Fluegel v. Henschel

• Decision Date: 09 April 1898
• Docket Number: 6731
• Citation: 74 N.W. 996,7 N.D. 276
• Court: North Dakota Supreme Court

74 N.W. 996

7 N.D. 276

WILLIAM FLUEGEL, JR. v. FRANK HENSCHEL, et al

No. 6731

Supreme Court of North Dakota

April 9, 1898

Appeal from District Court, Cass County; Lauder, J.

Action by William Fluegel, Jr., against Frank Henschel, Julia A Henschel, F. W. Froemke, and Richard Crozier, to set aside a conveyance as fraudulent. From a judgment dismissing the action, plaintiff appeals.

Reversed.

Reversed.

M. A Hildreth, for appellant.

The moment Froemke knew a suit had been commenced, he was aware that the bona fides of the land transfer were involved. This notice was before full payment and as to moneys subsequently paid he was not a bona fide purchaser. Bump. Fraud. Conv 477-478; 2 Bigelow on Fraud. 473; Merritt v. Lambert, 6 Hoffman Ch. Repts. 1103. He is protected for all payments made before notice but no farther. Hardingham v. Nicols, 3 Atk. 304; Story v. Wilson, 2 Atk. 630; Jewett v. Palmer, 7 Johns Ch. 65; Ellis v. Tonsey, 1 Paige, 280; Frost v. Beekman, 1 Johns Ch. 298. Notice arrests all further proceedings towards the completion of the purchase and payment. Hedrick v. Strauss, 60 N.W. 929; Dougherty v. Cooper, 77 Mo. 532; Arnholt v. Hartwig, 73 Mo. 485; Bishop v. Schneider, 46 Mo. 472; 8 A. and E. Enc. L. 756; 2 Pom. Eq. Jur. 209; Wormley v. Wormley, 5 L.Ed. 651. The claim of plaintiff should be paid out of the proceeds of the sale of the land subject to the right of Froemke for all payments made prior to notice of suit. Clements v. Nicholson, 18 L.Ed. 788. Froemke is protected pro tanto. Pratt v. Clemens, 4 W.Va. 447; Merritt v. Lambert, Hoff. Ch. 170; Jewett v. Palmer, 7 Johns Ch. 65; Ellis v. Tonsley, 1 Paige, 280. Deed can stand as security for what was actually paid. Boyd v. Dunlap, 1 Johns Ch. 477. Form of judgment. Van Wyck v. Baker, 16 Hun. 168; Sargent v. Eureka, 46 Hun. 19.

Benton & Bradley, for respondent.

The giving of a negotiable promissory note was sufficient to sustain the sale when attacked as fraudulent even though the note was not paid at the time of notice. Tillman v. Heller, 78 Tex. 597; 11 L. R. A. 628; Nicol v. Crittenden, 55 Ga. 497; Prestige v. Cooper, 54 Miss. 77. The transfer was valid upon the facts as they stood at the time it was made subsequent notice was not retroactive. 2 Bigelow on Fraud. 474; Collom v. Cadwell, 16 N.Y. 484; Leitch v. Hollister, 4 Comst., 211; Barnaby v. Griffin, 2 Comst. 365.

OPINION

BARTHOLOMEW, J.

The plaintiff, Fluegel, is a judgment creditor of the defendant Frank Henschel. Execution on said judgment having been returned nulla bona, he brought his action to set aside as fraudulent the conveyance of a certain quarter section of land, made by Frank Henschel and Julia Henschel, his wife, to F. W. Froemke. Froemke is a brother to Mrs Henschel. Crozier was a mere nominal defendant. Nothing was claimed as against him, and he made no appearance. All the allegations of fraud contained in the complaint were put in issue by the joint answer of the other defendants. The trial court found that the conveyance was made by the Henschels with intent on their part to defraud the plaintiff, Fluegel. But the eighth finding of fact was as follows: "That the defendant F. W. Froemke purchased the land described in the fourth finding of fact in good faith, and for a valuable consideration, and without any knowledge whatever of any intent on the part of the defendants Frank Henschel and Julia A. Henschel to delay or defraud any creditors or other persons out of their demands against them, or either of them, and without any knowledge of facts and circumstances sufficient to put a prudent man upon inquiry as to the fact that it was the intention of the said Frank Henschel and Julia A. Henschel, in making such transfer, to delay and defraud creditors or other persons out of their demands against them, or either of them." Upon this finding, and the conclusion of law that necessarily followed, judgment was entered dismissing the complaint, with costs. From this judgment plaintiff appeals, and the case comes into this court for trial de novo.

