Leavengood v. McGee

• Decision Date: 20 August 1907
• Citation: 50 Or. 233,91 P. 453
• Parties: LEAVENGOOD v. McGEE et al.
• Court: Oregon Supreme Court

91 P. 453

50 Or. 233

LEAVENGOOD v. McGEE et al.

Supreme Court of Oregon

August 20, 1907

Appeal from Circuit Court, Douglas County; J.W. Hamilton, Judge.

Suit by C.J. Leavengood, as trustee in bankruptcy of P.T. McGee against James T. McGee and others. From a decree in favor of plaintiff, defendants appeal. Reversed.

Plaintiff sues, as a trustee in bankruptcy of P.T. McGee, a bankrupt to set aside, as fraudulent as to his creditors, two deeds ultimately conveying to J.T. McGee certain lots in the town of Myrtle Creek, Douglas county. James T. McGee and Ruth, his wife, Frances, wife of P.T. McGee, and the McGee Company, a corporation, are made defendants. The first of these deeds is alleged to have been made on November 29, 1897, by P.T. McGee and his wife, for the expressed consideration of $2,600, to the McGee Company, which was incorporated on that date by P.T. McGee, his wife, and son Hugh, with a capital stock of $5,000, for the purpose of carrying on a general merchandise business at Myrtle Creek. But it is alleged that no stock was subscribed or paid for; that the corporation was not organized, and for that reason had no power or authority to make or enter into a contract for the purchase of real property; that, in fact, no contract was made by and between P.T. McGee and the corporation for the purchase of real property described in the deed; but that the conveyance was voluntary, and wholly without consideration, and made with the intent and purpose of putting the title in such a condition that it could not be reached by McGee's creditors. The second deed is alleged to have been made on March 2, 1902, by the McGee Company, conveying the same property to James T. McGee, also a son of P.T. McGee, for the expressed consideration of $1,000, when the company was in failing circumstances and unable to meet its liabilities, and was in fact insolvent; that the execution of the deed was not authorized by any acting board of the corporation, and was without consideration, and was made for the purpose of putting the property beyond the reach of the creditors of P.T. McGee and of the corporation, with the intent and for the purpose of defrauding them. It is also further alleged that since the making of this conveyance P.T. McGee has had the management and control of the property thereby conveyed to James T. McGee, and has collected the rents, and has assumed to be, and is in fact, the owner of the property that claims amounting to about $1,500 have been presented and allowed against the estate of P.T. McGee, and that the debts which are the basis of these claims were incurred at divers dates between January 1, 1897, and December 1, 1904; that the assets of the estate amount to no more than the sum of $60. A demurrer to the complaint was interposed, assigning all of the grounds allowed by statute, which being overruled, J.T McGee answered separately, with a general denial of the complaint, and alleging affirmatively that about March 1, 1898, P.T. McGee and his wife sold and conveyed the real property mentioned in the deed, together with some store fixtures and a stock of goods, to the defendant company for the consideration of $2,600; that the corporation held the title and the possession of the lots until December 14, 1900, when it sold and conveyed the lots to him for the sum of $1,000, which he paid, and that his transaction with the company was in good faith, without notice or knowledge of any intended fraud by P.T. McGee or by the company upon his or its creditors. The remaining defendants answered jointly to the same effect. Plaintiff replied, denying the new matter of the separate answers. The cause was referred to a referee for the taking of testimony, and, on his report coming in and being considered by the court, findings were made in plaintiff's favor, and thereon a decree was entered, setting aside each of the deeds, and the property ordered sold and the proceeds applied to the payment of the indebtedness of P.T. McGee, as allowed in the administration of his estate as a bankrupt. From this decree all of defendants appeal.

C.S. Jackson, for appellants.

J.C. Fullerton, for respondent.

On Motion to Dismiss.

SLATER C. (after stating the facts as above).

