Rainier Nat. Bank v. McCracken
| Decision Date | 23 June 1980 |
| Docket Number | No. 7433-4-I,7433-4-I |
| Citation | 26 Wn.App. 498,615 P.2d 469 |
| Parties | RAINIER NATIONAL BANK, a National Banking Association, Respondent, v. Troy F. McCRACKEN, Individually, and Nancy M. McCracken, his wife, Individually, and the marital community composed thereof; and Sea-Van Mechanical, Inc., a Washington Corporation, Defendants, Josephine M. Wetherill and Ernest H. Wetherill, her husband, and the marital community composed thereof, Appellants. |
| Court | Washington Court of Appeals |
Weinrich, Gilmore & Adolph, Robert J. Adolph, Lance C. Dahl, Seattle, for respondent.
Appeals are taken in these consolidated cases from a judgment and three orders of the Superior Court in a fraudulent conveyance case.
The judgment appealed from was based on findings that the conveyance of a seller's interest in a real estate contract was a fraudulent conveyance.
Two of the three orders appealed from were pretrial orders. One ordered the transferees of the contract conveyed to them by the fraudulent conveyance to pay the proceeds they received from the contract into the registry of the court. The order was a contempt order which imposed a $100 per day fine on the transferees based on their refusal to comply with the first order.
The third order appealed from was entered after the case had been tried and a creditor of the original transferor had obtained a money judgment against the transferees of the It is necessary to an understanding of the issues presented to review the factual background of the case in some detail. Those facts, as they appear in the trial court's findings of fact and from uncontroverted documents admitted into evidence, are as follows.
contract who had collected the full balance owing on the contract. This order jailed the transferees for contempt because they refused to account for the disposition of the contract proceeds when required to do so by an order on supplemental proceedings.
Troy F. McCracken 1 owned and operated a business known as Sea-Van Mechanical, Inc. That firm did its banking business with Rainier National Bank and had since 1972. In order to get the credit needed by his firm, McCracken executed a personal guaranty to the bank to cover the indebtedness which his firm owed.
By 1976, McCracken was insolvent and was also heavily in debt to the bank. That situation pertained at all times herein referred to. McCracken's only asset of substantial value was a house. On June 24, 1976, he sold the house to a third party by a real estate contract. The contract provided that the purchaser would pay McCracken a balance of approximately $45,000 in installments of $404.88 per month.
On that same date, McCracken entered into an agreement with his mother, Josephine Wetherill and with her husband, Ernest H. Wetherill. This agreement was denominated "Loan and Option Agreement." Under its terms, the Wetherills were to loan McCracken $16,800 and, as security for their loan, obtain back an executed "Seller's Assignment of Contract and Deed" from McCracken. In the event the $16,800 loan was not fully repaid to the Wetherills by McCracken within 6 months, the agreement gave the Although at the later trial the judge expressed considerable skepticism as to whether the initial $16,800 was ever actually paid by the Wetherills to McCracken (allegedly in small bills), the trial court in that trial went on to hold, however, that it had not been proven they didn't pay the money and proceeded to enter a finding that they had. The final $16,000 was clearly paid by the Wetherills on January 24, 1977 and under the terms of the "Loan and Option Agreement," they became owners of the entire seller's interest in the real estate contract as of that date. Thus, the Wetherills purchased McCracken's entire seller's interest in the contract on which approximately $45,000 was owing for the sum of $32,800.
Wetherills the option to purchase McCracken's entire interest in the contract for an additional $16,000.
Later that year, on September 8, 1977, the bank obtained a judgment in the sum of $86,669.87 against McCracken. It was during the bank's efforts to collect on that judgment that the details of McCracken's disposition of his house were discovered. It was also then that this course of litigation was commenced by the bank against the Wetherills.
The bank's position was and is that McCracken's sale of his interest in the contract to the Wetherills was a fraudulent conveyance which defrauded McCracken's creditor, namely the bank. The bank's further position was and is that since the Wetherills received the proceeds obtained from a refinancing of the real estate contract by the contract purchaser, the bank was at least entitled to a judgment against the Wetherills for whatever the contract was worth over and above whatever they paid McCracken for it.
