Rudy v. Austin

• Decision Date: 09 April 1892
• Citation: 19 S.W. 111,56 Ark. 73
• Parties: RUDY v. AUSTIN
• Court: Arkansas Supreme Court

19 S.W. 111

56 Ark. 73

RUDY v. AUSTIN

Supreme Court of Arkansas

April 9, 1892

APPEAL from Crawford Circuit Court in Chancery, HUGH F. THOMASON Judge.

STATEMENT BY THE COURT.

This was an action instituted by John M. Rudy against James L Austin and Mamie B. Austin, to quiet his title to two certain town lots in Van Buren, and for other purposes. Plaintiff alleged in his complaint that Daniel H. and Mary Divilbliss conveyed the lots to him on the 15th day of June, 1870; that afterwards, sometime in the month of April, 1879, his father George H. Rudy, being indebted to M. Lynch, J. Neal and James L. Austin in about the sum of five thousand dollars, entered into an agreement with them, by which he, George H. Rudy promised that he, as natural guardian of plaintiff, who was then a minor, would apply to the probate court for an order authorizing him, as such guardian, to sell the lots, and Lynch, Neal and Austin agreed to purchase the same at such sale and take them in full satisfaction of George H Rudy's indebtedness to them; that subsequently George H. Rudy, as such guardian, made application to the probate court for, and procured, an order to sell the lots for the ostensible purpose of getting money to rear and educate plaintiff, and for re-investment; and, on the 17th of May, 1879, sold the same at public action to the said Lynch at and for the sum of $ 2000, he being the highest bidder therefor; that Lynch purchased and held the lots in trust for himself, Neal and Austin, until afterwards when, Austin having purchased his and Neal's interest, he conveyed the same to Austin; and that Austin thereafter conveyed the same, without consideration, to his wife and co-defendant, Mamie B. Austin; and asked that an account be taken of the rents received for the lots; that the order of the probate court be set aside; and that his title be quieted, and for other relief.

The defendant answered and admitted that the allegations in the complaint were substantially true, and alleged that the sale to Lynch was confirmed by the probate court, and that Austin purchased the interest of Lynch and Neal in the lots after the sale under the order of the probate court was made, and paid for the same and their interest in a small tract of land $ 1000; and answered further by way of cross complaint, and alleged new matter, and made the plaintiff and George H. Rudy defendants therein.

Afterwards James L. Austin, and Miriam E. and Hamilton L. Austin, by their guardian and next friend, Jesse Turner, Jr. and Jesse Turner, Jr., as the executor of the last will and testament of Mamie B. Austin, deceased, filed an amended cross-complaint, in which they alleged that the defendant. Mamie B. Austin, had died since the commencement of the action and left a last will and testament, in and by which she had devised the lots in controversy to her children, the said Miriam E. and Hamilton L. Austin, and appointed Jesse Turner, Jr., executor of her will and guardian of her children, they being infants of tender years, and that he had duly qualified as such executor and guardian. That George H. Rudy had died since the filing of the original cross-complaint, intestate, leaving Alice Rudy, his widow, and John M. Rudy and his other children, naming them, his heirs, him surviving. That Alice Rudy was the duly appointed and qualified administratrix of his estate. And the plaintiff's in the amended cross-complaint made the plaintiff in the original complaint, John M. Rudy, and the administratrix and the heirs of George H. Rudy, deceased, parties defendants to their amended cross-complaint, and caused all of them to be duly served with process.

They further alleged in their amended cross-complaint substantially as follows: That George H. Rudy purchased the lots of Divilbliss and paid for the same and caused Divilbliss and wife to convey the same to his son, John M. Rudy, a minor, being then five or six years old. That at the time of this purchase George H. Rudy was totally insolvent, without money or property, subject to execution, to pay his debts, and thereafter remained insolvent until the sale of the lots under the order of the probate court. They alleged specifically, the debts which he owed at the time of the purchase, and that he had never paid them. That John M. Rudy paid nothing for the lots. That George H. Rudy caused Divilbliss and wife to convey them to him for the purpose of defrauding those who were his creditors at the time of the purchase and conveyance "and in anticipation of and reference to his subsequent indebtedness and insolvency," that is to say, to defraud subsequent creditors.

