Johnson v. Rutherford

• Decision Date: 21 May 1914
• Citation: 147 N.W. 390,28 N.D. 87
• Parties: JOHNSON v. RUTHERFORD (two cases).
• Court: North Dakota Supreme Court

28 N.D. 87

147 N.W. 390

JOHNSON

v.RUTHERFORD (two cases).

Supreme Court of North Dakota.

April 16, 1914.

On Petition for Rehearing, May 21, 1914.

Syllabus by the Court.

This is a creditor's bill in equity to obtain a decree that the real and personal property, formerly belonging to John Rutherford, deceased (transferred by deeds and bill of sale to his wife one day before he died), is a part of the decedent's estate, and subject to administration, and that the transfers were made in fraud of creditors. Held, where such transfers are made without valuable consideration, and to avoid administration, though with no specific intent in the grantor or grantee to defraud the grantor's creditors, but when the conveyances divested the grantor of all his property, rendered his estate insolvent, and operated to defeat the collection of debts owing by decedent, the conveyances must be held to have been made in fraud of creditors.

A fraudulent conveyance vests title in the grantee, who takes the property subject to its being charged by administration proceedings, aided by an equitable action as this, with any debts owing by the estate, for the payment of which the property or its proceeds may be taken.

In taking the property for such purposes, resort should be had first to the personalty, and then, for any deficiency unpaid, to the realty.

The decree in equity, holding property thus subject to payment of debts to be established by county court administration, should designate the claimant and adjudge that his claim has been approved by the county court for a stated amount, that the plaintiff suing has been appointed the personal representative and maintains the action for the benefit of said claimant, the facts concerning the transfer and the insolvency thereafter of the grantor and his estate, that the transfer was in fraud of creditors, the identity of the property conveyed, and the order in which it may be resorted to and applied, and that the same is subject to the payment of the approved claim exhibited in the creditor's bill, with administration costs of its collection, and by interlocutory decree require and direct the property be held in status quo subject to the final determination of the debt in the course of administration, whenever it shall appear that the grantee in good faith desires to litigate in probate court the validity of the debt on which the claim is asserted. After the final determination of the county court on the validity of the debt a final decree in this equitable action may be entered, dealing with both the property and the costs of this action on trial and on this appeal.

The question of the indebtedness of the estate to the claimant, and the amount of such indebtedness, if any, cannot be an issue in the equitable action, and the judgment in such action should not pass upon such question or find such indebtedness, but leave that for the determination of the county court or the district court on appeal taken.

The county court's record of the appointment of the administrator, and its approval of the creditor's claim against the estate, so far as the district court action is concerned, incontestably establishes the power of the plaintiff to sue, and that there is prima facie a debt owing by the estate, and its amount, for which the property shall respond, if it be determined to have been conveyed in fraud of creditors and the estate be insolvent.

Where the decedent leaves no estate, but leaves debts unpaid, and where property has been transferred shortly before his death by fraudulent conveyances to avoid payment of claims or administration of his estate, and where no personal representative has been appointed, the order of proceedings to enforce payment of claims is by statute intended to be: (a) A petition by the creditor for administration, reciting his claim to establish his interest or right to petition; (b) the appointment thereon of an administrator; (c) giving of usual notice by the administrator to present claims within the statutory period; (d) presentment by the creditor, who petitioned for administration, of his verified claim to the administrator, and its allowance and approval by the representative and the court; (e) suit by the administrator to recover, under Rev. Codes 1905, § 8173, for the benefit of those creditors whose claims shall be approved by the county judge in usual course, the property so fraudulently conveyed, and which may thus be held subject to administration for the payment of claims to be established in county court.

The district court sustained a demurrer to a plea of payment, and rejected evidence tending to prove full payment of the claim approved by the county court and as such the basis of this action; it being the sole claim made against the estate in administration proceedings. Held proper; the district court having no jurisdiction to entertain a joinder of issue or receive evidence thereon of payment. The approval by the county court, even though ex parte, is a prima facie determination sufficient under the statute to furnish a basis for the equitable action, and as such conclusive upon the district court upon the question of debt.

By section 111 of the state Constitution the county court “shall have exclusive original jurisdiction in probate and testamentary matters, the appointment of administrators and guardians, the settlement of the accounts of executors, administrators and guardians.” This constitutional provision confers upon the county court exclusive original jurisdiction to determine and enter judgment upon the validity of claims against estates of decedents, and the district court has no jurisdiction to pass upon the validity of the debt of estates to claimants other than appellate jurisdiction, and therefore the district court in the equitable action has no jurisdiction to determine or pass upon the validity of the claim in question.

Neither the appointment of the administrator nor the approval by the county judge of claimant's claim against the estate afford an opportunity to litigate the validity of his claim, or constitute, as against this grantee of property fraudulently conveyed, an adjudication of the validity of the debt, even though the grantee participated in a hearing had for such purpose. The law does not contemplate that the validity of claims shall be litigated or preference in establishment of claims afforded merely on hearing the petition for administration, or on proceedings had on approval of the claim. The approval of a claim on its presentation is an ex parte matter affording no opportunity to contest, and from which approval there is no appeal allowed.

Probate procedure contemplates that claims allowed by the administrator and the county court shall not be fully litigated on presentation for such allowance, but the validity of a claim so allowed may be tried on the hearing to be had on the personal representative's accounting, or upon his application to sell property, had on notice, from any of which an appeal from the judgment passed by the probate court may be taken, on the items of the account thus litigated, to the district court, and there retried. An appeal is also allowed from a claim established in county court by the confirmation of the report of a referee appointed by consent, and from which an appeal to the district court may be taken. The district court, on such appeal, acts as an appellate tribunal, with judgment to be entered under its order in the probate court.

This equitable action in district court is but ancillary to and in aid of the administration proceedings in county court, wherein the grantee may hereafter, in the course of administration, interpose the defense of payment sought to be urged in this district court action, and upon which the judgment herein entered is not res adjudicata as to further litigation of the debt in county court.

Pending trial on the merits of the claim that may be had on an accounting of the administrator, under section 8123, before he shall take charge of any property in the grantee's possession, the court properly stayed execution of judgment or sale of property until final judgment in the county court as to the validity of claimant's claim against the estate.

Appeal from District Court, Cass County; Pollock, Judge.

Bill in equity by L. C. Johnson, as administrator of the estate of John Rutherford, deceased, against Mary Rutherford. From the judgment both parties separately appeal, and a trial de novo is had. Modified and affirmed, and rehearing denied.

W. J. Courtney, of Page, for plaintiff. M. A. Hildreth, of Fargo, for defendant.

GOSS, J.

This action in equity is brought to have property owned by John Rutherford, now deceased, and by him transferred to his wife, Mary Rutherford, declared subject to an alleged debt of decedent. The administrator was appointed to collect said claim, approved by the county judge as a valid demand for $789.50. At his death Rutherford left no estate. On trial this action was dismissed as to the real estate, but the personal property was held subject to disposition by the probate court to the amount of the claim. The widow attempted to prove that said claim had been fully paid, and offered in evidence canceled checks and receipts for about $900, asserted to have been paid thereon. This proof was excluded, and the approval of the claim by the county judge was held to be res adjudicata of its validity in this action, and that the matter of payment was one within the sole cognizance of the probate court, except as it might reach the district court by appeal from probate court. The trial court found that all the property was both transferred and received with no actual intent to defraud, hinder, or delay collection of debts. From this finding the administrator appeals, demanding trial de novo of the entire case. The trial court further found that the note was an unpaid, outstanding, valid claim against the estate of the...