Gifford-Hill & Co., Inc. v. Stoller

• Decision Date: 31 January 1986
• Docket Number: No. 84-831,GIFFORD-HILL,84-831
• Parties: & COMPANY, INC., a Delaware Corporation, Appellee, v. Jack W. STOLLER and Betty M. Stoller, Appellants.
• Court: Nebraska Supreme Court

Page 625

380 N.W.2d 625

221 Neb. 757

GIFFORD-HILL & COMPANY, INC., a Delaware Corporation, Appellee, v. Jack W. STOLLER and Betty M. Stoller, Appellants.

No. 84-831.

Supreme Court of Nebraska.

Jan. 31, 1986.

Syllabus by the Court

1. Debtors and Creditors: Conveyances: Fraud: Equity: Appeal and Error. An action to declare a conveyance fraudulent as to a creditor invokes equity jurisdiction of a court. On appeal an equitable action for declaration of a fraudulent conveyance is a trial of factual questions de novo on the record, subject to the rule that where credible evidence is in conflict on material issues of fact, the Supreme Court will consider the fact that the trial court observed the witnesses and accepted one version of the facts over another.

2. Debtors and Creditors: Conveyances: Fraud: Proof. Under Neb.Rev.Stat. § 36-401 (Reissue 1978), the burden of proof is on a creditor to prove, by clear and convincing evidence, that a debtor intended to hinder, delay, or defraud the creditor by an alleged fraudulent conveyance.

3. Debtors and Creditors: Conveyances: Fraud: Intent: Proof. Regarding intent to hinder, delay, or defraud required under Neb.Rev.Stat. § 36-401 (Reissue 1978), intent, as any other subjective state or mental element, may be proved by circumstantial or direct evidence.

4. Debtors and Creditors: Conveyances: Fraud: Intent. Good faith, among other characteristics, encompasses an absence of or freedom from intent to defraud. A lack of good faith is demonstrated by a transferee's participation in a plan to hinder creditors, even though the transfer may be supported by adequate consideration.

5. Debtors and Creditors: Conveyances: Fraud: Intent: Consideration. In the case of intent established under Neb.Rev.Stat. § 36-401 (Reissue 1978), consideration given by the grantee or transferee becomes immaterial and does not preclude a finding that a debtor intended to hinder, delay, or defraud a creditor, lest the law approve acquisition of property tainted with fraud. Adequate consideration given by a grantee with fraudulent intent will not sustain a conveyance against a creditor's claim to set aside a transaction pursuant to § 36-401.

Donn C. Raymond of Raymond, Olsen, Ediger & Ballew, P.C., Scottsbluff, for appellants.

David C. Nuttleman of Holtorf, Kovarik, Nuttleman, Ellison, Mathis & Javoronok, P.C., Gering, for appellee.

BOSLAUGH, HASTINGS, SHANAHAN, and GRANT, JJ., and BRODKEY, J., Retired.

SHANAHAN, Justice.

The district court for Scotts Bluff County entered judgment that real estate conveyances by Jack W. Stoller to his wife, Betty M. Stoller, were fraudulent conveyances made with intent to hinder Gifford-Hill & Company, Inc., a creditor of Jack Stoller. We affirm.

In January 1978 Jack Stoller and David Deines formed Western Irrigation Systems, Inc. Of Western Irrigation's capital stock, Stoller, as president and sales manager, owned 60 percent and Deines, as secretary-treasurer and general manager, owned 40 percent. Western Irrigation's contemplated business was design, sale, installation, and service of irrigation systems and supplying other products for agricultural use. To commence business, on January 23, 1978, Western Irrigation obtained a loan from the Gering National Bank & Trust Company for $252,000, which was guaranteed by the Small Business Administration. Although Western Irrigation had given the bank a promissory note secured by a mortgage on corporate assets, the bank required additional security for the loan to Western Irrigation, namely, Jack's personal guaranty of Western Irrigation's note, as well as mortgages from Stollers on three of five tracts of real estate owned jointly by Jack and Betty, including the Stoller home. The bank required similar security from Deines.

Late in 1979, when Western Irrigation experienced a "financial crisis," and the bank became "jumpy," officials of the bank and SBA demanded liquidation of Western Irrigation's assets. In January 1980 Western Irrigation went out of business. To forgo foreclosure of mortgages on Stollers' three tracts of real estate and as additional security concerning Jack's guaranty of Western Irrigation's promissory note, the bank requested that Stollers assign their interest in a contract for the purchase of a Wyoming farm. As later testified by Stollers, sometime before January 25, 1980, Jack and Betty reached an oral agreement that Betty would assume responsibility for all Jack's indebtedness on account of his involvement with Western Irrigation, especially any balance of indebtedness to the bank and SBA which might remain after liquidation of Western Irrigation's assets. As a part of that oral assumption agreement, Jack agreed to convey all his real estate to Betty. On January 25 Stollers gave the bank their written assignment of the Wyoming contract. That assignment contained a cancellation provision in the event Western Irrigation's debt was paid to the bank. However, Jack and Betty did not tell anyone about their assumption agreement and did not prepare any memorandum containing such assumption agreement.

