First National Bank of Plattsburg v. Fry

• Decision Date: 04 January 1909
• Parties: FIRST NATIONAL BANK OF PLATTSBURG, Appellant, v. LOUIS S. FRY and EMANUEL S. FRY
• Court: Missouri Supreme Court

115 S.W. 439

216 Mo. 24

FIRST NATIONAL BANK OF PLATTSBURG, Appellant, v. LOUIS S. FRY and EMANUEL S. FRY

Supreme Court of Missouri, Second Division

January 4, 1909

Filed December 15, 1908

Appeal from Circuit Court, Buchanan County; H. M. Ramey, Judge.

Action by the First National Bank of Plattsburg against Louis S. Fry and another, to set aside a deed as in fraud of plaintiff. Decree for defendants, and plaintiff appeals. Reversed and remanded, with directions.

H. S Herndon and Culver & Phillip for appellant.

(1) Upon the facts the conveyance was fraudulent as a matter of law, regardless of the intention of the parties. Where a creditor, knowing his debtor to be insolvent, takes in payment of his debt property in excess of the amount due, and pays the difference to the debtor, either in cash or notes the necessary effect of the transaction is to enable the debtor to withdraw the surplus from the reach of other creditors, and the transaction is fraudulent and void as to them. Deere Plow Co. v. Sullivan, 158 Mo. 449; Banks Milling Co. v. Bumes, 152 Mo. 373; Seegers Sons v. Thomas, 107 Mo. 635; Mapes v. Burnes, 72 Mo.App. 421; Simon v. Sincox, 75 Mo.App. 147; Willis v. Yates, 12 S.W. 232; Black v Vaughan, 70 Tex. 47; Elser v. Graber, 6 S.W. 560; Henney Buggy Co. v. Ashenfelter, 82 N.W. 118; Wallis v. Adnoe, 13 S.W. 63; Oppenheimer v. Guckenheimer, 23 So. 9. (2) But the trial court declared the law to be that "the fact that the grantee bought more land than was necessary to pay his debt, and paid the surplus to the grantor, $ 300 in cash and $ 325 in a due bill, would not render the transaction or conveyance fraudulent in law, provided said $ 300 in cash and the proceeds of said due bill was paid to the grantor with the understanding that it should be appropriated to the creditors of the grantor and paid on bona-fide debts of said grantor then due." In giving this declaration, and deciding the case on the rule therein promulgated, the court erred for these reasons: 1. There is no evidence that there was any "understanding" between the grantor and the grantee that the cash and note should be applied by the grantor to the payment of his other debts, and therefore the declaration of law is erroneous because it is not predicated upon any evidence in the record. 2. But even though the grantee expected and it was understood and agreed between him and the grantor that the latter should appropriate the cash and notes to the payment of other bona-fide debts, yet the fact remains that by delivering the cash and notes to the grantor, knowing he was insolvent, the grantee thereby placed in the hands of the grantor, freed from his own control or right to control, $ 625 of the purchase money, thereby enabling the grantor to place so much of his estate beyond the reach of his creditors, and its legal effect, whatever may have been the real intention of the parties, was to hinder and defraud other creditors. Willis v. Yates, 12 S.W. 232; Elser v. Graber, 6 S.W. 560; Oppenheimer v. Guckenheimer, 23 So. 9.

John A. Cross and James W. Boyd for respondents.

