Court Opinion

ID: 6513623
Source: CourtListenerOpinion
Date Created: 2022-07-19 18:24:35.974407+00
Date Added: 2024-06-11T15:54:57.427370
License: Public Domain

SOMERVILLE, J.
The present bill is filed by the executors of James McDonnell, deceased, to set aside as fraudulent a deed of trust executed by Peter Burke on June 15th, 1885, to "W. J. Hearin, as trustee for the Mobile Savings Bank, to secure a promissory note made by Burke and wife, of even date with the conveyance, for the sum of fourteen thousand dollars, and payable thirty days after date. This conveyance was a renewal of a series of prior mortgages on the same property, the first of which was executed on September 30th, 1884, to secare a debt of fifteen thousand dollars due by Burke to the Bank; and the others, four in number, being executed at various dates afterwards, extending to, and including the one in controversy. These conveyances were withheld from the record, none of them being registered except the last; and this was recorded on July 27th, 1887, on the day after Burke made a general assignment of his property to his creditors.
The question which we first consider is the admissibility of that portion of Burke’s testimony which relates to the execution of the mortgage, and the alleged agreement between himself and the Bank that the instrument was to be withheld from the record, and-its existence kept a secret, for the purpose of enabling Burke to maintain his credit with the public. Burke is a party defendant to the record in this case, and was introduced as a witness by the complainants, not by the Mobile Savings Bank, itself also a defendant to the suit. The transaction as to which he testified occurred between him and one MqMillan, now deceased, who was then acting as cashier of the Bank, a relation of agency which was unquestionably of a fiduciary character.
*740We are clearly o£ opinion that Burke was not a competent witness as to this transaction, and that the chancellor erred in not excluding his testimony, so far as objected to by the appellant. He falls directly under the ban of the statute, both in letter and spirit, as declared in section 2765 of the present Code (1886). That section is to be construed in the light of the common-law rule, that all persons who were parties to the record, or had a pecuniary interest in the result of the suit, were incompetent to testify. — Stephen on Ev., Art. 107. The statute enlarges, to some extent, the former rule of competency, or, what is the same thing, narrows the old rule of exclusion; but it “preserves the common-law rule as to the class of excepted cases,” at least where the proposed evidence does not violate the manifest policy of the statute.—Dudley v. Steele, 71 Ala. 423. It is substantially declared that, in civil suits, or proceedings, the common-law rule shall be abolished, which excluded a witness from testifying because he was a party to the record, or interested in the issue tried; and that hereafter, generally, both parties and interested persons shall be competent witnesses, except in certain cases. This exception provides, that “neither party shall be allowed to testify against the other, as to any transaction with, or statement by any deceased person, whose estate is interested in the result of the suit or proceeding, or when such deceased person, at the time of such transaction or statement, acted in any representative or fiduciary relation whatever to the party against whom such testimony is sought to be introduced, unless called to testify thereto by the opposite party.” — Code, 1886, § 2765.
We repeat, by way of lending emphasis to the fact, that, as to the class of statutory exceptions, the common-law rule is preserved, and not abrogated, and that rule generally makes parties to the record incompetent. That this case falls among those excepted by the statute, scarcely admits of argument. The proposed wdtness, Burke, is a party to the record. Whether he is otherwise interested, makes no sort of- difference.- McMillan, the agent of the bank, with whom the transaction occurred, is deceased, and was so at the time of the trial. We hate often said, that the purpose and policy of the statutes are, to exclude the living from testifying against the dead, because the latter can not be heard in contradiction. A contrary rule would open broad the door to the entry of innumerable frauds. That a party to a suit is, under the statute, incompetent to testify as to a transaction *741with, or statement made by a deceased agent o£ another party to the record in the same suit, has several times been expressly decided by this court, and that is this precise case. Warten v. Strane, 82 Ala. 311; Stanley v. Sheffield L. I. & C. Co., 83 Ala. 260. See, also, Miller v. Cannon, 84 Ala. 59.
The concluding clause of the statute — '“unless called to testify thereto by the opposite party” — is only declaratory of the common-law rule, which permitted the immunity of incompetency to be waived by the opposite party, — by which is meant the party to the transaction whose rights would be affected by the testimony offered.—Dudley v. Steele, 71 Ala. 423.
In this view of the law, it is immaterial that the interest of Burke was equally balanced; his exclusion as a witness not resting on the ground of interest merely, but upon the independent fact of his being a party to the suit and record.
