McINNIS v. McRAE et al

MR. JUSTICE COTHRAN.

I do not agree with the conclusion arrived at by MR. Justice Watts, affirming the decree of Judge Memminger in this case, and am of opinion that it should be materially modified in conformity with the conclusions herein announced.

The plaintiff, a creditor of A.C. McRae, brought this action to set aside, as fraudulent and in violation of the Assignment Law (Civ. Code, 1922, § 5512), a deed from A.C. McRae to his wife, Alice M. McRae, and a mortgage from Alice M. McRae to her brother H.W. McLaurin (subsequently assigned to Scotland Supply Company); both deed and mortgage covering the same tract of land, 62 1/2 acres, in Marlboro County.

The case was referred to a Special Referee, H.J. Riley, Esq., to hear and determine all the issues of law and fact. He filed a report sustaining the validity of both the deed and the mortgage. The plaintiff excepted thereto, and, the matter having been heard by his Honor, Judge Memminger, he filed a decree reversing the conclusions of the Referee and holding:

"That there was collusion between the parties, and that the transactions in fact amount to an assignment. I find all facts necessary to prove an unlawful preference under the Assignment Law are abundantly shown by the testimony."

He decreed that the deed and mortgage be set aside and cancelled by the Clerk of Court, and that the title to the land be vested in A.C. McRae —

"subject to an equitable mortgage on the premises in favor of the Scotland Supply Company for the amount actually paid to Southern Life Trust Company in settlement of its mortgage."

From this decree the defendants have appealed; they being A.C. McRae, Alice M. McRae, II. W. McLaurin, and Scotland Supply Company. The appeal was heard at the February, 1925, session of this Court; the Court at that time being composed of Justice Watts, Justice Fraser, Justice Marion, and Acting Associate Justice W.C. Cothran, the Chief Justice and Justice Cothran being absent on account of illness.

Before an opinion could be filed after this hearing, Justice Fraser died on May 21, 1925, and, there being a difference of opinion among the other justices who heard the case, it was set down for reargument at the June session, at which time the Court was composed of the Chief Justice, Justice Watts, Justice Cothran, Justice Marion and Acting Associate Justice R.O. Purdy.

On August 17, 1925, Acting Associate Justice Purdy filed an opinion, adopting the one which had theretofore been prepared by Acting Associate Justice W.C. Cothran, but which had not been filed, reversing the decree of Judge Memminger and sustaining the report of the Referee; the Chief Justice and Justices Marion and Cothran concurring; Justice Watts dissenting.

Thereafter the plaintiff filed a petition for a rehearing which was granted, and the case was set down for reargument upon the printed record as before, without oral argument.

An opinion is now submitted by Justice Watts, affirming the decree of Judge Memminger, with which I do not agree, for the reasons which follow.

The facts are as follows:

In 1920 A.C. McRae borrowed $5,000 from the Southern Life Trust Company (hereafter referred to as the trust company), and executed a note and mortgage upon the premises therefor. McRae being in default, the trust company commenced foreclosure proceedings in August, 1922. McRae was anxious to avoid the expense of a foreclosure sale, and to realize as much as possible from the sale of his property. He accordingly entered into an agreement with the trust company, through its attorney, J.W. Le Grand, Esq., by which the foreclosure proceedings were suspended, and he was allowed to put on an auction sale of the property for cash; the agreement being that the proceeds of the sale should be applied to the mortgage held by the trust company auctioneers, to conduct the sale. The land was subdivided into three tracts and the auction extensively advertised in the county paper and by handbills distributed generally through the country. The sale was had as advertised on November 9, 1922. The subdivisions were put up separately, and the entire tract was offered. The bid for the latter proving more satisfactory, the entire tract was knocked down to H.W. McLaurin at $7,600.18. It is conceded on all sides that McLaurin was representing and acting for the Scotland Supply Company, of which he was president (hereafter referred to as the supply company). This company had an unsecured account against McRae for $2,662.61.

After the sale, and before complying with his bid, McLaurin transferred his bid to the defendant Alice M. McRae his sister, and the wife of A.C. McRae, upon condition that she execute a note and mortgage to him for $8,296.24, made up of the amount due upon the trust company mortgage, $5,633.63, which he undertook to pay, and the account due by McRae to the supply company, $2,662.61. This arrangement was manifestly made with the knowledge and acquiescence of A.C. McRae, who thereby surrendered the difference between the amount of the bid, $7,600.18, and the amount due on the trust company mortgage, $5,633.63 — $1,966.55. Accordingly, A.C. McRae conveyed the property by deed to Alice M. McRae, and she executed a note and mortgage to McLaurin as agreed.

The note and mortgage were then assigned by McLaurin to the supply company, which paid to the trust company the amount due on the mortgage held by it, $5,633.63. The supply company holds the mortgage for $8,296.24 as security for the amount paid by it to the trust company and the amount of its account against McRae, both of which, by the arrangement, have become the debts of Alice M. McRae. In addition thereto the supply company has paid off several judgments which had been entered against McRae, amounting to between $500 and $800; the judgments not appearing to have been listed in the record for appeal.

