Rolapp v. Ogden & N.W.R. Co.

• Decision Date: 03 June 1910
• Docket Number: 2116
• Citation: 110 P. 364,37 Utah 540
• Parties: ROLAPP v. OGDEN & NORTHWESTERN RAILROAD COMPANY et al
• Court: Utah Supreme Court

110 P. 364

37 Utah 540

ROLAPP v. OGDEN & NORTHWESTERN RAILROAD COMPANY et al

No. 2116

Supreme Court of Utah

June 3, 1910

On Application for Rehearing, August 1, 1910.

Appeal by Emil S. Rolapp, trustee, against the Ogden & Northwestern Railroad Company and others.

From the judgment the plaintiff appeals.

REVERSED WITH DIRECTIONS.

Richards Davis & Boyd for appellant.

APPELLANT'S POINTS.

Did the court err in overruling the demurrer of the plaintiff to the affirmative answer of defendant Smith? Or, in other words was the court authorized to give defendant Smith the relief given under it, or under the first part of his answer?

The answer upon which he relies alleges conclusions merely and no specific facts and, hence, is insufficient to put the plaintiff upon a defense thereto and all evidence under it was erroneous. That fraud must be specifically pleaded has been repeatedly established by this court. (Vorhees v Fisher, 9 Utah, 303, at p. 306; Selz v. Tucker, 10 Utah 132, at p. 134; Wilson v. Sullivan, 17 Utah 341, at p. 349, 350; Claflin v. Simon, 18 Utah 153, at p. 158-9; Bank v. Little, 13 Utah 265, at p. 274; Vorhees v. Bonesteel, 83 U.S. 16, 21 L.Ed. 268 and cases cited.)

Could defendant Smith as a subsequent creditor attack the validity of the trust deed or bonds, either as to lack of consideration or fraud?

That he was a subsequent creditor clearly appears from the pleadings and from his answer. He admits the existence and recording of the trust deed in issue on February 20, 1904 (par. 4, Ab. 51), and alleges his own judgment as of January and April, 1908 (Ab. 54). Then could he attack the conveyance or bonds? The authorities are to the contrary. They hold that subsequent creditors have no more interest in prior conveyances that the debtor has made than have subsequent purchasers as to prior conveyances. (Toledo Co. v. Continental Co., 36 C. C. A. 155, at p. 187; Graham v. Railroad Co., 102 U.S. 148, 26 L.Ed. 106; approved in Hollins v. Brierfield Co., 150 U.S. 371, 37 L.Ed. 1113, at p. 1116; Porter v. Steel, 120 U.S. 673; Schmidt v. Dahl, 93 N.W. 665, at p. 668 [Minn.].)

Even if defendant Smith's judgments were prior in time to the trust deed, can he attack it under the answer?

The cases go even further than those we have cited above and hold that, even if the creditor be, in fact, prior he must show certain facts or that he has done certain acts before he can attack the validity of an incumbrance like this. Before he can attack a prior incumbrance or mortgage he must have secured a judgment, with execution and return of nulla bona or similar process. In other words he cannot attack it until he has exhausted his legal remedy; and he must show in his pleadings for relief against such prior incumbrance, by proper allegations, upon the ground of fraud or otherwise, that he has exhausted such legal remedy before he can ask for equitable relief. (Thompson v. Van Vechten, 27 N.Y. 568, 582; Chandler v. Colcord, 32 P. 330, at p. 335 [Okla.]; Sullivan v. Miller, 13 N.E. 772, at p. 774 [N.Y.]; Tolbert v. Chandler, 18 N.W. 647, at p. 648 [Minn.].)

J. N. Kimball and Halverson & Pratt for respondents.

RESPONDENT'S POINTS.

The averments in Smith's answer are undoubtedly sufficient under the following authorities: (Bull v. Ford, 4 P. 1175; Thelkel v. Scott, 34 P. 851; Hager v. Shindlar, 29 Cal. 60; In Re Patton, 42 P. 459.)

In the case at bar, no consideration was given, and the act of the board of directors was ultra vires and void, and Smith had a right to show the mortgage was a nullity regardless as to whether he was an existing or subsequent creditor. But it has always been held that that a subsequent creditor could attack a voluntary conveyance where it was executed with intent to deprive future creditors of the means of enforcing the collection of their debts. It was said in Burdick v. Gill, 7 F. 668: "The well settled rule is that where a conveyance is intentionally made to defraud creditors, it is void as to all subsequent as well as prior creditors," and it is certainly within the rule to say that if the conveyance is made with a view to defrauding subsequent creditors, it is, as to them, void, although all prior creditors are paid in full. Citing: (Story Eq. Juris, 362 et seq.; Bump on Fraudulent Conveyances, 311; Sexton v. Wheaton, 8 Wheat, 229; Kerr on Fraud and Mistake, 206, 207; I Am. Lead. Cases, Hare & Wallace's notes (5 Ed.), 42 and cases cited in note 2-xx.)

