Clarke v. Philomath College

BEAN, J. Plaintiff contends that the three conveyances from Samuel McLain to the defendant Philomath College were voluntary gifts, and that they hindered, delayed, and defrauded McLain’s creditors; that the plaintiff loaned the sum of $2,500 on the credit of McLain, who was surety on the note for his nephew at a time when McLain was the record owner of the three tracts; that the transfer of all of the property of McLain to the college, al — 376 — though intended as a meritorious benefaction, worked a constructive fraud upon plaintiff as a creditor; and that the failure of the trustees to record the deeds to parcels A and B until long after the execution of plaintiff’s note by McLain, and permitting him to remain in possession and exercise, acts of ownership over the real estate, was a species of fraud, and should estop the defendant, Philomath College, from asserting ownership of the land as against plaintiff, who loaned his money on the faith of the apparent title to the land. It is the position of defendant Philomath College that at the dates of the conveyances of tracts A and B the indebtedness of plaintiff did not exist, and the deeds, although voluntary, are valid as to subsequent creditors, and that the deed to tract C was executed for a valuable consideration, about one third of the value of the land. This defendant also contends that plaintiff is guilty of laches in asserting his claim. It appears from the record that for a number of years before his death Samuel McLain was not in very good health, unable to do any work, except the lightest, around his farm. He intrusted his business affairs largely to J. R. Parker, the business manager of the defendant Philomath College, who procured the conveyances sought to be set aside. For a number of years preceding his death McLain was continually making donations of ’ money and property and notes to the college, and during the last ten years of his life the college acquired practically all of his estate. It appears to have been McLain’s desire and the expectation of the officers of the college that that institution should be the beneficiary — 377 — of all. of McLain’s property, after paying his necessary expenses and satisfying his ¡just debts. 1-6. The following general rules serve as a guide. In 20 Cyc. 345, we find the following definition and rule regarding tests as to fraudulent conveyances: “A conveyance is declared to be fraudulent when its object or effect is to defraud another, or the intent with which it is made is to avoid some duty or debt due by or incumbent upon the party making the transfer. “The question in every case, except in most jurisdictions in the case of voluntary conveyances, is whether the conveyance was a bona fide transaction, or a trick and contrivance to defraud creditors, or whether it reserves to the debtor an advantage inconsistent with its avowed purpose. It is not sufficient that it was founded on good consideration, or was made with a bona fide intent; it must be both. If defective in either of these particulars, although good between the parties, it is voidable as to creditors. The rule is universal, both at law and in equity, that whatever fraud creates, justice will destroy. The test as to whether or not a conveyance is fraudulent is: Does it prejudice the rights of creditors?” In the determination of the question of fraudulent intent in the conveyance of real property in fraud of the rights of creditors, a conclusion must be reached from the facts and circumstances of the particular case. The law furnishes no test by which it may be determined, further than it adjudges what acts are indicia of fraud, and which constitute badges of fraud: Weaver v. Owens, 16 Or. 301 (18 Pac. 579); 12 R. C. L., p. 477, § 10. In determining the legality or illegality of an alleged fraudulent conveyance, the courts inquire whether there was an adequate genuine consideration: Hesse v. Barret, 41 Or. 202 (68 Pac. — 378 — 751). A conveyance of land, made by a debtor without valuable consideration, is prima facie fraudulent as to existing creditors: Flynn v. Baisley, 35 Or. 268, 271 (57 Pac. 908, 76 Am. St. Rep. 495, 45 L. R. A. 645); Elfelt v. Hinch, 5 Or. 255; Davis v. Davis, 20 Or. 78 (25 Pac. 140); Taylor v. Miles, 19 Or. 550 (25 Pac. 143). Inadequacy of consideration is evidence of a fraudulent intent on the part of the grantor and of the grantee’s knowledge thereof, and lack of bona fides. Gross inadequacy, such as shocks the moral sense, establishes fraudulent intent and lack of good faith: Philbrick v. O’Connor, 15 Or. 15 (13 Pac. 612, 3 Am. St. Rep. 139); Scoggin v. Schloath, 15 Or. 382 (15 Pac. 635); Wright v. Craig, 40 Or. 191 (66 Pac. 807); 20 Cyc. 441; 12 R. C. L., p. 478, § 11; Id., p. 542, § 67; Bigelow on Fraudulent Conveyances (Rev. ed.), 519, 603. A distinction is made between the effect of inadequacy of consideration in a suit by the grantor and its effect where creditors attack the conveyance by means of which a debtor’s property has been put beyond their reach. The close business or social relationship between Samuel McLain, the grantor, and J. R. Parker, the manager of the grantee, in the deeds in question, has about the same force as evidence of fraud and notice to the grantee as does blood relationship: 12 R. C. L., p. 490, § 22. The fact that the conveyances complained of in this suit transferred substantially all of the property of the debtor, Samuel McLain, is entitled to consideration as evidence of fraud and lack of good faith: Mendenhall v. Elwert, 36 Or. 375, 384 (52 Pac. 22, 59 Pac. 805); 20 Cyc. 449. 7-10. The withholding of the two deeds of tracts A and B from the public records for about six years, and permitting Samuel McLain to remain in pos — 379 — session of the property and exercise such acts of ownership as conveying a right of way over the land, are badges of fraud. Such action on the part of the agent and officers of the defendant Philomath College should estop it from asserting ownership of the land as against the claim of Ingle, who during that period extended credit in reliance upon such apparent ownership in McLain: Sears v. Davis, 40 Or. 236 (66 Pac. 913); Bigelow on Fraudulent Conveyances, p. 521. Where a conveyance is voluntary an actual intent to defraud is not necessary to render it fraudulent as to existing creditors: Wooten v. Steele, 109 Ala. 563 (19 South. 972, 55 Am. St. Rep. 947); Farmers’ etc. Bank v. Price, 41 Mo. App. 291; Bouquet v. Heyman, 50 N. J. Eq. 114 (24 Atl. 266). Where the effect of a particular transaction with a debtor is to hinder, delay, or defraud creditors, the law infers or supplies the intent, although there may he no direct evidence of a corrupt or dishonorable motive, but, on the contrary, an actual, honest, hut mistaken, motive existed. The law interposes, and declares that every man is presumed to intend the natural and necessary consequences of his acts; and the courts must presume the intention to exist, when the prohibited consequences must necessarily follow from the act. Hence it has been said that where a conveyance, by its terms, operates to hinder, delay, or defraud creditors, the intent to do so is imputed to the parties, and no evidence of intention can change that presumption. A conveyance will he set aside, where it is made with an intent either to hinder, delay, or defraud. An intent to defraud absolutely is unnecessary, for the statute is in the disjunctive, and either intent is sufficient: 20 Cyc. 461-463A. — 380 — Section 7397, L. O. L., declares: “Every conveyance or assignment in writing- or otherwise of any estate or interest in lands or in goods or things in action, * * made with the intent to hinder, delay, or defraud creditors or other persons of their lawful suits, damages, forfeitures, debts, or demands, * * as against the persons so hindered, delayed, or defrauded, shall be void.” The fact that J. R. Parker, agent of the college, went to J. W. Ingle and inquired if there were any other obligations of Samuel McLain, and that Ingle, for the reason that he had severed diplomatic relations with Parker, refused to talk with him and told him to “go to thunder,” does not change the legal status of the matter. There is some contention made by the defendant Philomath College that it is not bound by the judgment on the note in the action of Ingle against Parker, as executor of the last will and testament of Samuel McLain, deceased. The action on the note was contested by Parker in the interest of Philomath College, and the facts and circumstances of the present case clearly indicate that Samuel McLain executed the note as surety for his nephew, James McLain, and was primarily liable on the note. The money was loaned by Ingle on the strength of Samuel McLain’s signature. At the time Samuel McLain was the apparent owner of record of the title to the land, and credit was given to him in reliance on such ownership. The negligence of the trustees in failing to record the deeds to parcels" A and B led Ingle into extending such credit. Where such a voluntary conveyance has not been recorded, such a creditor is in the same position as an existing creditor would be to set aside the conveyance: Steele v. Coon, 27 Neb. — 381 — 586 (43 N. W. 411, 20 Am. St. Rep. 705); Bigelow on Fraudulent Conveyances, p. 105, and note. Steele v. Coon, 27 Neb. 586 (43 N. W. 411, 20 Am. St. Rep. 705), was a ease practically identical with the case at bar upon the question of recordation. We quote from the opinion in that case, 27 Neb., at page 597, 43 N. W. at page 414, 20 Am. St. Rep, 705, as follows: “ ‘A deed, not