Tomlinson v. Farmers' & Merchants' Bank of Sheyenne

• Decision Date: 03 May 1929
• Docket Number: No. 5541.,5541.
• Citation: 58 N.D. 217,225 N.W. 315
• Court: North Dakota Supreme Court
• Parties: TOMLINSON v. FARMERS' & MERCHANTS' BANK OF SHEYENNE et al.

58 N.D. 217

225 N.W. 315

TOMLINSON

v.FARMERS' & MERCHANTS' BANK OF SHEYENNE et al.

No. 5541.

Supreme Court of North Dakota.

May 3, 1929.

Syllabus by the Court.

An insolvent debtor has the right to prefer his creditors, and where he gives a mortgage upon real estate to one creditor to secure a bona fide debt, and the mortgage is received by the creditor as security for that debt and not for the purpose of hindering or defrauding other creditors, such mortgage is immune from attack by other creditors, even though the mortgagor may have had the intent to hinder other creditors in the collection of their debts.

Where a mortgage, given by an insolvent debtor to a preferred creditor, is attacked by other creditors as being given in fraud of them and to hinder and delay them in the collection of their debts, the burden of proof is upon the attacking creditor to prove the fraudulent nature alleged.

Appeal from District Court, Benson County; G. Grimson, Judge.

Action by Alvin A. Tomlinson against Farmers' & Merchants' Bank of Sheyenne and others. Judgment for plaintiff and defendant named appeals. Affirmed.Sinness & Duffy, of Devils Lake, for appellant.

F. R. Stevens, of Devils Lake, and N. J. Bothne, of New Rockford, for respondent.

BURR, J.

This is an action to foreclose a mortgage given by the defendants Tomlinsons, husband and wife, to Christina Tomlinson, the mother of Robert A., and by her assigned to the plaintiff. It was given November 14, 1923, and recorded November 17, 1923. The bank is a judgment creditor of the defendant Robert A. Tomlinson, and claims a lien upon the mortgaged property. The judgment was entered on July 27, 1925. On November 1, 1926, the bank caused the mortgaged premises to be sold on execution sale under this judgment. At the sale the property was sold and a certificate of sale issued to the bank. Foreclosure proceedings by advertisement had been commenced, and on the application of defendant bank were enjoined. Thereafter this action was commenced. The Tomlinsons defaulted. It is the contention of the bank that this mortgage was given in fraud of creditors; that it was without consideration and void so far as the defendant bank is concerned.

The case was tried to the court and judgment entered in favor of the plaintiff. From the judgment so entered, the defendant bank appeals, demanding a trial de novo in this court.

The points to be determined are simply: Is the alleged debt to the mother a bona fide debt, was the mortgage taken by her as security for this debt, and, if so, what is the amount? Neither the mortgagor nor the mortgagee raises any question as to these points. It is the defendant bank which attacks the mortgage as being in fraud of creditors.

An examination of the record shows that the issue is an issue of fact rather than of law. The parties in their briefs spend some time in discussing the rules which indicate fraud, but there is no real controversy in regard to this. The rules upon which the appellant relies are quoted from 27 C. J. 488 et seq. and 12 R. C. L. 588, but are not in dispute. It is an indication of fraud where a transfer is made by a debtor in anticipation of a suit against him, especially where it leaves him without any estate or materially reduces his property; and when he conveys his property to a near relative in consideration of old debts, then barred by statute of limitations, particularly where the consideration for the mortgage is said to be advancements by a parent to a son, the court will look upon the transaction with suspicion, especially when coupled with the fact that the parties fail to produce complete explanatory proof. The court will demand proof of an intent and understanding that the money advanced should be repaid, and will scrutinize carefully such transactions between relatives. Rasmussen v. Chambers, 52 N. D. 648, 204 N. W. 178.

[1] We have had occasion recently to examine transactions between relatives. In the case of Serr, Trustee, v. Smith et al. (N. D.) 224 N. W. 299, dealings between father and son were held to be in fraud of creditors. This was in an action brought by the trustee to set aside certain conveyances. The trial court held that there was no consideration for the conveyances, and that they were made to defraud the creditors. This decision was affirmed. In a somewhat earlier case, Merchants' Bank v. Armstrong, 54 N. D. 35, 208 N. W. 847, dealings between relatives were scrutinized, and the court said: “Mortgages given by an insolvent debtor who intends thereby to defraud and delay his other creditors of their demands are not subject to attack for fraud where they are taken by the mortgagees solely as security for bona fide debts, although the mortgagees knew of the fraudulent intent of the mortgagor.” Thus, even if Robert Tomlinson, angered by the action of the bank in obtaining a judgment against him as indorser of his brother's notes, when he claimed there was an agreement not to hold him liable, conceived the idea of putting his property out of the way so the bank could not reach it, nevertheless if he actually and in good faith owed his mother and she took this mortgage as security for his debt and not for the purpose of aiding him in defrauding his creditors, her mortgage would be good, even if she may have known he had the intent to defraud his creditors, but of this there is no proof whatever.

The law of this state is that “the question of fraudulent intent is one of fact and not of law; nor can any transfer or charge be adjudged fraudulent solely on the ground that it was not made for a valuable consideration.” Section 7223, Comp. Laws 1913. In the cases of Murie, Trustee, v. Hartzell et al. (N. D.) 225 N. W. 310 (decided May 3, 1929), and State Bank of Halstad v. Munter et al. (N. D.) 225 N. W. 313 (decided May 3, 1929), we held that, because of the provision of this section just quoted, we cannot conclusively presume a fraudulent intent existed “from the fact that a conveyance was made without consideration, and by one who was at the time insolvent.” Even an insolvent debtor has a right to prefer creditors, and in First National Bank v. Mensing, 46 N. D. 184, 180 N. W. 58, it is held: “Relationship of parent and child between the parties to an alleged fraudulent conveyance is a circumstance calling for a close scrutiny of the transaction, but is not itself a badge of fraud; nor does it give rise to a presumption supplanting proof. Suspicious circumstances alone are not equivalent to proof of fraud, and do not warrant a judgment in the face of satisfactory evidence of bona fide debtor and creditor relations between parent and child. An insolvent debtor's preference of his child is not fraudulent as a matter of law.”

[2] The burden of proof is upon the bank to show that there was fraud in this transaction, as the bank is the one who asserts fraud culminating in the giving of the mortgage held by the plaintiff. See First National Bank v. Mensing, supra; Merchants' Nat. Bank v. Armstrong, supra.

The only witnesses are the plaintiff, the defendants Tomlinsons, the cashier of the defendant bank, and the mother Christina Tomlinson; and from their testimony and the various exhibits introduced we must determine the facts.

Plaintiff admits he is not a holder of the note and mortgage in due...