Of the findings made, only the eighth is attacked; hence we need only consider the evidence in relation to that one finding. And it will be conceded, because nothing more is claimed, that we need consider the evidence only in its bearing upon two propositions: First: Did the grantee, Froemke, at the time he made the purchase, have knowledge of the fraudulent intent of the grantors in disposing of the land? It is, we think, the prevailing and correct rule that, where a conveyance is made to one not a creditor, and the grantee knows at the time that the grantor intends by such transfer to hinder, delay, or defraud his creditors, that mere consummation of the transfer under such circumstances, even though based upon full consideration, is such a participation in the fraud by the vendee as will invalidate the transfer against existing creditors. Wood v. Chambers, 20 Tex. 247; Craig v. Zimmerman, 87 Mo. 475; Chapel v. Clapp, 29 Iowa 191; Liddle v. Allen, 90 Iowa 738, 57 N.W. 603; Biddinger v. Wiland, 67 Md. 359, 10 A. 202; Smith v. Collins, 94 Ala. 394, 10 So. 334; Bank v. Durant, 22 N.J.Eq. 35; Hathaway v. Brown, 18 Minn. 414, (Gil. 373;) Hough v. Dickinson, 58 Mich. 89, 24 N.W. 809; Plow Co. v. Sherman, 3 Okla. 204, 41 P. 623. And, second: Did the grantee, at the time of the transfer, have knowledge of such facts and circumstances as would put a prudent man upon inquiry, and which inquiry, if reasonably pursued, would have developed the fraudulent intent of the grantor? In law, knowledge of such suspicious facts or circumstances is equivalent to knowledge of whatever might have been learned by a reasonable pursuit of the inquiry suggested. Jones v. Hetherington, 45 Iowa 681; Rindskopf v. Myers, 87 Wis. 80, 57 N.W. 967; Dyer v. Taylor, 50 Ark. 314, 7 S.W. 258; Holladay Case, 11 Sawy. 624, 27 F. 830; Dodd v. Gaines, 82 Tex. 429, 18 S.W. 618; Iron Works v. Bresnahan, 66 Mich. 489, 33 N.W. 834; Hanchett v. Kimbark, 118 Ill. 121, 7 N.E. 491. But there is great danger of pressing this rule too far. The law casts upon the vendee no duty to inquire into the motives or circumstances of his vendor unless he is in possession of such suspicions, facts, or circumstances. State v. Merritt, 70 Mo. 275; Baker v. Bliss, 39 N.Y. 70; Stearns v. Gage, 79 N.Y. 102; Woodworth v. Paige, 5 Ohio St. 70; Tuteur v. Chase, 66 Miss. 476, 6 So. 241; Kemmerer v. Tool, 78 Pa. 147. In this case the grantee testifies that he had no knowledge of any fraudulent intent upon the part of the grantor; that he had no knowledge that the grantor was indebted in any sum whatever except the sum of $ 800, which was secured by a mortgage upon the premises purchased, and which the grantee assumed; and that he had no knowledge of any fact or circumstance that led him to believe or suspicion that the grantors had any fraudulent intent in making the transfer; that the consideration paid ($ 2,500) was the fair value of the premises, and that it was paid by assuming the mortgage of $ 800, and paying $ 400 in cash, and two promissory notes, one for $ 500 and one for $ 800, executed by the grantee to the grantor. There is no direct testimony tending to contradict the grantee in any manner whatever, but appellant claims that certain admitted facts show that he had sufficient knowledge to arouse his suspicions, and put him upon inquiry. The first circumstance seized upon by appellant is the fact that the grantor and grantee were brothers-in-law. But the fact that the vendee and vendor are relatives should not, in our judgment, raise any presumption of fraud in the transaction, and this is the holding of the courts. Blish v. Collins, 68 Mich. 542, 36 N.W. 731; Fraser v. Passage, 63 Mich. 551, 30 N.W. 334; Tompkins v. Nichols, 53 Ala. 197; Steele v. Ward, 25 Iowa 535; Cooper v. Martin Brown Co., 78 Tex. 219, 14 S.W. 577. It is true that it is held in some jurisdictions that, where a husband conveys to a wife, and the transfer is attacked by creditors, the burden of proof shifts, and the wife is held to show the bona fides of the transaction, ( Hooser v. Hunt, 65 Wis. 71, 26 N.W. 442, Reese v. Shell, 95 Ga. 749, 22 S.E. 580) and in one case-- Satterwhite v. Hicks, 57 Am. Dec. 577--this rule was applied when the parties were brothers-in-law. The application of this rule would, however, make no difference in our decision of this case.

It also appears that after the lis pendens in this case was filed, but before the service of summons upon him, Froemke transferred the land to William Henschel, a brother to Frank Henschel. This was nearly a year after Froemke purchased; but we see nothing in this fact that throws any light upon the question of Froemke's knowledge at the time he purchased. This last transfer seems to have been in the usual course of business. Froemke bought the land on speculation, and sold it at an advance of $ 500. He testifies that at the time he sold it he knew nothing of the lis pendens, or of the commencement of this action.

Another circumstance upon which appellant places much reliance is the fact that there was a discrepancy between the date of the notes and the deed on one hand and the acknowledgment of the deed on the other, while the evidence clearly shows that the papers were all drawn, acknowledged, delivered, and the cash payment made at the same time and place. The original action upon which plaintiff obtained judgment against Henschel was commenced on Monday, February 24, 1896. On that date the summons was served upon Henschel by leaving the same at his residence. The evidence shows that on February 23d Henschel and his wife had driven from their home across the country, about 30 miles, to Mrs. Henschel's father's home. This was in the immediate vicinity of Froemke's...