169 A. 209 (Pa. 1933), 220, Fidelity Trust Co. v. Union National Bank of Pittsburgh

Docket Nº:220, 223
Citation:169 A. 209, 313 Pa. 467
Opinion Judge:MR. JUSTICE LINN:
Party Name:Fidelity Trust Company, Admr., Appellant, v. Union National Bank of Pittsburgh et al., Appellants
Attorney:William Watson Smith, with him William H. Eckert, Leon E. Hickman and Smith, Buchanan, Scott & Gordon, for appellant, No. 220, appellee, No. 223. H. Fred Mercer, for appellants, No. 223, appellees, No. 220.
Judge Panel:Before SIMPSON, KEPHART, SCHAFFER, MAXEY, DREW and LINN, JJ.
Case Date:November 27, 1933
Court:Supreme Court of Pennsylvania
 
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Page 209

169 A. 209 (Pa. 1933)

313 Pa. 467

Fidelity Trust Company, Admr., Appellant,

v.

Union National Bank of Pittsburgh et al., Appellants

Nos. 220, 223

Supreme Court of Pennsylvania

November 27, 1933

Argued: October 4, 1933

Page 210

Appeals, Nos. 220 and 223, March T., 1933, by plaintiff and defendants, from decree of C.P. Allegheny Co., Jan. T., 1932, No. 1888, in case of Fidelity Trust Company, administrator pendente lite of the estate of Harrison Nesbit, deceased, v. The Union National Bank of Pittsburgh et al., trustees, et al. Record in No. 220 remitted with instructions to modify decree as indicated. Appeal in No. 223 dismissed.

Bill in equity to set aside fraudulent conveyances. Before GRAY, J.

The opinion of the Supreme Court states the facts.

Exceptions to decree dismissed. Cross appeals by plaintiff and defendants.

Error assigned, inter alia, was decree, quoting record.

William Watson Smith, with him William H. Eckert, Leon E. Hickman and Smith, Buchanan, Scott & Gordon, for appellant, No. 220, appellee, No. 223.

H. Fred Mercer, for appellants, No. 223, appellees, No. 220.

Before SIMPSON, KEPHART, SCHAFFER, MAXEY, DREW and LINN, JJ.

OPINION

Page 211

[313 Pa. 469] MR. JUSTICE LINN:

This is a bill by the administrator pendente lite of Harrison Nesbit, deceased, to subject $755,655.02, the net proceeds of certain life insurance policies on Nesbit's life, to the claims of his creditors. The right of plaintiff 1 to file the bill is not questioned.

[313 Pa. 470] The defendants are (1) trustees who hold the proceeds pursuant to unfunded insurance trust agreements; (2) decedent's wife and three children, beneficiaries named in those agreements; and (3) Ohio National Bank of Columbus, ultimately dismissed as a party. The decree awarded to plaintiff part of the sum claimed; it has appealed to No. 220. Defendant trustees and beneficiaries, contending that plaintiff is entitled to no part of the proceeds, have appealed to No. 223. The general question is, were the policies, or certain of them, transferred in fraud of creditors: Uniform Fraudulent Conveyance Act of May 21, 1921, P.L. 1045, 39 P.S., section 351 et seq.; 13 Eliz., clause 5, Roberts's Digest 295.

Nesbit died October 21, 1931, insolvent. For many years, and up to June 23, 1931, he had been president of the Bank of Pittsburgh National Association which closed September 21, 1931, with the appointment of a receiver, three months after Nesbit ceased to be president.

On September 11, 1928, he executed an insurance trust agreement (hereafter referred to as the first agreement) describing himself as donor. The trustees named were the bank of which he was president and his son. Pursuant to its terms, he deposited with the trustees a number of policies of insurance on his own life, taken out from 1898 to 1928; the total of these policies is over $553,000. In all except two of the policies, the beneficiary named was his wife and, if he survived her, his estate. Plaintiff does not contend that the transfer of these policies in September, 1928, was fraudulent.

In all of the policies, the insured had reserved the right to change the beneficiary. When they were deposited, the change of beneficiary from his wife to the trustees was formally endorsed on each policy together with a reference to the agreement. The learned chancellor found that the donor was solvent on September 11, [313 Pa. 471] 1928. 2 This finding is not questioned and these policies would not require further consideration in disposing of this appeal but for two contentions, one arising under the Ohio bank agreement made by the donor May 12, 1931, and the other based on plaintiff's position that the agreement is testamentary, both to be considered later.

