Security State Bank v. McIntyre

MR. JUSTICE HOLLOWAY delivered the opinion of the court. In 1915 Mrs. Margaret McIntyre owned a large amount of property in Hill county, including lot 12 and the west half of lot 13 in block 9, original town site of Havre, npon which parcels of ground was situated the McIntyre Opera House. In December, 1915, she leased the opera house to Koemer & Needham for the term of three and a half years at a rental of $100' per month. Later during the term W, H. Wheeler became the assignee of the lease, kept the covenants and continued in possession of the building. In October, 1916, Mrs. McIntyre sold lot 12 and the west half of lot 13 to the Security State Bank for $15,000, reserving the ppera house building, which she agreed to remove in the spring of 1917, bnt when she undertook to carry out the agreement Wheeler secured an injunction which restrained her from removing it until the expiration of the lease. (Wheeler v. McIntyre, 55 Mont. 295, 175 Pac. 892.) Abont November, 1917, a controversy arose between the bank and Mrs. McIntyre over the title to the building, and, to protect his lease, Wheeler filed a bill of interpleader and-under an order of court paid the rental into court. That action was not determined until January 3, 1920, when a judgment was entered which awarded the building to Mrs. McIntyre and to the bank $100 per month as ground rental for the time it was kept out of possession of the lots after November 1, 1917. The building was finally removed October 15, 1922. In the meantime Mrs. McIntyre conveyed property to her daughter Laura, as follows: November 23, 1918, her real estate and two dwelling-houses, all of the aggregate value of $27,500 or more; January 14, 1919, $7,000 in cash, and December 10, 1919, the opera house building which then had a value of approximately $1,000. — 195 — On March 31, 1920, Mrs. McIntyre died intestate, leaving an estate valued at $300. Her only heirs were her daughters Laura and Emma (Mrs. Des Rosier), and her only indebtedness, that due to the bank for ground rental as indicated above. Laura McIntyre was appointed administratrix of her mother’s estate and in due time gave notice to creditors. The bank presented its claim which was rejected in part. .Within the statutory period it instituted an action and such proceedings were had therein that a judgment was rendered in its favor for $5,445.55, which amount was adjudged to be a valid claim against the estate. Nothing was paid on the judgment, and it appearing that there were practically no funds in the estate, this action in the nature of a creditor’s bill was commenced to subject to the payment of the bank’s claim the property transferred by Mrs. McIntyre to her daughter Laura. The trial of the cause resulted in a judgment in favor of the bank, and from that judgment Laura McIntyre prosecuted this appeal. The trial court found that Mrs. McIntyre transferred her property to her daughter with the intention to defraud the bank and hinder and delay it in the collection of its claim, and that Laura McIntyre knew all of the facts and entertained the same fraudulent intent. It is the contention of the appellant that the evidence does not sustain this finding. Although at the time the opera house building was transferred, the controversy between Mrs. McIntyre and the bank over the title to it had not been determined, Mrs. McIntyre did know that she had not delivered possession of the lots sold to the bank as she had agreed to do; that from the very nature of the case the bank had a just claim against her for reasonable ground rental, and that this claim would be augmented from month to month until the building was removed. Under these circumstances she was a debtor to the bank within the meaning of section 8598, Revised Codes, and the bank was her creditor. (See. 8599.) — 196 — Our theory of property rights has its foundation in the principle that, as a general rule, everyone has dominion over his own property and may make any disposition of it which accords with his own goodwill and pleasure and does not exceed the limits prescribed by law. He may sell it or give it away and is not deprived of his dominion over it or of his power to control it, merely by reason of the fact that he is indebted or even insolvent. It is only when he disposes of his property in fraud of his creditors that the law takes cognizance of his transactions. Section 8603, Revised Codes, so far as applicable here, provides: “Every transfer of property * * * made * * * with intent to delay or defraud any creditor or other person of his demands, is void against all creditors of the debtor,” etc. It is the fraud ip the transaction, and not the fact of indebtedness, which gives rise to an action to set aside the conveyance and subject the property to the creditor’s claim. But, except as otherwise provided in section 8604 — a statute with which we are not now concerned — “the question of fraudulent intent is one of fact and not of law” (sec. 8606); and since fraudulent intent is the result of mental process, there are generally no means by which to ascertain whether it exists except by considering the acts of the parties engaged in the transaction "and making proper deductions therefrom in accordance with principles which have been established by common observation and experience. Experience has demonstrated that certain acts have fraudulent aspects and .for convenience they are referred to in the books as “badges of fraud.” Financial embarrassment, heavy indebtedness and insolvency are generally classed as badges of fraud, with inadequacy of consideration, false recitals, concealment, and the like. 1. Insolvency: Though decided cases are to be found to the contrary, we agree with counsel for appellant that the great weight of authority supports the rule that a creditor who is not injured thereby may not complain of any disposition — 197 — which his debtor makes of his property. Fraud without injury or injury without fraud will not support an action of this character; unless they coexist, the courts will not render relief. (Kennedy v. Bank, 107 Ala. 170, 36 L. R, A. 308, 18 South. 