Production Credit Ass'n of Minot v. Klein, 11085

• Decision Date: 10 April 1986
• Docket Number: No. 11085,11085
• Citation: 385 N.W.2d 485
• Parties: PRODUCTION CREDIT ASSOCIATION OF MINOT, Plaintiff and Appellee, v. Gerald A. KLEIN and Bernadette Klein, Defendants, and Adam Axtman and Margaret Axtman, Defendants and Appellants. Civ.
• Court: North Dakota Supreme Court

Page 485

385 N.W.2d 485

PRODUCTION CREDIT ASSOCIATION OF MINOT, Plaintiff and Appellee, v. Gerald A. KLEIN and Bernadette Klein, Defendants, and Adam Axtman and Margaret Axtman, Defendants and Appellants.

Civ. No. 11085.

Supreme Court of North Dakota.

April 10, 1986.

Pringle & Herigstad, Minot, for plaintiff and appellee; argued by John J. Petrik.

Joseph A. Turman, Fargo, for defendants.

McGee, Hankla, Backes & Wheeler, Minot, for defendants and appellants; argued by Donald L. Peterson.

GIERKE, Justice.

Adam and Margaret Axtman appeal from a summary judgment setting aside a conveyance of land from Gerald and Bernadette Klein to them as a fraudulent transfer. We reverse.

On August 1, 1972, the Axtmans, Bernadette Klein's parents, conveyed approximately 780 acres of land in Pierce County to the Kleins by warranty deed for $78,000. As security for payment of the purchase price, the Axtmans received a mortgage deed from the Kleins which set forth a payment schedule according to the conditions of three referenced notes. By 1981 Kleins had paid approximately $25,000 to the Axtmans. However, the Kleins did not make any payments after 1981 and by 1983 they were delinquent on approximately $6,500 in principal. On August 11, 1982, the Kleins filed a chapter 11 reorganization petition in bankruptcy court; however, on January 9, 1984, that petition was set aside. On February 7, 1984, the Kleins reconveyed the 780 acres back to the Axtmans by warranty deed.

The Kleins owed the Production Credit Association of Minot (PCA) on several loan agreements entered into in 1980 and 1981. The land in question was not security for those loans. On July 13, 1982, PCA commenced an action to collect the debt relating to those loans, and on April 2, 1984, PCA received a $414,621.28 judgment against the Kleins in that action.

Thereafter, PCA commenced the instant action against the Kleins and Axtmans alleging that the February 7, 1984 conveyance was made without fair consideration and while the Kleins were insolvent and seeking to set aside the conveyance as a fraudulent transfer. PCA moved for summary judgment, asserting that there was no issue of material fact as to whether or not the transfer was fraudulent. While PCA's motion was pending, the Kleins filed a chapter 7 liquidation petition in bankruptcy court, and PCA's action against the Kleins was stayed under the automatic stay provisions of the bankruptcy code. ¹ PCA and the Axtmans presented evidence on the motion for summary judgment concerning the value of the land and the consideration given for the conveyance. The district court determined that there was no genuine issue as to any material fact and granted summary judgment for PCA against the Axtmans alone, thereby setting aside the conveyance from the Kleins to the Axtmans.

On appeal, the Axtmans initially contend that PCA's action against them should have been stayed by the Kleins' bankruptcy petition. The Axtmans assert that the district court's decision, in effect, allowed a direct action against the Kleins.

It is well settled that the automatic stay provisions of the bankruptcy code extend only to the stay of an action against a debtor involved in a bankruptcy proceeding and not to co-defendants who are not involved in bankruptcy proceedings. E.g., Fortier v. Dona Anna Plaza Partners, 747 F.2d 1324 (10th Cir.1984). The Axtmans have cited no authority contrary to the overwhelming weight of authority, and we conclude that the instant action is not stayed as to them.

Before considering the parties' specific arguments concerning whether or not summary judgment was appropriate, we will briefly set out the pertinent standards for summary judgment. A motion for summary judgment will be granted only if, after viewing the evidence in the light most favorable to the party against whom summary judgment is sought, there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Allegree v. Jankowski, 355 N.W.2d 798 (N.D.1984); Rule 56, N.D.R.Civ.P. Summary judgment is a procedural device available for promptly and expediously disposing of a controversy without a trial when there is no dispute as to material facts and when only a question of law is involved. Zuraff v. Empire Fire & Marine Insurance Co., 252 N.W.2d 302 (N.D.1977). The party opposing a motion for summary judgment must receive the benefit of all favorable inferences which can be reasonably drawn from the evidence. Everett Drilling Ventures, Inc. v. Knutson Flying Service, Inc., 338 N.W.2d 662 (N.D.1983).

Section 13-02-04, N.D.C.C., deals with fraudulent conveyances and provided ²:

"13-02-04. Conveyances by insolvent. Every conveyance made and every obligation incurred by a person who is or thereby will be rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration."

PCA and the Axtmans agree that the Kleins were insolvent when the conveyance was made on February 7, 1984. The Axtmans contend that the district court erred in granting summary judgment because there was a genuine dispute as to the material facts and inferences deducible from those facts concerning whether or not the conveyance was made for less than fair consideration. PCA counters that the conveyance was fraudulent as a matter of law because it was made for less than fair consideration.

Section 13-02-03, N.D.C.C., defined fair consideration in language identical to Section 3 of the Uniform Fraudulent Conveyance Act and provided:

"13-02-03. Fair consideration. Fair consideration is given for property, or obligation:

"1. When in exchange for such property or obligation, as a fair equivalent therefor, and in good faith, property is conveyed or an antecedent debt is satisfied; or

"2. When such property or obligation is received in good faith to secure a present advance or antecedent debt in amount not disproportionately small as compared with the value of the property or obligation obtained."

Fair consideration under that section requires not only a fair equivalent but also includes an element of good faith. Huber v. Coast Investment Co., Inc., 30 Wash.App. 804, 638 P.2d 609 (1981); Cook, Fraudulent Transfer Liability Under the Bankruptcy Code, 17 Hous.L.Rev. 263, 279 (1980). A fair equivalent does not necessarily mean the exact equivalent and is not determined solely on a precise scale of the value of property conveyed and the price received, but all the surrounding circumstances must be considered to determine whether there is a reasonable and fair proportion between one and the other. John Ownbey Company, Inc. v. Commissioner of Internal Revenue, 645 F.2d 540 (6th Cir.1981); Zellerbach Paper Company v. Valley National Bank, 13 Ariz.App. 431, 477 P.2d 550 (1970); see Cook, Fraudulent Transfer Liability Under the Bankruptcy Code, supra. No one factor is determinative of whether or not fair consideration has been given and among the circumstances to be considered are the bargaining positions of the parties, the adequacy of the purchase price, and the marketability of the transferred property. Cook, Fraudulent Transfer Liability Under the Bankruptcy Code, supra, at 278. These factors recognize that fair consideration may not necessarily be an appraised or market value and that the entire factual circumstances of the transaction must be evaluated.

In the instant case, the Axtmans presented evidence that the February 7, 1984 transfer was either for the $49,603.31 recited on the deed or for the amount due under the mortgage, approximately $55,000. Gerald Klein also testified in his deposition that the $55,000 debt owed on the land did not include...