McKee v. Hendricks
| Decision Date | 14 July 1924 |
| Docket Number | 125 |
| Citation | 264 S.W. 825,165 Ark. 369 |
| Parties | MCKEE v. HENDRICKS |
| Court | Arkansas Supreme Court |
Appeal from Howard Chancery Court; C. E. Johnson, Chancellor reversed.
Decree reversed in part, affirmed in part and cause remanded.
DuLaney & Steel, and Will Steel, for appellants.
1. This suit is brought under C. & M. Digest, § 70, and, as to the creditors, also under §§ 4874 and 4876 Id. The mortgage was a fraudulent conveyance, under the first named statute. The term "or otherwise" used therein, is sufficiently broad to include a fraudulent conveyance by mortgage. The court will look to the substance of the transaction rather than to the form, and will not permit that to be done indirectly which it would declare void if done directly. 52 Ark. 43; 106 Ark. 411; 136 Ark. 56. A subsequent grantee with notice of fraud stands in the attitude of the original grantee. 55 Ark. 116; 57 Ark. 573; 113 Ark. 101. The burden of proof is on the grantee to show sufficient property retained to pay debts. 55 Ark. 59. And a voluntary conveyance by one in debt is prima facie fraudulent. 91 Ark. 394; 124 Ark. 74. A gift to one occupying confidential relations will be scrutinized with the most jealous care (40 Ark. 28), and the evidence to establish such a gift must be clear and convincing. 93 Ark. 548. Evidence as to subsequent possession and acts of ownership on the part of the vendor or donor is admissible on the point whether or not the gift was made. 10 Ark. 211. Likewise, prior and subsequent declarations of the donor are admissible on that issue. 14 Ark. 505; 50 Ark. 283; 15 Ark. 246; 59 Ark. 303.
2. The delivery of the certificate of deposit, if made, was not a gift. The burden of proof was on the defendant to show that a gift in fact was made. 142 Ark. 308. As to the conveyance of the fifteen acres to Hendricks without consideration, the presumption, in the absence of evidence, is that he now holds as trustee for the heirs. And the preponderance of the evidence shows that in putting the money in the bank at Hope in the name of John B. Hendricks, it was the purpose of Lou Jones to use him merely as his bailee, and at all times thereafter to control the title and use of the money. The decision in Moore v. Waldstein, 74 Ark 275, indicates that the purpose of the act of 1895 is to cover not only the immediate grant, but also those holding under the original grantee, and that, so long as one takes with notice of the fraud, the remedy is provided against such person. The mortgage was executed with intent to delay creditors, and, so long as the funds can be traced in to the hands of holders with notice, the heirs, in the name of the administrator, can recover it. Hendricks, in the beginning was clearly the bailee for Lou Jones. That relation, once having been shown to exist, is presumed to continue. 22 Ark. 466. See also 93 Ark. 548; 13 S.W. 1101; 107 Ark. 581; 12 R. C. L. 469; Id. 470; 52 Ark. 459. Under these authorities, since the grantee in the mortgage was an innocent taker, the loan, which was the property in a changed form, stood in substitution for the property fraudulently conveyed.
3. The execution by Lou Jones of the $ 12,000 mortgage was the first step in conveying lands with intent to delay creditors. 12 R. C. L. 477.
O. A. Graves and W. P. Feazel, for appellee.
1. There was no fraud in the mortgage. There can be no fraud in the transfer of property if, at the time of the transfer, the grantor retains sufficient property to pay all his debts then existing. 8 Ark. 470; 29 Ark. 407. The contention that the mortgage was executed with a fraudulent design is inconsistent with the proof of the value of the farm mortgaged, which is shown by their own witnesses to be worth much less than the sum secured by Jones on the mortgage. The substitution of one asset for another as valuable by an insolvent debtor cannot prejudice or defraud the creditors, and is not a fraud upon them. 132 Ark. 268. Section 70, C. & M. Digest, relied on as authority for the administrator and heirs to bring suit, is in derogation of the common law, and should be strictly construed. It has been construed as conferring no right upon an administrator to bring suit for the benefit of heirs of a fraudulent grantor of personal property. 77 Ark. 60. If a creditor has not been injured or damaged by an alleged fraudulent transaction, he cannot complain. 30 Ind.App. 73, 63 N.E. 881. See also 31 Ark. 554; 20 Cyc. 413; 18 Ark. 172.