On February 4, 1980, Gifford-Hill filed suit against Western Irrigation to collect an unpaid account for $157,849.09 and named Deines and Jack Stoller as defendants with Western Irrigation. Jack and Deines were joined as defendants due to their personal guaranty regarding Western Irrigation's account with Gifford-Hill. The sheriff, on February 7, served summons in the Gifford-Hill case on Jack Stoller personally at Stollers' home. On February 13, by warranty deed, Jack conveyed his interest in five tracts of real estate, that is, all the real estate owned by Jack and Betty Stoller jointly, to Betty Stoller individually for $1 and "other valuable consideration." Western Irrigation's physical assets were sold at auction on April 23, but the sale resulted in a deficiency concerning the amount owed to the bank. Betty later gave her promissory notes to the bank and SBA concerning that deficiency after liquidation of Western Irrigation's assets. In September 1981 Jack Stoller consented to judgment against him for $157,849.09 in the suit brought by Gifford-Hill. Execution on Gifford-Hill's judgment was issued on January 18, 1982, but returned wholly unsatisfied on February 8, 1982.

On March 23, 1983, Gifford-Hill commenced the present action against Jack and Betty Stoller and sought judgment that each of Jack's five conveyances to Betty on February 13, 1980, be "declared fraudulent and void" regarding Gifford-Hill. In their amended answer Stollers allege that the conveyances to Betty were supported by consideration and were not made with the intent to hinder, delay, or defraud Gifford-Hill. On June 18 Jack filed bankruptcy, naming Gifford-Hill as an unsecured creditor, and was discharged as a bankrupt on December 14.

Evidence adduced at trial showed that on February 13, 1980, Jack owned personal property valued at $21,079 and owed debts of $229,879 excluding the unpaid account involved in Gifford-Hill's pending suit against Jack for $157,849.09. Considering Gifford-Hill's subsequent judgment, Jack's indebtedness, liquidated and contingent, at February 13, 1980, was $387,728.09. The fair market value of the real estate conveyed from Jack to Betty was between $231,000 and $246,000. During trial, Jack testified about the consideration given by Betty for the five questioned conveyances to her:

[S]he ... committed herself to the signing of any notes that would be necessary to cover any anticipated shortages created by the sale of the Western Irrigation Systems corporation assets to the SBA and/or the Gering National Bank. She also agreed to assume all the mortgages on the property and all the underlying promissory notes on those properties.

Betty Stoller testified she first learned of the Gifford-Hill litigation when summons was served on Jack for that lawsuit. "[T]he first I knew of this [Gifford-Hill litigation] is when the papers were brought to the house to Jack." When asked if she knew about Gifford-Hill's lawsuit before the conveyances from Jack, Betty replied, "I guess I didn't realize what the lawsuit was about, I didn't know anything about any of this indebtedness to [Gifford-Hill]."

The trial court found that, before the conveyances to Betty, Stollers knew about the Gifford-Hill action against Jack, Betty did not give adequate consideration for the conveyances from Jack, and, therefore, the conveyances were made with intent to hinder Gifford-Hill's collecting the debt owed by Jack. The court declared the five conveyances void as to Gifford-Hill.

Stollers contend the district court erred in its findings (1) that the conveyances by Jack to Betty were made without adequate consideration and with intent to hinder, delay, or defraud Gifford-Hill, a creditor, and (2) that Betty had notice of Gifford-Hill's claim against Jack, when he conveyed the real estate on February 13, 1980.

An action to declare a conveyance fraudulent as to a creditor invokes equity jurisdiction of a court. First Nat. Bank v. First Cadco Corp., 189 Neb. 553, 203 N.W.2d 770 (1973). On appeal an equitable action for declaration of a fraudulent conveyance is a trial of factual questions de novo on the record, subject to the rule that where credible evidence is in conflict on material issues of fact, the Supreme Court will consider the fact that the trial court observed the witnesses and accepted one version of the facts over another. See First Nat. Bank v. First Cadco Corp., supra; cf. Burton v. Annett, 215 Neb. 788, 341 N.W.2d 318 (1983) (trial de novo on record in an action for an injunction). See, also, Neb.Rev.Stat. § 25-1925 (Reissue 1979).

Applicable to the questioned conveyances are Neb.Rev.Stat. §§ 36-401 to 36-409 (Reissue 1978) pertaining to "Conveyances to Defraud Creditors." In pertinent parts the statutes provide:

Every conveyance or assignment, in writing or otherwise, of any estate or interest in...