Causemaker v. De Roo

• Decision Date: 10 May 1941
• Docket Number: 35139.
• Parties: CAUSEMAKER v. DE ROO et al.
• Court: Kansas Supreme Court

113 P.2d 85

153 Kan. 648

CAUSEMAKER v. DE ROO et al.

No. 35139.

Supreme Court of Kansas

May 10, 1941

Syllabus by the Court.

The recording of a conveyance which is regular on its face although given for the purpose of defrauding creditors ordinarily constitutes constructive notice of its execution and contents, but not of the fraudulent purpose of the transfer.

Where the very making of a transfer and the terms of the instrument are of the essence of a cause of action for fraud, or are otherwise of such a character as to put a person of ordinary prudence on inquiry concerning the presence of fraud, the recording of the instrument imparts notice of the fraudulent intent in addition to notice of the execution and contents of instrument.

Where no obligation to examine the public records exists, or where a party participating in a fraudulent conveyance has led the defrauded party to forego an examination of the records, the recording of the instrument may not constitute constructive notice even of its execution and contents, and the party guilty of the fraud may not assert such constructive notice.

A cause of action to set aside an allegedly fraudulent conveyance does not "accrue", at least with respect to resident debtors, until the debt has been reduced to judgment, execution issued thereon, unless the debtor is insolvent, and returned unsatisfied because of no property found.

A creditor cannot indefinitely postpone accrual of his cause of action to set aside a fraudulent conveyance by undue delay in bringing an action to reduce his debt to judgment, if he has had notice of the fraud, or by reasonable diligence would have discovered it, or by dilatory prosecution of such an action to finality after it has been commenced.

Where debtors' note was more than 10 years past due when they executed a quitclaim deed showing on its face that grantee was their son and that consideration was nominal, creditor who alleged that he extended credit in particular reliance on debtors' ownership of land conveyed, was charged with constructive notice of execution and contents of deed as of date when it was recorded, and, where creditor waited about two years and ten months after that date before starting any sort of action to collect debt, his subsequent action to set aside deed as fraudulent, was barred by two-year statute. Gen.St.1935, 60-306, subd. 3.

1. The recording of a conveyance, regular on its face, although it may have been given for the purpose of defrauding creditors ordinarily constitutes constructive notice of its execution and contents, but not of the fraudulent purpose of the transfer.

2. If the facts and circumstances surrounding a transfer of property and the contents of the instrument of conveyance are such that the very making of the transfer and the terms of the instrument are of the essence of a cause of action for fraud, or are otherwise of such a character as to put a person of ordinary prudence upon inquiry as to the presence of fraud, the recording of the instrument imparts notice not only as to the transfer and the contents of the instrument but also of fraudulent intent.

3. The rules stated in the preceding paragraphs of this syllabus are subject to the qualification that in cases where no obligation to examine the public records exists, or where a party participating in the fraud has led the defrauded party to forego an examination of the records, the recording of the instrument may not constitute constructive notice even of its execution and contents, or the party guilty of the fraud may not assert such constructive notice.

4. Ordinarily a cause of action to set aside a conveyance alleged to have been made in fraud of creditors does not accrue--at least as to resident debtors--until the debt has been reduced to judgment and execution thereon returned unsatisfied because of no property found.

5. A creditor cannot indefinitely postpone accrual of a cause of action to set aside a conveyance made in fraud of creditors, by delay in bringing action to reduce the debt to judgment--if he has had notice of the fraud, or by reasonable diligence would have discovered it, or by dilatory prosecution of such action to finality after it has been commenced.

6. The record is examined in an action wherein a creditor sought to set aside as in fraud of his interests a quitclaim deed to real estate made by the debtors to their son, and in which it appears that the debt had matured many years theretofore and the conveyance had been recorded about two years and ten months before any action was commenced to reduce the debt to judgment, and it is held, that under such facts and other facts more fully stated in the opinion, the action was barred and that the demurrer to the petition should have been sustained.

Appeal from District Court, Pawnee County; Lorin T. Peters, Judge.

