Anderson v. Ferris

• Citation: 470 N.E.2d 518,83 Ill.Dec. 392,128 Ill.App.3d 149
• Decision Date: 12 October 1984
• Docket Number: No. 2-83-0905,2-83-0905
• Parties: , 83 Ill.Dec. 392 Eleanor F. ANDERSON, Plaintiff-Appellant, v. James FERRIS and Ruth N. Ferris, Defendants-Appellees.
• Court: United States Appellate Court of Illinois

Page 518

470 N.E.2d 518

128 Ill.App.3d 149, 83 Ill.Dec. 392

Eleanor F. ANDERSON, Plaintiff-Appellant, v. James FERRIS and Ruth N. Ferris, Defendants-Appellees.

No. 2-83-0905.

Appellate Court of Illinois Second District.

Oct. 12, 1984.

Peregrine, Stime, Newman & Ritzman, Ltd., Dale W. Bruckner, Wheaton, for plaintiff-appellant.

Marco & Mannina, A.F. Mannina, Downers Grove, for defendants-appellees.

REINHARD, Justice:

Plaintiff, Eleanor F. Anderson, following a bench trial, appeals from the trial court's denial of her petition to set aside a quit claim deed dated June 15, 1982, wherein defendant James Ferris transferred his interest in the marital residence to his wife, defendant Ruth N. Ferris. Plaintiff originally filed a separate suit against James Ferris on September 23, 1980, to recover damages in connection with the wallpapering and painting of plaintiff's home by James and obtained a judgment in her favor of $5,550 plus costs on June 23, 1982. Plaintiff filed her petition instituting this action after attempting to execute on that judgment and learning that James Ferris had no assets with which to satisfy the judgment.

Plaintiff maintains on appeal that the trial court erred in applying the law of fraudulent conveyance to the facts of this case and should have set aside the transfer of James' interest in the marital residence to Ruth because it was made for no consideration and for the purpose of impairing plaintiff's rights as a creditor. Defendants counter that James had no interest in the property at the time of the transfer because a resulting trust in Ruth's favor had arisen at the time the property was originally purchased.

The following evidence was adduced at a bench trial. James Ferris, appearing as an adverse witness, stated he and his wife were married in 1947, and the marital residence located at 5627 South Garfield, Hinsdale, in which they still resided, was purchased in 1955. James' name was on the mortgage and the property title, and the property was jointly held until June 15, 1982. On that date, James, by quit claim deed, transferred his interest in the residence to Ruth for no consideration. At the time the transfer was made, there was a lawsuit pending against James in which Eleanor Anderson was the plaintiff. On June 23, 1982, there was a judgment rendered in favor of plaintiff in the amount of $5,550 plus court costs. James said that his motivation in quit-claiming his interest in the house was that the "money that was put into the house for the most part was put in by my wife, practically all of it, perhaps all of it including the down payments, the house was hers and it was intended to be hers all those years." James did not want the house to be subject to satisfaction of any judgment that might be rendered against him. He supposed that if plaintiff got a judgment against him, it could be enforced by a sale of the house.

James further testified that his earnings from his self-employment as a painter and decorator were used for business and living expenses, and living expenses included food, shelter, child, and clothing expenses. He did not recall making any mortgage payments himself, and may have or may not have. He often would turn his checks from his business over to his wife and she would coordinate the family expenditures. There was no segregation of funds between James and Ruth since James had neither a checking nor a savings account and funds that James turned over to his wife were deposited into her checking account.

On her own behalf, Ruth Ferris testified that a fire in 1979 destroyed all of their records. Around the time the house was purchased, she received several thousand dollars from her mother that she spent on the house. She made the down payment at the time of the purchase. When Ruth attempted to obtain a mortgage from Mid-America, Mid-America would not give a woman a mortgage and insisted that her husband sign the mortgage and that his name be on the deed. Ruth stated that she made all the mortgage payments, and she identified checks drawn on her bank account, signed by her, for house payments that were dated from 1979 to the present. Throughout her working career, Ruth earned more than her husband James. His net earnings for the last four years after expenses ranged from $6,600 to $9,499, while her earnings were from $15,800 to $23,885. Ruth stated that it was her intention to keep her earnings separate from James' earnings and to keep her property separate from James' business. Two automobiles, a bank account and credit cards were in her name alone. She explained that the house had always been hers and the transfer in June of 1982 was to keep it separate from her husband's business. Until she met with counsel, she had understood that she could not take her husband's name off the property as long as the bank held the mortgage.

On cross-examination, Ruth stated that her husband would give her cash or checks from his business which on a number of occasions she deposited in her account. From her checking account she also would pay some of her husband's business expenses. While James was not a signator on the account, his name, along with Ruth's, was printed on the checks. Ruth identified checks which had been drawn by plaintiff and made payable to James for the work previously performed by him. These checks had been endorsed by James and deposited into Ruth's account, the same account from which mortgage payments were made.

