This is a creditor's bill to set aside an instrument creating a "Life Insurance Trust," upon the ground that it was fraudulent and void as against existing creditors of the grantor, and to subject the proceeds of the policies in the hands of the trustee to the payment of the grantor's pre-existing debts.
Pertinent provisions of the instrument appear in the report on former appeal. Love et al. v. First Nat. Bank of Birmingham et al., 228 Ala. 258, 153 So. 189. We there held the trust instrument valid in so far as the proceeds of the life insurance policies were charged with the payment of bank indebtedness of the grantor and in so far as such proceeds arose from policies payable in the first instance to the wife and children of the insured, not exceeding their statutory exemptions. In so far as the trust agreement made the wife and children of the insured beneficiaries of policies theretofore payable to the insured, a mere gift, it was held, on the authority of a long list of cases there cited, constructively fraudulent and void as against existing creditors of the insured.
On final hearing the trial court found that the trustee had received proceeds of this latter class in the sum of $61,032.32, and decreed: "1. That The First National Bank of Birmingham holds as constructive trustee for the benefit of the creditors of W. C. Gewin, deceased, whose claims existed prior to March 25, 1929, and whose claims are not barred by the Statute of Non-Claims, and who are not for any other reason barred from participating, the sum of $61,032.32, with interest thereon from the 26th day of May, 1933."
Appellant, First National Bank of Birmingham, does not question this as the true amount of such funds coming to the hands of the trustee named in the trust instrument nor appellant's responsibility as a successor in the position of trustee; but does question its liability for such amount with interest thereon upon several grounds presented in answer and in evidence. Among other things, it is insisted that such liability, if any, should be limited to the fund in hand, or to the property in which the fund had been invested, at the time this bill was filed.
In considering this question and others hereinafter discussed we briefly review the course of events pertinent to such inquiries.
W. C. Gewin, the insured, died some four months after creating the life insurance trust. He left a will in which his wife and children were chief beneficiaries. The bank, trustee in the life insurance trust, was also named as executor of his will, and duly qualified as such. The will imposed on the executor active continuing duties, such as keeping the estate together until the youngest child came of age. So here we have the case of several trust relations in the same trustee, viz., the life insurance trust, and special trusts imposed by the will. In both of these the wife and children were the *Page 332 beneficiaries whose interest the trustee was under duty to conserve.
Then the executor as such sustained a relation of trust, first on behalf of creditors generally in the estate subject to administration; finally, a relation of trustee of this special fund, under a constructive trust in equity in favor of pre-existing creditors.
The estate of Dr. Gewin consisted in much of a great many tracts and parcels of realty, severally encumbered by mortgages, aggregating near $500,000. On the basis of appraisals made prior and shortly after his death and the qualification of his executor, it appeared the estate was solvent, and there were valuable equities in these properties to be conserved for the devisees under the will. Interest and installment payments were rapidly accruing on these mortgages, and there appeared to be danger of loss by foreclosure unless funds be found to meet them. Thereupon, some four months after grant of letters testamentary, the bank presented a petition to the court of equity in which the administration was pending, setting up these facts, as well as its relations as trustee in the insurance trust and as executor of the estate, and asking authority, as trustee of the insurance funds, to make a loan from said funds to the executor of the estate, the executor giving such trustee, as security, a mortgage on one unencumbered parcel of realty, known as the hospital property, then appraised at a value in excess of the proposed loan. A decree was entered accordingly, and the trustee of the insurance trust loaned to the executor of the estate $70,000 of the insurance fund, taking the note of the executor and a mortgage on the property mentioned as security. Owing to economic conditions, real estate values steadily declined, until in 1932 a reappraisal disclosed the estate had become insolvent, was so reported, and a decree of insolvency duly entered. Thereupon the trustee foreclosed the unpaid mortgage on the hospital property, bought it in at a price of $50,000, and holds the same. Its value, at the time of the final hearing, was estimated at $22,500.
The bank insists that, if otherwise entitled to relief, the creditors due to share in the insurance fund, as existing creditors of the donor when the insurance trust was created, should be limited to this property, in so far as such fund was invested therein.
