Wurlitzer Distributing Corp. v. Schofield

• Decision Date: 15 January 1980
• Docket Number: No. 7922SC12,7922SC12
• Citation: 261 S.E.2d 688,44 N.C.App. 520
• Court: North Carolina Court of Appeals
• Parties: WURLITZER DISTRIBUTING CORPORATION v. John C. SCHOFIELD and wife, Victoria R. Schofield, John S. Schofield and wife, Charlotte M. Schofield.

Page 688

261 S.E.2d 688

44 N.C.App. 520

WURLITZER DISTRIBUTING CORPORATION v. John C. SCHOFIELD and wife, Victoria R. Schofield, John S Schofield and wife, Charlotte M. Schofield.

No. 7922SC12.

Court of Appeals of North Carolina.

Jan. 15, 1980.

Wilson, Biesecker, Tripp & Wall by Joe E. Biesecker and Roger S. Tripp, Lexington, for John C. Schofield, defendant-appellant and defendant-appellee.

Robert M. Davis, Salisbury, for John S. Schofield, defendant-appellant and defendant-appellee.

MORRIS, Chief Judge.

Under G.S. 39-15 a conveyance made with the intent to defraud creditors is void. A claim seeking to set aside a deed as a fraudulent conveyance can be established in accordance with legal principles set out in the landmark case of Aman v. Walker, 165 N.C. 224, 81 S.E. 162 (1914), as applied in the recent case of North Carolina National Bank v. Evans, 296 N.C. 374, 250 S.E.2d 231 (1979):

"(1) If the conveyance is voluntary, and the grantor retains property fully sufficient and available to pay his debts then existing, and there is no actual intent to defraud, the conveyance is valid.

(2) If the conveyance is voluntary, and the grantor did not retain property fully sufficient and available to pay his debts then existing, it is invalid as to creditors; but it cannot be impeached by subsequent creditors without proof of the existence of a debt at the time of its execution, which is unpaid, and when this is established and the conveyance avoided, subsequent creditors are let in and the property is subjected to the payment of creditors generally.

(3) If the conveyance is voluntary and made with the actual intent upon the part of the grantor to defraud creditors, it is void, although this fraudulent intent is not participated in by the grantee, and although property sufficient and available to pay existing debts is retained.

(4) If the conveyance is upon a valuable consideration and made with the actual intent to defraud creditors upon the part of the grantor alone, not participated in by the grantee and of which intent he had no notice, it is valid.

(5) If the conveyance is upon a valuable consideration, but made with the actual intent to defraud creditors on the part of the grantor, participated in by the grantee or of which he has notice, it is void." 296 N.C. at 376-77, 250 S.E.2d at 233.

Those principles relating to the doctrine of fraudulent conveyances have been approved and applied in many recent decisions. See e. g., North Carolina National Bank v. Evans, supra; Everett v. Gainer, 269 N.C. 528, 153 S.E.2d 90 (1967); Nytco Leasing, Inc. v. Southeastern Motels, Inc., 40 N.C.App. 120, 252 S.E.2d 826 (1979); Edwards v. Northwestern Bank, 39 N.C.App. 261, 250 S.E.2d 651 (1979); Tuttle v. Tuttle, 38 N.C.App. 651, 248 S.E.2d 896 (1978), Cert. denied, 296 N.C. 589, 254 S.E.2d 32 (1979). Under the foregoing, in order to have the deeds in question set aside, the following must be shown:

(1) that the transfers were voluntary, and defendants either (a) did not retain property sufficient to pay their debts then existing or (b) made the transfers with the intent to defraud creditors; or

(2) that although the transfers were upon valuable consideration, they were made with the intent to defraud creditors on the part of the grantor, which was participated in by the grantee or of which the grantee had notice.

Applying these principles to the case at bar, we now consider specifically the question of whether the evidence presented at trial is sufficient to sustain the findings of fact and conclusions of law made by the trial court.

