McCown v. Taylor , 186 Ark. 273 ( 1932 )

STATEMENT BY THE COURT.

This appeal comes from a decree canceling and setting aside a conveyance of certain lands in Sevier County from L. D. McCown to his wife, Alta V. McCown, as made in fraud of creditors.

The facts are briefly as follows: That on July 15, 1930, the Bank of DeQueen closed its doors and was taken over by appellee, State Bank Commissioner, for liquidation. L. D. McCown was president at the time, and had been connected with the bank for some years as assistant cashier and cashier. He owned stock in the bank of the par value of $9,025, and an assessment was made by the Bank Commissioner according to the par value of the stock, and on the 7th day of November, 1930, suit was brought against him on this assessment, and judgment rendered on December 15th, for the amount of it. An execution was issued on the 23d day of September, 1931, and certain property belonging to McCown was levied on and sold for $2,244.50. On March 8, 1932, another execution was issued on the judgment and returned nulla bona.

On April 22, 1929, by order of the county court, the Bank of DeQueen was made a depository for county funds, and L. D. McCown was one of the sureties on the bond executed by the bank. The bank had on deposit when it closed funds of the county and its subdivisions in the sum of $81,256.69. On the 24th day of July, 1930, suit was brought against the bondsmen and judgment was rendered thereon, said judgment being paid off and satisfied on December 15th, the day on which judgment was rendered against McCown on the stock assessment.

The record does not disclose any other liability of McCown when the bank closed or thereafter.

In October, 1911, McCown bought the home of his wife's mother, Mrs. C. B. Locke, executing therefor his four notes, each for $1,000, as part payment of the purchase price, a lien being retained upon the property to secure the notes. On January 11, 1912, one of the notes was indorsed by Mrs. Locke and given to appellant, Alta V. McCown, wife of said L. D. McCown. The other three notes were renewed from time to time, one of said renewal notes being dated December 1, 1919, due January 21, 1924, and the other two bearing date of December 1, 1923, and due one and two years after date, respectively. The note dated December 1, 1919, and the one dated December 1, 1923, and due two years after date, were each for the sum of $1,049.49. In 1926, after the death of her last husband, Mrs. Locke came to live with her daughter, appellant, and afterwards gave her the three notes referred to, and these, together with the one first given her, were held by Mrs. McCown as existing obligations against her husband, and recognized by him as such.

Appellant desired the home in her own name, and on several occasions after receiving the notes, insisted that her husband make her a deed for the home, assigning as her reason therefor that it had been the home of her mother and she wanted to retain it as her home. Her husband objected to doing this because of the possibility of unfavorable comment which might arise from the transaction. In January, 1930, McCown borrowed $5,000 from the Bank of Dierks, securing same by a mortgage on the home. Mrs. McCown first refused to execute the mortgage, insisting that the home should be deeded to her in satisfaction of the notes held by her, which had been given as part consideration for the home. McCown then agreed that, if she would join in the execution of the mortgage, he would convey to her his interest in the 530 acres of land involved in this suit. He owned an undivided two-thirds interest therein, subject to the dower right of his mother. She accepted the proposition, and joined in the execution of the mortgage on her home to the Bank of Dierks. She received no benefit from the proceeds of the loan, the sole consideration for her joining in the execution of the mortgage being the promise of her husband to deed his interest in said lands to her and the cancellation of the notes she held against him. The deed was not executed at the time, and McCown testified that he was busy and expected his attorney to get a description of the land, and instructed him to prepare the deed, and for some reason his preparation was delayed until October 2, 1930, when it was executed and filed for record. McCown testified there was no intentional delay in the execution of the deed, and Mrs. McCown stated she relied upon his having it done, supposed it had been done until she later found it had not been executed, whereupon she called his attention to it and insisted that the deed be executed. She also said that no assessment had been made against the stock of her husband when the deed was executed, and knew of no indebtedness owed by him, and had no intention of defrauding any one in the collection of his debts due from her husband.

