Crichton v. Qualley

Statement. Bronson, Ch. <T. The trustee in bankruptcy seeks to recover certain property transferred in fraud of creditors. Defendants have appealed from a judgment in plaintiff’s favor. The facts are: — -The defendants are a father and two sons. The father is the owner of a half-section of land near Verona, North Dakota. For years he farmed this land. In 1915, he sold to his two sons the personal property upon the farm consisting of horses, cattle, machinery, etc., for $1,400, for which the sons gave to him a note. The father moved into Verona where he has since resided. Thereafter the boys farmed the land, with the property so purchased, upon the usual cropper’s plan. In the course of their farming operations, the boys purchased a threshing outfit. In payment therefor notes for $3,600 were given to a bank. Two of such notes, *364 amounting to $2,100, the father signed as maker. In November, 1920, the notes for the personal property sold by the father not having been paid and the boys being further indebted to the father, the sons made to the father a bill of sale transferring everything upon the farm including all grain, excepting only their wearing apparel. The father returned to the sons the note for $1,400. The father paid at a bank •the notes given for the threshing outfit. He received these notes so paid. The bank endorsed two of the notes, amounting to $2,100 to the father. The property covered in the bill of sale remained in the possession of the sons. They continued to operate the farm in 1921 and 1922. After the sons purchased this property from the father, they conducted their farming operations as a partnership under the name of “Qualley Brothers.” They incurred various obligations as such partnership. After the execution of the bill of sale, they continued to conduct their operations before the public as “Qualley Brothers.” They incurred obligations as “Qualley Brothers” and credit was extended to them as such. Pursuant to the testimony of the father and the sons, the arrangement, made after the retransfer through the bill of sale, was that the boys should operate the farm for the father and' should be paid going wages for their services; that a loose oral arrangement was made whereby the father furnished them money from time to time as they needed it or demanded it and the boys used or sqld the products of the farm for purposes of their needs and in satisfaction of their wages or their living expenses. Thereafter, during the threshing season, the sons operated the threshing rig and collected moneys from farmers for whom they threshed. The original bill of sale, which was roughly written on a sheet of paper, was subsequently incorporated in a bill of sale upon a printed form and included in addition one Minneapolis Steam Tractor Engine which was a part of the threshing outfit. This printed bill of sale recited that it was made to cure defects in the former bill of sale. It was acknowledged on September 26th, 1921. It was-filed in the office of the register of deeds on February 19th, 1923. On March 24th, 1923, the sons filed a petition in bankruptcy as a partnership. The schedules in bankruptcy proceedings disclose that the claims of the unsecured creditors are about $4,000, including an in *365 debtednoss of $T50 due the father. No assets were listed excepting a share of stock in an elevator valued at $25, a Ford car, a piano, a shotgun and a violin, all of which were claims exempt, excepting a half interest in the share of stock. One son was a married man. Some evidence was offered to the effect that the sons, after this bill of sale was made, continued to represent themselves to be in the same position as they sustained before the making of the bill of sale. For instance, to one party one of the boys made representations in 1921 to the effect that he did not want to mortgage property on the farm because his-brother had an interest in it; also, that they would sell some grain in the fall which would afford them a source of income to pay some debts; also that they represented, concerning the threshing operations, that they could make collections and make payments on their indebtedness. In fact, in the fall of 1922 a bank, through garnishment proceedings collected, from a farmer for whom the sons threshed, a certain amount and credited it on their indebtedness at the bank. There is also evidence in the record that after the bill of sale was made creditors had no-notice of the retransfer of the property to the father and extended credit to the boys as “Qualley Brothers.” The trustee in bankruptcy, with the consent of the referee, instituted this action in claim and delivery to recover the property transferred. By stipulation the action was tried to the court without a jury. The trial court found in general that the bill of sale was made to the father in order to defeat and defraud the -creditors of his sons; that, after the execution of such bill of sale, the sons represented to their creditors during the farming seasons of 1921 and 1922 that the property was theirs and obtained credit upon such representations; that the transfer of such property was made without any transfer of actual possession or manual delivery thereof. As conclusions of law the trial court determined that the bill of sale was void and that the trustee was entitled to judgment for possession of the property. Judgment accordingly was entered granting to the trustee the immediate possession of the personal property upon the farm (not including, however, the grain mentioned in the bill of sale) or, in case a delivery could not be had, to a judgment for its value in the sum of $1,910. Upon this appeal the defendants contend that there is no evidence in the record sufficient to support the findings of the trial court to the effect that the bill of sale was made by the sons in *366 order to defeat and defraud tbeir creditors, and that the property continued in the possession of the sons. Opinion. The statute provides that every sale made by a vendor of personal property in his possession or under his control, unless the same is accompanied by an immediate delivery and followed by an actual and continued change of possession of the property sold shall be presumed to be fraudulent and void as against creditors of the vendor, unless those claiming under such sale make it appear that the same was made in good faith and without any intent to hinder, delay, or defraud such creditors. Comp. Laws 1913, § 7221. The findings of the trial court will not be disturbed unless clearly opposed to the preponderance of the evidence. State v. Southall, 50 N. D. 723, 197 N. W. 866; Flath v. Bankers’ Casualty Co. 49 N. D. 1053, 194 N. W. 741; McCormick v. Union Farmers State Bank, 48 N. D. 834, 187 N. W. 422; Richards v. Northern P. R. Co. 42 N. D. 472, 173 N. W. 778. Upon the record we are satisfied that the question whether the transfer involved was made in violation of the statute is largely a question of fact. Comp. Laws 1913, § 7223; Godman v. Olson, 38 N. D. 360, 165 N. W. 515, The evidence in the record is sufficient to justify a finding of fact that when the bill of sale was executed by the sons to the father, the sons were then in an insolvent condition and so known to be by the father; that, under such circumstances, the sons continued to possess the property transferred by the bill of sale, exercising dominion and apparent right of ownership thereover and securing thereby credit and extensions of credit by reason of their relations continuing apparently the same as formerly. We are not prepared to hold, as a matter of law upon this record, that there was an actual and continued change of possession of the property involved or that the sale was made in good faith and without any intent to hinder, delay or defraud creditors. The findings of the trial court determining that the transfer made was fraudulent and that there was no chaiige of possession are sustained. However, it appears in the record that the father paid, after the consummation of this transfer and upon the purchase price of the threshing outfit, about $3,600. For such payment so made by him he *367 should be and is entitled, upon principles of subrogation, to a lien upon such threshing outfit to the extent of the payments so made and to retain the possession of such threshing outfit for purposes of satisfying such lien. We are therefore of the opinion that the findings and the judgment should be modified so as to grant to the trustee the immediate right of possession of the personal property described in the judgment excepting that the defendant E. P. Qualley shall be entitled to retain the possession of the threshing outfit described in the judgment for purposes of satisfying his lien thereupon; or, that the trustee shall be entitled to the immediate possession of such threshing outfit-upon satisfying the defendant'E. P. Qualley’s lien thereupon, and, further, that the judgment for money, in the alternative, should be reduced in the amount which represents the value of such threshing outfit. It is accordingly ordered that the cause be remanded to the trial court for entry of judgment consonant with this opinion. Johnson, Nuessle, and Christianson, J J., concur. Birdzell, J., not participating, through illness.