Gray v. Mccormick

• Decision Date: 18 January 1943
• Citation: 23 S.E.2d 803
• Parties: GRAY et al. v. McCORMICK.
• Court: Virginia Supreme Court

23 S.E.2d 803

GRAY et al.

v.McCORMICK.

Supreme Court of Appeals of Virginia.

Jan. 18, 1943.

Rehearing Denied March 12, 1943.

Appeal from Circuit Court, Pittsylvania County; J. J. Clement, Judge.

Suit by C. O. McCormick, substituted trustee in bankruptcy for Thomas J. Gray, against Louise M. Gray and Thomas J. Gray, to set aside allegedly fraudulent transactions. From an adverse decree, defendants appeal.

Reversed and bill of complaint dismissed.

Before HUDGINS, GREGORY, BROWNING, EGGLESTON, and SPRATLEY, JJ.

W. G. Vansant, of Chatham, and Carrington Thompson, of Richmond, for appellants.

Langhorne Jones, of Chatham, and Crews & Clement, of Danville, for appellee.

GREGORY, Justice.

C. O. McCormick, Substituted Trustee in Bankruptcy for Thomas J. Gray, instituted a suit against Gray and his wife attacking two transactions had between them on the grounds, --first, that construct a $5,000 home on a lot that Gray while insolvent had used his funds tolonged to Mrs. Gray; and, second, that he had while insolvent and without consideration transferred to her his policies of life insurance which had a cash surrender value of more than $4,000.

Mrs. Gray defended on the grounds that she paid from her own funds the entire cost of the home, and that she actually gave her husband $4,200 of her own money for the policies of insurance.

The court below held that both transactions were fraudulent and impressed the house with a lien in favor of the trustee of $5,000. The assignment of the policies was annulled.

This is another case of alleged fraud, involving transactions between a husband and wife. It must be decided upon the particular facts as disclosed by the record in this case. The rule of law to be applied is elementary. If Gray were insolvent and used his funds to build ahouse on a lot belonging to his wife, and if, while insolvent, he assigned his insurance policies to his wife without consideration and both transactions were made with intent to hinder, delay and defraud his creditors, the decree of the lower court is correct.

The house was built in 1935 and the early part of 1936. The policies were transferred to Mrs. Gray in June, 1938. If Mrs. Gray actually paid for the entire cost of the house and if she actually paid her husband $4,200 for the insurance policies and if she did not know of any fraudulent intent on his part, the transactions should stand.

The cause was not referred to a commissioner in chancery. All of the testimony was taken before a notary public and it was submitted to the court for determination upon depositions and exhibits.

Mr. and Mrs. Gray moved to Chatham in 1915. They formerly lived in Gloucester county. When they came to Chatham he became associated with the Crowell Auto Company, a concern which had the Ford agency in Chatham as well as the same agency in several other communities in Virginia and North Carolina. Mr. Gray was paid a salary of $350 per month most of the time. He purchased stock in the Crowell Auto Company with his savings and also purchased considerable life insurance.

In 1922, Mr. Gray purchased an unimproved lot in Chatham and in 1928, after the lot was completely paid for, he conveyed it to his wife in consideration of love and affection and $5.00 in cash. At that time Mr. Gray was not in debt. The deed was promptly recorded.

In 1930, Mr. Gray purchased the Chatham branch of the Crowell Auto Company and incorporated the concern in the name of the Chatham Motor Company, Inc. He had already purchased $10,000 of stock in the old company and used it as a part of the purchase price. He assumed an obligation of the old company due the Chatham Savings Bank for about $5,000. The new company was incorporated for $10,200, Mr. Gray owning $10,000 of the capital stock and his wife and brother each owning a $100 share. The corporation borrowed $6,000 from Mrs. Gray and $3,000 from Mr. Gray's brother, L. R. Gray. Notes were given by the Corporation for these loans and they were indorsed by Mr. Gray. The $9,000 derived from the two loans was used for the purposes of the corporation.

Business conditions for this company were not good from 1930 to 1933. The Chatham Savings Bank closed its doors on December 1, 1930, and at that time the corporation owed that bank some $5,900 and Mrs. Gray had had certificates of deposit in the bank aggregating $2,500 which she had endorsed to her husband, T. J. Gray. In the liquidation of the bank, Mr. Gray testified that 90% of the total of the certificates represented his funds and he was allowed to offset the certificates against his indebtedness due the bank. Mr. Gray stated that the certificates originally had been purchased by Mrs. Gray with her own money and after he had used them to offset the debt due the bank, he felt that he should repay her and therefore in 1934 he accepted the surrender value of certain policies of insurance and used the proceeds to repay Mrs. Gray for the certificates and 3 years' interest.