The plaintiff attacks the entire series of transactions, the auction sale, the transfer of McLaurin's bid, the deed from McRae to his wife, and the mortgage from her to McLaurin, as parts of an original conception to transfer all of the property of McRae, in violation of the statute of Elizabeth and of the Assignment Law of the State. It is conceded that at the time A.C. McRae was insolvent, and that he had left no other property which could have been made available to his creditors.

The plaintiff's claim against McRae arose in this way: In 1911 McRae owed a store account to Covington Co. of considerable size. He borrowed from the bank of which Covington was president $3,000, and applied a part of it to the account, giving Covington Co. a note for the balance, about $600. This occurred not later than 1915. Later the business of Covington Co. was closed out, and this note which McRae had given was assigned to the plaintiff in the settlement. No payments were made upon this note, and on October 3, 1922, McRae gave to the plaintiff a new note, called a renewal note, for $1,027.54. The original note was then more than 7 years old, and was out of date. The new note was payable November 24, 1922. The sale took place on November 9, 1922, and at that time the plaintiff's note of $1,027.54 had not matured.

There is no contention that the sale was not fairly conducted or that the property did not bring a fair price. The sale had been thoroughly advertised; it was conducted by an auctioneer personally known to the Court of the highest character; a large number of people, including the plaintiff attended; there appears not a circumstance reflecting upon the integrity of the transaction. Certainly the defendant McRae had the right, with the consent of his pressing mortgagee, to have the sale as it was conducted, rather than under the auctioneer's hammer at a forced judicial sale. The mortgagee consented; the mortgagor desired it; who else had the right to object? The only person who was adversely interested was the plaintiff, and he, though present, made no objection. He had the right to adopt the tactics adopted by McLaurin, but chose not to take the risk.

If the sale was legal, McLaurin was entitled to the land upon complying with his bid, and he had the right to transfer his bid to Mrs. McRae or any one else; under its terms, McRae was entitled to the difference between McLaurin's bid, $7,600.18, and the amount due upon the trust company's mortgage of $5,633.63 — $1,966.55.

In the transaction between McRae, Mrs. McRae, and McLaurin, by which McLaurin's bid was transferred to Mrs. McRae upon condition that she would give her note and mortgage to McLaurin for $8,296.24 (the trust company's mortgage of $5,633.63 and the Scotland Supply Company account of $2,662.61), she could not have complied with her part of that agreement unless McRae surrendered to her his right to the difference between the bid, $7,600.18, and the trust company's mortgage, $5,633.63 — $1,966.55. That this surrender was for the benefit of the Scotland Supply Company is obvious, and that it was consummated is equally so. It seems clear, therefore, that the contest is limited to the validity of this surrender by McRae. The sale cannot be impeached; the transfer of McLaurin's bid to Mrs. McRae is equally valid, and so is the deed from McRae to Mrs. McRae. The question is therefore whether or not the surrender or assignment of this difference by McRae to Mrs. McRae for the benefit of Scotland Supply Company can be sustained under the Assignment Law.

I do not think that it can be; he was at the time admittedly insolvent and his interest in the land, subject to the trust company's mortgage and the outstanding judgments, was all the property he possessed. The surrender or assignment of his interest in the proceeds of the sale to his wife, as stated, was manifestly in the interest of the Scotland Supply Company, which was made the preferred creditor.

The Scotland Supply Company, subsequently to the transaction under review, paid off judgments then open against McRae, amounting to an unascertained sum estimated at from $500 to $800. That company should be protected so far as those payments are concerned.

The sale, the transfer of the bid, and the deed being valid, the plaintiff has no lien upon the property by virtue of his judgment, but has only an equity to follow the difference referred to.

I think that, as to the mortgage of $8,296.24, given to McLaurin by Mrs. McRae, the supply company should be held as a trustee, with the right to foreclose the same, and that the net proceeds of the sale should be applied as follows:

(1) To the payment to the supply company of the amount paid by it to the trust company upon its mortgage, $5,633.63, with interest at 7 per cent from November 10, 1922.

(2) That from $1,966.55 of what may remain after said application, with interest at 7 per cent from November 9, 1922 (which represents the interest of A.C. McRae in the proceeds of the auction sale, improperly surrendered or assigned to Mrs. McRae for the benefit of the supply company), there be paid to the supply company the amount paid by it in satisfaction of the judgments existing against A.C. McRae at the time of the auction sale, with interest from the several dates of payment at 7 per cent, and that the remainder thereof be apportioned between the plaintiff and the supply company according to the amounts due to them respectively by A.C. McRae, namely, to the plaintiff the amount of his judgment with interest at 7 per cent from February 10, 1923, and to the supply company the amount of its account, $2,662.61, with interest at 7 per cent from November 10, 1922, when it became an account stated, admitted by A.C. McRae.

(3) That the remainder, if any, be applied to the mortgage held by the supply company.

(4) That any surplus remaining be paid to the defendant Alice M. McRae.

(5) That each party pay his own costs.

Without prejudice to the defendant McRae's claim of homestead exemption so far as he may be entitled thereto.

This, being the opinion of a majority of the Court, is made the judgment of the Court.

Judgment modified.

MR. JUSTICE MARION and MR. ACTING ASSOCIATE JUSTICE R.O. PURDY concur.

MR. CHIEF JUSTICE GARY did not participate.