It is well settled that the grantee in a fraudulent conveyance holds the property in trust, a constructive trust recognized and enforced in equity, on behalf of existing creditors of the grantor; that he disposes of same at his peril, and is personally liable for the value thereof. This rule has been applied in Alabama to cases of constructive fraud, which arise in every case of gift, regardless of the solvency of the donor or any notice to the donee of existing indebtedness. It has been applied in insurance cases. Lehman et al. v. Gunn et al., 124 Ala. 213, 27 So. 475, 51 L.R.A. 112, 82 Am.St.Rep. 159; Fearn, Ex'r, v. Ward, Adm'r, 80 Ala. 555,2 So. 114; Lockard v. Nash, Adm'r, etc., 64 Ala. 385; Pope et al. v. Carter et al., 210 Ala. 533, 98 So. 726; Crawford et al. v. Kirksey et al., 55 Ala. 282, 28 Am.Rep. 704; Dickinson et al. v. National Bank of the Republic, 98 Ala. 546, 14 So. 550; Cook v. Clark, Davis Co. et al., 212 Ala. 257, 102 So. 213; Cooke v. Fenner Beane, 214 Ala. 558, 108 So. 370; Kavanaugh Wife v. Thompson Wife et al., 16 Ala. 817; Weingarten Bros. et al. v. Marcus et al., 121 Ala. 187, 25 So. 852; Metcalf et al. v. Arnold et al., 132 Ala. 74, 32 So. 763; Boutwell et al. v. Drinkard et al., 230 Ala. 212, 160 So. 349; 27 C.J. 669 and 855; 65 C.J. 979; Moore on Fraudulent Conveyances, vol. 2, § 36, p. 685.
We are not insensible of the force of the argument that injustice may result to a donee from a wholly solvent donor, not known to be indebted at the time, where such donee, before any notice that any one has a claim on such property, may treat it as his own, use it or lose it, and later be called to answer as for a trust he did not know existed. Admittedly the doctrine of a constructive trust imposed upon a grantee in a conveyance infected with actual fraud rests on a sound basis in justice and morals. It appears in many states the rule as to voluntary conveyances, being constructively fraudulent per se, is not so rigid as with us. Whether ours is the better rule declaring that the taking of a gift charges the donee with notice that, if the donor does not meet his debts for which the property was liable at the time of the gift, he will be held in equity accountable as constructive trustee, we do not deem a proper subject to be now reopened.
We may add, however, that, if the rule of constructive trusts should be modified to meet the special equities of the particular case, we do not find this such a case. It appears that at the time the bank accepted the insurance trust it had full knowledge, through its dealing with a real estate trust, *Page 333 then and theretofore existing, of the heavy mortgage indebtedness of Dr. Gewin, to whom due, its security, and the terms of payment. All this appeared at the time on the records of the bank. Moreover, it reasonably appears that, at the time the insurance fund was loaned to the estate, the bank was advised that pre-existing creditors had priority of claim on that fund, and, a little later, to avoid a suit to that end, paid off a creditor, who, it was feared, would institute such a suit as this. Without question, the bank was proceeding in good faith to protect the equities of all parties as matters then appeared; that is to say, work out the entire matter so as to pay the preexisting indebtedness, all indebtedness, and save the equities in the lands to the devisees under the will.
But the bank took the chances on this, and its mistake cannot be visited on those whose funds, speaking in terms of equity, were thus diverted.
It is further argued that the authorization of this loan by decree of the court was res adjudicata and binding on complaining creditors. They were not parties to the proceeding. An administrator ad litem was appointed to represent the estate of the decedent. He represented the general creditors of the estate as such, their interest in the assets of the estate.
As between the grantor and the grantee in a conveyance, fraudulent and void at the instance of creditors, the title is in the grantee. The grantor can take nothing when the conveyance is avoided as to creditors. It follows this fund was, in no event, a part of the assets of the estate available to general creditors. The administrator ad litem, therefore, had no function to protect the equity of these pre-existing creditors in this insurance fund. In equity it was their fund, not that of the estate to be represented by an administrator ad litem. But, it is further argued, one creditor of this class was made a party respondent to the proceedings with allegations showing the creditors were numerous, were unknown, and the time for presenting claims had not expired. So, it is argued, the class was bound by such representation. Suffice to say no question as to the equitable rights of these pre-existing creditors in this fund was ever presented in any way.
Neither bill nor answer called any such situation to the attention of the court. The issue presented was the advisability of the estate borrowing a trust fund whose beneficial ownership was the same as the equities in the land sought to be protected.
Indeed, it appears to have been desired to avoid bringing to an issue the equities of pre-existing creditors lest the chosen plan to take care of them and all others be hindered or thwarted.
The suggestion that the trustee in the insurance trust is to be treated as representing these creditors is alike untenable. Its position was essentially antagonistic to theirs. As such trustee, the bank proceeded as the representative of the interest of the beneficiaries named in the trust agreement, the wife and children of the donor.
It is further argued the suit is barred by laches.
