Production Credit Ass'n of Mandan v. Olson

• Decision Date: 18 June 1979
• Docket Number: No. 9577,9577
• Citation: 280 N.W.2d 920
• Parties: PRODUCTION CREDIT ASSOCIATION OF MANDAN, North Dakota, a Corporation, Plaintiff and Appellee, v. Alvin Otos OLSON, Defendant and Appellee, Judith P. Garlington, Defendant and Appellant, and Helen E. Olson, Defendant and Appellee. Civ.
• Court: North Dakota Supreme Court

Page 920

280 N.W.2d 920

PRODUCTION CREDIT ASSOCIATION OF MANDAN, North Dakota, a Corporation, Plaintiff and Appellee, v. Alvin Otos OLSON, Defendant and Appellee Judith P. Garlington, Defendant and Appellant and Helen E. Olson, Defendant and Appellee.

Civ. No. 9577.

Supreme Court of North Dakota.

June 18, 1979.

Rehearing Denied July 11, 1979.

Bair, Brown & Kautzmann, Mandan, for plaintiff and appellee, Production Credit Association of Mandan; argued by Malcolm H. Brown, Mandan.

Mackoff, Kellogg, Kirby & Kloster, Dickinson, for defendant and appellant, Judith P. Garlington; argued by Gordon W. Schnell, Dickinson.

Dale W. Moench, Dickinson, for defendant and appellee, Helen E. Olson.

Jerome L. Jaynes, Bozeman, Mont., for defendant and appellee, Alvin Otos Olson; no appearance.

ERICKSTAD, Chief Justice.

Judith Garlington appeals from a district court judgment dated September 11, 1978, that held the transfer of certain real estate from the defendants, Alvin and Helen Olson, to defendant, Judith Garlington, was a fraudulent transfer of real property pursuant to Sections 13-01-05 and 13-02-04, N.D.C.C. The judgment also provided that title to the property remain in Alvin and Helen Olson, subject to a previous judgment of the plaintiff, Production Credit Association of Mandan (PCA). We affirm.

In 1964, John and Pearl Olson conveyed 560 acres of real estate located in Adams County, North Dakota, which is the subject matter of this lawsuit, to their son, Alvin Olson. They also conveyed 320 acres each to their daughters, Judith Garlington and Joyce Olson. John and Pearl reserved a life estate in each of the conveyances. In 1965, Joyce died. In 1973, John died, and on March 16, 1974, Pearl released her life estate in the property conveyed to Alvin and Judith.

Following the conveyance of the property, Alvin was in farming and cattle feeding business with his wife, Helen, and also owned other real estate. In 1968, Alvin and Helen began to finance their business through PCA. They continued to borrow money from PCA, signing their last promissory note in November, 1974, for an amount in excess of $500,000. These PCA obligations were secured by security agreements covering cattle, machinery, and real estate. PCA did not have a security interest in the real estate involved in this action.

Late in 1974, PCA advised Alvin that it could no longer finance his operation due to his increased debt. Alvin subsequently began to liquidate his operation. By June, 1975, the Olsons had liquidated all of their cattle and machinery and some of their real estate, but were still indebted to PCA in the amount of $237,579.33.

On July 8, 1975, PCA brought suit in Adams County District Court seeking to foreclose on real estate mortgages given by Alvin and Helen on real estate located in Adams County, but not including the 560 acres involved in this action. On February 10, 1976, judgment was entered in favor of PCA for $172,989.94. On May 6, 1976, the real property subject to the judgment was sold and PCA subsequently commenced a deficiency judgment action against Alvin and Helen for the balance. On April 5, 1977, the district court awarded PCA a deficiency judgment of $98,250.92.

Prior to these lawsuits by PCA, Alvin and Helen transferred the 560 acres in question to Alvin's sister, Judith Garlington. Although the date of this conveyance is disputed, the district court found that the deed, dated December 4, 1974, was signed on April 25, 1975, and recorded on April 29, 1975. On April 26, 1975, Judith transferred the real property back to Helen Olson by quit claim deed. In February, 1977, Alvin obtained the original of the quit claim deed and destroyed it.

PCA instituted this action against Garlington and Alvin and Helen Olson by amended summons and complaint dated December 9, 1977, alleging that the transfer of the property to Garlington was fraudulent and should be set aside.

The district court made the following conclusions of law, all of which are in essence challenged on this appeal:

"CONCLUSIONS OF LAW

"The transfer of the property described above from the Defendants, Alvin Otos Olson and Helen E. Olson, to the Defendant, Judith P. Garlington, was made with intent to delay and defraud the Plaintiff, Production Credit Association, from collection of a valid debt against the Defendants, Alvin Otos Olson and Helen E. Olson, was part of a scheme and plan by the Defendants, Alvin Otos Olson and Helen E. Olson, to deliberately deprive the Plaintiff of a means of realizing their total indebtedness, and was made without valid, legal or fair consideration and thereby rendered the Defendants, Alvin Otos Olson and Helen E. Olson, insolvent and as to the Plaintiff, Production Credit Association, is a fraudulent transfer within the meaning of Sections 13-01-05 and 13-02-04 of the North Dakota Century Code, is void and is hereby set aside.

