Credit Union of America v. Myers, 55666

• Court: United States State Supreme Court of Kansas
• Citation: 234 Kan. 773,676 P.2d 99
• Docket Number: No. 55666,55666
• Parties: CREDIT UNION OF AMERICA, Appellant, v. Cecil B. MYERS, Kenneth V. Myers, Loberta R. Myers, and Doris Gilbert, Appellees.
• Decision Date: 13 January 1984

Page 99

676 P.2d 99

234 Kan. 773

CREDIT UNION OF AMERICA, Appellant, v. Cecil B. MYERS, Kenneth V. Myers, Loberta R. Myers, and Doris Gilbert, Appellees.

No. 55666.

Supreme Court of Kansas.

Jan. 13, 1984.

Syllabus by the Court

1. When summary judgment is challenged on appeal, the appellate court must read the record in the light most favorable to the party who defended against the motion for summary judgment. Dugan v. First Nat'l Bank in Wichita, 227 Kan. 201, Syl. p 3, 606 P.2d 1009 (1980).

2. Honesty and fair dealings are presumed, and one charging fraud must prove the same. Direct proof of fraud can seldom be obtained. Such evidence is not absolutely essential to establish the dishonest purpose of the parties to a pretended transfer of property. The fraudulent purpose may be shown by the conduct and appearance of the parties, the details of the transactions, and the surrounding circumstances. Cox v. Cox, 39 Kan. 121, 123, 17 P. 847 (1888).

3. This court has recognized six badges or indicia of fraud. The badges or indicia of fraud are: (1) a relationship between the grantor and grantee; (2) the grantee's knowledge of litigation against the grantor; (3) insolvency of the grantor; (4) a belief on the grantee's part that the contract was the grantor's last asset subject to a Kansas execution; (5) inadequacy of consideration; and (6) consummation of the transaction contrary to normal business procedures. Polk v. Polk, 210 Kan. 107, 110, 499 P.2d 1142 (1972).

4. We have a well-established rule of law that conveyances and transfers of property from one member of a family to another are subject to stricter scrutiny as to their bona fides than between strangers, where the rights of creditors are, or may be, thwarted thereby. Hardcastle v. Hardcastle, 131 Kan. 319, 291 P. 757 (1930).

5. Our decisions have recognized that whether a conveyance is or is not fraudulent as to creditors is largely a question of fact. Houska v. Lake, 148 Kan. 229, 80 P.2d 1102 (1938); Bank of Inman v. Graves, 148 Kan. 468, 83 P.2d 666 (1938).

6. A court should be cautious in granting a motion for summary judgment when the resolution of the dispositive issue necessitates a determination of the state of mind of one or more of the parties. Hustead v. Bendix Corp., 233 Kan. 870, Syl. p 2, 666 P.2d 1175 (1983).

7. The general rule is that fraud is never presumed and must be proven by clear and convincing evidence. Nordstrom v. Miller, 227 Kan. 59, 65, 605 P.2d 545 (1980). A party resisting a motion for summary judgment in an action based on fraud need not present "clear and convincing" evidence of fraud in opposing the motion. The usual rules governing the ruling upon motions for summary judgment apply to actions [234 Kan. 774] based on fraud. Dugan v. First

Nat'l Bank in Wichita, 227 Kan. 201, Syl. p 4, 606 P.2d 1009 (1980)

James T. Wiglesworth, of Rainey & Wiglesworth, Overland Park, argued the cause, and Kenneth C. Slowinski, Overland Park, of the same firm, was with him on briefs, for appellant.

J. Eugene Balloun, of Balloun & Bodinson, Chartered, Olathe, argued the cause, and Ron Bodinson, Olathe, of the same firm, and Charles W. Thompson, Kansas City, were with him on brief, for appellees.

LOCKETT, Justice:

The plaintiff, Credit Union of America (Credit Union), filed an action to set aside two conveyances of land it alleges were fraudulent. The conveyances involve two separate transactions. The trial court granted summary judgment against the plaintiff and it appeals. The named defendants in the action were Cecil Myers, Kenneth Myers, Loberta Myers and Doris Gilbert.

The first series of events began June 17, 1976, when Cecil Myers and his stepbrother, Kenneth Myers, formed a partnership. The partnership was formed to buy certain real property in Wyandotte County as an investment. The partnership agreement states:

"Contribution of Partners: The Partners contemplate personally borrowing Three Hundred Fifty Five Thousand and no/100ths Dollars ($355,000.00) to contribute to the Partnership for the purpose of developing a car dealership facility on the property described in Exhibit 'A' herein. Each Partner shall be liable for 50% of the loan, namely One Hundred Seventy Seven Thousand Five Hundred and no/100ths Dollars ($177,500.00). The loan shall be a mortgage on the Land described in Exhibit 'A' and Partner, Cecil Myers, shall further contribute the equity in said Real Estate at the time the mortgage loan is closed; said equity shall be valued at Seventy Four Thousand and no/100ths Dollars ($74,000.00). The Partners shall from time to time make additional contributions equal to their pro rata share, in accordance with their interest in the capital of the Partnership, of such capital as is necessary to hold and/or develop the Real Property in accordance with the purposes of the Partnership until the same is disposed of as agreed by the Partners."

