First Nat. Bank in Mitchell v. Daggett

• Decision Date: 12 March 1993
• Docket Number: No. S-90-418,S-90-418
• Citation: 497 N.W.2d 358,242 Neb. 734
• Parties: FIRST NATIONAL BANK IN MITCHELL, Appellee, v. Ted DAGGETT et al., Appellants.
• Court: Nebraska Supreme Court

Page 358

497 N.W.2d 358

242 Neb. 734

FIRST NATIONAL BANK IN MITCHELL, Appellee, v. Ted DAGGETT et al., Appellants.

No. S-90-418.

Supreme Court of Nebraska.

March 12, 1993.

Syllabus by the Court

1. Debtors and Creditors: Property: Fraud. There are two classes of creditors' bills, one to reach the equitable assets or property of the debtor on which an execution at law cannot be levied; the other in aid of an execution at law, as to set aside an incumbrance or a transfer of property made to defraud creditors.

2. Debtors and Creditors: Judgments: Proof: Property. There are three requirements for an equitable-assets creditor's bill: (1) the creditor must have a judgment against the debtor; (2) the creditor must "allege and show that he has exhausted his remedy at law," i.e., the creditor must show that execution has not satisfied the judgment; and (3) the debtor must have some interest in property that the creditor is unable to reach through execution.

3. Trusts: Real Estate. Nebraska law determines the validity of a trust of an interest in Nebraska real estate.

4. Trusts. A trust that does not adequately identify its beneficiaries must fail.

5. Evidence: Proof. The burden of evidence at any particular time rests on the party who would be defeated if no further evidence would be introduced.

6. Debtors and Creditors: Actions: Judgments: Liens: Property. The beginning of a creditor's action to subject an equitable estate to the payment of a judgment gives a specific lien upon the property which it is sought to reach and this lien continues while the cause is pending.

7. Trusts: Property. A resulting trust is created when an inter vivos express trust fails and the settlor has not indicated how the property should be distributed upon such failure.

8. Trusts: Property. The beneficiary of a resulting trust remains the equitable owner of the property held in resulting trust.

9. Debtors and Creditors: Limitations of Actions. An equitable-assets 10. Motions for New Trial: Appeal and Error. A motion for new trial should be granted only where there is error prejudicial to the rights of the unsuccessful party.

creditors' bill, not being based on fraud, is governed by the five-year, judgment-dormancy limitations period.

Robert M. Harris and Randall L. Lippstreu, of Harris & Lippstreu, Scottsbluff, for appellants.

Benjamin P. King, of Reed-King Law Office, Mitchell, for appellee.

HASTINGS, C.J., and BOSLAUGH, WHITE, CAPORALE, SHANAHAN, GRANT, and FAHRNBRUCH, JJ.

WHITE, Justice.

Defendants-appellants, Daggetts and Klor (defendants), appeal a judgment from the district court for Scotts Bluff County in favor of plaintiff-appellee, First National Bank of Mitchell ( FNB ). FNB brought suit against the defendants seeking to satisfy a judgment against Ted Daggett's interest in real property that he and his wife, Mona, had conveyed to a trust. The district court (1) held that Ted Daggett's transfers to the trust and his later transfers of his beneficiary interest therein were fraudulent to FNB; (2) declared the trust void; (3) set aside the transfers to the trust and determined that Ted and Mona each held an undivided one-half interest in the title to the real estate; and (4) held that Ted's interest in the property was subject to execution by FNB. We affirm.

The controversy in this case centers around the transfer of real estate, via two deeds, from Ted Daggett (Daggett) and his wife to the "T-M Enterprises Trust" (trust) on October 12, 1982. The relevant facts surrounding these transfers and the subsequent lawsuit are as follows.

At the time of the transfers to the trust, Daggett owed FNB over $271,000. Following the transfers, Daggett failed to repay his debt to FNB. On September 4, 1984, FNB recovered a judgment against Daggett for $378,178.66. Despite its judgment, FNB's attempts at execution in 1985 and 1988 recovered only $21,487.94. To aid its recovery FNB filed an action in April of 1985 seeking to set aside the transfers to the trust. FNB later dismissed that action without prejudice.

On October 5, 1988, FNB filed the present action, again seeking to satisfy its judgment against the realty Daggett had transferred to the trust. In its amended petition FNB listed three causes of action. FNB first asserted that due to various infirmities of the T-M Trust instrument, the trust was void. FNB's final two causes of action asserted that the transfers were fraudulent to FNB.