Action by Arthur Causemaker against Arthur Francis De Roo and others to set aside as allegedly fraudulent conveyance. From an order overruling a demurrer to the petition, the named defendant appeals.

Reversed.

Roscoe E. Peterson, of Larned, for appellant.

George W. Finney and Maurice A. Wildgen, both of Larned, for appellee.

HOCH Justice.

This was an action to set aside a conveyance alleged to have been made in fraud of the plaintiff as a creditor of the grantors. A demurrer to the petition by the grantors and the grantee was overruled, and from that order the grantee appeals. The principal question is whether recovery was barred by the statute of limitations or by laches of the plaintiff.

On February 28, 1925, Arthur H. DeRoo and Mina L. DeRoo, his wife, executed their promissory note to Arthur Cause-maker, the appellee, for $5,000, due one year from date. All parties were residents of Illinois. Interest was paid annually and regularly from February 28, 1926, to and including February 28, 1936, without renewal of the note. On January 15, 1937, an interest payment of $30 was credited on the note. On the next regular interest paying date, February 28, 1937, there was default in payment of interest and thereafter no payment on principal or interest was made.

Mina L. DeRoo had been the owner of a section of land in Pawnee county, Kansas. Appellee brought an action on the note in that county February 9, 1939, service of summons was had by publication, the interest of Mina L. DeRoo and her husband, Arthur H. DeRoo, in the land was attached, and on April 10, 1939, a judgment in rem for $5,825 and interest was obtained against the DeRoos and the land ordered sold. Sale was not effected for reasons presently to be stated. It appears that soon after the last regular interest payment, and on March 23, 1936, the DeRoos executed a quitclaim deed to the Pawnee county land to their son Arthur Francis DeRoo, the stated consideration being "One dollar and other good and valuable considerations." This deed was recorded in Pawnee county on April 10, 1936.

On May 2, 1939, appellee filed the instant action in Pawnee county to set aside the quitclaim deed on the ground that it was given in fraud of his interests as a creditor of the grantors. All three of the DeRoos were made defendants. The petition alleged, in addition to facts hereinbefore narrated, that at the time the plaintiff made the loan to the DeRoos in 1925 "he relied on the ownership and property rights of Mina L. DeRoo in said property"; that the quitclaim deed conveyed only the legal title to the son and the equitable title remained in Mina L. DeRoo; that the son, Arthur Francis DeRoo, had never claimed or exercised ownership or control of the land and there was no intention that he should do so, that he had not collected or received any rentals or other income from the land; that at the time the quitclaim deed was executed on March 23, 1936, the grantors "were in a precarious financial condition, and were practically, if not totally insolvent"; that by reason of the said conveyance they "did not retain sufficient property to pay their obligations and indebtedness, and particularly the indebtedness they each owed the plaintiff"; that the conveyance was made "without consideration, with the intent to hinder, delay and defraud the creditors of the defendant grantors, and in particular, the plaintiff"; that the plaintiff did not learn about this quitclaim deed until in March, 1938; that from time to time after default in payment of interest, demands for payment of the note were made and assurances given that payment would be made, and that these promises were the principal cause of the delay in bringing action to collect the debt; that the grantors possessed no other property out of which plaintiff's demand could be satisfied in this state or in Illinois; that the grantee, by reason of his relationship as son of the grantors, knew that his parents "were failing or had failed financially" and that he knowingly participated in the scheme to defraud their creditors and particularly the plaintiff; that aside from the land attached in the first action, the plaintiff had no "adequate remedy at law to enforce the collection and payment of his claim against said defendants"; and that as long as the legal title to the land stood in the name of the son, no sale of the land could be effected under the judgment theretofore rendered. The prayer was that the deed be declared void and the land ordered sold under the previous order of sale, free from any claim of the son as grantee.

On such facts, was the plaintiff entitled to have the deed set aside? Appellant contends that since the action to reduce the debt to judgment was not begun until more than two years after the deed was recorded, a cause of action to set aside the deed on account of fraud was barred by G.S.1935, 60-306,¶ 3, which provides: "Civil...