Polk v. Polk

• Decision Date: 19 July 1972
• Docket Number: No. 46439,46439
• Citation: 499 P.2d 1142,210 Kan. 107
• Parties: James K. POLK, Plaintiff and Appellant, v. Frank M. POLK and Margaret B. Polk, Defendant, and Dwayne Little, Garnishee and Appellee.
• Court: Kansas Supreme Court

Page 1142

499 P.2d 1142

210 Kan. 107

James K. POLK, Plaintiff and Appellant, v. Frank M. POLK and Margaret B. Polk, Defendant and Dwayne Little, Garnishee and Appellee.

No. 46439.

Supreme Court of Kansas.

July 19, 1972.

Syllabus by the Court

1. In general, the elements which comprise a fraudulent conveyance are first, an intent on the part of the grantor to hinder, delay or defraud his creditors and second, the participation of the grantee in such fraudulent scheme or such knowledge on the latter's part of facts and circumstances as would import knowledge of the fraud to him.

2. Certain badges or indicia of fraud are mentioned and briefly discussed.

3. Whether or not a conveyance is fraudulent as to creditors is largely a question of fact, and where findings of the trial court on such question are supported by substantial competent evidence, they are to be upheld on appeal.

4. The burden of establishing that a conveyance is fraudulent in character lies with the person who asserts it as a fact.

5. Where the circumstances surrounding the execution of a conveyance are such that an inference of fraud may be drawn therefrom, such inference is subject to being rebutted.

6. Although certain circumstances may give rise to an inference of fraud in the making of a conveyance, the law does not presume it, and a party who alleges that a conveyance has been effected in bad faith and for a fraudulent purpose has the burden of proving his allegations.

7. The record is examined and it is held that the findings and judgment of the trial court are supported by sufficient competent evidence.

David C. All, of Gaines & All, Augusta, argued the cause and was on the brief for appellant.

L. J. Bond, of Bond & Bond, El Dorado, argued the cause and was on the brief for appellee.

FONTRON, Justice.

The question presented on this appeal is whether the sale and assignment of a contract for the purchase of real estate was void as having been made to defraud creditors. This issue was tried out in the court below in garnishment proceedings, and no question is raised concerning the propriety or regularity of these proceedings. The trial court upheld the validity of the assignment and an appeal has been taken by the plaintiff-garnishor, James K. Polk.

For the sake of clarity we shall refer to the garnishor as plaintiff or James, and the garnishee, Dwayne Little, either as Little, or Dwayne. Frank M. Polk, the defendant in the original action and the present judgment debtor, will be called Frank.

Highly summarized the record reveals that James K. Polk and Frank M. Polk are brothers between whom the bonds of brotherly love and affection had become somewhat strained. On October 17, 1966, James filed an action against brother Frank and Margaret, his wife, to recover some $18,000. This lawsuit apparently stemmed from the sale of a Ford agency at Burden, Kansas. The action was eventually tried, and resulted in a judgment against Frank for $17,000, plus considerable interest.

Dwayne Little, the garnishee, is a brother-in-law of the Polk brothers, having married their sister. During the 1966 Thanksgiving season Mr. Little, accompanied by his wife, took his mother to Arizona where she was going to stay. On this trip the Littles visited in the home of the Frank Polks, who had moved to Arizona from their former home in Douglas, Kansas. At one time during the visitation, and following a telephone conversation between Frank and some unknown person, Frank told Dwayne that he wanted to sell a contract which he held on his Douglas home-that Douglas was about 1200 miles away and the contract was hard for him to sell where he was.

Mr. Little inquired what Frank wanted for the contract, which at the time carried an unpaid balance of approximately $7200, and Frank replied he would sell it for $3500. Little then said that if he could have a week after he got home he would see if he could raise the money, and if so, he would take the contract. On arriving home Mr. Little was able to borrow the money from his bank by giving a mortgage on his own home, and on December 5, 1966, he sent Frank a check for $3500. Frank's assignment of the contract to Dwayne was recorded on December 12, 1966.

The contract itself is not set out in the record, but the files of the bank in which it was escrowed show that it bore 5 3/4% interest and was payable in monthly amounts of some $52, each payment to be applied first on interest and the remainder on the unpaid principal. The last payment is shown to become due on April 1, 1986.

As we have previously said, James K. Polk recovered judgment against Frank in November, 1969. In the month of June, 1970, garnishment proceedings were initiated by James in which the issue ultimately became whether Frank's assignment of the real estate contract to Dwayne was valid or whether it was void as a fraudulent conveyance. The trial court found the contract to be valid and entered judgment in Little's favor on the following findings:

'. . . the Court, after considering the briefs filed and the evidence offered, finds that the garnishee had no knowledge that the defendants Frank M. Polk and Margaret B. Polk committed fraud in their assignment of the real estate contract referred to in the pleadings to Dwayne Little.

'The Court further finds that there was no attempt on the part of either of the defendants or the garnishee to defraud the plaintiff in any manner and the Court finds that the garnishee is not in any manner liable to the plaintiff on his answer in garnishment.'

The single point raised by the plaintiff on appeal is phrased in this fashion:

'The court erred in finding no fraudulent conveyance in a transaction wherein defendants Frank M. Polk and Margaret B. Polk conveyed a certain tract of real property and assigned an agreement for a Warranty Deed to Duane (sic) Little.'

It is the plaintiff's position, as we understand his argument, that the evidence of record presents a classic example of a fraudulent conveyance in that six so-called badges or indicia of fraud have been established, which in their total impact, constitute a prima facie case of fraud-and that this prima facie showing has not been rebutted.

There is little disagreement between the parties as to the legal principles applicable to fraudulent conveyances. In his brief the plaintiff contends that the elements of a fraudulent conveyance are first, an intent on the part of the grantor to hinder, delay or defraud his creditors and second, participation by the grantee in the fraudulent scheme or such knowledge of facts and circumstances by the grantee as would impute knowledge of the fraud to him. In general, this appears to be a fair statement of prevailing law. (McDonald v. Gaunt, 30 Kan. 693, 2 P. 871; Gollober v. Martin, Sheriff, 33 Kan. 252, 6 P. 267; 37 Am.Jur.2d, Fraudulent Conveyances, §§ 6-9, pp. 694-701.)

Continuing, the plaintiff calls attention to evidence which he maintains establishes six badges or indicia of fraud which he asserts are generally recognized; (1) a relationship between grantor and grantee; (2) the grantee's knowledge of litigation against the grantor; (3) insolvency of the grantor; (4) a belief on the grantee's part that the contract was the grantor's last asset subject to a Kansas execution; (5)...