(1) An insolvent debtor is not deprived of the right to sell his property at full value for the honest purpose of paying his debts, though the purchaser, who buys in good faith, have knowledge of his insolvency; and this is true whether the entire consideration be paid in cash, or be paid in part by the cancellation of a debt from vendor to vendee, and the surplus in cash. Bump on Fraudulent Conveyances, pp. 62-3, 227-28; Wait on Fradulent Conveyances (2 Ed.), sec. 240; 14 Am. and Eng. Ency. Law (2 Ed.), 298, 521; Wood v. Shaw, 29 Ill. 444; Eastman v. McAlpin, 1 Ga. 157; Sutton v. Bana, 15 Colo. 98; Albertali v. Branham, 80 Cal. 631; Massie v. Engart, 32 Ark. 255; Levy & Co. v. Williams, 79 Ala. 171; Hughes v. Monty, 24 Iowa 499; Ruhl v. Phillips, 48 N.Y. 125; Loeschigk v. Bridge, 42 N.Y. 421; Troustine v. Lask, 4 Baxter 162; Young v. Stollings, 5 B. Mon. 307; David v. McCarthy, 52 Kan. 116; Hobbs v. Davis, 50 Ga. 213; Priest v. Brown, 100 Cal. 626; Gist v. Barrow, 42 Ark. 521; Darland v. Rosencrans, 56 Iowa 122; Little v. Eddy, 14 Mo. 160; Dougherty v. Cooper, 77 Mo. 531; State ex rel. v. Persel, 131 Mo. 318; Baker v. Harvey, 133 Mo. 661; St. Louis Coffin Co. v. Rubelmen, 15 Mo.App. 287; Singer v. Goldenburg, 17 Mo.App. 566; Mayberg v. Jacobs, 40 Mo.App. 136; Gens & Tiedet v. Hargadline, 56 Mo.App. 250; Gro. Co. v. Ashton, 69 Mo.App. 463; State ex rel. v. Merrett, 70 Mo. 284; Gage v. Meres, 107 Mo.App. 145; Gust v. Hoppe, 201 Mo. 293. (2) An insolvent debtor cannot be denied the right to dispose of his property, but the design in so doing, so far as he is concerned, must be the application of the proceeds to the satisfaction of his debts; and, if a creditor who purchases his property and pays him the excess of the price, over and above the debt, acts upon the reasonable expectation that it will be so applied, or upon the understanding or agreement that the debtor will so apply it, or the debtor does so apply it, then the purchaser is not chargeable with any participation in any secret intent the debtor may have had. The debtor cannot have any fraudulent intent if it is his purpose to properly use the excess in paying his other creditors. And if a creditor has a reasonable expectation that the excess will be applied to the debtor's other indebtedness, a fortiori, he cannot have any knowledge that the debtor is acting with a fraudulent intent. Sly v. Bell, 108 N.W. 227; Rankin v. Vandiver, 78 Ala. 562; Cottingham v. Grocery Co., 30 So. 562; Grocery Co. v. Petty, 22 So. 505, 110 Ala. 260; Smith v. Kaufman, 14 So. 113; Fergerson v. Hall, 13 So. 302; Green v. Emens, 33 So. 540; Moogy v. Farley, 79 Ala. 253; Priest v. Brown, 100 Cal. 626; Hobbs v. Davis, 50 Ga. 213; Ruhl v. Phillips, 48 N.Y. 125; St. Louis Coffin Co. v. Rublemen, 15 Mo.App. 280. (3) In this State, facts and circumstances that would put a prudent man upon inquiry, and which would lead to a knowledge of fraud, if the inquiry were pursued, do not constitute knowledge of fraud, but are merely evidence to be submitted to the injury. Van Raalte v. Harrington, 101 Mo. 602; Deere Plow Co. v. Sullivan, 158 Mo. 440.

GANTT, P. J. Fox and Burgess, JJ., concur.

OPINION

GANTT, P. J.

On June 25, 1898, the plaintiff commenced its action in the circuit court of Clinton county, against Emanuel S. Fry, to recover $ 4,746 on notes executed by the latter to the plaintiff. An attachment was sued out in aid of the principal suit, on the ground that said defendant had fraudulently conveyed his property with intent to defraud his creditors. Among other properties the attachment was levied upon a tract of fifty-five acres of land in Clinton county, specifically described in the bill in this case. On the first trial of the plea in abatement there was a verdict and judgment for defendant, from which an appeal was granted to this court and the judgment was reversed and the cause remanded. [First National Bank v. Fry, 168 Mo. 492, 68 S.W. 348.]

After the record was returned to the circuit court, a change of venue was granted to Buchanan county, and upon a trial anew before Judge A. M. Woodson a verdict was rendered sustaining the attachment and also for the debt and interest.

The fifty-five acres involved in this suit was sold under the judgment and at the sale plaintiff became the purchaser. On the day the attachment was levied and a few hours prior thereto the defendant Emanuel S. Fry conveyed the fifty-five acres to his brother, Louis Fry. After the purchase of this tract the plaintiff brought this suit in equity to set aside the deed of Emanuel Fry to Louis Fry on the ground that said deed was fraudulent and void as to plaintiff. A change of venue was likewise taken in this suit to Buchanan county and the suit was tried before Judge Ramey, who dismissed plaintiff's bill, and from that decree plaintiff has again appealed to this court.

A full history of the debts and property of Emanuel S. Fry and of his disposition of his lands and personal property is set forth in First National Bank v. Fry, 168 Mo. 492, 68 S.W. 348, to which reference is made.

It is sufficient for the purpose of this appeal to state that for many years prior to June, 1898, Emanuel Fry owned about 700 acres of land in Clinton county, on which he resided. He was possessed, also, of some cattle, hogs, corn and farm implements, the whole aggregating about $ 30,000 in value. At that date he was hopelessly insolvent according to his own evidence, his indebtedness amounting to $ 60,000, $ 38,000 of which was due to his children, his wife and brother Louis Fry, his codefendant herein.

It appears that on June 22d and 23d, 1898, he employed Judge Sandusky to prepare conveyances of all his real estate, but his counsel was unable to attend to the matter until the 24th of June, 1898. On this last-named date he went to the residence of Emanuel Fry and spent the evening and next morning in preparing the conveyances of all the real estate. In the meantime defendant Emanuel disposed of all of his personal estate as follows: To his brother Abraham, he sold his cattle and corn on the 23d of June. Abraham testified "He [Emanuel] came over to my house. He had twenty-four steers and he wanted to sell them. He said he was obliged to make some arrangements of his property; he was getting in bad shape, he couldn't borrow money." Thereupon Abraham bought the steers for $ 1,405 and the corn for $ 446. It appears that Emanuel had borrowed $ 1,300 from the Clay & Funkhouser Bank to buy these cattle, so he requested his brother to give him two checks, one for $ 1,300 to pay Clay & Funkhouser and one for $ 105 which he wanted for "expenses." For the corn, Abraham gave Emanuel $ 96 in cash, and his...