Barretsville Bank & Trust Co. v. Bolton

• Decision Date: 03 March 1945
• Parties: BARRETSVILLE BANK & TRUST CO. v. BOLTON et al.
• Court: Tennessee Supreme Court

187 S.W.2d 306

182 Tenn. 364

BARRETSVILLE BANK & TRUST CO. v. BOLTON et al.

Supreme Court of Tennessee.

March 3, 1945

Rehearing Denied May 5, 1945.

Appeal from Chancery Court, Shelby County; L. D. Bejach, Chancellor.

Suit in equity by the Barretsville Bank & Trust Company against Gladys Bolton, her husband, W. O. Bolton, and another to set aside an alleged fraudulent conveyance of realty by defendant husband to defendant wife, to sell such realty subject to a prior mortgage and homestead rights, and to satisfy, wholly or partly, a consent money judgment for plaintiff against defendant husband. A chancellor's decree of dismissal was affirmed by the Court of Appeals on complainant's appeal and complainant brings certiorari.

Chancellor's decree affirmed.

On Petition for Rehearing. William A. Percy and Galloway & Galloway, all of Memphis, for respondent-defendant.

GAILOR Justice.

This appeal involves two causes tried in the Chancery Court of Shelby County, Tennessee. The first was terminated by a final consent decree on February 7, 1939, and the second was commenced by the filing of an original bill by the Barretsville Bank & Trust Company against Gladys Bolton and her husband, W. O. Bolton, and against James C. Davis trustee, on May 4, 1942. It is from the action of the chancellor in dismissing the latter bill that this appeal arises. The bill was filed to set aside an alleged fraudulent conveyance by Bolton to his wife, Gladys; to sell the real estate so conveyed, subject to a prior mortgage and rights of homestead; and to satisfy in whole or part, the consent judgment for $2,081.60 held by the bank against Bolton evidenced by the decree of February 7, 1939. Apparently the defendant James W. Davis, trustee, was never served with process, and in any event he never filed an answer and no further steps were taken against him. The defendants, Gladys Bolton and W. O. Bolton, filed separate answers and later the defendant Gladys Bolton filed an amended answer. The cause was heard on oral proof by agreement.

At the close of complainant's proof, the chancellor held that the conveyance from W. O. Bolton to his wife in March 1938, was fraudulent and that both husband and wife were guilty of fraud, but he further held that the consent decree of February 7, 1939, was a final release and discharge of the bank's rights against the conveyance and the parties thereto on account thereof and dismissed the bill.

The complainant bank after filing a supplemental bill in the nature of a bill of review, dismissed this pleading on its own motion, and appealed from the chancellor's decree of dismissal.

Holding that this was a broad appeal, the Court of Appeals affirmed the chancellor's decree, not on the ground that the decree of February 7, 1939 was a release and waiver of the bank's rights to set aside the conveyance of March 1938, but that court repelled the bank on the ground of laches and estoppel, holding that the delay by the bank from the time its officers acquired knowledge of the conveyance April 1, 1938, until the filing of the present bill in May 1942, was unreasonable, and that to afford the bank relief would be against fundamental principles of equity because 'the attitude of the bank as reflected by its conduct was such as to reasonably induce Mrs. Bolton to believe that the bank had abandoned its right to attack the conveyance and acquiesced therein.'

After this judgment, the bank filed petition for certiorari, which we granted, and the case is now before us on numerous assignments of error, which we consider in the course of the opinion.

W. O. Bolton owned a farm of some 50 acres, in Shelby County, where he lived with his wife, Gladys, and carried on farming operations. In 1938 the farm had a value of about $4,900 and was encumbered with mortgages for about 75% of its value.

He had done business with the Barretsville Bank & Trust Company for a number of years and the farm was near the office of that institution, and several of the bank's officers owned land near the farm of the Boltons. Apparently some years before 1938, Bolton had made a loan at the bank and secured its repayment with a trust deed on the farm, so that the officers of the bank were thoroughly familiar with the value of the land and the improvements on it.

