Magic City Coal & Feed Co. v. Lewis

• Decision Date: 04 May 1915
• Citation: 164 Ky. 454,175 S.W. 992
• Parties: MAGIC CITY COAL & FEED CO. ET AL. v. LEWIS ET AL. [d1]
• Court: Kentucky Court of Appeals

175 S.W. 992

164 Ky. 454

MAGIC CITY COAL & FEED CO. ET AL. v. LEWIS ET AL. ^[d1]

Court of Appeals of Kentucky.

May 4, 1915

Appeal from Circuit Court, Harlan County.

Consolidated actions by the Magic City Coal & Feed Company and others against H. C. Lewis and others. Judgment for defendants, and plaintiffs appeal. Reversed.

F. F Acree and Zeb A. Stewart, both of Harlan, for appellants.

Clay &amp Carter, of Harlan, for appellees.

HANNAH J.

A number of actions were instituted in the Harlan circuit court by certain creditors of H. C. Lewis, for the purpose of subjecting to their demands certain real estate alleged to have been fraudulently conveyed by the debtor. These actions were consolidated, and upon trial the chancellor gave the plaintiffs personal judgments for their claims, but declined to subject the property in question to the payment thereof and the plaintiffs appeal.

It appears from the evidence that during the year 1911, and before August 15, 1912, H. C. Lewis, being engaged in the merchandise business, became indebted for merchandise to the appellants; that on August 15, 1912, there was lodged for record, and recorded in the office of the clerk of the Harlan county court, a deed from H. C. Lewis to his wife, Rhoda E. Lewis, and his son, S.W. Lewis, conveying to them certain lands situated in the county of Harlan, of the value of some $6,000 or $8,000. It further appears that on August 23, 1912, there was lodged for record and recorded in the office of the clerk of the Harlan county court a deed from C.J. Lewis (a son of H. C. Lewis), conveying to Rhoda E. Lewis a certain parcel of land in Harlan county. This deed recites a consideration of $4,000 in hand paid, and also that it is executed in satisfaction of a certain mortgage given by the grantors to H. C. Lewis. It was charged by the plaintiffs that the true consideration of this latter conveyance was the discharge and satisfaction of an indebtedness of $2,000 owing by said C.J. Lewis to H. C. Lewis, and that H. C. Lewis caused the conveyance to be executed to his wife for the purpose of hindering and defrauding the latter's creditors. The same charge was made concerning the conveyance from Lewis to his wife. Soon after the recordation of these conveyances, Lewis ceased to conduct the merchandise business in which he had been engaged, and his creditors began the institution of actions to recover on their claims against him.

The judgment appealed from recites no reasons for the action of the chancellor in dismissing the petitions as to Rhoda E. Lewis and S.W. Lewis, and declining to subject to the demands of the creditors of H. C. Lewis the lands conveyed to them by him; but it is urged by appellees upon appeal that the plaintiffs failed to produce any proof of fraud in connection with those conveyances, and we assume that it was upon this theory that the chancellor acted.

1. There are circumstances which so frequently attend upon conveyances intended to hinder, delay and defraud creditors that they are denominated "badges of fraud"; and while they do not raise a conclusive presumption of fraud, their effect is to impose certain duties upon the grantee in the conveyance upon which such badges of fraud attend. 20 Cyc. 439. As was said by this court in Commonwealth v. Filiatreau, 161 Ky. 434, 170 S.W. 1182:

"It is a wise and ancient rule that fraud is not to be presumed; that a presumption of innocence, and of good faith, and of fair dealing, attends upon all the lawful transactions of all men; and that upon him who asserts a charge of fraud is cast the burden of sustaining his accusation. But, while fraud is not to be presumed, it is not required of him who charges it that he should enter into the secret councils of the perpetrators thereof and wrest therefrom the direct evidence of their wrongdoing. Fraud may be inferred; circumstances may be shown of such character as to create inferences making peremptory demand for explanation."

So, where badges of fraud attend upon a conveyance, their effect is to shift to the grantee the burden of evidence; and he must rebut the inferences thereby created, and sustain the bona fides of the transaction. Lavelle v. Clark, 38 S.W. 481, 18 Ky. Law Rep. 759; Oldham's Adm'x v. Oldham, 141 Ky. 526, 133 S.W. 232; Wiggington v. Minter, 88 S.W. 1082, 28 Ky. Law Rep. 79; Treadway v. Hogg, 119 S.W. 742; Perry v. Krish, 157 Ky. 109, 162 S.W. 555; Stix v. Calender, 155 Ky. 806, 160 S.W. 514, 48 L. R. A. (N. S.) 615.

2. Fictitiousness of consideration and false statements and recitals as to consideration of a conveyance are badges of fraud. Drane v. Underwood, 1 Ky. Law Rep. 317; Enders v. Swayne, 8 Dana, 103. The deed from Lewis to his wife and son recites a consideration of $3,000 in hand paid "by exchange of land in Virginia." No such conveyance or exchange of lands is shown to have been made. As to the deed from C.J. Lewis to Rhoda E. Lewis, it is conceded by her answer that the consideration therein recited is not the true consideration for that conveyance.

3. Inadequacy of consideration is also a badge of fraud under some circumstances. Herrin v. Morford, 9 Dana, 450; Behan v. Warfield, 90 Ky. 151, 13 S.W. 439, 11 Ky. Law Rep. 960. The lands conveyed by Lewis to his wife and son are shown to have been worth from two to three times the consideration recited in the conveyance.

4. Concealment of, or failure to record, the conveyance is a badge of fraud, and must be rebutted. Scrivenor v Scrivenor, 7 B. Mon. 374; Hildeburn v. Brown, 17 B. Mon. 779. The conveyance from Lewis to his wife...