A creditor's bill to set aside a fraudulent conveyance of personal property, in the absence of special matter of estoppel, is governed by the statute of limitation of six years (Code 1923, § 8944). Lockard v. Nash, Adm'r, etc., 64 Ala. 385; Snodgrass v. Branch Bank at Decatur, 25 Ala. 161, 60 Am.Dec. 505; Martin v. Branch Bank at Decatur, 31 Ala. 115.
Six years had not elapsed here. It does not appear when these complainants acquired knowledge of this conveyance, constructively fraudulent.
It is suggested the trustee under the trust instrument was under a duty to support the trust therein created, and parties having equities opposed thereto should promptly act if they proposed to assail such trust. The duty to support and protect the trust applied to the superior trust in favor of these creditors. He was charged with notice of same when he accepted the trust under the instrument. No rules of equity will sustain the support of an inferior as against the superior trust assumed by the same trustee.
Because the trust was valid in part cannot change the equities. The trustee knew that he was taking a voluntary conveyance, void as to creditors of the grantor as to so much of the fund as was not pledged to pay bank debts or exempt to the wife and children.
That such active trustee taking title, disposition, and management of the properties in hand stands in the same position as if made direct to the beneficiary has not been questioned anywhere. To hold such trustee to a like accounting is not to extend the *Page 334 rule, while not to hold him would be to make exception in favor of trustees of this class and throw wide open the door to fraudulent conveyances.
Mere inaction while the bank was trying to work out its own plans which would render such suits unnecessary cannot be held laches.
Again it is urged these complainants, preexisting creditors, are estopped because following, and, as a result of the judicial proceedings authorizing such loan, the funds borrowed went into the bank account of the executor, and were used in payment of debts, some of which went to these complainants, and others of their class, part payments on their demands.
There is a well-recognized doctrine in equity that a party cannot take both under and against judicial proceedings. The doctrine is well illustrated in the case of judicial sales. So long as a party, whether sui juris or not, takes and holds the proceeds of such sales, he cannot question their validity. The basic principle is fully presented in Oden et al. v. Dupuy et al., 99 Ala. 36, 11 So. 419, 12 So. 605, and cases therein cited and reviewed. We are of opinion this rule has no application here.
The borrowed fund was commingled with other assets of the estate; payments were made, if at all, from this commingled fund, earmarked as estate funds. Creditors receiving and now retaining it have never had knowledge of the quantum of funds received. The facts are within the keeping of the bank. Unless and until the bank, by proper proceedings, ascertains and advises what part of this diverted fund, if any, was received by these creditors, no complaint can be made on this line. But, perhaps, more controlling is the fact that this fund came into the estate as a loan obtained by the executor, secured by note and mortgage; promises to repay the loan from the estate, under the sanction of the court order. It did not represent increased assets, was not intended to augment the ultimate dividends of these creditors from an insolvent estate. The entire scheme, worked out as per court order, would replace this fund in the insurance trust. Surely it would be there subject to the same equities as when diverted therefrom. The net result as to these creditors was to take their fund and spread it out among the general creditors and charges of administration, with a promise to return the fund to its original status, which was not kept.
Nor can the fact that this loan transaction appeared on both sides the account on partial settlement, in the report of insolvency, or on final settlement after insolvency, change the picture.
The settlements were to ascertain the status as between the executor and the estate, in which his doings should fully appear. These items in no way affected the quantum of the estate shown by the accounting. No issue was involved touching the equitable ownership of the fund here in question nor the liability of the bank as constructive trustee thereof.
True it is, without reference to the judicial proceedings, if any ascertainable amount of this fund of $61,032.32 found its way to any of the creditors entitled to share in such fund, and is still retained, the share of such creditor in above fund, when ascertained, should be tolled to the amount theretofore received. This, in the absence of any countervailing equity in such creditor. The burden is on the executor to show the amount of such credit. All this may be worked out on the reference. We see no occasion to modify the decree of reference. Its general terms cover all inquiries as to who should share in this fund, to what amount, and for what amount, if anything, each creditor should have decree against the bank.
We find no error in the decree fixing liability on the bank for the sum specified.
Cross-Appeal of the Penn Mutual Life Insurance Company. The plea of the statute of nonclaim was interposed to the claim of complainant, the Penn Mutual Life Insurance Company. This plea was sustained by decree of the trial court, resulting in a denial to this creditor of any participation in the fund in question.
Under the statute then in force, a claim could be presented by verified statement filed in the probate court or could be presented to the executor or administrator in person. If in person, presentation could be in writing, verified or unverified, or could be by parol. Rosser v. Sanders et al.,219 Ala. 327, 122 So. 340.