At the hearing in this court a motion to dismiss the appeal was entered by plaintiff on the ground that the original testimony, and other papers in this cause, on which the decree of the circuit court was based, had not been transmitted to the clerk of this court as required by section 553, subd. 1, B. & C. Comp., and by rule 1 of this court (37 P. v). Before argument thereon defendants filed a counter motion, supported by an affidavit, for an order on the county clerk of Douglas county requiring him to complete the record by forwarding all the testimony and exhibits produced at the trial in the court below. A transcript in this case was filed in this court on June 15, 1906, which, besides the pleadings, includes copies of the findings, the decree, notice of appeal, and undertaking on appeal. No question is made by plaintiff that any of the necessary steps to perfect the appeal were omitted or were not taken in the time required by law to confer jurisdiction upon this court of the cause, and the filing of such a transcript here did confer jurisdiction. The filing of the testimony was not necessary to confer jurisdiction, and its absence would not destroy that jurisdiction, for there may be questions arising upon the pleadings to be tried on appeal, as well as whether the decree is supported by the pleadings and the findings; but the absence of the testimony would prevent this court from trying the case de novo on the facts. The plaintiff's motion, however, amounts to a suggestion of a diminution of the record, and the deficiency may be supplied on order at any time before the final disposition of the cause. B. & C. Comp. § 445. The motion, therefore, must be denied, and, the testimony having been received by the clerk since the submission of the case, it should be ordered filed.

On the Merits.

It will not be necessary to separately consider the questions raised by the demurrer, but it will be considered and disposed of along with the merits. On behalf of defendants the contention is made that, before a creditor can maintain a suit to set aside as fraudulent a conveyance of his debtor, he must either establish his claim by judgment or acquire a lien by attachment; and such is the rule in this state. Dawson v. Coffey, 12 Or. 513, 8 P. 838; Dawson v. Sims, 14 Or. 561, 13 P. 506; Bennett v. Minott, 28 Or. 339, 39 P. 997, 44 P. 288; Matlock v. Babb, 31 Or. 516, 49 P. 873; Fleischner v. Bank of McMinnville, 36 Or. 553, 54 P. 884, 60 P. 603, 61 P 345. And they further contend that a trustee in bankruptcy, having no greater authority, is bound by the same rule, citing 30 Stat. 566, c. 541 (section 70, subd. "e," Bankr. Act Cong. July 1, 1898 [U.S.Comp.St.1901, p. 3452]), which is as follows: "The trustee may avoid any transfer by the bankrupt of his property, which any creditor of such bankrupt might have avoided, and may recover the property so transferred, or its value, from the person to whom it was transferred, unless he was a bona fide holder for value prior to the date of the adjudication. Such property may be recovered or its value collected from whoever may have received it, except a bona fide holder for value." This rule that a creditor must reduce his claim to a judgment before he will be allowed to attack in a court of equity a conveyance of his debtor for fraud is based upon two reasons: (1) That the claim must be a liquidated claim, so that an equity court will not be required to stop and inquire into the validity of the claim. The object of a creditors' bill is not to ascertain or determine the amount and validity of the claim or debt, but that is the province of the law. (2) A judgment and the issuance of an execution and its return nulla bona is required as an evidence that all of the remedies at law have been exhausted before resort is made to equity. This is the reason of the law, but there are exceptions to the general rule. Note to section 1415, Pomeroy's Equity. A judgment is not necessary to enable a trustee in bankruptcy to maintain a suit to set aside transfers of property by the bankrupt in fraud of creditors, since under the bankruptcy act neither the trustee nor the creditor whom he represents could obtain such a judgment. Mueller v. Bruss, 112 Wis. 406, 88 N.W. 229. But a method is provided by the procedure in bankruptcy whereby the claims of creditors may be legally adjudicated and before the trustee should be permitted to attack by a suit in equity the conveyance of the bankrupt he shall allege and prove by the record of the referee that such procedure has been followed and that the claims on which he bases his contention have been ascertained and established. In this...