396.) Common sense seems to compel the conclusion that if the debtor retains ample property subject to seizure and fair sale within the same jurisdiction, any conveyance of other property by him cannot amount to fraud on his creditor and no inference of an intent to defraud can be drawn therefrom. (Albertoli v. Branham, 80 Cal. 631, 13 Am. St. Rep. 200, 22 Pac. 404.) In Bigelow on Fraudulent Conveyances, 210, the rule is stated as follows: “It is not enough, even for a prima facie case, if we accept the more general doctrine, to show that the grantor, being in debt, made a voluntary alienation. Indeed, to show that a man was deeply in debt when he made a gift is in itself nothing, for he may still have, after the gift, ample means out of which payment may be enforced. The evidence should go so far as to show that the grantor was either “alieno aere prae gravatus, weighted down, embarrassed with debt, or in debt to such an extent that to withdraw the property in question from the claims of creditors would defeat or delay them.” Likewise the rule has been deduced that to state a cause of action for setting aside a conveyance as fraudulent, facts must be alleged showing that the conveyance was made in such manner and under such circumstances as to have that effect; hence it must be made to appear that at the time the conveyance was completed, the debtor did not have other property subject to immediate seizure out of which the debt could be satisfied. (Bump on Fraudulent Conveyances, 4th ed., 548; 2 Moore on Fraudulent Conveyances, 851; 12 R. C. L. 661.) In this instance the sufficiency of the complaint is not questioned. It is the general rule, also, that where several conveyances of property are made by a debtor at different times, the fact that one of them is executed with intent to defraud credi — 198 — tors will not render the others void, if they are separate and independent transactions. But it is otherwise if they are so interrelated as to constitute parts of the same transaction, and particularly if made to the same grantee. (27 C. J. 466.) Mrs. McIntyre disposed of her property to her daughter by three transfers, the first and second of which disposed of practically all of it and were made within less than two months. Although the trial court did not make any specific finding that the three transfers were in fact but parts of one transaction, it did treat them as one, and in the brief of appellant they are apparently so treated. If, however, a finding that they were but parts of one transaction were necessary to sustain this judgment, the case would be treated as though the finding had been made, under the doctrine of implied findings which prevails in this jurisdiction. (Thomas v. Ball, 66 Mont. 161, 213 Pac. 597.) If, then, the conveyance of Mrs. McIntyre’s property to her daughter is to he deemed to be completed upon the transfer of the opera house building, no difficulty whatever is experienced upon this phase of the case; for at that time (December 10, 1919) she had withdrawn all money from the plaintiff bank. She had remaining her claim upon the $2,600 then in the custody of the court, representing the rentals which Wheeler had paid on the opera house building, and her indebtedness to the bank then accumulated amounted to $2,600 and was increasing constantly at the rate of $100 per month. It is not sufficient to say that the money in court was later adjudged to belong to Mrs. McIntyre and in amount was equal to her then accumulated indebtedness to the bank. The law looks to practical results, and a solvency which it cannot subject to the payment of the debts of an unwilling debtor is not distinguishable from absolute insolvency so far as practical results are concerned. (Adams v. Prather, 176 Cal. 33, 167 Pac. 534.) Hence the rule that to avoid a decree setting aside a conveyance as fraudulent it must appear that the property retained by the debtor was sufficient in amount, — 199 — easily accessible and subject to immediate attachment or execution at the suit of a creditor. (27 C. J. 552; 12 R. C. L. 661.) It is elementary that money or other property in custodia legis is not subject to- seizure by ordinary legal process, and it is equally true that money deposited in court by order of court to abide final determination as to its ownership is in the custody of the law. (Mattingly v. Grimes, 48 Md. 102; Corbitt v. Farmers’ Bank, 114 Fed. 602.) So that we may dismiss from .further consideration the claim that Mrs. McIntyre retained the money paid into court by Wheeler, for until the interpleader action was finally determined the title to that, money was in litigation. If, then, this claim upon the deposit in court constituted the only property retained by Mrs. McIntyre, the trial court was fully justified in finding that by conveying the properties mentioned above she rendered herself absolutely insolvent so far as the bank was concerned. But appellant contends that her mother retained other property. She testified that at the time the opera house