Trustees of First Nat. Bank of Stanford v. Saufley

• Citation: 105 S.W.2d 605,268 Ky. 732
• Parties: TRUSTEES OF FIRST NAT. BANK OF STANFORD v. SAUFLEY et al.
• Decision Date: 30 April 1937
• Court: Kentucky Court of Appeals

105 S.W.2d 605

268 Ky. 732

TRUSTEES OF FIRST NAT. BANK OF STANFORD v. SAUFLEY et al.

Court of Appeals of Kentucky

April 30, 1937

Rehearing Denied June 18, 1937.

Appeal from Circuit Court, Lincoln County.

Action by the Trustees of the First National Bank of Stanford Kentucky, against H. R. Saufley and another. From the judgment, plaintiff appeals, and the defendants cross-appeal.

Affirmed on cross-appeal and reversed on direct appeal.

B. J Bethurum, of Somerset, for appellant.

J. B Paxton, of Stanford, and Chenault Huguely, of Danville, for appellees.

DRURY Commissioner.

The appellant attacked under section 1907a, Ky.Stats., a certain deed as fraudulent, and is now complaining because the trial court failed to award it the proper relief, and the appellees by cross-appeal are complaining because the court allowed it any relief.

The Facts.

About the first of the year 1928, there was conveyed to H. R Saufley and his wife, Annie E. Saufley, in equal shares, 177.388 acres of land in Lincoln county, for which they paid $27,000 in this way: They put in their home "in town" at $15,000, but what town is not stated, and assumed a mortgage to the Federal Land Bank for $12,000. This farm was probably not worth what they paid for it. On June 11, 1929, August 19, 1930, and February 2, 1932, H. R. Saufley made financial statements to the First National Bank of Stanford, Ky. in which he listed this farm at the value of $27,000. At the time of the first statement he owed this bank $2,000; at the second, $4,357; and at the third, $5,709. In March, 1933, this bank was closed by President Roosevelt's bank holiday proclamation. It never reopened and the appellant trustees are liquidating its affairs. The Federal Land Bank debt has been considerably reduced by payments thereon.

On June 21, 1933, H. R. Saufley conveyed to his wife his interest in this farm in consideration, stated in the deed, of a note for $2,700 on C. Hays Foster and her assumption of H. R. Saufley's half of the Federal Land Bank debt. That rendered H. R. Saufley insolvent.

On February 5, 1936, appellant trustees began this action by filing a petition in equity in which they sought to subject this land under section 1907a, Ky.Stats., to the payment of $5,414.46 and interest he owed the bank when this deed was made. The court in its judgment found:

The Trial Court's Finding.

"The Court is of the opinion that the said conveyance was a voluntary conveyance and that it is not supported by an adequate consideration, but declines to set aside said deed, to which plaintiffs object.

"The Court, being further advised, finds and adjudges that there are 177 3/10 acres comprising said farm and that the same at the time of the conveyance complained of was reasonably worth at a fair voluntary cash sale the sum of $75.00 per acre, or a total of $13,297.50; that the note executed to the defendant, Anna E. Saufley, by C. Hayes Foster, for $2,700.00 at the time of said conveyance was reasonably worth $1000.00; that the defendant, H. R. Saufley, at the time of said conveyance was the owner and possessor of a homestead in said farm worth $1000.00, and that the defendant, Anna E. Saufley, assumed and agreed to pay a mortgage indebtedness owned by the Federal Land Bank of Louisville, Kentucky, and which indebtedness at that time stood equally against both of the defendants, and that the said $1000.00, the value of the C. Hayes Foster note for $2,700.00, the value of the defendant's, H. R. Saufley's homestead in said land so conveyed ($1000.00), and the $3,200.00 of the defendant, H. R. Saufley's part of the said mortgage indebtedness which was assumed by the defendant, Anna E. Saufley, or a total of $5,200.00, represented a payment by her as a part of the reasonable value of the one-half undivided interest of H. R. Saufley in the tract of land in question, which was conveyed by the said H. R. Saufley to Anna E. Saufley June 21, 1933, and which said $5,200.00, when deducted from the value of the defendant's, H. R. Saufley's one-half interest in said land as found by the Court, or when deducted from $6,648.50, leaves a balance of $1,448.50 due the plaintiffs, for the payment of which out of the proceeds of the sale hereinabove ordered to be made it is ordered and adjudged the plaintiffs have a lien on the proceeds of the said sale, as herein ordered."