At the close of the testimony, the trial court denied the petition to set aside the conveyance, finding that the evidence clearly showed that the parties never intended the home to be subject to the liability of James' business; that the intent was accomplished by the conveyance perhaps to the legal detriment of plaintiff; and that there was no evidence that plaintiff at any time relied upon that home as security for her contract with James Ferris.

Plaintiff contends on appeal that the conveyance should be set aside because it was made without consideration and for the purpose of impairing plaintiff's rights as a creditor. Fraudulent conveyances are those "made with the intent to disturb, delay, hinder or defraud creditors * * *." (Ill.Rev.Stat.1981, ch. 59, par. 4.) Illinois law distinguishes between conveyances that are fraudulent in fact and those fraudulent in law. (First Security Bank of Glendale Heights v. Bawoll (1983), 120 Ill.App.3d 787, 791, 76 Ill.Dec. 54, 458 N.E.2d 193.) In fraud in fact cases, actual consideration has been given for the transfer and a specific intent to defraud must be proved. (120 Ill.App.3d 787, 791, 76 Ill.Dec. 54, 458 N.E.2d 193.) In contrast, when a conveyance is made for no or inadequate consideration, it is fraudulent in law: fraud is presumed (120 Ill.App.3d 787, 791, 76 Ill.Dec. 54, 458 N.E.2d 193; Harris v. Aimco, Inc. (1978), 66 Ill.App.3d 60, 62, 22 Ill.Dec. 823, 383 N.E.2d 631), and intent is immaterial. (Birney v. Solomon (1932), 348 Ill. 410, 415, 181 N.E. 318; Till v. Till (1967), 87 Ill.App.2d 358, 361, 231 N.E.2d 641.) Here, although defendants' testimony that the transfer was made to shelter it from James' business liabilities would be sufficient evidence of intent to constitute fraud in fact, we must decide this case based on the principles of fraud in law, since James acknowledged that the conveyance was made for no consideration. (First Security Bank of Glendale Heights v. Bawoll (1983), 120 Ill.App.3d 787, 791, 76 Ill.Dec. 54, 458 N.E.2d 193.) While the trial court focused on intent in its findings, it was apparently referring to defendants' intent that the house should not be subject to James' business indebtedness, which is different than an intent to hinder plaintiff in the satisfaction of the judgment which had been rendered against James. Nevertheless, based on the foregoing analysis, emphasis on intent where the conveyance is fraudulent in law is misplaced.

To prove fraud in law, (1) there must be a voluntary gift; (2) there must be then existing or contemplated indebtedness against the donor; and (3) it must appear the donor did not retain sufficient property to pay his indebtedness. (Mills v. Susanka (1946), 394 Ill. 439, 448, 68 N.E.2d 904.) Here, since James received no consideration for the conveyance of his interest in the home, the transfer is deemed voluntary. (See First Security Bank of Glendale Heights v. Bawoll (1983), 120 Ill.App.3d 787, 791, 76 Ill.Dec. 54, 458 N.E.2d 193; Till v. Till (1967), 87 Ill.App.2d 358, 361, 231 N.E.2d 641.) Plaintiff's pending suit against James for monetary damages is clearly a contemplated indebtedness, especially in light of James' testimony that he was concerned that a judgment against him in plaintiff's initial suit for damages could be enforced by a sale of the house. Defendants' answer admitted that James had no assets with which he could satisfy plaintiff's judgment. Given these facts, the transfer must be presumed fraudulent.

Where the conveyance is made by the debtor to his wife and the debtor is thereby rendered insolvent, the burden of dispelling the implications of fraud as against pre-existing creditors is upon the debtor and his wife. (Thompson v. Williams (1955), 6 Ill.2d 208, 212, 127 N.E.2d 457.) The presumption of fraud can only be overcome by showing that after the transfer, the debtor retained ample assets to cover the debts (Harting v. Jockers (1891), 136 Ill. 627, 635, 27 N.E. 188; First Security Bank of Glendale Heights v. Bawoll (1983), 120 Ill.App.3d 787, 791, 76 Ill.Dec. 54, 458 N.E.2d 193), or that adequate consideration was given for the transfer (Harris v. Aimco, Inc. (1978), 66 Ill.App.3d 60, 62, 22 Ill.Dec. 823, 383 N.E.2d 631), thus requiring that the case be analyzed under fraud-in-fact principles, where actual intent to defraud must be proved. (Till v. Till (1967), 87 Ill.App.2d 358, 361, 231 N.E.2d 641.) Since defendants admitted in their answer that James did not have ample assets...