building was transferred to her, Mrs. McIntyre had $2,500 on deposit in the Farmers’ State Bank of Havre, and also had from $1,200 to $1,500 in cash on her person. But the trial court refused to accept this testimony as sufficient to establish the fact sought to be established by it. Under the situation most favorable to her, appellant would be compelled to sustain the burden of showing that the evidence preponderates clearly against the trial court’s finding. (Hartnett v. Sterling, 67 Mont. 46, 214 Pac. 330; Richardson Grain Separator Co. v. Valier Elevator Co., 67 Mont. 227, 215 Pac. 237; Wood v. Robbins, 67 Mont. 409, 215 Pac. 1101.) However, appellant is not in the most favorable situation; indeed, she is not in a position to ask this court to give any consideration whatever to the evidence. Subdivision 3, Rule YII of the Rules of this court provides: “In equity eases and in matters and proceedings of an equitable nature, wherein questions of fact arising upon the evidence presented in the record are to — 200 — be submitted for review by this court, the testimony relating to such questions shall be presented by question and answer.” In this instance all of the evidence is presented in narrative form. In Koopman v. Mansolf, 51 Mont. 48, 149 Pac. 491, this court said: “The purpose of the rule is to require appellant in equity cases and proceedings of an equitable nature, to present to this court the evidence involving controverted questions of fact, in the exact words of the witnesses, to the end that the duty imposed upon the court by section 6253 of the Revised Codes [see. 8805, Rev. Codes, 1921] may be properly discharged. Speaking generally, observance of the rule is imperative, for, as has been frequently pointed out, the statute requires this court, in the review of questions of fact in this class of cases, to assume, as nearly as may be, the position of the trial court and to make its examination accordingly. The extent of the review is necessarily limited by the fact that an important item of testimony, viz., the appearance and demeanor of the witnesses, cannot be embodied in the record. Hence due allowance must always be made for the difference between the probative value of the testimony as delivered by the living witness and the testimony of the witness as it is presented in the printed record.” Because of the failure or refusal to observe the rule, appellant is not entitled as of right to have the evidence considered for any purpose (Gilmore v. Ostronich, 48 Mont. 305, 137 Pac. 378); and under the most liberal view we are obliged to place greater reliance upon the trial court’s findings than otherwise would be necessary. (Officer v. Swindlehurst, 41 Mont. 126, 108 Pac. 583.) In Wilson v. Harris, 21 Mont. 374, 440, 54 Pac. 46, 69, Mr. Justice Hunt observed aptly: “The jury and the judge of the district court saw the witnesses and heard them testify. This is of the greatest advantage, especially in cases of alleged fraud.” Notwithstanding appellant testified to the existence of this asset amounting to from $3,700 to $4,000, she was unable — 201 — to say what became of the money, except that her mother spent it, although she had managed her mother’s business for many years and because of physical infirmities Mrs. McIntyre was unable to draw a check after December 14, 1919. Furthermore, it will be borne in mind that appellant was the sole beneficiary of her mother’s bounty. She had received property valued at from $35,000 to $45,000 under the circumstances narrated. She alone was interested in maintaining the integrity of the transaction and she alone would be affected adversely if the conveyance were set aside. Under these circumstances the language of this court in Reid v. Hennessy Mercantile Co., 45 Mont. 383, 123 Pac. 397, becomes peculiarly pertinent. The court said: “A trial court is not bound to believe all the testimony that it hears. The appearance and demeanor of the witnesses, their manner of testifying, and the probability or improbability of the truth of their statements are all to be considered in connection with the other facts and circumstances in the case. When the statements of witnesses, although positive, and not directly contradicted by other witnesses, are improbable, contradictory and inconsistent in themselves, when they relate to alleged transactions with persons who by death or absence are unable to dispute them, when the witnesses are directly and pecuniarily interested in the result of the controversy, and their testimony may furnish the basis for a recovery in their favor, and the attendant circumstances are such as to cast suspicion upon the entire transaction as narrated by them, the court may disbelieve such witnesses and disregard their testimony.” We cannot say, and appellant is not in a position to ask us to say, that the evidence preponderates against the finding that at the time Mrs. McIntyre completed the transfer of the property mentioned she was insolvent, and if insolvent, the court was justified in treating the insolvency as a badge of fraud. 