Court Opinion

ID: 6515840
Source: CourtListenerOpinion
Date Created: 2022-07-19 18:26:35.792973+00
Date Added: 2024-06-11T15:55:01.323020
License: Public Domain

BRICKELL, C. J.
The appellants sued out an attachment against the partnership of Gosden & Co., which was lévied on a stock of merchandise in the possession of the appellees. The appellees, claiming property in the merchandise, instituted the statutory proceeding known as trial of the right of property, the issue in which, as prescribed by the statute, is an affirmation by the plaintiff in the process that the property levied on is the property of the defendant and liable to the satisfaction of the process. ' The assignments of error relate exclusively to the refusal of the court below on the trial to give instructions'to the jury requested by the appellants. We prefer an examination of these instructions, without observing the order in which they appear from the bill of exceptions to have been requested.
The second and third instructions draw in question the validity of a mortgage the defendants in attachment had executed to the appellees. It is apparent from the bill of exceptions that the appellees did not deduce title to the merchandise by or through the mortgage, but through a subsequent purchase, having for its consideration, the rescission of the mortgage, the surrender *489of the evidences of the indebtedness it was . intended to secure, the validity and consideration of which were undisputed. It may be, as is insisted by the appellants, that the mortgage purporting the transfer of a stock of merchandise and the subsequent acquisition of merchandise by the mortgagors during the life of the mortgage, the mortgagors being entitled to possession and to buy and sell in the usual course of the trade of merchants, was fraudulent and void as to creditors of the mortgagors, existing or subsequent. — Benedict v. Renfro, 75 Ala. 121; Murray v. McNealy, 86 Ala. 234; McDermott v. Eborn, 90 Ala. 258. If this is true, it is not to be doubted that parties who have entered into a contract, actually or constructively fraudulent as to the creditors of the one or the other, may rescind it at any time before the rights of creditors have intervened. “The unmaking of a contract is within the power which made it, and is equally effectual.” — Bishop on Contracts, § 812. The rule is very general, if not without exception, that before or after the consummation of a contract, the rights of third parties not being involved, parties to a contract may either rescind or modify it, and their mutual agreement is the only consideration necessary to support the rescission or modification. — 1 Brick. Dig., 394, § 233. Contracts which are contra bonos mores, or which are infected with illegality of consideration, form no exception to the rule. — Lea v. Cassen, 61 Ala. 312. An exception of contracts fraudulent as to creditors would be unreasonable and unjust, infringing the freedom of contract pertaining to all who are sui juris, and would tend to the perpetuation, rather than to the undoing and destruction, of fraud. When the rescission is express, fairly and openly made, the parties intending to place themselves in the condition in which they were when the contract was made, or in the condition in which they would have been if it had not been made, no disability of contracting can be imputed to them because of their former contractual relations. And they may enter into any new and independent agreement, having for its subject matter the same property which, was the subject matter of the contract annulled, into which they could have, entered if that contract had never existed. — Borland v. Mayo, 8 Ala. 104 ; Thornton v. Cook, 97 Ala. 630; Matthews v. Buck, 43 Me. 265 ; Tyler *490v. Tyler, 126 Ill. 525, s.c. 9 Am. St. Rep. 642. The evidence is without conflict, that by mutual assent of the parties, the mortgage was rescinded, the relation of mortgagor and mortgagee was dissolved, and the new and different relation of vendor and vendee was formed, resting on a new and different consideration. The mortgage debt was paid; as a liability of the mortgagors it was extinguished, and whatever of title to the merchandise was vested in them, passed to the appellees, not as mortgagees but in their new relation of purchasers. The validity or invalidity of the mortgage, though while in existence the appellees may have asserted title to or a lien upon the merchandise in controversy, and though the surrender of it may have formed part of the consideration and transaction of sale, can not be regarded as vitiating the sale. The sale was a new, distinct, independent arrangement, and its validity or invalidity depends upon other considerations. The second instruction is not in accordance with these views ; and the third asserts a mere abstract legal proposition, not pertinent or relevant to the ca,se.
The stipulation in the mortgage by which the mortgagors promised to deliver the mortgagees notes and mortgages derived from sales of the merchandise covered by the mortgage, to an amount equalling twice the amount of the mortgage debt, in its nature and effect, was an agreement for further and additional security. There is no principle of law or equity which compelled the mortgagees, for the ease or benefit of other creditors, to demand the security, or prevented them, if satisfied with the security of the mortgage, from releasing the mortgagors from the performance of the agreement. The proposition embodied in the sixth instruction, that it was the duty of the appellees to cause the collections made by the mortgagors on such notes and mortgages to be applied to the payment of the mortgage debt, and if they neglected the duty, the law would make the application, is singularly unsound, when applied to the evidence. The duty was not owing the mortgagors; it would not be insisted it was owing other creditors, unless the existence of such creditors was known, or there were circumstances putting the mortgagees on inquiry as to their existence. There is an absence of all evidence that during the period of these collections, the mortgagees *491had any knowledge, or notice that the mortgagors were indebted to others, and without such knowledge or notice the duty could not arise. The circumstances are exceptional in which one creditor owes another the duty of active diligence to save him from loss or injury, present or prospective. It is enough that he does not employ his relation to work loss and damage to others standing in like relation.
