Brady v. Irby

• Decision Date: 08 January 1912
• Citation: 142 S.W. 1124,101 Ark. 573
• Parties: BRADY v. IRBY
• Court: Arkansas Supreme Court

142 S.W. 1124

101 Ark. 573

BRADY v. IRBY

Supreme Court of Arkansas

January 8, 1912

Appeal from Lawrence Chancery Court; George T. Humphries Chancellor; affirmed.

Decree affirmed.

J. B Judkins, W. E. Beloate and John B. McCaleb, for appellants.

This case hinges on the intention of Brady at the time he had the stock transferred to Mrs. Brady, and whether he was solvent at the time, or such transfer of stock would render him so.

The evidence shows that at all times until the Marcur judgment he considered himself solvent; the reason for having the stock issued to his wife is shown, and there is no evidence whatever of an intent to defraud.

To render a transfer voidable, the fact that the conveyance was voluntary, while that may be a strong indication of fraudulent intent, of itself is not sufficient. The intent to hinder, delay or defraud creditors must exist at the time of the transfer, and this intent will not be inferred by presumptions, but must be proved by evidence legitimately tending to show its existence. Pomeroy's Eq. Jur §§ 969, 970, 972.

If Brady believed, as appears by the evidence, that he was retaining many times the amount of his debts, and the only creditors interested knew and acquiesced in his transferring the stock, it was a valid transaction. 96 Ark. 531; 34 Ark 451.

If a conveyance is not fraudulent when made, it can not become fraudulent and void as against creditors by any fraudulent intent existing either before or after that time, or by prior or subsequent conduct of the parties, or by other separate or distinct transactions, prior or subsequent, which were fraudulent. 20 Cyc. 413; 18 Ark. 172; Id. 123; 48 N.W. 573; 15 F. 541. See also on the question of conveyances from husband to wife, 134 U.S. 405; 20 Cyc. 603; 9 Am. St. Rep. 697; 8 Ark. 470; Id. 84; 74 Ark. 161, 165; 29 Ark. 407; 55 Ark. 116; 56 Ark. 253; 75 Ark. 127; 101 U.S. 731; 8 Wheat. 229.

H. L. Ponder, for appellee.

1. The allegations of the appellant's answer are sufficient to stamp the conveyance as a voluntary one and without sufficient consideration. Neither the services of a wife to a husband, nor savings from money given to her by him, nor earnings when they belong to him, are a sufficient considerationn. 20 Cyc. 524; 59 Am. St. Rep. 243; 45 Am. St. Rep. 160; 14 S.W. 84. While, in a conveyance upon consideration, fraudulent intent must be proved as a distinct fact, this is not the rule in a voluntary conveyance, for in the latter case the very absence of a consideration may of itself establish the intent. 14 Am. & Eng. Enc. of L. (2 ed.) 242.

A voluntary conveyance by a debtor who was in fact insolvent is void as against creditors, even though he had no actual intent to defraud. 76 Ark. 513. But when, as in this case, the voluntary conveyance is to the wife, and the debtor's embarrassment proceeds to financial wreck, the conveyance is presumed conclusively to be fraudulent as to existing creditors 73 Ark. 174.

2. Transactions between husband and wife are closely scrutinized in matters of this kind, and the burden is on her to show the good faith of the transaction. Waite on Fraud. Conv. § 300; Id. § 301; 12 Cyc. 604; 86 Ark. 225; 74 Ark. 165; Id. 225; 59 Ark. 614; If, by reason of a voluntary conveyance by a debtor, his creditors are afterwards hindered or defeated in obtaining satisfaction of their demands, the conveyance is void, notwithstanding the debtor may, at the time of the conveyance, have retained sufficient property to meet his liabilities. 14 Am. & Eng. Enc. of L. (2 ed.) 330 and cases cited. Because there may not exist any definite purpose in the mind of the donor to defraud his creditors, it does not follow that his conveyance is therefore valid. His innocence of an evil intention in making the gift, even when it is made through an honest mistake as to his financial condition, can not validate his act. He is bound to know his circumstances and the just demands upon him, and a passive disregard of his obligations is no less fraudulent in the eyes of the law than an active intention to defraud. 14 Am. & Eng. Enc. of L. (2 ed.), 350; 73 F. 327; 109 Ala. 563.

The invalidity of a voluntary conveyance is determined, not by whether the doner knew himself to be insolvent, but by the fact of his insolvency. 5 Mo.App. 548.