Cecil Myers was apportioned a 58 percent share of the partnership, and Kenneth Myers held a 42 percent share.

Cecil Myers owned part of the real estate the partnership planned to purchase. He conveyed this property on September 16, 1976, to himself and Kenneth as joint tenants. The deed does [234 Kan. 775] not mention the Myers' partnership. Cecil and Kenneth, as individuals, borrowed $350,000.00 from the Fidelity State Bank of Kansas City on September 23, 1976. The loan was secured by a mortgage on the land conveyed on September 16, 1976. The two men had formed an automobile dealership corporation, Myers Buick-Opel, Inc., in June, 1976, and a building was constructed on the property and leased to the corporation on January 3, 1978. The lease was entered into "by and between CECIL MYERS AND KENNETH W. MYERS, both single persons, Lessors, and Myers Buick-Opel, Inc., Lessee."

In 1977, criminal charges for commercial bribery were filed against Cecil Myers. Cecil was accused of having paid secret commissions or bribes to a loan officer employed by Credit Union in return for the loan officer's approval of loan applications of customers of Myers Buick-Opel, Inc. In 1978, Cecil was convicted of commercial bribery. Buick Motor Division terminated the dealership agreement it had with Myers Buick-Opel, Inc. on November 15, 1978, because of the conviction of Cecil. The termination was effective in 60 days.

July 10, 1978, Credit Union filed a civil action against Cecil Myers seeking actual and punitive damages. Credit Union alleged that by paying its loan officer secret commissions for approving loan applications of customers of Myers Buick-Opel, Inc., Cecil Myers had conspired to defraud

Credit Union and had tortiously intermeddled with Credit Union's contract of employment with the loan officer

In January, 1979, the property at 6336 State Avenue was leased to Chrysler Realty Corporation. The lease agreement did not expressly mention the Myers' partnership. The lease was for 15 years with total rent amounting to $1,562,580.00.

On May 1, 1979, Cecil and Kenneth Myers dissolved their partnership. The dissolution agreement provided:

"DISSOLUTION OF

CECIL MYERS AND KENNETH V. MYERS,

A PARTNERSHIP

"WHEREAS articles of copartnership were entered into on the 17th day of June, 1976 by and between CECIL MYERS and KENNETH V. MYERS, and

"WHEREAS, the said Cecil Myers and Kenneth V. Myers have mutually agreed to dissolve said copartnership by mutual consent: It is hereby stipulated and agreed that all the assets of any kind and nature, all outstanding accounts, office fixtures, and so forth, and the good will of said business shall be the property of said Kenneth V. Myers for his own use and behoof forever. The said Kenneth V. Myers agrees to assume and to pay all liabilities of said copartnership and for and in consideration of all interest in said copartnership heretofore owned by the said Cecil Myers, the said Kenneth V. Myers hereby agrees to cancel a certain promissory note dated June 15, 1976, from Cecil Myers to Kenneth V. Myers in the amount of $150,000.00, a copy of which is attached hereto and made a part hereof.

"Witness our hands this 1st day of May, 1979.

s/ Cecil Myers

CECIL MYERS

s/ Kenneth V. Myers

KENNETH V. MYERS"

The $150,000.00 was a June 15, 1976, loan made from Kenneth to Cecil Myers when Kenneth paid in $300,000.00 to Myers Buick-Opel, Inc. as capital. The quitclaim deed transferring Cecil's realty to Kenneth was dated May 1, 1979, but was not recorded until June 5, 1980. This transfer is labeled by the plaintiff as a fraudulent conveyance.

Also on May 1, 1979, a partnership was formed between Loberta Myers, Kenneth's wife, and Doris Gilbert, Cecil Myers' ex-wife. On the same date the Myers-Gilbert partnership purchased from Kenneth Myers the property and automobile dealership facilities at 6336 State Avenue. The Myers-Gilbert partnership was to pay $50,000.00 to Kenneth Myers for the property and pay the balance of the loan from Fidelity State Bank, which equaled $338,128.58. The property had been appraised at a value of $670,000.00 on September 20, 1978.

Kenneth Myers assigned the lease with Chrysler Realty Corporation on the State Avenue property to the Myers-Gilbert partnership for $25,000.00 on May 1, 1979. As previously stated, the 15 year lease would provide $1,562,580.00 in rentals to the lessor. Rental payments by Chrysler Realty Corporation were made to Kenneth and Cecil Myers until August 25, 1980, when Kenneth Myers notified the lessee that future payments should be made to Loberta Myers and Doris Gilbert.

The second series of events Credit Union complains of occurred between Cecil Myers and Doris Gilbert. The two were married on January 27, 1978. The marriage was annulled on December 7, 1978. No division of property was ordered by the district court in its annulment decree, and no formal settlement agreement was executed by the parties. A quitclaim deed dated December 8, 1978, and recorded May 11, 1979, transferred a parcel of realty from...