Farmers State Bank v. Weisenhaus

— 955 — Statement. Bronson, Oh. J. This is an action to set aside a deed as fraudulent and to subject land to the lien of a judgment. Defendant has appealed from a judgment in plaintiff’s favor and has demanded a trial de novo upon appeal. The facts are: Plaintiff is a banking corporation at Anselm, North Dakota. Defendants, husband and wife, are farmers. In 1914 the husband purchased a quarter section of land in' Ransom county. Since that time he and his wife have resided upon and farmed this land. In 1919 the husband received a deed for this land and gave a mortgage for $2,000, the balance of the purchase price. In June, 1921, the husband, with three other parties, made three notes, due on demand, to plaintiff aggregating $6,200. These notes were given for — 956 — ail elevator purchased for a company of which the makers were directors. On November 12th, 1921, defendant gave to his wife a deed of this land for a recited consideration of $1 and love and affection. In December, 1921, plaintiff commenced an action upon the notes against the makers. On May 25th, 1922, judgment was entered against such makers for about $6,900. In October, 1922, execution was issued on this judgment and levy made on certain grain, cattle, horses,, wagons, farm machinery and a tractor. The husband made his claim of exemptions and the wife asserted a third party claim to some of the cows taken under the levy. In November, 1922, the levy was released and the execution returned unsatisfied. On January 30th, 1923, a second execution was issued and a levy made upon certain property including the land conveyed by the husband to the wife. Sale upon execution was had but such sale was abandoned on the day of sale for want of bidders and the execution returned wholly unsatisfied. The complaint alleges that a third execution was issued on March 20th, 1923, and notice of levy made upon the land conveyed by the husband to the wife and that the same is now an outstanding unsatisfied execution upon such land. The record, however, does not show the issuance of such execution or the levy made thereunder. In March, 1923, this action was instituted. The complaint alleges that the land conveyed is worth in excess of $8,500. The husband interposed no answer and made no appearance. The answer of the wife alleges that the land is not worth more than $5,000, and that the same constitutes the homestead. At the trial, plaintiff adduced some evidence that this land (160 acres) was worth $40 per acre; that plaintiff paid $32 per acre for this land, and that in 1921 when the husband was an assessor, this land was assessed for $8,000 by him; also some evidence to the effect that at a meeting of the directors of this elevator held after the judgment was rendered in May, 1922, the husband, during some argument that arose concerning the srdt upon the note, stated that he 'transferred this land to head off one Slavens. The husband denied any such statement. The husband and wife testified to the effect that $950 was paid when the land was purchased, of which amount the wife furnished about $500; that the wife had worked in farming operations, in the fields, throughout the .years and he had promised to deed the land to — 957 — her; that previously he had been sick, and so he did deed the land to her. The husband testified to the effect that the cultivated land (about 100 acres) was worth about $20 per acre and the pasture land about <$15 per acre. Other testimony was offered to the effect that some of this land was light soil; some of it pasture land; some of it timber land; that the cultivated land was worth from $30 to $35 per acre and the other about $20 per acre. The trial court found that the deed was made with intent to cheat, hinder, defraud and delay creditors; that the deed was a voluntary transfer made without consideration and that the land was worth at the time of the transfer $6,000; that through the transfer the husband became insolvent. As conclusions the court determined that the deed was fraudulent and should be set aside; that plaintiff was entitled to subject the land to the lien of its judgment, subject to the homestead rights of defendants; that in determining such homestead rights the lien of its mortgage for $2,000 should not be added to the exemption of $5,000 allowed by law. Pursuant to such findings, judgment was entered. Decision. It is evident that ever since 1911 the land has been the homestead of the defendants. The lien of the judgment did not attach to this homestead. The conveyance of this homestead by the husband to his wife was not a fraudulent act. In McKillip v. Farmers’ State Bank, 29 N. D. 541, 545, 151 N. W. 287, Ann. Cas. 1917C, 993, this court stated, — “The courts have repeatedly held that it is not a fraudulent act for a debtor to transfer to his wife or daughter exempt property to which his creditors could not have looked for the satisfaction of their claims. ... A debtor, in the disposition of his property, can commit a fraud upon his creditor only by disposing of such of his property as the creditor has a legal right to look to for his pay, — Hixon v. George, 18 Kan. 253.” In Olson v. O’Connor, 9 N. D. 504, 510, 81 Am. St. Rep. 595, 84 N. W. 359, this court said, — “It was property (the homestead) to which the lien of the judgment did not attach, and was beyond the reach of an execution issued thereon. It was not possible to defraud his creditors by transferring the title to his wife, for — 958 — it was property to which they could not look for the collection of the claims. For these reasons, even in a proper case.the transfer was not subject to attack. See also Dalrymple v. Security Improv. Co. 11 N. D. 65, 88 N. W. 1033; 27 C. J. 441. It follows, therefore, that the only right which the plaintiff, as a creditor, possessed was the right to subject such real property of the husband, as debtor, which was not included within the homestead exemption. The homestead allowed by law for farm property is 160 acres in area, and not to exceed $5,000 in value. Comp. Laws 1913, § 5605. Accordingly, in the case at bar, the land involved (not exceeding’ 160 acres in area) was not subject to plaintiff’s judgment unless its value exceeded the sum of $5,000. In ascertaining the value of the homestead the rule has been (applicable in this case) that existing mortgages should not be deducted. Calmer v. Calmer, 15 N. D. 120, 127, 106 N. W. 684; First Nat. Bank v. Hallquist, 48 N. D. 263, 265, 184 N. W. 269. This rule has now been changed by statute. Laws 1923, chap. 229. Hence, plaintiff possessed a cause of action only in the event that the land involved exceeded in value the sum of $5,000 and then only to the extent of attacking the conveyance made as fraudulent concerning such excess over $5,000. The trial court erred in determining that the deed covering the land in its entirety was made to defraud creditors and in setting the same aside in its entirety. The theory pursued by the trial court did not require a careful weighing of the evidence of intent to delay or defraud creditors in violation of the statute, § 7220, Comp. Laws 1913. This evidence is meagre, uncertain and dependent considerably upon inferences, and we think it should be carefully weighed by the trial court in the light of the burden which rests upon the plaintiff to establish illegal intent with reference to the excess. N. H. Comp. Laws 1913, § 7223. We are of the opinion that, under the circumstances, it is proper to remand this cause to the trial court for further proceedings. As above indicated, we are of the opinion that plaintiff has a cause of action only in the event that the land conveyed is actually worth more than $5,000 and, then, that its cause of action'must be limited to — 959 — tbe right to set aside the deed, if made with illegal intent, concerning such portion of the land conveyed as may be nonexempt. The statute sets forth a method of appraisal for purposes of ascertaining the value of property of a homestead character. Comp. Laws 1913, §§ 5611-5617. Nor purposes of orderly procedure we suggest to the trial court the propriety of following this statutory method as preliminary proceedings in this cause, and as indicated in Severtson v. Peoples, 28 N. D. 372, 388, 148 N. W. 1054. The judgment is vacated and the cause remanded to the trial court for further proceedings and a new trial consonant with this opinion. Costs will abide the event. Christianson, .Johnson, Birdzell, and Nuessle, JL, concur.