3. The chancellor's finding that Brady was insolvent at the time the transfers were made and that such transfers brought about his financial ruin will not be reversed by this court unless against the clear preponderance of the evidence. 71 Ark. 605; 68 Ark. 314; 67 Ark. 200; 73 Ark. 289; 72 Ark. 67; 75 Ark. 52.

OPINION

FRAUENTHAL, J.

This was an action instituted by a trustee in bankruptcy to set aside and cancel certain transfers of shares of stock of a corporation made by the bankrupt, J. T. Brady, to his wife Laura Brady, upon the ground that such transfers were fraudulent as to the creditors of said bankrupt

It appears that about January 1, 1906, a corporation, known as the Brady Mercantile Company, was organized under the laws of the State of Arkansas, with its domicile in Lawrence County. J. T. Brady was its chief promoter, and subscribed for and was the owner of 322 shares of its capital stock, of the par value of $ 25 per share, at the time of its organization. Shortly thereafter, he also engaged with one Otto Marcur in a partnership business, located in Union County, which was dissolved by mutual consent in August, 1906. At that time Marcur owned 64 shares of the stock of the Brady Mercantile Company; and in consideration of Brady's interest in the partnership business he sold these shares to Brady. At the same time Brady agreed to pay to a creditor of the partnership in Texas the sum of $ 5,000, due by the firm to that creditor. These shares of stock in the Brady Mercantile Company were transferred by Marcur to Mrs. Laura Brady, and new certificates were issued to her therefor. Later on stock dividends were declared by the corporation from time to time for the years 1907, 1908 and 1909; and the dividends thus declared upon the 322 shares owned by J. T. Brady, as well as upon the Marcur stock, were paid by the issuance of dividend stock to his wife, Laura Brady, in whose name certificates were issued by the corporation.

J. T. Brady also purchased 40 shares of said stock from one D. S. Weir in January, 1909, and had the same transferred to his wife, for which new certificates were issued to her by the corporation. The testimony does not definitely show the total number of shares of stock of the Brady Mercantile Company thus obtained by Mrs. Laura Brady. In the complaint, these various certificates issued to her are set out, and also the number of shares contained in each certificate; and they amount to 258 shares. But the certificate filed by the officials of the corporation with the county clerk, as required by section 848 of Kirby's Digest, shows that 263 shares of the stock of said corporation appeared in the name of Laura Brady according to the books of the corporation. It is conceded that all the shares of stock which were in the name of Mrs. Laura Brady were obtained by her as dividend stocks except the Marcur and the Weir stock, and the complaint seeks to set aside all transfers made to her and all certificates of stock issued in her name, and to declare these the property of said J. T. Brady and subject to the payment of his debts.

The chancellor found that the Marcur and Weir stocks were purchased and paid for by J. T. Brady, and that all the dividend stocks issued to her arose from these stocks and the shares owned by J. T. Brady at the time of the organization of the corporation. He also found that at the time such transfers were made to her, and of the issuance of the several shares of stock to her, J. T. Brady was greatly involved in debt, embarrassed financially, and insolvent. The chancellor further found that the transfer and issuance of all these shares of stocks to Laura Brady were fraudulent and void as to the creditors of her husband, J. T. Brady. A decree was accordingly entered setting aside the transfers and issuance of said stock to Laura Brady, and declaring same assets of the estate of J. T. Brady, the bankrupt.

The uncontroverted testimony in this case shows that Laura Brady had no separate property or business of her own. She testified that she assisted her husband in accumulating the property owned by him at the time said corporation was organized; but, according to her own testimony, the only services performed by her were connected entirely with her domestic duties in the family. The sole consideration which she claims was given for the transfer and issuance of these various shares of stock to her was as follows: She testified that she objected to her husband entering the corporation, and that she waived her objection thereto upon his agreeing that all profits arising to him from the business should go to her, and that the dividend stocks were issued to her in pursuance of that agreement.

The evidence clearly shows that the stocks obtained from Marcur and Weir were purchased and paid for solely by her husband J. T. Brady. It appears that for a portion of the purchase money of the Weir stock he borrowed $ 270, and executed therefor a note to the lender, with an individual as surety thereon. Some time after the purchase of this stock, and after Brady had been adjudged a bankrupt, a mortgage was executed by Brady and his wife upon his homestead for the purpose, amongst other things, of securing money to pay this note, which was done. But the money thus obtained went to pay the note and thus protect the surety thereon. It was paid long after the stock was purchased by J. T. Brady. If, therefore, we should consider that by reason of her...