fraudulent at first, may become so afterwards by being concealed, or not pursued, by which means creditors have been drawn in to lend their money’: Hildreth v. Sands, 2 Johns. Ch. (N. Y.) 35. ‘A deed concealed from the public, the grantor remaining in possession and acquiring credit on the strength of his supposed ownership of the property, is fraudulent’: Barber v. Barber’s Assignee, 2 Woods (U. S. C. C.), 87 [Fed. Cas. No. 986], In addition to cases cited in the brief of counsel for appellants, see, also, Sexton v. Wheaton, 8 Wheat. (U. S.) 229, [5 L. Ed. 603]; Worseley v. Demattos, 1 Burrows (Eng. K. B.), 467; Leukener v. Freeman, Freem. (Eng. Ch.) 236. But the conveyance of the farm, made on the thirteenth day of October, 1884, will be upheld to the extent of the actual consideration which passed therefor between the Coons, husband and wife.” This case is also instructive as bearing upon the deed to parcel C. 11. Badges of fraud may be repelled by showing that a full consideration was paid for the property, but the proof of fairness would be more stringent than if such badges of fraud did not exist. Where numerous signs or badges of fraud exist, it is incumbent on the party seeking to uphold the transfer to meet and overcome them: 20 Cyc. 453. There are several badges of fraud in the transfer of the property in question. The grantee, Philomath College, has failed to fulfill such requirements. It has failed — 382 — to show any money consideration for the conveyances of tracts A and B or a full consideration for the deed to tract C. 12. The gift of McLain to the college was of such an amount, and made under such circumstances, taking into consideration his age and health, and his assets remaining, and all of the conditions obtaining, that it would necessarily hinder, delay, or defraud his creditors. In such a case a voluntary conveyance is deemed fraudulent, notwithstanding the fraudulent intent is not otherwise shown: 20 Cyc. 453, A, 2. A man must be just before he is generous, and consequently McLain should not be permitted to prejudice his creditor by giving away practically all of his property for little or nothing. Tracts A and B should be subject to the payment of the judgment of J. W. Ingle. 13. As to the consideration paid for the conveyance of tract C, the item of indebtedness of J. M. and B. A. Kitson was not a legal claim against McLain. He was not bound to answer for the debt of others. This amount of $400 should be deducted from the consideration claimed by the defendant, leaving at the most $1,614.93 which may be considered as paid for tract C embracing 40 acres, much of which is rich bottom land and from the testimony is believed to have been worth $4,000 at the date of the deed. Therefore the conveyance of parcel C was partially voluntary. In equity it should be upheld to the extent of the consideration paid by Philomath College, namely, $1,614.93, and parcel C should, if necessary, be subjected to the judgment claim of Ingle to the extent of the value thereof, over and above the sum of $1,614.93: 12 R. C. L., p. 478, § 11; note, 5 L. R. A. — 383 — (N. S.) 395; Steele v. Coon, 27 Neb. 586 (43 N. W. 411, 20. Am. St. Rep. 705). 14. J. W. Ingle, the judgment creditor, has been persistently proceeding to enforce his claim ever since, and even before the will of Samuel McLain was probated, and we concur in the finding of the trial court that neither the plaintiff nor J. W. Ingle is guilty of laches. The decree of the lower court will be reversed, and one entered declaring the judgment of J. W. Ingle a lien upon tracts A, B, and C, above described, subject to the prior and superior right of defendant, Philomath College, to tract C in the sum of $1,614.93; that upon the satisfaction in full of the judgment of J. W. Ingle against the estate of Samuel McLain, deceased, and the costs of this suit within six months from the entry of this decree on the mandate in the lower court, the lien of said judgment shall be canceled and the title to tracts A, B, and C shall be confirmed in defendant, Philomath College, and its grantees, successors, and assigns. In the event said judgment is not paid within said time, then the land described as tracts A, B, and C, or so much thereof as máy be necessary, shall be sold as upon execution subject to the superior right of the defendant Philomath College to tract C to the amount of $1,614.93, and the proceeds of such sale applied to the satisfaction of said judgment, cost, and attorney’s fees, and the costs of this suit. Reversed. Decree Entered. McBride, C. J., and Johns and Benson, JJ., concur. — 384 — (195 Pac. 822.) On petition for rehearing. Former Opinion Modified. Rehearing Denied. Messrs. Weatherford & Wyatt and Messrs. Yates & Lewis, for the petition. Messrs. Smith & Bryson, contra. Department 2.