For the last portion of 1933 and the whole of 1934, 1935, 1936 and 1937, the Chatham Motor Company enjoyed prosperous business. Statements purporting to show the financial condition of the company were introduced. These were inaccurate, incomplete and insufficient to disclose the true financial status of the company for those years. In 1935, however, it was established that the company sold 150 new cars and more than 200 secondhand cars. This company won for that year the contest for the best sales in the district and a trip for Mr. Gray to California at the expense of the Ford Motor Company.

In August, 1935, the construction of a dwelling house was begun on the lot of Mrs. Gray which had been conveyed to her by her husband in 1928. She testified at great length that she furnished the entire sum of money that was necessary to pay the cost of the dwelling; that it cost $5,000 and that she provided the money in cash, turned it over to her husband, T. J. Gray, from time to time and he, in turn, deposited it in bank in his name. He signed the checks which were used to pay for the labor and materials. Gray corroborated his wife's testimony and Mr. Norman, the bookkeeper for the Chatham Motor Company, also testified that none of the money of the company was used to construct the dwelling.

Mrs. Gray stated that she was quite deaf and did not feel equal to handling this business and for that reason left it to her husband.

The first deposit in the bank account was $1,680 in cash. On the duplicate deposit slip is this notation: "Cash money received from Mrs. T. J. Gray for labor payroll for new home, " and the next duplicate deposit slip of September 18th for $200 bore this notation: "Money received from Mrs. T. J. Gray for new house". Thereafter other deposits were made in the account that exceeded the $5,000 cost of the dwelling by some $4,000. The house was completed early in 1936 and the Grays have lived there since. Later in 1936, the bank account was changed to the name of Mrs. Gray..

Mrs. Gray was a salaried worker for the Chatham Motor Company from the beginning of the company in 1930 until it was closed out in 1939. Her salary was $50 per month and she testified that she saved an amount in excess of $4,200.

In 1937, the business of the Chatham Motor Company increased and 180 new cars and 250 used cars were sold that year. The total business of the corporation that year was more than $200,000. Following this achievement a recession set in and business began to lag. A great number of cars were repossessed and had to be reconditioned entailing considerable added cost. In 1938, Mr. Gray needed additional funds for his business and the bank would not lend him or his company these funds unless Mrs. Gray indorsed the note. This she refused to do. At this time the life insurance policies on the life of Mr. Gray had a cash surrender value in excess of $4,000 and he and Mrs. Gray testified that they agreed that she would buy the policies and pay him $4,200 for them if he would have them properly assigned to her. This was finally accomplished in June, 1938, and, in accordance with the testimony of both of them, $4,200 in cash was paid by Mrs. Gray to Mr. Gray and she received the policies in exchange for the money.

The fact that Mrs. Gray actually paid over the $4,200 is evidenced by a receipt signed by Gray. This receipt was written by Mr. Norman, the bookkeeper, at the direction of Mr. Gray and Mr. Norman says that he saw Mrs. Gray give Mr. Gray an envelope that had money in it, but he did not know the amount but assumed it to have been $4,200, the amount set out in the receipt he had written. He also saw Mr. Gray pay from these funds the price of a load of automobiles which was delivered to the company at that time and which usually ran around $2,000 to $2,200.

In 1938, business was not good with the corporation and in 1939 this condition continued. The Ford Motor Company called upon Mr. Gray to put more money in the corporation and he attempted to comply with the request and to that end had a meeting with the interested representatives of the banks with whom he did business. The result of this meeting was not favorable but during the meeting there was testimony that Mr. Gray admitted his insolvency relating back to 1930, the beginning of the business. This testimony was contradicted by Mr. Gray.

Soon after the meeting the Ford Motor Company cancelled its contract with the Chatham Motor Company and still later the Chatham Motor Company made an assignment to the Planters Bank & Trust Co., trustee. The trustee has liquidated the assets of the corporation and distributed the proceeds. Mrs. Gray was one of the creditors to the extent of $5,000.

On September 26, 1939, Mr. Gray filed his petition in bankruptcy and was duly adjudicated a bankrupt. His liabilities were $32,000, representing largely his indorsement for the company. His assets were $300.

The trustee filed the present suit in April, 1940, the purpose of which, as already stated, is to...