2. Under the authorities above cited, there was no fraud in the gift of the $ 9,500 by Lou Jones to Hendricks.
3. The creditors are not sincere in this case. It is apparent by the record that they have entered into an alliance with the administrator and heirs for the use of their names and their rights to thwart a disposition by Jones of his own property in the manner in which he desired it to go, and to divert it to uses that he tried to hedge against in his lifetime. They have no right, either in law or in equity, under the guise of enforcing their rights, to divert property to other uses than the payment of debts. 20 Cyc. 718; 19 Ga. 401.
4. There was a completed gift to Hendricks. When Jones deposited the $ 9,500 in the bank at Hope in the name of John B. Hendricks, and gave him the certificate of deposit, the title to said money by that transaction passed out of Jones and vested in Hendricks. 79 Ark. 24; 43 Ark. 318; 93 Ark. 562; 59 Ark. 191; 152 Ark. 343; 155 Ark. 593.
5. If the gifts were invalid as to creditors, they should not be disturbed except in so far as to protect them. 20 Cyc. 617, par. IV; 20 Id. 819; 59 N.W. 977; 66 S.W. 790; 74 Tex. 28; 109 Cal. 662; 118 Iowa 238; 38 Barb. 302; 40 N.C. 47; 5 F. 752.
OPINION
This suit was instituted in the chancery court of Howard County by the creditors and heirs of L. H. P. Jones and the administrator of his estate, for the benefit of the creditors and the heirs, to recover certain lands and the proceeds derived from the mortgage of others alleged to have been conveyed and mortgaged for the purpose of hindering and delaying his creditors in the collection of their just demands. The suit was instituted under § 70, C. & M. Digest.
There was an amendment to the complaint alleging that there was never a completed delivery of the $ 9,500 hereinafter referred to, and that the possession thereof by appellee Hendricks was that of a mere bailee.
The intestate, Jones, referred to by the witnesses as Lou Jones, owned a farm of 600 acres, and he also owned a 15-acre tract of land and two lots in the town of Mineral Springs. In addition, he owned certain personal property, which the inventory of the administrator of his estate showed to be worth $ 1,300.
Jones had been a stockholder and director of a bank in Mineral Springs, which failed in May, 1921. He owed the bank, at the time it closed its doors, $ 850, evidenced by a note payable to the bank's order. He owned $ 850 of the capital stock of the bank, against which a stockholder's liability for that amount was being asserted by the State Bank Commissioner, who had taken over the bank.
There was some testimony that a suit was threatened by certain of the stockholders against the officers of the bank for mismanagement, and Jones appeared to have consulted a lawyer in regard to his possible liability on that account. This suit was never brought, however.
The bank was the depository for a large amount of public funds, consisting principally of money belonging to some road districts, but certain officers of the bank made good this deposit. This was not done, though, until after Lou Jones had mortgaged his farm.
Jones was shown to have felt resentful about the bank's failure, and to have said that he would not pay his stockholder's liability until he was compelled to do so, but he stated that he would pay if the court said that he must. A suit to enforce this liability and one on his note to the bank were pending at the time of his death, but judgments on these demands were not recovered until after his death.
Certain demands were probated against Jones' estate, and these, with the judgments in favor of the bank, totaled $ 2,066.28.
Jones had never been married, and was survived by a brother, who was in impecunious circumstances, a sister, and the widow of a deceased brother, who left surviving him two infant children, and his stepmother. Jones was on the most cordial terms with all these persons, and he spent a portion of the summer before his death in the fall with his sister-in-law, who resided in Oklahoma, and discussed with her the question of her accompanying him on his trip west for his health.
Jones was suffering from consumption, and had been for about two years before his death, and he finally died from this disease. He lived principally with a Mrs. Hendricks, whose son, a young man twenty-two years old, named John B. Hendricks, the defendant below, had been very attentive to him, and who had devoted much of his time to nursing and caring for Jones during the last two years of Jones's life.
Jones applied for and obtained a loan on his farm amounting to $ 12,000, to secure which he gave a mortgage on the farm, and he also executed a second mortgage on the farm to secure a loan of about $ 2,000. The testimony is very conflicting as to the value of this land. Certain witnesses testified that the mortgages on the land equaled its value, and that the equity of redemption was worth nothing. According to other witnesses, the land had not been mortgaged for more than half it value. After considering this testimony we have concluded that the equity of redemption was worth as much as $ 5,000.
After executing this mortgage, Jones gave John B. Hendricks a deed to the fifteen...
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