The question of the sufficiency of the evidence to support findings of fact made by the trial court is a proper subject for review on appeal. G.S. 1A-1, Rule 52(c) of the North Carolina Rules of Civil Procedure; Brooks v. Brooks, 12 N.C.App. 626, 184 S.E. 417 (1971). Nevertheless, "(i)n that setting, the court's findings of fact have the force and effect of a verdict by a jury and are conclusive on appeal if there is evidence to support them, even though the evidence might sustain findings to the contrary." Williams v. Pilot Life Insurance Co., 288 N.C. 338, 342, 218 S.E.2d 368, 371 (1975); Immanuel Baptist Tabernacle Church of the Apostolic Faith v. Southern Emmanuel Tabernacle Church, Apostolic Faith, 27 N.C.App. 127, 218 S.E.2d 223, Cert. denied, 288 N.C. 730, 220 S.E.2d 350 (1975); Worthington v. Worthington, 27 N.C.App. 340, 219 S.E.2d 260 (1975), Cert. denied, 289 N.C. 142, 220 S.E.2d 801 (1976). A judgment based on such findings will not be disturbed on appeal, absent error of law appearing on the face of the record. Wall v. Timberlake, 272 N.C. 731, 158 S.E.2d 780 (1968); Fletcher v. Fletcher, 23 N.C.App. 207, 208 S.E.2d 524 (1974).

Defendants' Appeal

As to the transfers on 6 April 1976, the trial judge found that the two conveyances were "voluntary, that is, without consideration", and that "there was no valid, subsisting debt which was paid by these transfers of property occurring on April 6, 1976." In North Carolina, a conveyance is deemed to be voluntary when it is without adequate consideration; i. e., "when the purchaser does not pay a reasonably fair price such as would indicate unfair dealing and be suggestive of fraud." L & M Gas Co. v. Leggett, 273 N.C. 547, 549, 161 S.E.2d 23, 25 (1968); Bank v. Evans, supra; Supply Corp. v. Scott, 267 N.C. 145, 148 S.E.2d 1 (1966); Nytco Leasing, Inc. v. Southeastern Motels, Inc., supra. The evidence presented revealed that no money was passed from John S. Schofield and wife to John C. Schofield and wife at the time of the conveyances. Defendants argue that consideration did nevertheless exist in that the transfers served to satisfy a pre-existing debt owed by John C. Schofield to his father in the amount of approximately $83,000. On this point, the evidence shows that John S. Schofield could not recall how much money, if any, his son owed him at the time of the transfers; that the first time he ever attempted to determine the amount owed him by his son was in response to interrogatories served upon him by plaintiff; that John C. Schofield never signed a promissory note to reflect the monies owed to his father; that John C. Schofield's wife, Victoria R. Schofield, never owed John S. Schofield any amount; that John S. Schofield never demanded any payment of the amount allegedly owed from his son. In his deposition, John S. Schofield stated that he had found a writing that reflected a $15,000 loan to his son, but such a document was never produced at trial. We view such evidence as sufficient to support the finding that a debt did not exist. Defendants rely on the case of Hafner v. Irwin, 23 N.C. 490 (1841), in which a conveyance to certain creditors was allowed to stand, the Court stating:

"Every conveyance of property by an insolvent or embarrassed man, to the exclusive satisfaction of the claims of some of his creditors, has necessarily a tendency to defeat or hinder his other creditors in the collection of their demands. But if the Sole purpose of such a conveyance be the discharge of an honest debt, it does not fall under the operation of the statute against fraudulent conveyances." 23 N.C. at 496.

In Hafner, the validity of the debt in question was not at issue. Indeed, it was admitted that the alleged debts were valid. In our case, however, the issue before the trial judge was specifically whether a debt existed sufficient to constitute consideration for the transfers in question. The trial judge considered the evidence and found facts accordingly. We conclude that there was sufficient evidence upon which the trial judge could have concluded that no honest debt existed.

Defendants argue in addition that there was consideration to support the 1976 conveyances in that John S. Schofield assumed the liens upon property when conveyed to him. It is generally held that the assumption of a mortgage by a grantee constitutes consideration for the conveyance of property from an insolvent grantor, and in the absence of fraudulent intent, such a conveyance is binding. See generally 37 Am.Jur.2d, Fraudulent Conveyances, § 22 (1968). The evidence on this point is at best confusing and contradictory. In any event, even assuming arguendo that the alleged assumption of mortgage constitutes consideration, we reject defendants' argument in light of the following.

Although an assumption can in other respects be considered adequate consideration for a conveyance, the grantee's inability to pay the mortgage debt assumed is generally sufficient to set aside the conveyance. See Citizens Bank & Trust Co. v. White, 12 Tenn.App. 583 (1930); see generally, Annot., 6 A.L.R.2d 270 (1949). In this case, John S. Schofield's inability to pay the debts assumed is evidenced by his testimony as to his financial condition:

"Well, the fact is: I'm all but practically busted myself. I had to spend a quarter of a million dollars myself in the last let's see since 1962; and being 67 February 2 coming up and I had retired, got broke, had to go back to work, and when you start getting up on a little bit of age, it's gotten to the point...