Nelson v. Hansen

Citation278 Or. 571,565 P.2d 727
PartiesRobert T. NELSON, Respondent/Cross-Appellant, v. Leon F. HANSEN and Doris W. Hansen, husband and wife, Norman K. Winslow and Allan L. Hansen, Appellants/Cross-Respondents.
Decision Date07 June 1977
CourtSupreme Court of Oregon

T. W. Churchill, Salem, argued the cause for appellants/cross-respondents. With him on the briefs was Norman K. Winslow, Salem.

Malcolm L. Brand, Salem, argued the cause for respondent/ cross-appellant. With him on the brief was J. Ray Rhoten, of Rhoten, Rhoten & Speerstra, Salem.

TONGUE, Justice.

This is a suit by a creditor to impose a lien upon a fund representing the proceeds of the sale of the home of defendants Hansen after it had been previously conveyed by them to their attorney, defendant Winslow, as trustee, to be held by him as security for payment of his attorney fees in two suits against them by plaintiff and also as security for payment of previous loans from their son Allan.

The trial court held that the trust deed was void upon the ground that it was made with the intent of both defendants Hansen, as grantors, and defendant Winslow, as grantee, to defraud creditors, including plaintiff, and that although their son Allan was not "a party to the fraudulent transaction," a court of equity "will not lend its aid to enforce a trust tainted with fraud" for the benefit of such a third party.

Defendants appeal, denying any fraud and contending, among other things, that there was a "valid and fair consideration" for the transfer in the form of legal services by defendant Winslow and previous loans by son Allan and that a debtor may make a valid preference between creditors (subject only to the limitations imposed by federal bankruptcy law) and that this includes a preference to an attorney to secure him for payment of his attorney fees.

Plaintiff contends, on the contrary, that under ORS 95.070 a conveyance "made with the intent to hinder, delay or defraud creditors" is void; that under ORS 95.090 fraudulent intent is a question of fact; that the burden is shifted to the transferee to disprove fraud when there are sufficient "badges of fraud," as in this case; and that an attorney employed to represent an insolvent debtor has no lien on a fund in court for his compensation. Plaintiff also contends that defendants failed to sustain their burden to prove that the transfer was not in fraud of plaintiff as a creditor.

Because we try this case de novo as an appeal in a suit in equity it is necessary to review what we consider to be the more significant facts.

The deed and letter dated May 31, 1972.

In 1970 plaintiff sold to defendants Hansen by contract the Sunburst Motel for $178,000. Defendants' operation of the motel was not successful and they defaulted on the contract. On May 24, 1972, plaintiff filed a foreclosure suit against them. Meanwhile, plaintiff and defendants Hansen were also engaged as partners in operation of the Village Inn. Disagreements arose between the partners and dissolution proceedings also were filed by plaintiff against defendants Hansen on May 24, 1972.

On or about May 2, 1972, the Hansens engaged defendant Winslow, a Salem attorney, to represent them in connection with a proposed sale of the Village Inn. That representation soon extended to the defense of the two lawsuits.

On May 31, 1972, defendants Hansen executed a deed to their home to Winslow, "as trustee," accompanied by a letter by Winslow stating, among other things, that he was to hold title to secure payment of prior and future attorney fees in the pending litigation and also to secure an obligation of approximately $7,000 owed by Hansens to their son; that the deed was "purely by way of a security transaction and that I am not to have an ownership interest in the real property" ; that the "obligations" were to mature within one year or "at any earlier time that there should be a suit to foreclose the first mortgage, or an effort by (plaintiff) to 'reach' your interest therein pursuant to any judgment or decree obtained by him," and that Winslow had not estimated the amount of his fees at that time, but that his "time" would be "a substantial factor in the determination of that ultimate fee."

At the time of that deed and letter Hansens revealed their financial problems to Winslow and he knew that they were "in trouble" and could not pay their bills. He testified, however, that he did not know what the Hansens' assets were, but only thought that their interest in the house would be adequate to secure himself and Allan.

When asked whether the purpose of the transaction was "to avoid Nelson entirely," Mr. Winslow testified:

"No, certainly not entirely. Primary purpose was to secure my fees and advances and also because I was asked to do so to protect the interest of Allan Hansen."

Mr. Hansen had no recollection of that discussion. Mrs. Hansen testified, however, that the purpose of the deed was to "make sure that Mr. Winslow was paid his fees" and to give their son Allan some security for his loans, rather than to make it hard for Nelson to get anything."

