State ex rel. v. Nashville Trust Co.

• Decision Date: 04 November 1944
• Citation: 190 S.W.2d 785,28 Tenn.App. 388
• Parties: STATE et rel. v. NASHVILLE TRUST CO. et al.
• Court: Tennessee Court of Appeals

190 S.W.2d 785

28 Tenn.App. 388

STATE et rel. v. NASHVILLE TRUST CO. et al.

Court of Appeals of Tennessee, Middle Section.

November 4, 1944

Certiorari Denied by Supreme Court October 13, 1945.

Petition for Rehearing Denied by Supreme Court December 1, 1945.

Appeal from Chancery Court, Davidson County; Thomas A. Shriver Chancellor.

Suit by the State of Tennessee, as judgment creditor of Rogers Caldwell, against Nashville Trust Company, as trustee for Rogers Caldwell, under a spendthrift trust, to subject certain land which was subject to the spendthrift trust to the judgment. From a decree giving the state a portion of the relief sought, both sides appeal.

Modified in accordance with the opinion, affirmed as modified and remanded.

W. M. Fuqua and R. C. Boyce, both of Nashville, for appellants.

Nat Tipton, Asst. Atty. Gen., Charles C. Trabue, Sp. Counsel, of Nashville, and Roy H. Beeler, Atty. Gen., for appellee.

FELTS Judge.

The State of Tennessee, a judgment creditor of Rogers Caldwell for $4,354,702.73, seeks by this suit to subject certain land on which he put $350,133.80 of improvements and which was later given him by his father in a 'spendthrift trust.'

The land is a tract of 204 acres near the Franklin Pike some seven miles from Nashville. James E. Caldwell, father of Rogers Caldwell, bought the land in 1909 for $18,436.00. In 1917 he allowed his son Rogers to move onto the land and live there until the improvements were begun. He had declared his purpose to give the land to Rogers in trust tree from the claims of creditors. Acting upon this understanding and with his father's consent, Rogers Caldwell named the place 'Brent-wood Hall' and built thereon a mansion and other improvements costing $350,133.80. He did this during a period of two years from June, 1927 to June, 1929.

He had little or no property except his stock in Caldwell & Company a corporation which he had organized in 1917 and which described itself as investment bankers and dealt in stocks and bonds of private and public corporations. He owned all the stock in Caldwell & Company and Caldwell & Company owned all the stock in two subsidiaries, Rogers Caldwell & Company and the Bank of Tennessee. Rogers Caldwell & Company was a corporation which had been organized to sell Caldwell & Company's securities in New York and the other great money centers in that section. The Bank of Tennessee had been organized under a banking charter to receive deposits and it was operated in the Nashville office of Caldwell & Company.

The Bank of Tennessee was designated a public depository, and from 1924 to 1930 it was continuously receiving large deposits from cities, counties, and the State of Tennessee. Pursuant to Code, § 230, it made bonds to secure the State's deposits. The sureties on these bonds were Rogers Caldwell and employees of Caldwell & Company. These bonds ran into millions of dollars. From February, 1927, to November, 1930, Caldwell & Company did an enormous business buying and selling bond issues of counties and cities, sponsoring numerous private corporations and selling their stocks or bonds, and acquiring, with others, control of several banks and insurance companies.

Caldwell & Company, Rogers Caldwell & Company, and the Bank of Tennessee failed November 6, 1930. At that time Rogers Caldwell was surety on four depository bonds to the State of Tennessee aggregating $6,250,000. On November 18, 1930, there was recorded a deed of James E. Caldwell and wife conveying this 204 acres of land to the Nashville Trust Company, trustee, in a spendthrift trust for Rogers Caldwell and any child that might be born to him. This deed had been dated September 19, 1930, and its acknowledgment had been dated the same day. It vested the legal title in the Nashville Trust Company, trustee, and gave Rogers Caldwell and any child of his the right to occupy and enjoy the land for life, but without the right to alienate it and without its being in any wise liable for any debt of his or of any child he might have.