On the 20th day of May, 1918, an entry was made on the margin of the record of the deed from Mrs. Locke to McCown for the home place, signed by Mrs. Locke, reciting payment of the notes mentioned in the deed and the satisfaction of the lien. McCown testified that this was to clear the record and enable him to dispose of part of the land included in the conveyance, and the renewal notes were thereafter executed and delivered to Mrs. Locke, giving no description of the land or retention of the lien for the note; and his wife, the holder of one of the notes, did not sign the release, and portions of the land was thereafter deeded to three others.

On January 22, 1930, long before the bank closed its doors, in consideration of his promise made to Mrs. McCown to convey her the lands in controversy in satisfaction of the notes she held against him, she joined him in the execution of the mortgage on their home to secure the loan of $5,000 to the husband by the Bank of Dierks.

McCown stated that at the time he believed himself to be worth about $40,000 or $50,000 in excess of his indebtedness, enumerating the amount of stock owned in different banks and other enterprises to the value of $21,000, and some other property, town and farm property, later sold under execution for about one-third of its value. His indebtedness was shown to be discharged except a nominal amount before the bank closed. The liability on the bond was satisfied in full December 15, 1930, and liability on the stock assessment arose only after the bank had closed and the assessment was made.

The chancellor held the conveyance fraudulent, found that Alta McCown permitted her husband to retain possession of the title for a long time after the agreement under which she claimed the right to have the property conveyed to her, and that she was estopped as against the Bank Commissioner to assert ownership of the lands, decreed a cancellation of the conveyance, and subjected the lands to sale for the payment of the judgment. (after stating the facts). The legal principles governing transactions between husband and wife where the interest of third parties intervene are well settled by numerous decisions of this court. While such transactions are closely scrutinized, they are, when made in good faith and for a fair consideration, upheld by our court to the same extent as transactions between strangers. In Mente v. Westbrook, 181 Ark. 96, 24 S.W.2d 976, the court, discussing an alleged fraudulent conveyance between a husband and wife, said:

"It is also well settled that, if the evidence shows that the grantor had abundant means other than his property to satisfy all his creditors, the conveyance will not be declared fraudulent. It is also well settled that, to entitle a creditor to set aside a conveyance as fraudulent, it is necessary, not only that there be fraud on the part of the vendor participated in by the vendee, but also that there be an injury to the person complaining. The creditor who seeks to set aside a conveyance as fraudulent must show that his debtor has disposed of property that might otherwise have been subjected to the satisfaction of his debt. And not only that, but he must show that the debtor did not have other property sufficient to pay the creditor. * * * If the evidence shows that one had ample means to pay all his debts, the conveyance to his wife of property of small value, as compared with his whole property, together with other facts tending to show good faith, would be sufficient to justify the conclusion that the transfer was not fraudulent." The opinion quotes extensively from 12 R.C.L. 513-514.

It has likewise been held that an insolvent husband may, without fraud, when justly indebted to his wife, prefer her claim to those of other creditors and make a valid appropriation of his property to pay it, notwithstanding the result be to deprive other creditors of means of satisfying all their claims. Stallings v. Galloway-Kennedy Co., 171 Ark. 24, 283 S.W. 41. See also Davis v. Yonge, 74 Ark. 161, 85 S.W. 90; Godfrey v. Herring,74 Ark. 186, 85 S.W. 232; Driggs v. Norwood, 50 Ark. 42,6 S.W. 323, 7 Am. St. Rep. 78; Taylor Com. Co. v. Bell,62 Ark. 26, 34 S.W. 80.

