Branchfield v. McCulley

• Decision Date: 16 May 1951
• Citation: 231 P.2d 771,192 Or. 270
• Parties: BRANCHFIELD et al. v. McCULLEY et al.
• Court: Oregon Supreme Court

Page 771

231 P.2d 771

192 Or. 270

BRANCHFIELD et al. v. McCULLEY et al.

Supreme Court of Oregon.

May 16, 1951.

Don R. Newbury, of Medford (Gus Newbury, of Medford, on the brief), for appellants.

George W. Kellington, of Medford (George M. Roberts and Edward Branchfield, of Medford, on the brief), for respondent.

Before BRAND, Chief Justice, and HAY, ROSSMAN, LATOURETTE, and TOOZE, JJ.

ROSSMAN, Justice.

This is an appeal by three of four defendants from a decree of the circuit court which impeached as fraudulent a deed signed July 18, 1946, by the defendants, J. W. McCulley and Ferroll Viola McCulley, husband and wife; the deed named as grantee Gordon D. Allard, a third defendant. The appellants are the two McCulleys and Mr. Allard. The latter is the son of Mrs. McCulley and the stepson of her husband. The plaintiff, who is now the respondent, is the trustee in bankruptcy of the two purported grantors whom we just named. The complaint named as a fourth defendant the registrar of titles for Jackson County, that being the county in which the real property described in the challenged deed is situated. The registrar has no personal interest in the suit and filed no answer; he is not a party to the appeal. When we use the term 'the defendants' we will mean the three appealing defendants.

The assignments of error follow:

'The court erred when it failed to decree that the premises described in the pleadings were the homestead of the McCulleys at the time of the sale.

'The court erred when it failed to decree that there was no fraud in the transaction between the grantors McCulley and the grantee Allard resulting in the conveyance of said premises to Allard.

'The court erred when it failed to decree that the defendants McCulley have no interest in said premises.

'The court erred when it failed to decree that the defendant Allard was the absolute fee simple owner of said premises.

'The court erred when it failed to find and decree that the Trustee in Bankruptcy has no interest in said premises.

'The court erred when it failed to enter a decree in favor of defendants as prayed for in defendants' answers.'

In 1945 J. W. and Ferroll Viola McCulley, who signed the challenged deed, were married. Gordon Allard, grantee, was born January 18, 1928, and was slightly less than 21 years of age at the time of the trial. When the deed was signed he was 17 1/2 years old. Although he appeared by guardian ad litem, we will refer to him as Gordon.

June 20, 1947, each of the McCulleys voluntarily filed a petition in bankruptcy and on June 24, 1947, each was adjudged a bankrupt.

The plaintiff contends that the defendant, J. W. McCulley, on and prior to July 18, 1946, owned the parcel of real property which is described in the challenged deed, subject to his wife's dower interest. The property consists of approximately two acres of land improved with a dwelling house. It was worth when the challenged deed was executed 'probably $6,000', according to Gordon, and was encumbered with a mortgage originally in the amount of $3,500, but having an unpaid balance of $3,392. The plaintiff claims that the two McCulleys were heavily in debt July 18, 1946, when they signed the challenged deed, that they were upon the threshold of insolvency and executed the deed without consideration for the purpose of defrauding their creditors.

The defendants admit that each of the McCulleys, eleven months after signing the deed, filed a petition in bankruptcy, but assert that on the day the deed was signed neither owed anything except current accounts. All three defendants claim that the deed was signed for lawful purposes, that it is a valid instrument, that it actually conveyed to the grantee the property described in the instrument and that no party to the transaction was prompted by an improper motive. According to the position taken by the defendants at the trial, Gordon paid for the property, together with 'an old International truck and trailer,' in the following manner: (1) he canceled as to principal a purported promissory note in the denomination of $7,350 which the defendants claim McCulley signed January 6, 1942, in favor of Gordon; and (2) he discharged the balance of $3,392 owing upon the mortgage which encumbered the property involved in this suit.

The defendants also contend that the property in question was the homestead of the McCulleys and as such was exempt from the claims of their creditors. Based upon that premise, they argue that the McCulleys' creditors had no claim to the property and that, therefore, they (the McCulleys) were at liberty to do with it as they chose.

The plaintiff concedes that when the challenged deed was signed (July 18, 1946), satisfaction of the mortgage was entered, but denies that Gordon was the person who provided the money. He also denies that Gordon loaned to McCulley $7,350 on January 6, 1942. He urges that the sole purpose of the deed was to hinder and defraud the McCulleys' creditors.