The trial court ordered the one-half of this farm that Mr. Saufley had conveyed to his wife, Annie E. Saufley, sold to satisfy this $1,448.50. This satisfied no one, as is evidenced by this appeal by the trustees for the bank, and by the cross-appeal of the Saufleys, thus bringing the whole case before us for review, and we shall state and dispose of the questions presented.

Was This Transaction Fraudulent?

It is admitted that on the day this deed was made and delivered (June 21, 1933), H. R. Saufley was indebted to the First National Bank of Stanford to the extent of $5,414.46, that being the sum of five notes he alone owed it with interest thereon to that date.

This deed made to his wife left H. R. Saufley without other real estate for the payment of this or other debts he may have had and, so far as this record shows, left him without any other property of any kind for the payment of his debts except this C. Hays Foster note of $2,700 and interest and it is significant that this note was not used or attempted to be used in satisfaction of his debts although two years, seven months, and fourteen days passed before this suit was filed and Mrs. Annie E. Saufley had this note in her possession and filed it with her deposition taken two years, nine months, and fifteen days after this conveyance was made, and there is nothing on the copy of that note in this record to show she had ever assigned it to her husband.

We have two sections of our Statutes defining what conveyances are fraudulent. Section 1906 is founded on 13th Elizabeth and provides that practically anything a man does with the intent to delay, hinder, or defraud his creditors or other persons shall be void, as against such creditors, etc.

Section 1907 is founded on 27th Elizabeth, and provides that every disposition a man makes of his property without valuable consideration shall be void as to all his existing liabilities, etc. A conveyance made by a debtor, even though it be for a valuable consideration may yet be held fraudulent if it would result in his creditors being delayed, hindered, or defrauded in the collection of their claims against the debtor, and the grantee was a party to the fraud. See Trimble v. McGuire, 12 Ky.Op. 136, 4 Ky. Law Rep. 986, where we said: "The antecedent embarrassment and the immediate legal insolvency after the execution of the mortgage, coupled with the weight of the evidence that McGuire's property was not greater in value than the amount of his indebtedness, concludes the question of insolvency and the purpose with which the conveyance was executed."

See Farmers' Bank & Trust Co. v. Peters, 226 Ky. 403, 11 S.W.2d 103, 104, where we said: "Section 1906, as consistently and frequently construed by us, does not limit the right of a creditor, in an action brought by him thereunder, to have the conveyance set aside and the property or its proceeds appropriated to his debt, only to cases where there was no valuable and adequate consideration for the attacked conveyance, since the relief will be given, notwithstanding such valuable consideration, if the other elements in the statute are proven, and which are, an intent on the part of the grantor 'to delay, hinder or defraud his creditors,' and the grantee had knowledge thereof."

See also section 249, p. 550 of 27 C.J.

There is no means by which we can for a certainty learn a man's intent by what he says, for he may say one thing and do another. Every man is presumed to intend the necessary consequences of what he deliberately does, and if what he so does necessarily delays, hinders, or defrauds his creditors, then the law presumes that was why he did it.

When a man is not in debt, he has absolute dominion over his property and may do with it as he may please. When he is in debt, he sustains a modified relation as to his property, that of owner and quasi trustee for his creditors. If they have taken no specific security from him as by mortgage or other lien, they trust him upon the general credit of his property and a confidence he will deal honestly with them, will obey the law, and will not dispose of his property to their prejudice.

A debtor's creditors have therefore a right akin to an equitable interest in his property, and the law lays upon him an obligation to pay his debts, to be just before he is generous, to exercise good faith in all transactions relating to his property, and declares that dispositions of it, intended to delay, hinder, or defraud them, are void.

Mr Saufley in his answer denies that he made this deed with any intent to delay, hinder, or defraud his creditors, but he...