McCaslin v. Schouten

• Decision Date: 19 June 1940
• Docket Number: No. 106.,106.
• Citation: 292 N.W. 696,294 Mich. 180
• Parties: McCASLIN v. SCHOUTEN et al.
• Court: Michigan Supreme Court

294 Mich. 180

292 N.W. 696

McCASLIN

v.SCHOUTEN et al.

No. 106.

Supreme Court of Michigan.

June 19, 1940.

Action by William R. McCaslin, receiver of Grand Rapids Savings Bank, a Michigan bankig corporation, against John H. Schouten, Grace L. Schouten and another, to secure a lien on property occupied by the named defendants as a homestead. From a decree, plaintiff appeals and named defendants cross-appeal.

Case remanded for entrance of a decree in accordance with opinion.Appeal from Circuit Court, Kent County; Leonard D. Verdier, judge.

Argued before the Entire Bench.

Alexander, McCaslin & Cholette, of Grand Rapids (McCobb & Heaney, of Grand Rapids, of counsel), for plaintiff-appellant.

Smith, Strawhecker & Wetmore, of Grand Rapids, for John H. Schouten and Grace L. Schouten, defendants and cross-appellants, and for Michigan Trust Co., defendant and appellee.

NORTH, Justice.

In June, 1937, defendant John H. Schouten was adjudged liable for a statutory stockholder's liability of $10,066.50 to the bank of which plaintiff is receiver. After return of execution unsatisfied plaintiff filed the bill herein and, for reasons hereinafter noted, sought a lien to secure payment upon certain property occupied by defendants Schouten as a homestead and to which they held title as tenants by the entireties. They purchased this property prior to January 30, 1926, and on that date they mortgaged it to the defendant Michigan Trust Company for $15,000. Payments made by Mr. Schouten in June and July, 1937, reduced the mortgage debt to $5,400. The Schoutens claim that of the money paid $1,496 was of funds which belonged to Mrs. Schouten. The balance was of money admittedly obtained by Mr. Schouten from the sale of securities which he owned. He was insolvent at the time the payments were made. In October, 1937, the Schoutens gave a new mortgage to the Trust Company for $8,000, thereby satisfying the earlier mortgage and obtaining from the Trust Company $2,600. While the earlier mortgage and note were marked paid, they were retained by the Trust Company; and the discharge of that mortgage was not executed by the mortgagee until the hearing of this case was pending. However that circumstance is of no material consequence because the bona fides of the $8,000 mortgage is not questioned.

The plaintiff claims that all of the $9,600 paid on the mortgage in 1937 belonged to Mr. Schouten, and that its payment and the corresponding enlargement of the equity held in the mortgaged property by defendants Schouten as tenants by the entireties was a fraud in law on the bank of which plaintiff is the receiver. Plaintiff being dissatisfied with the amount of the lien decreed in the circuit court, and also dissatisfied because the lien decreed was made subordinate to a fixed interest of defendants Schouten, has appealed. Defendants Schouten claim that the payment of $9,600 on the mortgage was only the exercise of Mr. Schouten's right to prefer one creditor over another, that it was not a fraud in fact or in law, and since they took title to their property by the entireties long before plaintiff's claim accrued, the trial court erred in decreeing a lien thereon to plaintiff. They have also appealed.

Being insolvent at the time and indebted to the bank, in so far as Mr. Schouten invested or used his individual funds to pay the mortgaged debt on the entireties property and thereby placed or attempted to place his individual property beyond the reach of his creditors, the transaction constituted a fraud in law. Such payment cannot be held proper on the theory that Mr. Schouten was indebted to the mortgagee and had a right to pay that creditor in preference to others. Instead the payment on the mortgage debt was tantamount to an investment of Mr. Schouten's funds in property which he and his wife would hold as tenants by the entireties; and thus he would hinder and possibly prevent his creditors from reaching the funds invested by him. With a mere substitution of names the following applies to the instant case: ‘But, * * * under the reasoning of the decision above quoted from, Alexander Wallace, while he was indebted to the plaintiff, had no right to tie up an additional sum * * * in an estate by the entireties and make no provision whatever for the payment of the few hundred dollars that he owed the bank, especially in view of the fact that by a simultaneous transaction he had disposed of all his personal property * * *.’ First State Bank v. Wallace, 201 Mich. 673, 167 N.W. 887, 889.

Regardless of intent, such investment or use of Mr. Schouten's individual funds was a fraud in law. Newlove v. Callaghan, 86 Mich. 297, 48 N.W. 1096,24 Am.St.Rep. 123;Michigan Beef & Provision Co. v. Coll, 116 Mich. 261, 74 N.W. 475;Foster v. Whelpley, 123 Mich. 350, 82 N.W. 123;Caswell v. Pilkinton, 138 Mich. 138, 101 N.W. 212; First State Bank v. Wallace, supra; Lemerise v. Robinson, 241 Mich. 528, 217 N.W. 911;Jaffe v. Ackerman, 279 Mich. 304, 272 N.W. 685.

We cannot accede to the contention that since it resulted in paying pro tanto the mortgage obligation, Mr. Schouten's payment of $9,600 on the mortgage cannot be said to have been without ‘a fair equivalent therefor’; and therefore under the statute (Comp.Laws 1929, §§ 13394, 13395; Stat.Ann. 26.883-4) the payment must be considered as one not ‘fraudulent as to creditor.’ What constitutes ‘a fair equivalent’ or ‘a fair consideration’ under the Fraudulent Conveyance Act must be determined from the standpoint of creditors. The debtor might be satisfied to give his assets to a stranger or to exchange them for some worthless chattel. But the law will not permit him to do so if he thereby renders himself uncollectible to the detriment of his creditors. In general the test would seem to be whether the ‘conveyance’ by the debtor, which ‘includes every payment of money’ (Comp.Laws 1929, § 13392; Stat.Ann. 26.881), renders the debtor execution proof. By his payment of $9,600 on the mortgage indebtedness, Mr. Schouten rendered himself to that extent less solvent, because prior thereto he had assets in his own right available to his creditors to the extent of $9,600, but after the payment on the mortgage covering property held by the entireties, not only was this amount of Schouten's assets placed beyond the reach of his creditors, but not even Schouten himself, without the consent of his wife, could apply this or an equivalent amount in satisfaction of his debts. The additional interest which Mr. Schouten received in the entireties property by paying $9,600 of his moeny on the mortgage debt was not as to his creditors ‘a fair equivalent’ or a ‘fair consideration’ for the $9,600 of personal assets which he possessed prior thereto. In effect what Mr. Schouten did amounted to an investment of $9,600 of his personal assets in property to which he and his wife held title by the entireties. He was insolvent at the time and in law the transaction under the Uniform Fraudulent Conveyance Act was a fraud on his creditors.

The question is presented as to the amount in which plaintiff should be allowed a lien against the entireties property of the Schoutens. All of the $9,600 constituting the six payments made on the mortgage during June and July 1937, by Schouten came from the sale of securities in which he...