Moncrief Furnace Co. v. Northwest Atlanta Bank , 193 Ga. 440 ( 1942 )

1. A debtor may in good faith prefer one creditor to others by conveying property, even while insolvent, in total or partial payment of his debt, and without additional consideration, provided that such payment or credit represents the fair market value of the property or is not unreasonably disproportionate to such value; and provided that no secret trust or covert benefit, prohibited by the Code, § 28-301, is reserved to the debtor; and provided further that the intent of the debtor, known to the creditor, shall not be to hinder, delay, or defraud other creditors. McLendon v. Reynolds Grocery Co., 160 Ga. 763 (1, 3, 4), 765 (129 S.E. 65); Davis v. Anderson, 1 Ga. 176; Eastman v. McAlpin, 1 Ga. 157; Johnson v. Sherrer, 185 Ga. 340 (3), 342 (195 S.E. 149); Walker v. Martin, 170 Ga. 447 (153 S.E. 41); Bank of Waynesboro v. Ellison, 162 Ga. 657 (3, 5) (134 S.E. 751); Silver v. Chapman, 163 Ga. 604, 611 (136 S.E. 914); Reynolds v. Hardin, 187 Ga. 40 (2) (200 S.E. 119); Trice v. Rose, 79 Ga. 75 (a), 78 (3 S.E. 701); Cowan v. Bank of Rockdale, 159 Ga. 123, 126 (125 S.E. 194); Thompson v. Shellman Banking Co., 180 Ga. 495 (2) (179 S.E. 75); Dickson v. Citizens Southern Bank Trust Co., 184 Ga. 398 (191 S.E. 379); Bigby v. Warnock, 115 Ga. 385, 388 (41 S.E. 622, 57 L.R.A. 754); Hobbs v. Davis, 50 Ga. 213 (2), 214; Carey v. Giles, 10 Ga. 9 (5), 28, 30, 33; Notes in 36 L.R.A. 162-166, and 9 L.R.A. 643-647; 24 Am. Jur. 182-184, §§ 24-26.

(a) The rules just stated do not have application to a voluntary conveyance by an insolvent debtor; and such a deed, based on no consideration either by payment of the debt or otherwise, will not bind other creditors, and this is true irrespective of any fraudulent purpose on the part of the debtor, or any knowledge on the part of the creditor as to such purpose. Ernest v. Merritt, 107 Ga. 61 (2) (32 S.E. 898); Westmoreland v. Powell, 59 Ga. 256 (4, 5), 258; Code, § 28-201 (3).

2. In accordance with the foregoing principles, a creditor may in good faith and for a valuable consideration, as stated, take from his debtor a deed to property before another creditor obtains a judgment. Such a valid deed, even though improperly recorded or not recorded until after the judgment, will not be subordinated thereto. Donovan v. Simmons, 96 Ga. 340, 343, 347 (22 S.E. 966); Griffith v. Posey, 98 Ga. 475 (25 S.E. 515); Jones v. Howard, 99 Ga. 451, 457 (27 S.E. 765, 59 Am. St. Rep. 231).

3. Ordinarily a judgment creditor can not levy his execution on land conveyed by a prior security deed, without first redeeming the land and proceeding otherwise as required by the Code, § 39-201. Nor will equity aid such a junior judgment creditor in subjecting to his lien the property conveyed by the security deed, in the absence of a redemption or a tender of the balance due to the holder of the security deed, so as to authorize a relaxation of the general rule, unless "peculiar facts" are shown, involving established equitable principles, such as would render the remedy at law under the statute inadequate, and would authorize a grant of the equitable relief prayed. Roach v. Terry, 164 Ga. 421, 431 (138 S.E. 902); Cook v. Securities Investment Co., 184 Ga. 544, 549 (192 S.E. 179); Swift v. Lucas, 92 Ga. 796 (19 S.E. 758); Virginia-Carolina Chemical Co. v. Rylee, 139 Ga. 669 (78 S.E. 27); First National Bank of Commerce v. McFarlin, 146 Ga. 717 (92 S.E. 69). See Loftis v. Alexander, 181 Ga. 358 (182 S.E. 2).