If a person, when about to contract debts, makes a voluntary conveyance, with actual intent to deprive his future creditors of the means of enforcing collections of their debts, and this purpose is accomplished, it is very clear that such subsequent creditors are injured and defrauded. (Burdick v. Gill, 7 F. 668; Crawford v. Beard, 8 P. 537; Spuck v. Logan, 99 Am. St. Rep. 427; Huggins v. Perrine, 68 Am. Dec. 131; Brundage v. Cheneworth, 63 Am. St. Rep. 382; Hagerman v. Buchanan, 14 Am. St. Rep. 732; Winchester v. Charter, 12 Allen, 606; Bump on Fraudulent Conveyances (2 Ed.), 319; 24 Cent. Dig., Secs. 14-15; Cols. 28-30.)

It is not necessary, under the authorities, that the conveyance should be made with actual intent to hinder, delay or defraud creditors. "Fraud is established in such a case by inference or presumption. It may be inferred or presumed from the nature and character of the transaction itself or from facts or circumstances connected with it. If the necessary result of the act is to place the debtors property beyond the reach of legal process, so as to delay creditors, it will be presumed it was done with fraudulent intent." (Crawford v. Beard, 8 P. 541; Cutcheon v. Buchanan, 50 N.W. 756 [Mich. ] See Gustin v. Matthews, 25 Utah 168.)

FRICK, J. STRAUP, C. J., and McCARTY, J., concur.

OPINION

FRICK, J.

On March 13, 1908, appellant, as trustee, began this action in the district court of Weber County, Utah, to foreclose two mortgages in the form of trust deeds, which, it was alleged, were executed and delivered to the trustee by the Ogden & Northwestern Railroad Company, a corporation, hereinafter styled Railroad Company, to secure the payment of certain bonds issued by said company. The first one of the trust deeds was dated February 20, 1904, and was given to secure eighty bonds of five hundred dollars, each, which were dated January 1, 1904, made payable in twenty years from date with five per cent. interest, payable semi-annually on the first days of July and January of each year, interest payments to begin with July 1, 1904. The second trust deed bore date September 15, 1904, and was executed and delivered by said Railroad Company to the trustee to secure forty bonds of five hundred dollars each, dated January 1, 1904, payable in twenty years from date with five per cent. interest, payable semi-annually on the first days of July and January of each year, interest payments to begin on July 1, 1905. The complaint is in the usual form in foreclosure proceedings and conforms to the statute of this state, and each set of bonds, and the trust deeds securing the same, are set forth in separate causes of action in the complaint.

The property that was included within the trust deeds is in each of said deeds described as follows: "All of the real estate and buildings of the Ogden & Northwestern Railroad Company, all tracks, rails laid, sidings, turnouts, bridges, depots and stations, cars, motors, engines, and other stock and equipment, snowplows, tools, implements, easements and privileges, materials on hand, furniture, and fixtures, all franchises and rights of way, and all personal property used in connection with the said line of railway, now owned or hereafter acquired, used on the present mileage by this company, and to be used in connection with said line of railroad, being located in the counties of Weber and Box Elder, state of Utah."

The only parties who were made defendants to the action when it was commenced were the railroad company aforesaid and one A. R. C. Smith, who, it was alleged, claimed "some interest or lien upon the aforesaid mortgaged property." Mr. Smith died after he had filed his answer, and the executors of his last will and testament were substituted as defendants. We shall treat the case as if Mr. Smith were defending in person.

Mr Smith, in his answer, after various admissions and denials, affirmatively averred that he, on January 30 and April 22, 1908, obtained judgments against said company in the district court of Weber County, Utah, amounting in the aggregate to $ 3781.25, which were wholly unpaid; that said judgments (one for costs and the other for damages) were obtained in one action instituted against said company by said Smith to recover damages for the destruction of his property by fire negligently set by the Railroad Company. We remark that the property was destroyed, and said action was commenced several years after the bonds and trust deeds in question were executed and delivered. Mr. Smith also averred that the trust deeds set forth in the complaint were made and delivered "without any consideration moving to his codefendant from the plaintiff or any other person." He further averred as follows: "He further alleges upon information and belief that said mortgages were recorded by his said co-defendant with the purpose and intent to hinder, delay, and defraud any and all creditors that it might thereafter have, and he further, upon his information and belief, alleges: That said mortgages were delivered to the plaintiff as aforesaid, and accepted by him, with the purpose and intent of hindering, delaying, and defrauding this defendant, and preventing him from enforcing the collection of his said judgments." Mr. Smith also denied that the trust deeds were ever delivered to the...