Townsend v. Petersen

Mr. Justice Elliott delivered the opinion of the court. This is an appeal from an interlocutory judgment or order overruling the exceptions to the report of the ref [494] eree, and confirming such report as to certain matters. The order of confirmation was in effect a final adjudication as to all those matters at issue whefein the findings of the referee were sustained by the court, to wit: That the quitclaim deed and bill of sale of May, 1883, by-plaintiff to defendant were given as mortgages to secure a debt of $975, with interest at fifteen per cent, per annum: that there had been no dissolution of copartnership between plaintiff and defendant, and no settlement or accounting concerning the partnership property. Under the act of April 23, 1885, this was undoubtedly an appealable order, notwithstanding the interlocutory decision of the trial court to the effect that certain findings of the referee were “not conclusive,” but would be “subject to review and revision upon the final hearing of the case.” The trial court also held that the defense-of the statute of frauds was not of itself available in behalf of the defendant in a case of this kind. The assignments of error relate principally to the sufficiency of the evidence to support the findings of the referee, and to the ruling of the court as to the sufficiency of the defense of the statute of frauds. A deed of conveyance, absolute in form, may be proved to be a mortgage in effect by oral testimony; but the proof should be clear, certain and unequivocal — sufficient to establish the fact beyond reasonable doubt. Code Civil Proc. § 263; Whitsett v. Kershow, 4 Colo. 419. From an examination of the testimony we are satisfied that the deed and bill of sale executed by plaintiff to defendant in May, 1883, were subject to another writing executed by defendant contemporaneously therewith, whereby defendant bound himself to reconvey to plaintiff upon certain conditions; so plaintiff’s deed and bill of sale cannot be said to have been absolute conveyances at the time of their execution. Both parties agree in their testimonjr thus far. The writing executed by defendanthaving been lost, secondary evidence of its contents was [495] admitted by the referee. This evidence was conflicting. But, considering all the circumstances of the case, we cannot say that the referee, who heard the living witnesses, was not justifiable in his findings of fact; and, the trial court having confirmed such findings, we do not feel warranted in disturbing them. Hickox v. Lowe, 10 Cal. 197. The remaining question to be considered relates to the sufficiency of the third defense and the evidence relating thereto; for, while the trial court held the third defense insufficient as a matter of law, this ruling was not made until after the evidence was taken and reported thereon, so that we may fully consider the same. That there was a valuable consideration for the deed and bill of sale executed by plaintiff to defendant there can be no doubt; and that said instruments were intended as mortgages we have held was properly determined by the referee and the trial court. The plaintiff borrowed from defendant the sum of $975, and used the same, together with other moneys, to - pay one of his most pressing creditors. He conveyed property to defendant by said deed and bill of sale of the value of $2,500 or-$3,000 as security for such loan. He remained thereafter, for a year or more, assisting defendant,—keeping the books and attending to other business of said mercantile house,— and drawing funds out of the business from time to time, as a partner, with the knowledge' and approval of defendant. The evidence, however, tends to show that to the public he did not appear as a partner after the execution of the deed and bill of sale; but that he represented said conveyances as absolute, and used them, temporarily at least, to hinder and delay his creditors, representing to them that he had no longer any interest in the business. Plaintiff not having repaid the $975 and interest, the question now presented by this record is, Can defendant make use of the fraudulent conduct’ of plaintiff in respect to said deed and bill of sale subsequent to their execution as [496] a bar to his equity of redemption in respect to said property, or as a defense to his claim for an accounting upon equitable terms concerning the partnership affairs? Unquestionably, conveyances “made with the intent to hinder, delay or defraud creditors” are void “as against the persons so hindered, delayed or defrauded ” (Gen. St. § 1526), and will be so declared when the injured person or his representative attacks such conveyances. 2 Chit. Cont. 1037; Wyatt v. Freeman, 4 Colo. 14. In this case, however, between the parties themselves, the conveyances appear to have been entered into in good faith and for a valuable consideration. The defendant loaned his money at a large rate of interest and took good security therefor. In executing the mortgage securities in the form of absolute conveyances the parties were accomplishing a lawful purpose in a manner not altogether uncommon and not necessarily fraudulent. Bump, Fraud. Conv. 40. It does not appear that at the time of executing the deed and bill of sale plaintiff expressed or entertained any intent to defraud his creditors. His manifest purpose,— and his only purpose, so far as we can discover, at that time,—was to raise money to pay one of his creditors; and it appears that he actually so applied the proceeds of the loan. Undoubtedly his creditors could have subjected his equity in the real and personal estate thus conveyed to the payment of their demands by resort to proper proceedings; but if defendant acted in good faith in the transaction, certainly plaintiff’s creditors would not be permitted to impair defendant’s security as mortgagee. Phelps v. Curts, 80 Ill. 109. Under the circumstances of this case there would certainly be no justice or equity in allowing defendant to say to plaintiff: “ Though you made these conveyances in good faith, for my benefit as mortgagee as well as for your own as mortgagor, and without any intent at the time to hinder, delay or defraud your creditors, nevertheless, as you have since used them as a shield against [497] your creditors, I will complete the swindle by denying you the right of redemption and the benefit of an accounting.” In Lathrop v. Pollard, 6 Colo. 432, where a defendant sought to avail himself of a defense somewhat similar to this against the widow of the grantor, Mr. Justice Helm, speaking for this court, used the following language: “If she succeeded in her action, the rights of the creditors would not be interfered with in the least; on the contrary,-it would be much easier for them to subject the property to the payment of their debts, for she would have relieved them from the difficult task of proving that Pollard held the same in trust for Lathrop at the time of the latter’s decease.” Considering the pleadings and the evidence in the most favorable light in which they can be viewed in behalf of the defendant, we are of the opinion that they are not sufficient, under the circumstances of this case, to bar plaintiff’s right of recovery. We express no opinion whether the third defense would or would not have been sufficient in law if the same had been challenged by demurrer before the evidence was taken, or supported by evidence of a different character. Harvey v. Varney, 98 Mass. 118; Dyer v. Homer, 22 Pick. 253; Thompson v. Moore, 36 Me. 47; Sherk v. Endress, 3 Watts & S. 255; Hall v. Linn, 8 Colo. 264. The judgment of the district court is affirmed. Affirmed.