4. Even though other equitable principles might be involved, a junior creditor is not entitled to invoke the equitable doctrine of marshaling assets against a senior creditor, unless it be shown that its application will actually benefit the junior creditor, and also will not impair or hazard the securities of the senior creditor, or unreasonably delay their enforcement. Behn v. Young, 21 Ga. 207 (2), 212; Hanesley v. National Park Bank, 147 Ga. 96 (2), 100 (92 S.E. 879); Denham v. Williams, 39 Ga. 312 (3), 319; Vance v. Roberts, 86 Ga. 457 (3), 461 (12 S.E. 653); 18 Rawle C. L. 462, § 10; 38 C. J. 1367; and cit.

5. Under the preceding rulings, the petition by judgment creditors to set aside absolute deeds from the defendant debtor to the defendant creditor, who held prior security deeds to the same property, when taken as true, as must be done on general demurrer, stated a cause of action, since the petition alleged insolvency of the debtor, and the general allegations of fraud and collusion to injure creditors were supported by the additional allegation that the conveyances were voluntary and without any sort of consideration given or received.

(a) This allegation having been made, the judge would be authorized in the exercise of his sound discretion to grant a restraining order and injunction against interference by the defendant creditor with the status of the properties, except in regular course under the unattacked security deeds as to any balances legally due on the indebtedness covered thereby. But under the averments and the preceding rulings, the petition showed no ground for marshaling of assets, receivership, or accounting.

Judgment reversed. All the Justicesconcur.

No. 13917. FEBRUARY 10, 1942. Moncrief Furnace Company and Mrs. Rebecca L. Beard brought an equitable petition against Northwest Atlanta Bank and J. E. McGuire, seeking to set aside two absolute deeds from McGuire to the bank, and praying for injunction against any change in the status of the conveyed properties, and for receivership, accounting by the bank with respect to McGuire's indebtedness under prior security deeds by McGuire to the bank, marshaling of assets with the bank as to the securities held by the bank and the subsequent judgments of the petitioning creditors; and for general relief. The petition alleged, that the plaintiffs hold judgments and executions duly recorded against the debtor, McGuire; that while their suits were pending, the debtor executed to the bank two absolute deeds conveying described property; that while each of these deeds recited a consideration of one dollar and other valuable consideration, it "was a voluntary deed," made while the debtor was insolvent, "the said grantor receiving nothing whatsoever from said grantee in exchange therefor, and the recitations contained therein to the effect that the same was made for a valuable consideration were false and did not speak the truth;" that both defendants then "knew or had reason to believe that the judgments would be rendered within a few days," and that plaintiffs were existing creditors; that "said deed was made by said insolvent debtor for the purpose of hindering, delaying, and defrauding creditors," and that the same was "void as against petitioners and others similarly situated, because the same was a voluntary conveyance without consideration, and a fraudulent conveyance as aforesaid for the purpose of hindering, delaying, and defrauding creditors." It was also alleged that the defendants "conspired together and entered into an illegal, fraudulent, and wrongful scheme to conceal the properties of [the debtor], and prevent the same being subjected to the payment of the judgments of petitioners and others similarly situated, and pursuant thereto" executed the said absolute conveyances. The petition further states that the defendant bank held security deeds, as described, which were executed prior to the plaintiffs' judgments, were duly recorded, and are not attacked. One of the absolute deeds was attacked on the additional ground that it was not entitled to record, because the attesting notary public was an officer, director, and a substantial stockholder in the corporation bank. It was also alleged that although plaintiffs contended that there was no remaining indebtedness by the debtor to the bank, they had tendered to the bank the balance purporting to be due on notes particularly specified in the security deeds held by the bank, which tender was refused. There was not, however, any averment that the tender covered "any other obligations which may exist between the parties hereto until this deed is canceled of record," as provided by the terms of the instrument. There was no averment as to how the marshaling of assets, prayed by the petition, would actually benefit the plaintiffs, holding junior judgments; or that this remedy could be granted without impairing, hazarding, or unreasonably delaying the bank in the enforcement of its senior security deeds.

The defendant bank demurred generally to the petition, on the grounds that it stated no cause of action and showed no equity; that the facts alleged did not authorize the relief prayed; that the averments showed only that plaintiffs were creditors holding an inferior lien on all the property described, and were not entitled to either an accounting or marshaling of assets against the bank; and that there was no allegation as to any benefit to the plaintiffs from a marshaling of assets, or that the bank as senior lienor would not be materially prejudiced thereby, or that plaintiffs had a lien on "one specific piece of property," rather than merely an inferior general lien on the properties of the debtor. The plaintiff creditors except to a judgment dismissing their petition on this demurrer.