The fourth instruction denounces the bill of sale void on its face as to the existing creditors of the vendors. And the fifth instruction denounces it as void, because of the stipulation that if the value of the goods, when invoiced, exceeded the debts owing the appellees and the five hundred dollars they promised to pay of debts the vendors owed others, the excess should remain in the hands of the appellees to be paid on the order of the vendors to their other creditors.
It is the recognized doctrine in this State, that, uncontrolled by a statutory regulation or inhibition, a debtor in failing circumstances, or actually insolvent, may make preferences among his creditors ; that he may pay one in full, though the consequence is, all others remain unpaid. He may not by a general assignment, or other instrument of conveyance having a like operation and effect, make preferences among his creditors. The statute (Code, § 1737) intervenes, and converts such an instrument into a security for the payment of all creditors. But he may sell to any, or all of his creditors, a part, or all of his property in payment of debts. The sale, notwithstanding the known embarrassment or insolvency of the debtors, and of its tendency, or inevitable effect to leave all other creditors unpaid, will be supported, if the debt or debts forming its consideration equal or exceed the fair and reasonable value of the property, the payment is the sole consideration, and there is not the reservation to the use and benefit of the debtor of something beyond that which results from the nature and character of the transaction, and which the law operating on it would secure. — Hodges v. Coleman, 76 Ala. 103 ; Chamberlain v. Dorrance, 69 Ala. 40 ; McDowell v. Steele, 87 Ala. 493; Harmon v. McRae, 91 Ala. 401; Smith v. Collins, 94 Ala. 394 ; Steiner v. Lowery, 98 Ala. 208. On its face the bill of sale imports an ordinary contract of bargain and sale in payment of *492debts, with no indication of the embarrassment or insolvency of the vendors, or that there was any disparity between the amount of the debts and the value of the goods, or of any fact from which the legal conclusion could be drawn that there was an intent to hinder, delay or defraud the creditors of the vendors. Consequently, there is nothing apparent on the face of the bill of sale to justify the fourth instruction.
The evidence, however, discloses that the vendors were in a failing condition, a fact known to the appellees, and in view of which the sale was made. This brings us to the consideration of the fifth instruction and the inquiry it involves, whether the stipulation in the bill of sale, referred to in the instruction, is the reservation of a use and benefit to the vendors, vitiating the sale as to the creditors of the vendors. If the stipulation confers no right inconsistent with an absolute, unconditional sale, secures no use or benefit which does not result from the nature and character of such sale, and which, whether expressed or not, the law operating on the sale would confer, it is not to be deemed the reservation of a use or benefit, rendering the sale fraudulent as to creditors. — McDowell v. Steele, 87 Ala. 497 ; Harmon v. McRae, 91 Ala. 401. As is argued by the counsel for the appellants, the stipulation empowered the vendors to nominate and appoint the creditors to whom the excess should be paid. This, however, is the extent of the power they may exercise. So long as there were creditors, it was not contemplated that in any event the vendors should receive the excess, or exercise any other dominion over it than the appointment of the creditors to whom it should be paid. The power involves the power of preferring creditors ; the power to prefer is a power the law confers, and the stipulation relating simply to the manner of paying the price, is in recognition of a legal right. — Bump on Fraud. Convey. (3d Ed.), 404 ; Beach v. Bastor, 47 Ill. 521; Johnson v. McGrew, 11 Iowa, 151.
We do not perceive the materiality of the contention that the instrument under which the appellees deduced title to the goods in controversy, imports an assignment for the security of creditors and not an absolute, unconditional sale in payment of debts. It was executed prior to the recent statute, and is not within its operation. *493(Pamph. Acts, 1892-93, p. 1046.) Whether deemed an instrument of bargain and sale, or an assignment for the security of creditors, if founded on a valuable consideration and uninfected by fraud, the title of the vendee, or of the assignee, would prevail. Whatever of fraud would vitiate the one, would vitiate the other. The instrument imports an unconditional sale in the payment of debts.
A determinate price was fixed upon the goods, readily ascertainable. The title passed irrevocably, there was no redeeming quality attached to it; no event in which it would revert to the vendors. There is every element and quality of a sale, and not one of the distinguishing characteristics and qualities of an assignment. — Danner v. Brewer, 69 Ala. 191.
There was evidence proving, or tending to prove, the existence and validity of the debts the payment of which formed the consideration of the sale. There was also evidence tending to prove that the debts in amount equalled the value of the goods. The first instruction requested can never be given, if there is evidence upon which a jury may legally find a verdict'against the party requesting it. — 1 Brick. Dig. 335. In this case there was such evidence, and the instruction was properly refused.
Affirmed.