After failing to make an agreement with the bank for another extension of an old debt and future credit for the crop year 1938, Bolton deeded the land to his wife and recorded the deed on March 21, 1938. This conveyance was made subject to several mortgages and apparently the equity was at the time of little value, so that the bank with knowledge of the conveyance, took no steps to set it aside. However, in May 1942, more than four years after the conveyance by Bolton to his wife, the value of the equity had been greatly increased by reasons of the reduction of the mortgage debt, by extensive improvements on the farm itself, and by reason of the great general appreciation of land value in the neighborhood, on account of the construction of the U.S. Naval Base at Millington and the installation of other war industries in that part of Shelby County. The bank accordingly filed the original bill to set aside the conveyance and subject the equity.

Bearing in mind that the chancellor dismissed the bill at the conclusion of complainant's proof, the case presents many propositions that make it unusual and interesting. These propositions have been ably briefed and argued by both sides. The first witness for complainant was C. C. Castles. He was president of Complainant Bank, a lawyer of many years experience, and fully informed of real estate values on and about the Bolton farm, since he lived and owned real estate about five miles away, had served as a real estate appraiser for the bank, and the bank at one time had a mortgage on the Bolton farm which had been released in March 1938.

In that month Castles had a conference with Bolton about his past indebtedness to the bank and the possibility of future credit for the farm year then commencing. In the course of this conference, Bolton told Castles that if the bank sued to collect its debt, that he (Bolton) would deed the property to his wife.

The bank had chattel mortgages to secure the Bolton debt, and after the foregoing conference, which was not satisfactory to Castles, the bank filed a bill in the Chancery Court to foreclose the chattel mortgages and sell the security.

Bolton deeded the farm to his wife on March 21, 1938, two days after the filing of the bill, and the deed was recorded the same day. Not only was this constructive notice to the bank, but Castles admits that by April 1st he had actual knowledge of the transfer, but never took the trouble to make even a casual investigation which would have fully disclosed the entire transaction. He expressly admits that the bank was not interested in setting aside the conveyance because the expense involved would have been at the time, more than the amount of the bank's recovery.

From this admission, since Castles is chargeable with full knowledge of values as a real estate expert and with all legal rights and remedies, and since he is an experienced lawyer, the only reasonable and the conclusive inference is that the bank through its president, acquiesced in the conveyance and waived any rights it may have had to set it aside. Being in full charge of the collection of the Bolton debt for the bank, both as president and lawyer, the suggestion that Castles had no authority to waive the bank's rights in the matter, scarcely merits serious consideration.

Since we hold that Castles had full authority to waive the bank's right to set aside the Bolton conveyance even if it was fraudulent, it is unnecessary in this opinion to say whether in a technical sense it was fraudulent or not. Certainly it lacked two elements which have often been held essential. It was neither made in secret nor surreptitiously, nor was it made to the bank's injury or prejudice. According to Castles' testimony, Bolton told him he was going to convey it. Castles knew of the conveyance very soon after it was made, and according to his testimony, the equity conveyed had no value for the bank on account of prior mortgages, and did not justify the expense necessary to set it aside.

Under the peculiar facts of this case, it is not necessary for us to say for how long the bank's acquiescence would have had to continue to raise a final bar to a change of mind and the resort to a court of equity to make the change effective. A suit in equity was pending between the parties at the time of the conveyance of the Bolton farm to Bolton's wife. It is true that the suit had for its special purpose the foreclosure and liquidation of certain chattel mortgages, but its general purpose was the satisfaction in whole or part of Bolton's indebtedness to the bank and so an amendment to set aside the alleged fraudulent conveyance and subject the equity, could easily and reasonably have been made.

Now bearing in mind that both Bolton and his wife were parties to the cause then pending and that the complainant bank, through its president and attorney, had all necessary knowledge of the conveyance by Bolton to his wife, we come to a consideration of the final consent decree of February 7, 1939, in the light of the knowledge and situation of the parties. We think all the evidence introduced to explain the meaning of the words used in the decree was clearly incompetent since there was no ambiguity patent or latent, and the bank must be held to have fully understood the effect of the decree since the president and lawyer for the bank actually studied, signed and approved it before it was entered.

The pertinent parts of the decree are...