"II

"Title to said property remains in the Defendants, Alvin Otos Olson and Helen E. Olson, as their interest appeared prior to the Deed dated December 4, 1974, subject to the Judgment of the Plaintiff, Production Credit Association against said property in the amount of $98,250.92 as of April 5, 1977.

"III

"As the purported transfer from Alvin Otos Olson and Helen E. Olson to the Defendant, Judith P. Garlington, is void and has hereby been set aside, the purported transfer of said property from the Defendant, Judith P. Garlington, and her husband, to the Defendant, Helen E. Olson, was ineffectual."

The appellant states the following issues for review in this court:

"(1) Whether a fraudulent transfer was sufficiently pleaded so as to state a claim upon which relief can be granted, despite the failure to allege either insolvency or intent to defraud.

"(2) Whether the elements of insolvency or intent to defraud were sufficiently proven to establish a fraudulent transfer, as a matter of law.

"(3) Whether Helen's testimony should have been barred under the husband-wife privilege statute in effect at the time of the communication testified to."

Garlington first argues that PCA failed "to plead the essential elements of the statutory remedies which it is seeking." Sections 13-01-05 and 13-02-04, N.D.C.C., are the relevant statutes and provide as follows:

"13-01-05. Transfers with intent to defraud or delay creditors are void. Every transfer of property or charge made thereon, every obligation incurred, and every judicial proceeding taken, with intent to delay or defraud any creditor or other person of his demands, whether or not the same is valid as between the parties thereto, is void as against all creditors of the debtor and their successors in interest and against any persons upon whom the estate of the debtor devolves in trust for the benefit of others than the debtor."

"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."

See also Section 13-02-07, N.D.C.C.; H. A. Thompson & Sons, Inc. v. Hahn, 135 N.W.2d 166 (N.D.1965).

Garlington argues that PCA did not properly allege in its complaint in this action that Alvin made the transfer in question with "intent to delay or defraud any creditor", which is an element of Section 13-01- 05, N.D.C.C., and it did not allege that the transferor "is or thereby will be rendered insolvent," which is required by Section 13-02-04, N.D.C.C.

PCA responds that its complaint constituted a sufficient pleading pursuant to the North Dakota Rules of Civil Procedure. PCA also argues that because Garlington did not make a motion to dismiss the complaint at any time for lack of a specific allegation, even if the issues were not properly raised by the pleadings, they were tried with the parties' consent. See Anderson v. Mooney, 279 N.W.2d 423 (N.D.1979); Sobolik v. Vavrowsky, 146 N.W.2d 761, 766 (N.D.1966).

PCA contends that paragraph IX of its amended complaint and the prayer for relief provide the crucial allegations:

"IX

"By Warranty Deed dated December 4, 1974, but actually signed on or about April 25, 1975, the defendants, Alvin Otos Olson and Helen E. Olson, transferred to defendant, Judith P. Garlington, the following described real property located in Adams County, North Dakota:

Said transfer was made without consideration, was made to remove said property from the effects of a potential judgment by the plaintiff, Production Credit Association, against the defendant, Alvin Otos Olson, and was part of a scheme and plan by Alvin Otos Olson to deliberately deprive the plaintiff of a means of realizing the total indebtedness of the defendants to the plaintiff.

"WHEREFORE, the plaintiff prays as follows:

"1. That the Court determine that the purported transfer of said real property from the defendants, Alvin Otos Olson and Helen E. Olson, to the defendant, Judith P. Garlington, purportedly on or about December 4, 1974, be set aside as a fraud,"

Although the prayer for relief does not constitute part of the complaint, the court may look to the prayer for relief as a means of clarifying the contentions of the parties and the issues raised. Trauger v. Helm Bros., Inc., 279 N.W.2d 406 (N.D.1979); In re Murray, 145 N.W.2d 899 (N.D.1966), Overruled on other grounds, Kee v. Redlin, 203 N.W.2d 423, 426 (N.D.1973); Rank v. Krug, 90 F.Supp. 773 (S.D.Cal.1950).

Rule 8, N.D.R.Civ.P., provides the general rules of pleading, and subsections (a), (e), and (f) are especially relevant:

"(a) Claims for relief. A pleading which sets forth a claim for relief, whether an original claim, counterclaim, cross-claim, or third-party claim, shall contain (1) a short and plain statement of the claim showing that the pleader is entitled to relief, and (2) a demand for judgment for the relief to which he deems himself entitled. Relief in the alternative...