Between March 16, 1929, and April 5, 1929, the donor obtained three additional policies in the total amount of $275,000, designating his estate as beneficiary. The net proceeds of these policies, $255,456.15 (the face value less sums borrowed by the donor) were claimed by plaintiff; its claim was rejected, and shall now be considered. These three policies, though taken out after the first agreement was executed, were deposited with the trustees without fair consideration pursuant to a provision authorizing the subsequent deposit of additional policies. Steps to deposit two of them began October 8, 1929, and the third October 15, 1929; the changes of beneficiary were made October 11th and 26th, respectively, when the deposit may be said to have been completed. In each case the donor exercised his power to change the beneficiary and appointed the trustees in place of his estate.

The chancellor found that the donor was solvent when he made these changes and that there was no intent to delay, hinder or defraud his creditors. The validity of these conclusions depends on the application of the law to the facts found, and inferences to be made from them and the undisputed evidence. We, of course, accept findings of fact that are supported by evidence, but "Where facts found are mere deductions from undisputed testimony, they are given no greater weight than findings of law": Commercial Motors Mortgage

Page 212

Corp. v. Waters, 280 Pa. 177, 180, 124 A. 327. Applying that rule to the conveyance 3 of these three policies, we must differ from [313 Pa. 472] the learned chancellor. Section 4 of the Uniform Fraudulent Conveyance Act, supra, provides: "Every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors, without regard to his actual intent, if the conveyance is made or the obligation is incurred without fair consideration." Section 5: "Every conveyance made without fair consideration, when the person making it is engaged, or is about to engage, in a business or transaction for which the property remaining in his hands after the conveyance is an unreasonably small capital, is fraudulent as to creditors, and as to other persons who become creditors during the continuance of such business or transaction, without regard to his actual intent." Section 6: "Every conveyance made and every obligation incurred without fair consideration, when the person making the conveyance or entering into the obligation intends or believes that he will incur debts beyond his ability to pay as they mature, is fraudulent as to both present and future creditors." Section 7: "Every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay or defraud either present or future creditors, is fraudulent as to both present and future creditors."

On the findings of fact made, and on inferences from them and from the undisputed evidence, it appears clearly that the conveyances were made "with actual intent, as distinguished from an intent presumed in law" (section 7) to hinder, delay and defraud creditors. If, however, we did not reach that conclusion, we should be obliged by the record to find that the conveyances are condemned by sections 4, 5 and 6.

Prima facie, a voluntary conveyance by one in debt is fraudulent as to creditors: Peoples Savings Bank v. Scott, 303 Pa. 294, 154 A. 489; American Trust Co. v. Kaufman, 287 Pa. 461, 469, 135 A. 210; Goodman v. Wineland, 61 Md. 449; Marmon v. Harwood, 124 Ill. 104; [313 Pa. 473] In re Ellitson, 174 F. 859; Knight v. Parkes, 12 N.J. Eq. 214. The beneficiaries had the burden of proving "that, at the time, his liabilities were not out of proportion to his assets": Peoples Savings Bank v. Scott, supra; American Trust Co. v. Kaufman, supra. That burden they have not sustained.

While it would unduly prolong this opinion to recite all the evidence (presented in the long and complicated record brought up) from which we conclude that the conveyance was made with actual intent to defraud, we shall briefly refer to the principal parts of it under four general divisions: (1) the donor's activities as president of the bank; (2) his participation in stock market manipulation; (3) his increased borrowing of money and of securities which he was unable to return; (4) the admitted fact that insolvency soon followed, assuming, for the moment, that it did not then exist.

(1) The donor had been president of the bank for more than 20 years immediately prior to his retirement in June, 1931, and owned over 2,600 shares of its capital stock. For some years before October, 1929, and while president of the bank, he had been "engaged," as the chancellor found, "in the business of and transactions in buying and selling securities for profit and continued to conduct the said business transactions until his death." Not only was much of this business highly speculative, but part of it was unlawful, and the fact must be accepted, that this experienced bank president knew that his conduct was unlawful. The chancellor made a finding, showing details, that the bank, beginning July 30, 1929, and continuing for more than a year, under the donor's direction, was engaged in buying shares of its own stock and carrying the purchases as "cash items"; this was done, in the words of the finding, "for the purpose of supporting the market for said stock." Those transactions were unlawful (12 U.S.C.A., section 83) and ground for prosecution ( Morse v. U.S., 174 F. 539, 544 et seq.). What was his purpose in "supporting [313 Pa. 474] the market for said stock"? The answer stands out clearly in the light of the fact that, in October, all his shares of the bank's stock (and indeed all his other securities except shares in a club) were pledged for his loans payable on demand. Not only was he interested in keeping up the market price of the bank shares for purposes of collateral, but the evidence discloses another reason which must have given him serious concern: he was vitally interested in preventing public discovery that his bank stock had little or no...

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