It was during the pendency of the bank's suit against the Wetherills that the bank obtained a court order requiring the proceeds the Wetherills' received from the contract, some $43,879.30, to be deposited into the registry of the court "pending the final resolution of this matter or pending further order of this court." That order is here appealed from by the Wetherills as is the contempt judgment finding the Wetherills in contempt of court because of their failure The Wetherills filed a counterclaim against the bank based on claimed abuse of process. They asked $500,000 general damages, $13,000 attorneys' fees and $100 per day to cover the continuing contempt fine they had been ordered to pay.
to pay the contract proceeds into court and assessing a fine of $100 per day against them until they comply with the court's order. The order requiring the contract proceeds to be paid into the registry of the court was never obeyed and the $100 per day fine was never paid.
The case was tried to the court.
At the close of the trial, the trial court found and concluded from the evidence presented that the conveyance of the seller's interest in the contract from McCracken to the Wetherills was a fraudulent conveyance in violation of this state's fraudulent conveyance act, RCW 19.40, and that it was made in bad faith and for inadequate consideration. The trial court also found that the Wetherills in turn received proceeds from the pay off on the contract in the sum of $12,075.24 over and above what they had given McCracken for it. The trial court also held for the bank on the alternative equitable ground that the Wetherills had been unjustly enriched at the bank's expense in that same amount. On both grounds, the bank was given judgment against the Wetherills for $12,075.24.
The trial court based its determination that there was a fraudulent conveyance on the following facts which it found existed.
At the time of the transaction, McCracken was insolvent and deeply in debt to the bank. The $32,800 consideration McCracken presumably received from the Wetherills was inadequate in that $45,000 was owing to him on it, and that shortly before the Wetherill transaction, McCracken had refused a cash offer for the sale of the house exceeding what he received from the Wetherills. The transaction was between close relatives, namely mother and son. The threat of litigation was inherently present because of the large debt McCracken owed the bank and the extreme financial The trial court also relied on the existence of certain elements of concealment and departure from the usual means of handling such a transaction in ruling as it did. These included that the installment payments received on the contract by the Wetherills from the purchaser of the house were placed in a secret manner in a savings account which had a false name on it. On January 24, 1977, the same day that the Wetherills made their $16,000 payment which gave them the right to McCracken's interest in the contract, they opened a savings account into which they put the monthly payments received on the contract. That account named Mr. and Mrs. Wetherill as co-owners along with one "N. Nelson." At her deposition, Mrs. Wetherill testified under oath that "N. Nelson" was Nellie Nelson, her 75-year-old sister, when, in fact, "N. Nelson" was Nancy Nelson McCracken, the then wife of Mrs. Wetherill's son. Furthermore, Mrs. Wetherill did not file the "Seller's Assignment of Contract and Deed" dated July 1, 1976 for public record until June 16, 1978, when it was filed in response to the bank's collection efforts just before the bank commenced garnishment proceedings. That was a filing delay of almost a year and a half after the Wetherills became the owners of the contract.
trouble he was in at the time. The house represented McCracken's only substantial asset.
At trial, in addition to granting the bank judgment for $12,075.24 against the Wetherills, the trial court dismissed the Wetherills' counterclaim against the bank with prejudice because of the Wetherills' failure to present any evidence in support of it.
Subsequent to obtaining its judgment against the Wetherills, the bank commenced supplemental proceedings against them in an effort to collect its judgment. As the culmination of lengthy and unsuccessful efforts to recover on the judgment, the Superior Court ordered the Wetherills jailed from 7:30 a. m. to 5:30 p. m. daily until such time as they obeyed the court's order to make a full and complete accounting of the proceeds they had received from the sale This appeal presents four issues.
of the real estate contract (or until they paid the judgment against them). 2
ISSUE ONE. Did the trial court err in determining that the transaction in question was a fraudulent conveyance?
ISSUE TWO. Did the trial court err in dismissing the abuse of process counterclaim with prejudice?
ISSUE THREE. Did the trial court err in entering a pretrial order requiring that the contested funds be paid into...
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