That George H. Rudy married an adopted daughter of Mrs. Olive Maxey. That Mrs. Maxey owned a valuable farm. That she permitted George H. Rudy to occupy and cultivate the same for a period of fifteen years, commencing soon after the late war between the States. That during this time he dealt largely with the merchants of Van Buren, and, although he paid them considerable sums of money out of the proceeds of the crops raised on the Maxey farm, "he was largely indebted to them all the time for goods, wares and merchandise, and for supplies furnished and money loaned." That he "dealt largely and extensively", with Lynch, Neal and Austin, merchants of Van Buren, his aggregate indebtedness to them at the time of the sale under the order of the probate court being nearly or quite $ 6000. That to pay this indebtedness the agreement was entered into, the order of sale was procured, the sale was made, and the lots were conveyed to Lynch, as stated in the original complaint. That the lots and improvements thereon were only worth $ 2000. In consideration of these facts they asked that all the right, title, interest, estate, and claim of George H. and John M. Rudy, or either of them, in and to the lots be vested in the devisees of Mamie B. Austin, deceased, and other relief.

None of the defendants in the cross-complaint, except the minors, answered. The cross-complaint was taken for confessed as to John M. Rudy and all the adult defendants, by a decree pro confesso entered for that purpose.

The cause was heard and submitted upon the pleadings and exhibits, and the decree pro confesso, and the depositions of witnesses.

In the depositions the following facts appear: The business or occupation of George H. Rudy was farming. He raised large crops; his credit was good; and he contracted large debts. He commenced dealing with Lynch, who was a merchant, prior to 1870, and was indebted to him when the lots in controversy were conveyed to John M. Rudy, and continued to deal with him until he entered into partnership with Neal. He commenced trading with Neal, another merchant, in 1871, and dealt with him until 1874, when he and Lynch became, partners, and then dealt with them until 1881. He commenced trading with Austin, also a merchant, in June 1876, and dealt with him until the close of the year 1877. He contracted large debts with these merchants; made large crops, and delivered the same to them on account; and so continued to do business up to the time he compromised, as before stated. The agreement of George H. Rudy and Lynch, Neal and Austin, and the performance of it, appear in the depositions as stated in the pleadings.

A decree was rendered in accordance with the prayer of the amended cross-complaint; and John M. Rudy appealed.

Affirmed.

U. M. & G. B. Rose for appellant.

1. Conceding the truth of the charges of the cross-complaint, appellee can not acquire title to lands by the proceedings they have resorted to. Austin's remedy was to bring suit against Geo. H. Rudy, recover judgment and file a creditor's bill.

2. There is no evidence in the record to justify the court in finding that the property should have been subjected to George H. Rudy's debts. There is no testimony that the money was advanced by Rudy, or that he was insolvent in 1870.

3. Rudy owed Neal, Lynch or Austin nothing at the time the deed was executed by Divilbliss to plaintiff. They extended him no credit upon the faith of its ownership. These debts were contracted long afterwards. If it was a gift, they were not injured. The doctrine of tacking a new debt to an old one has been repudiated by this court. 42 Ark. 173; 38 Ark. 427. The American rule is that while voluntary conveyances are fraudulent as to existings creditors, they are not per se fraudulent as to subsequent creditors. There must be proof of actual or intentional fraud. 92 U.S. 183; 102 id. 154; 106 id. 264; 59 Mo. 158; 112 U.S. 144; 134 id. 405; 109 N.Y. 327. The American doctrine as outlined in 42 Ark. 173 is supported by 31 Conn. 372; 65 Me. 411; 67 Me. 258; 37 Pa.St. 508; 39 id. 499; 79 id. 459; 90 id. 293; 95 id. 69; 51 Ala. 318; 60 id. 192; 13 Cal. 62; 60 Miss. 886; 89 Ind. 556; 11 Mo. 540; 59 Mo. 158; 79 Mo. 555; 24 Kan. 780; 8 Gray, 517.

4. Even under the English law there is a difference between existing and subsequent creditors. Wait, Fr. Conv. 96; Bump, Fr. Conv. (3d ed.) 324.

Turner & Turner for appellee.

1. On a review of the whole testimony it seems clear that Rudy was insolvent at the time the lots were purchased. 125 U.S. 77; 16 Wall. 308.

2. Our statute makes conveyances in fraud of subsequent creditors void. Mansf. Dig sec. 3374. An intent actually to defraud creditors is to be legally inferred from the grantor's being insolvent at the time, or greatly embarrassed, or so largely indebted that his conveyance necessarily has the effect to hinder and defraud creditors, and a voluntary conveyance made under such circumstances may be set aside by a subsequent creditor. Pom. Eq. Jur., sec. 973; Kerr on Fraud and Mistake, p. 207-8; 1 Peters C. C. 460; 4 Wash. 129; 3 Johns. Chy. 481; 12 S. and R. 448; 4 Greenl. 195; 1 McCord ...