Within a day or two after these failures the superintendent of banks brought a suit to liquidate the Bank of Tennessee, and creditors of Caldwell & Company brought a receivership suit in the Federal Court at Nashville to wind up Caldwell & Company. The State of Tennessee brought suit against Rogers Caldwell and the other sureties on these four depository bonds. Also on December 4, 1930, the State filed the original bill in this cause against the Nashville Trust Company, trustee, James E. Caldwell, Rogers Caldwell, and the unborn children of Rogers Caldwell, to subject the land to the payment of the obligation of Rogers Caldwell as surety on these bonds.

He took the position that the amount of his liability as surety could not be determined until the principal, the Bank of Tennessee, had been liquidated. So the present suit was delayed until that was done. On December 1, 1938, the State filed an amended and supplemental bill in the present suit stating that the Bank of Tennessee had been liquidated and had paid to the State as a preferred creditor only a small dividend; that on November 21, 1938 the State had recovered a judgment on these four depository bonds against Rogers Caldwell for $4,354,702.73; and that execution had been issued and returned nulla bona. Since there is no question upon the pleadings, their averments need not be detailed. The case made by the bill, as supplemented and amended, set forth two grounds for relief:

(1) That Rogers Caldwell put the $350,133.80 of improvements on the land of his father with a secret agreement or understanding with his father that his father would give him back the improvements and the land in a trust free from his creditors; that he was largely indebted, engaged in hazardous speculation, expected to incur debts beyond his ability to pay, and transferred this $350,133.80 to his father with an actual intent to hinder, delay, and defraud his existing and subsequent creditors; that this intent was known and participated in by the father, the transferee; that this transfer and the transfer to the Nashville Trust Company, trustee, were fraudulent conveyances; and that the State has the right to have them set aside and to subject the whole value of the land up to the $350,133.80 to the payment of its debt.

(2) That, regardless of any actual intent to defraud his creditors, the making of these improvements by Rogers Caldwell, upon the understanding with his father that the land with these improvements would be given him in trust free from his creditors, was a contribution by him to the trust property and to that extent a creation by him of a trust for his own benefit; that since one may not have and enjoy, free from his creditors, property which he has himself paid for or contributed to, the trust was a fraud in law upon his creditors to the extent that his contribution enhanced the value of the property; and that the State has the right to subject the property to the extent of such enhancement.

The separate answers of Rogers Caldwell and James E. Caldwell denied that the State was entitled to any relief upon either of these grounds, denied all the charges of fraud, denied that the making of the improvements was a fraudulent conveyance or a contribution by Rogers Caldwell to the trust property, and denied that the conveyance to the Nashville Trust Company, trustee, was fraudulent either in fact or in law. These answers averred that James E. Caldwell had given each of his other children a home in trust free from claims of creditors; that while he had no definite understanding with Rogers he had stated to Rogers that he would give Rogers this 204 acres of land in the same manner as he had made gifts to his other children; that Rogers made the improvements with the expectation that his father would so give him the land; that at that time he was a very rich man and was only trying to build for himself a home suitable for one of his great wealth; that he had a right to make the improvements and the making of them took nothing from his creditors because his remaining property was greatly in excess of any debts he then had or ever expected to have; and that the subsequent failure of himself and his companies was altogether unforeseeable and solely due to the great economic depression which swept over the country in 1929 and 1930.

Upon these issues a large amount of proof was taken, and the cause was heard according to the forms of chancery. On March 27, 1942, the chancellor filed his opinion stating his findings of fact and conclusions of law. He found that there was no satisfactory proof of fraud on the part of Rogers Caldwell or James E. Caldwell, and held that the State was not entitled to any relief upon its theory of fraudulent conveyance. But he held that the making of the improvements was a contribution by Rogers Caldwell to the trust property to the extent that they permanently enhanced its value and that to this extent the State had a right to subject the property. On April 17, 1942, he entered a decree giving the State a lien on the land for the amount by which its value had been enhanced by the improvements, directing a sale of the land if necessary, and ordering a reference to determine the amount of the enhancement.

Both sides appealed, the defendants insisting that the chancellor should have dismissed the bill and the State insisting that he should have sustained its right to subject the whole value of the land up to the amount of $350,133.80 to the payment of its debt. The cause was heard in this Court January 18, 1943. While we had it under consideration, counsel for all parties asked that the case be restored to the docket and continued pending a decision by our Supreme Court of the...