FNB asked the district court to declare the trust void, to declare Daggett's transfers to the trust and his sons fraudulent, and to set aside those transfers. FNB further requested that the court determine and partition Daggett's interest in the property so that FNB could satisfy its judgment against that interest. The defendants' answers alleged that FNB's action was barred by the statute of limitations and did not state a cause of action.

The district court found, among other things, that the trust was void and that Daggett's transfers to the trust and to his sons were fraudulent. The court ordered that the transfers be set aside, determined that Daggett and his wife each held title to an undivided one-half interest in the real estate, and declared that Daggett's one-half interest was subject to execution to satisfy FNB's judgment. The court subsequently denied the defendants' motion for a new trial.

The defendants argue that the district court erred by (1) overruling their objection that FNB's petition failed to state a cause of action; (2) failing to find the action barred by the statute of limitations; and (3) overruling the defendants' motion for a new trial.

FNB's action against Daggett is a creditor's bill by which FNB seeks to subject property, allegedly owned by Daggett, to payment of a judgment. We have noted that there are two types of creditor's bills In an appeal of an equity action, this court tries factual questions de novo on the record and reaches a conclusion independent of the findings of the trial court; provided, where the credible evidence is in conflict on a material issue of fact, we consider and may give weight to the fact that the trial judge heard and observed the witnesses and accepted one version of the facts rather than another.

both of which sound in equity. See Thies v. Thies, 111 Neb. 805, 198 N.W. 151 (1924). We therefore apply the following standard of review:

State v. Nebraska Assn. of Pub. Employees, 239 Neb. 653, 657, 477 N.W.2d 577, 581 (1991) (quoting State ex rel. Spire v. Strawberries, Inc., 239 Neb. 1, 4, 473 N.W.2d 428, 432 (1991)).

Furthermore, when reviewing questions of law we are obliged to reach conclusions independent of the trial court's rulings. Dowd v. First Omaha Securities Corp., 242 Neb. 347, 495 N.W.2d 36 (1993).

Regarding creditors' suits, we stated in Thies, supra:

There are two classes of creditors' bills, one to reach the equitable assets or property of the debtor on which an execution at law cannot be levied; the other in aid of an execution at law, as to set aside an incumbrance or a transfer of property made to defraud creditors.

Id. 111 Neb. at 809, 198 N.W. at 152 (quoting State Bank of Ceresco v. Belk, 68 Neb. 517, 94 N.W. 617 (1903)).

FNB's amended petition included both types of creditor actions. FNB's first action alleged that the trust was void, that Daggett had retained an interest in the deeded real estate, and sought to satisfy its judgment against that interest. FNB's second and third actions sought to set aside the deeds based on fraud. Because we find that FNB's first cause of action is dispositive, we address only the type of creditors' bill attacking the trust's validity, which we will refer to as an "equitable assets" creditor's bill.

There are three requirements for an equitable-assets creditor's bill. First, the creditor must have a judgment against the debtor; second, the creditor must "allege and show that he has exhausted his remedy at law," i.e., the creditor must show that execution has not satisfied the judgment; and finally, the debtor must have some interest in property that the creditor is unable to reach through execution. See Thies, supra, 111 Neb. at 809, 198 N.W. at 152.

The first two requirements of Thies are disposed of easily. FNB gained a judgment against Daggett in 1984. In addition, FNB's attempts at satisfying the judgment through legal action proved unsuccessful; executions in both 1985 and 1988 recovered only $21,487.94 of the $378,178.66 judgment. Our inquiry thus focuses on whether Daggett possesses an interest in property which execution cannot reach.

FNB argues, and the district court agreed, that the T-M Enterprises Trust was void for several reasons, including failure to adequately identify its beneficiaries. FNB concludes that because the trust was void, Daggett retained equitable ownership of the deeded real estate and his interest therein is subject to FNB's 1984 judgment.

We first must determine which law governs the validity of the trust. A section of the trust provides that the law of various named jurisdictions shall be applied "[w]here the ... validity ... of the trust must be viewed by a court of law...." Thirty-four trust provisions are then listed, along with the designated jurisdictions--23 different states and England. Included in the list is the language, "Identity of beneficiaries--Georgia law."

In Morris v. Linton, 74 Neb. 411, 104 N.W. 927 (1905), we stated that "the law of the situs shall exclusively govern in regard to all rights, interests and titles in and to immovable property." Id. at 417, 104 N.W. at 929. The same rule, although more particularized, is stated in the Restatement (First) of Conflict of Laws § 241 (1934): "The validity of a trust of an interest in land is determined by the law of the state where the land is." Id. Unless contrary to public policy, choice-of-law provisions are usually enforced. Lauritzen v. Larsen, 345 U.S. 571, 588-89, 73 S.Ct. 921, 931-32, 97 L.Ed. 1254...