It next becomes our duty to consider this case disembarrassed of so much of Burke’s testimony as may be construed to have reference to any transaction or conversation between himself and McMillan, pertinent to the mortgage in controversy, or any other collateral facts in issue. Burke being the only witness who testifies to any positive or express agreement between the parties to withhold the mortgage from registration, and to conceal its existence, we are left to make only such inferences on this subject as may be justified by the other evidence in the case.
The theory upon which the complainants’ ease must rest, then, is this: That Burke, at the time he executed the mortgage, was insolvent, and this fact was known to the Bank; that he was, however, reputed to be solvent and financially prosperous; and that the Bank fraudulently withheld the mortgage from the record, and permitted the mortgagor to remain in possession of the mortgaged property — a storehouse in which he was carrying on the mercantile business— for the specific purpose of giving him a fictitious credit; that the complainants’- testator and others, being' misled by the deceit, indorsed for, and loaned money to Burke, on the faith of the belief that no such mortgage existed, and thereby lost large sums of money, which they would not otherwise have lost.
It is manifest that the bill can be maintained only by proof of actual or positive fraud, either in the execution of the mortgage, or in the use made of it after its delivery to the Bank as grantee. Our statutes of registration go no further *742than to protect subsequent purchasers for value, mortgagees and .judgment creditors without notice, against unrecorded conveyances; and to neither of these classes do the complainants claim to belong, they being mere simple-contract creditors.—Tutwiler v. Montgomery, 73 Ala. 263; Chadwick v. Carson, 78 Ala. 116; Code, 1886, §§ 1810-1811. The mere failure to record the mortgage, without more, would not impair its validity as against a simple-contract creditor.
Nor is it pretended that the Bank, or any of its agents, ever made any positive representations touching the solvency or credit of Burke, which could have come to the ears of McDonnell, so as to have influenced him in making loans to, or indorsements for Burke. Even were this true, such a representation, even though false, would not constitute a basis of an action for damages, unless it was either “in writing signed by the party sought to be charged,” or else made with the intent to defraud, which would involve the false affirmation of some alleged fact that the party making knows to be false, or of the truth of which he has no knowledge, or well grounded belief.—Clark v. Dunham Lumber Co., 86 Ala. 220; 5 So. Rep. 560; Code, 1886, § 1734. Nothing can be found in this principle which can lend plausibility to the contention of the appellees.
We can discover nothing in the facts of this case which justified the conclusion, that there was any fraudulent intent on the part of the Mobile Savings Bank in originally taking the security. No question is raised as to the alleged bonafides of the debt which it was given to secure; and the conveyance embraced less than a third of the assessed value of the mortgagor’s unincumbered property. If the instrument had been recorded at once, there would scarcely have been any available pretext upon which its validity could have been successfully assailed. Especially is this apparent in view of the fact, that the settlement between Burke and the Bank, on September 30th, 1884, of which the first of the series of mortgages constituted a part, operated to release McDonnell from certain debts to the Bank, which he had incurred as indorser for Burke, of over fifteen thousand dollars — or a sum greater than that of the mortgage debt. We can not suppose this release would have taken place, in this substitution of securities, unless the mortgage had been given. It enured, therefore, indirectly to McDonnell’s benefit, as fully as it would have done had he been the beneficiary in the instrument. Whoever may have ground to complain of being *743damaged, by.its execution, be could not do so with any show of truth or justice. Even fraud, without damage, gives no ground of action in equity, or at law.
This leaves but one ground upon which to maintain the bill, and that is the failure or refusal of the Bank to record the mortgage, and the alleged fraudulent motive with which this was done. There may, no doubt, be cases where a deed, or mortgage, not at first fraudulent in its inception, may become so by being actively concealed, or not pursued, “by which means creditors,” as said in an old English case, “are drawn in to lend their money.”—Hungerford v. Earle, 2 Vern. 261; Hildreth v. Sands, 2 John Ch. (N. Y.) 35. We are not dealing with the case of a deed, where the vendor is left in possession, contrary to the essential nature and terms of the conveyance, but with a mortgage, where continued possession by the mortgagor, for a length of time not unreasonably long, is consistent with the nature of the security. In such a case, a fortiori, to make the withholding of the instrument from the record fraudulent, especially as to debts afterwards created, it must have been done with the purpose of upholding fictitiously the credit of the mortgagor, so as to enable him to obtain money or goods of others, which he would not be likely to do if the instrument were recorded. In other words, there must be an actual intent to defraud, resulting in damage to some creditor of the grantor.—Tryon v. Flournoy, 80 Ala. 321; Danner Land & Lumber Co. v. Stonewall Ins. Co., 77 Ala. 184; Blennerhasset v. Sherman, 105 U. S. 100.