The attacked transfers deprived the McCulleys of everything available to their creditors for the satisfaction of their accounts. After the transfers, the McCulleys still possessed some assets, such as uncollectible accounts, but there is no claim that their creditors could have realized anything out of them.

It will be noticed that the defendants, in order to support the challenged conveyance, contend that Gordon, at the time of its purported occurrence, canceled the principal of a note for $7,350, which the defendants say was given to him by McCulley January 6, 1942, and paid upon the mortgage which encumbered the property the balance of $3,392. Gordon was then 18 1/2 years of age. They also claim that on January 6, 1942, when Gordon was 14 years of age, he had more than $7,350 cash and loaned the sum just mentioned to McCulley, taking the note above described. According to their further contentions, Gordon possessed approximately $4,000 cash when he satisfied the mortgage. The plaintiff does not concede that Gordon had those sums. Whether or not he had them is important in this case, for, if he did not, then he did not supply the purported consideration for the questioned conveyance. The claims that he possessed $7,350 or more on January 6, 1942, and about $4,000 July 18, 1946, are not supported by any writing or entry. The testimony that he possessed those sums was given by the defendants. A sister of Mrs. McCulley supported in part the testimony concerning the $4,000 sum.

The above will suffice as an introductory statement of the contentions of the parties. We shall now consider the assignments of error and in so doing will examine all six of them together.

The general principle of law which governs this controversy has been reduced to statutory form and in that form reads as follows: 'Every conveyance * * * made with the intent to hinder, delay, or defraud creditors * * * as against the person so hindered, delayed, or defrauded, shall be void.' Section 70-407, O.C.L.A.

The parties are not in disagreement as to that principle. Their dissension pertains to the facts.

As indicated, the grantee of the challenged deed is the son of one of the grantors and the stepson of the other. Although all courts do not hold that a transfer of assets to a near relative, made by a grantor who faces financial ruin, creates a presumption of fraud, all, nevertheless, scan such transactions with care and view them with suspicion: 37 C.J.S., Fraudulent Conveyances, § 383, page 1212, and 24 Am.Jur., Fraudulent Conveyances, § 219, p. 335. This court has always scrutinized every such transaction carefully and has held that proof showing such a transfer constitutes a prima facie case of fraud, requiring the grantee to come forth with proof showing that the conveyance was made bona fide for a valuable, adequate consideration: Orsen v. Siegle, 170 Or. 153, 132 P.2d 409; Orr v. Bauer, 156 Or. 409, 67 P.2d 770; Marion Automobile Co. v. Brown, 127 Or. 551, 272 P. 914; Van Riper v. Davenport, 121 Or. 474, 245 P. 316, 256 P. 193; Willamette Grocery Co. v. Skiff, 118 Or. 685, 248 P. 143; Jones v. Beers, 118 Or. 317, 246 P. 711; Sitton v. Peyree, 117 Or. 107, 241 P. 62, 242 P. 1112; Blackabee v. Seaweard, 112 Or. 675, 231 P. 146; Clarke v. Philomath College, 99 Or. 366, 193 P. 470, 195 P. 822; Stubling v. Wilson, 50 Or. 282, 90 P. 1011, 92 P. 810; Robson v. Hamilton, 41 Or. 239, 69 P. 651; Wright v. Craig, 40 Or. 191, 66 P. 807; Bank of Colfax v. Richardson, 34 Or. 518, 54 P. 359; S. Marks & Co. v. H. G. & E. G. Crow, 14 Or. 382, 13 P. 55. Not only does a close family relationship call upon the grantee to clear the transaction of all taint of fraud, but the same call is imposed if there existed between him and the grantor a social, confidential or close business relationship. The decisions so holding are included among those which we have just cited. We shall now consider the relationship which existed between the three defendants.

The McCulleys and Gordon lived together as a family in the same house. The situation was an unconventional one, for, although the McCulleys lived together as husband and wife for the many years mentioned in the record, they were not married to each other until 1945. McCulley was then 45 years of age. An unsupported assertion is made in the defendants' brief that a common-law marriage was consummated in Texas while they were living there. Nothing of that kind was intimated during the trial, and the assertion must be disregarded. It is clear, however, that the three lived together as a family for many years and that the relationship was continued after a marriage ceremony was performed in Vancouver, Washington. From the latter part of 1942 to July or August of 1946 the abode of these three people was the property which we have mentioned.

No father could have been more generous with his offspring than McCulley was with Gordon, if the defendants told the truth. Although the McCulleys' circumstances...