At the time of the agreement of conveyance of the lands in controversy to Mrs. McCown, in consideration of her execution of the mortgage on the home place and in satisfaction of the notes executed by McCown for the purchase money thereof and given to her by her mother, the testimony tends strongly to show, if there is no decided preponderance thereof, that McCown was worth much more than his indebtedness; and the virtually undisputed testimony shows that he was indebted to his wife in a sum aggregating about $4,000, the amount due on the notes that he executed to his mother-in-law, which were later given to his wife when he purchased the homestead. It is true that the value of his holdings was greatly diminished at the time of this conveyance because of the failure of many of the banks in which he held stock and the general existing financial depression, but it is virtually undisputed that he owed the amount of the notes given to his mother-in-law, and by her to appellant, at the time of the execution of the mortgage to the Bank of Dierks, when he agreed with his wife to convey the land in controversy to her in consideration of her joining in the execution of a mortgage of the home and in satisfaction of the notes held by her. The husband could not have incumbered or disposed of the homestead without the consent of his wife, who could compel any reasonable terms as a condition for her joining in the execution of the mortgage, and the relinquishment of her dower and homestead rights in the conveyance would have been a sufficient consideration for his conveying the lands herein to his wife, as was agreed to be done. Section 5542, Crawford Moses' Digest; Davis v. Yonge, supra; Baucum v. Cole, 56 Ark. 259, 19 S.W. 671; Hershey v. Lathem,46 Ark. 542.

She not only joined in the execution of the mortgage, but surrendered the notes, valid claims against her husband for more than $4,000, and the value of the lands which he was to convey to her under the agreement at the time, the lands involved herein, was only three or four thousand dollars. McCown owned only an undivided two-thirds interest in the lands, which was subject to the dower rights of his mother and wife, and which would be restored to them upon cancellation of the conveyance herein; this without regard to whether she had participated in any fraudulent intent in the execution of the conveyance. Elliott v. Locklar, 185 Ark. 269, 46 S.W.2d 1105.

This was not a fraudulent conveyance as shown by a great preponderance of the testimony, nor was the agreement to make it, at the time of the wife's joining in the execution of the mortgage to the Bank of Dierks and her surrender of the valid notes against her husband in consideration thereof, made with any fraudulent intent to cheat, hinder or delay existing or subsequent creditors, and, in fact, no complaint of the transaction was made by any creditor existing at the time of such agreement to convey the lands, and the testimony does not warrant the finding that there was a fraudulent intent on the part of the wife to cheat, hinder or delay such subsequent creditors in the collection of their debts; the burden being upon them to show the existence of such intent. Townes v. Krumpen, 184 Ark. 910, 43 S.W.2d 1083; Williams-Echols D. G. Co. v. Bloyd, 169 Ark. 529, 276 S.W. 1; Buchanan v. Williams, 110 Ark. 335, 160 S.W. 190; Mente Co. v. Westbrook, supra; Miles v. Monroe, 96 Ark. 531,132 S.W. 643.

The testimony is not sufficient to warrant the belief that McCown was influenced by fraudulent intent in making the conveyance of these lands, which should have been conveyed at the time of the agreement therefor, and the chancellor made no finding that Alta V. McCown, appellant, knew of, or participated in, any fraudulent design of her husband in making such conveyance, if he harboured any such intention. She had the right to expect the immediate conveyance of these lands upon execution of the mortgage with her husband to the Bank of Dierks and the surrender of the notes of her husband in accordance with the agreement, and delay in its execution was not through any fault of hers. She, in fact, thought the conveyance had been made, and, although she could have compelled its being done by a suit for specific performance, she was not at fault in not doing so, so long as she thought the conveyance had been made, as the husband indicated an intention to perform the agreement and make the conveyance, which should be regarded, so far as any intention on her part is concerned, to have been made and related back to the time of the agreement for the making of it. Loftin v. King, 185 Ark. 421, 47 S.W.2d 578; Block v. Smith, 61 Ark. 266, 32 S.W. 1070.

Under the circumstances of the whole transaction, the finding that appellant, Mrs. McCown, should be estopped from holding the property agreed to be transferred to her at the time of her joining in the execution of the mortgage to the Dierks bank because the conveyance was not sooner made is not warranted, and the chancellor erred in holding otherwise.

The decree is accordingly reversed, and the cause remanded with directions to enter a decree dismissing the complaint for want of equity.