It is not certain that the Bank, through its officers, was any better informed as to the solvency of Burke than McDonnell himself was. His credit seems at one time to have been excellent with both of them. At the time of Burke’s suspension, he owed the Bank between seventy-five and eighty thousand dollars, and he owed McDonnell, contingently, between fifty-five and sixty thousand dollars, which soon afterwards actually accrued from this liability for previous loans and indorsements, and was proved by McDonnell as a claim against the trustee under Burke’s assignment. Deducting the mortgage debt in question, this would leave but a few thousand dollars of difference between the credits thus extended by the two parties. In this estimate, we do not, of course, consider Burke’s debt which he at one time owed the bank, and which was secured by pledge of Alabama State bonds. It is made to appear that McDonnell and *744Burke were personal friends, and very intimate in their social and business relations, being constantly in each other’s company, and often discussing business in which they were both mutually interested. It is common knowledge, that men in failing circumstances frequently conceal their financial condition, not so much for the fraudulent purpose of retaining a fictitious credit, as with the hope that better times may bring them financial relief by producing a favorable turn in the wheel of fortune. It may have been so with Burke. He does not seem to have made a fair disclosure of his financial status to his Mend, who made an explicit demand on him for such an exhibit four or five months before his failure by assignment, which, as we have said, was on July 25th, 1885. The testimony of Boulet shows that this exhibit of a balance-sheet of assets and liabilities made it appear that he was worth two dollars for every one he owed. It included the store-house embraced in the mortgage, but made no disclosure of the mortgage incumbrance held on it by the Bank. There is no intimation that the bank officers ever knew of this statement, nor does it appear that McDonnell ever applied to them for any information as to the state of Burke’s indebtedness to that institution. If Burke, to keep up his credit with McDonnell, made a statement which showed him to be solvent, is it not just as probable that, with a like object in view, he made one equally favorable to the Bank? But it is said that the Bank refused to allow Burke to continue to overdraw his account, and demanded the mortgage to secure a part of his indebtedness; and this showed a knowledge of his insolvency, or reasonable ground to believe that he was insolvent. The first step argued only ordinary prudence, and the second may be interpreted into a desire to be made safe by a common mode of security often exacted of solvent debtors. But, supposing the bank officers to have been in doubt as to the solvency of Burke, present or future, it was a delicate matter with which to deal, and a subject demnding at their hands great prudence. A suspicion, unjustly magnified, or a fact exaggerated, might have brought even a solvent debtor to speedy embarrassment, or, perhaps, to financial ruin. Financial credit, like female virtue, is often damned by being doubted. The fact, moreover, that the mortgage originally taken in September, 1884, was several times renewed, and was not recorded until Burke’s failure, lends credence to the view, that the mortgagee had no well grounded belief that it was necessary to record it. Be*745sides, it was recorded immediately, when demanded by the necessity of the mortgagor’s failure. Discarding Burke’s testimony, as we have done, we are at liberty to infer that the Bank was under no obligation created by an agreement not to record, and no one of the mortgages was withheld for a longer period of time than that authorized by the statute regulating the subject of the registration of such .conveyances.
We fully recognize the doctrine of the well-considered case of Blennerhassett v. Sherman, 105 U. S. 100, where the authorities bearing on the subject of the fraudulent withholding of mortgages from registration are ably reviewed. There, an insolvent debtor had executed a mortgage upon his entire estate, for a very large sum of money. The secured creditor not only knew of the debtor’s insolvency, but actively concealed the mortgage by purposely withholding it from the record, and in the meanwhile represented the mortgage debtor as having a large estate and unlimited credit— all this being done for the fraudulent purpose of giving him a fictitious credit — and by this means he was enabled to contract other debts which he could not pay. This fraudulent intent was properly held to vitiate the mortgage as a valid security, and to render it void. The case of Hilliard v. Cagle, 46 Miss. 309, seems to go to the extent of creating an estoppel in favor of creditors generally, without any actual fraud being imputed to the mortgagee in withholding his mortgage from registration. This view is contrary to the spirit of our registration statutes, and does not seem to us to be based on sound reasoning. It affords protection to those not intended to be protected by the statute — -to other than subsequent purchasers for value, mortgagees and judgment creditors.
After a careful examination of all the legal testimony in this case, we do not feel authorized to find that the mortgage in controversy, covering less than a third of the assessed value of the debtor’s property, and perhaps not more than a fourth of its real value, was either fraudulent in its execution, or was withheld from record for the fraudulent purpose imputed by the bill to the mortgagee.
The chancellor erred, in our judgment, in so deciding, and his decree must be reversed. A decree will be rendered in this court, adjudging the complainants not to be entitled to the relief prayed, and dismissing the bill.
Beversed and rendered,