to the credit, nor by the bank in collecting it. Smith v. Collins, supra.
The payment of the $1,000 was for a partnership debt. It is immaterial that it was not incurred in the roadwork. Their partnership extended to farming operations. All debts incurred by it whether for roadwork or farming operations were on the same basis as general obligations of the partnership. Appellants had no lien nor priority of right. Copeland v. Kehoe, 67 Ala. 594; First Colored, etc., Church v. W. D. Wood Lumber Co., 205 Ala. 442, 88 So. 433. See, also, United States F.  G. Co. v. Butcher, 223 Ala. 606, 137 So. 446; United States F.  G. Co. v. R. S. Armstrong  Bro., 225 Ala. 276,142 So. 576; U.S. F.  G. Co. v. First National Bank, 224 Ala. 375,140 So. 755.
There is nothing to show that there was any intention on October 23d to hinder, delay, or defraud any creditor of the partnership, but it appeared that they could have collected their claims out of its visible unincumbered property by the use of due diligence, and that complainants were fully protected after the transaction of October 23d, as before, and not affected by it. There was left enough cash and other tangible and liquid assets to pay them, and they had the security of the indemnity bond.
The evidence also satisfactorily shows that both the partners agreed that the bank should make the appropriation of funds here sought to be subjected; so that no subrogation exists in favor of the creditors of the partnership.
The decree of the circuit court is consistent with our views, and it is affirmed.
Affirmed.
All the Justices concur.
                              On Rehearing.