2. Inadequacy of consideration: In answer to the charge of fraud contained in the complaint, appellant in her answer — 202 — undertook to plead adequate consideration for the transfer of the property to her. She alleged that at divers times between November 2, 1907, and October 26, 1918, she advanced money to her mother to discharge indebtedness against her mother’s property, to improve the property and pay taxes and insurance, in amounts aggregating $9,000; and also advanced to her mother $5,000 to erect a residence building; that she furnished support for her mother up to the time the transfer was made and promised to support her as long as Mrs. McIntyre lived; that she managed her mother’s business for many years, and in order to do so and to furnish the proper support, it was necessary that she forego, and she did forego marriage though she had the opportunity to marry. She alleges that all these acts and things were done and performed by her at the special instance and request of her mother. These several items, together with the love and affection of her mother for her, constitute the consideration relied upon. It is now conceded, however, as it must be, that an agreement for future support is not a valid consideration for the transfer as against the claim of an existing creditor (Officer v. Swindlehurst, above; 27 C. J. 530); and a contract in restraint of marriage of any other person than a minor is void; (Rev. ’Codes, sec. 7562.) Notwithstanding the condition of the record and respondent’s objection to our considering the evidence for any purpose, we have reviewed it so . far- as it touches upon this subject. It is fairly deducible therefrom that between November, 1907, and October, 1919, Laura McIntyre earned substantially $15,500, and that aside from the necessary expense of her own living, she contributed this amount to her mother, probably as loans or advances. She -testified that she furnished the entire support for her mother during that period, though the actual cost or reasonable value of the support is not given. The evidence discloses, however, that during the same' period Mrs. McIntyre had an income from rentals amounting approximately to $17,000, and that she received — 203 — from the sale of the lots- to the bank the further sum of $15,000 in cash., Appellant testified that she managed her mother’s business for many years, but the value of her services is not given. It is made manifest that such services occupied but a small portion of her time, as she was engaged in the regular employment of others. At best appellant is unable to show that the consideration for the transfer of the property to her exceeded one-half the value of the property; and in any event she has failed to convince us that the evidence preponderates against the finding that the consideration was grossly inadequate. So far as the transfer depends upon the consideration of natural love and affection, it is to be treated merely as voluntary. (27 C. J. 527.) 3. Relationship of the parties: While it is true that the mere fact of the relationship of parent and child existing between Mrs. McIntyre and Laura McIntyre is not a badge of fraud (Wilson v. Harris, above), it is the general rule that transactions between near relatives are subject to the most rigid scrutiny, and the fact of such relationship is to be considered with other evidence as reflecting the intention with which the transfer was made. (Lambrecht v. Patten, 15 Mont. 260, 38 Pac. 1063; Shepherd v. First Nat. Bank, 16 Mont. 24, 40 Pac. 67; 27 C. J. 495.) The rule and the reason for it are stated aptly 'by the supreme court of Virginia, as follows: “As fraud is generally accompanied by a secret trust, the debtor usually selects some person in whom he can repose secret confidence. And as this trust and confidence is more likely to exist between relatives, or those who occupy confidential relations, their transactions with each other, when fraud is charged, will be more closely scrutinized.” (Ford v. Chelf, 112 Va. 98, 70 S. E. 500.) The record then presents the case as follows: Mrs. McIntyre, indebted to the bank and having property of the value exceeding $35,000 immediately available to the satisfaction of her indebtedness, transferred all of her property to her — 204 — daughter for a consideration which did not exceed one-half its value, leaving the bank without any direct means of satisfying its claim. That these facts are sufficient from which to draw the inference of an intention on the part of Mrs. McIntyre to defraud the bank and to hinder.and delay it in enforcing its claim, finds support in the authorities generally (27 C. J. 791); and under the circumstances of this case the same facts, coupled with the fact that Laura McIntyre had been her mother’s confidential adviser and business manager for many years and was intimately familiar with her mother’s business, afford ample grounds for the trial court’s finding that appellant participated actively in perpetrating the fraud. Rehearing denied September 9, 1924. The fact that Laura McIntyre was her mother’s creditor at the time the transfer was made does not militate against the finding. While it may be stated broadly that a debtor is at liberty to prefer one creditor over another (sec. 8601, Rev. Codes), the general rule is that where he transfers to one creditor in payment of that debt property the value of which is greatly in excess of the debt, this circumstance is a badge of fraud affording strong evidence thereof (Sukeforth v. Lord, 87 Cal. 399, 25 Pac. 497; Clark v. Bell, 40 Tex. Civ. App. 39, 89 S. W. 38; Reilly v. Barr, 34 W. Va. 95, 11 S. E. 750), and a fortiori, when coupled with other circumstances such as the preferred creditor’s knowledge of the debtor’s insolvency and the fact that the debtor disposed of all his property (27 C. J. 537). We do not find any reversible error in the record, and accordingly the judgment is affirmed. Affirmed. ■ Mr. Chief Justice Callaway and Associate Justices Galen and Stark concur. Mr. Justice Cooper, being absent, did not hear the argument and takes no part in the foregoing decision.