The deed was recorded on June 6, 1972. The existence of the deed and letter were not then revealed to plaintiff or his attorney until July 1975. Mr. Winslow testified that he did not consider that he had any obligation to do so. Meanwhile, the Hansens continued to live in the house.

Subsequent events.

On October 29, 1972, while the partnership dissolution proceeding involving the Village Inn property was pending, plaintiff and the Hansens contracted to sell that property, following negotiations by Winslow. Funds from that sale were paid to Winslow and were deposited by him in a trust account. When payments became delinquent on that contract Winslow filed a complaint on behalf of Hansens. That suit eventually proceeded to a decree of foreclosure in favor of Nelson and Hansens.

Meanwhile, on April 12, 1973, following an opinion dated February 26, 1973, a decree of foreclosure was entered against Hansens in the sum of $163,571.86 in the Sunburst Motel case. An unsuccessful appeal was then taken by Winslow to this court in that case. See Nelson v. Hansen, 269 Or. 197, 523 P.2d 1248, decided July 5, 1974. Meanwhile (according to Winslow), because Hansens were unable to post a supersedeas bond and in an attempt to protect them from execution pending appeal, Hansens, on March 1, 1973, conveyed to Winslow, as trustee, their interest in the Village Inn property, and also assigned to him their interest in the contract for the sale of that property. That deed was recorded on March 5, 1973, but plaintiff and his attorney were not then notified of the deed or assignment.

On December 28, 1973, the Hansens contracted to sell their house, retaining the right to live in it for one year and under an arrangement by which the proceeds of the sale, $21,259.58, were deposited in escrow subject to the claims of Winslow and Allan Hansen. Mr. Winslow also prepared and filed on January 30, 1974, a claim for homestead exemption on behalf of the Hansens in the sum of $7,500.

In October 1974 the Hansens conveyed their last asset to Winslow, consisting of real property in Nebraska.

Mr. Winslow offered time records in evidence to support the amount of his claims for legal services in the sum of $20,900. The trial court found that these fees were reasonable and there is no such issue on this appeal. Also, checks totaling $6,500 were offered in evidence to support the amount of the loans claimed by son Allan Hansen and the amount of such loans is not an issue on this appeal. These sums exceed the amount deposited in escrow as the proceeds of the sale of the house. Meanwhile, Hansens are in bankruptcy and it appears that there may be no other substantial assets available to plaintiff, as a creditor.

ORS 95.070 provides as follows:

"Conveyance, transfer or device to defraud, hinder or delay creditors. Every conveyance or assignment in writing or otherwise of any estate or interest in lands, goods or things in action, or of any rents or profits issuing therefrom, and every charge upon lands, goods or things in action, or upon the rents or profits thereof, made with the intent to hinder, delay or defraud creditors or other persons of their lawful suits, damages, forfeitures, debts or demands, and every bond or other evidence of debt given, suit commenced, decree or judgment suffered with the like intent, as against the person so hindered, delayed or defrauded is void." (Emphasis added)

ORS 95.090 provides that fraudulent intent is a question of fact.

On the other hand, a debtor may prefer one creditor over another, provided that the purpose of the transaction is not to defraud other creditors; that there was a fair and adequate consideration for the transfer and that there was no reservation to the debtor of any benefit. See Boone, et al. v. Burden, 259 Or. 402, 404, 487 P.2d 74 (1971); Maidment v. Russell, 159 Or. 653, 664, 81 P.2d 136, 82 P.2d 692 (1938); Hesse v. Barrett, 41 Or. 202, 68 P. 751 (1902); and Jolly v. Kyle, 27 Or. 95, 39 P. 999 (1895).

Similarly, it is established in Oregon, as in most states, that a debtor who is about to be sued in court may transfer assets to his attorney in consideration of future legal services in such litigation and that such transfers will also be upheld against the claims of other creditors when the purpose of the transfer was not to defraud other creditors, where the consideration was fair and adequate and no benefit was reserved to the debtor. See Annot., 45 A.L.R.2d 500, 504 (1956). The reason for such a rule has been stated by this court in Morrell v. Miller, 28 Or. 354, 364, 43 P. 490, 493 (1896), as follows:

" * * * The purpose of making such use of his property as to secure able counsel to conduct his defense, and to attend to other apprehended litigation, was perfectly legitimate. His right to be heard by counsel is a...

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