All that was necessary was to bring home to the executor knowledge of the existence of the debt, its nature and amount, with notice, express or implied, that the *Page 335 estate is looked to for payment. Jones Co. v. Peebles,130 Ala. 269, 30 So. 564; Smith v. Fellows, Adm'r, 58 Ala. 467; Flinn, Administrator, v. Shackleford, Creditor, 42 Ala. 202; Harrison's Adm'r v. Jones' Adm'r, 33 Ala. 258; Posey and Coffee, Ex'rs, v. Decatur Bank, 12 Ala. 802.
The evidence is without dispute that this indebtedness of decedent to Penn Mutual Life Insurance Company was for a loan secured by mortgage on real estate; was payable, principal and interest, in frequent installments, several of which accrued and were paid by the executor during the 12-month period after grant of letters testamentary, and others were paid thereafter, running as late as two years after grant of letters. Marx Co., representatives of this creditor, sent by mail, duly received, regular statements of the several installments as they came due, and both by letter and personal interview urged prompt payment, which could only mean from the estate. Without question, the executor was advised that foreclosure proceedings would be had, if these installments were not met. Stress was laid in evidence, and in argument here, on the fact that at no time within the 12-month period did the creditor send the executor a full statement of the entire indebtedness, its nature and amount. This, without dispute, was already known to the executor from its own records, having succeeded to the position of trustee in the real estate trust theretofore handled by the same bank. The ceremony of sending a full statement of unmatured installments, known to both parties to be already within the knowledge of the executor, was unnecessary. Mere knowledge of the existence of a debt is not presentation. But, where there is knowledge of the debt, its character and amount, a demand showing the creditor looks to the executor for payment is a presentation.
Without prolonging the discussion, the evidence clearly discloses that the executor was fully informed by written and oral communications that the creditor was looking to all the means available for the collection of its debt; its entire debt as same matured. This would include the estate in the hands of the executor, subject because of the personal obligation of the debtor, and the mortgage security behind such promise.
That the chief motive of the executor in keeping installments paid up may have been to prevent foreclosure and conserve equities for the devisees in the will is unimportant. We are concerned here with the presentation of the demand by the creditor, whether notice was brought home to the executor that the creditor looked to the estate for payment of the debt, the nature and amount whereof were fully known and understood, as within the import of such notice. This, we are convinced, is clearly shown. The court, in the writer's opinion, erred in holding this claim barred by the statute of nonclaim.
The jury's verdict was merely advisory, on a charge from the court not fully stating the applicable law. The facts were really not in dispute. Making partial payments on the demand is evidence of presentation. Pharis et al. v. Leachman, Adm'r et al., 20 Ala. 662. More so now, since the statute forbids such payments. Code, § 5815. The payments made on demand after the 12-month period were unlawfully paid, unless the claim was presented within 12 months.
Cross-appeal of Steiner Bros. Steiner Bros. prosecute a cross-appeal for the express purpose of testing whether the proceedings of the trial court touching their claim protects their right to file claim and share as a creditor in this fund.
The facts pertinent to this inquiry are sufficiently disclosed in paragraph 5 of the opinion of the trial court and paragraph 5 of the decree following such opinion, which appear in the report of the case.
In our opinion the decree of the court fully protects the interests of cross-appellants in permitting them to come in as other creditors pursuant to paragraph 6, subsection "a" of the decree, which also appears in the report of the case.
In a creditor's suit of this character, it was entirely proper to have notice given to all those, other than the original complainants, who desired to assert a claim against this trust fund, to come in and prove their claims within a time specified. Maxwell v. Peters Shoe Co., 109 Ala. 371,19 So. 412; Taber et al. v. Royal Insurance Co. et al., 124 Ala. 681,26 So. 252; Cowan, Trustee, v. Staggs, et al., 178 Ala. 144,59 So. 153; Garry Welpin et al. v. Jenkins, Moore Co. et al., 109 Ala. 471, 20 So. 8; Talladega Mercantile Co. v. Jenifer Iron Co., 102 Ala. 259, 14 So. 743; Merchants' Bank of Mobile v. Parrish et ux., 214 Ala. 96, 106 So. 504; Johnson v. Waters, 111 U.S. 640, *Page 336 4 S. Ct. 619, 28 L.Ed. 547; Jones' Ex'rs v. Fayerweather, 46 N.J. Eq. 237,19 A. 22.
The foregoing expresses the views of the writer, in which Justice BROWN concurs, except as to the cross-appeal of the Penn Mutual Life Insurance Company.
The court, by per curiam opinion, concludes otherwise on the points therein decided.
Concurrences are shown by that opinion, which here follows: