Driggs & Co.'s Bank v. Norwood , 50 Ark. 42 ( 1887 )

Smith, J.

The bill alleged that the plaintiffs, Driggs •& Co., had recovered'judgment against Norwood, as a member of the firm of Nelson & Co., for more than $1,200 and had taken out execution thereon, which was returned unsatisfied ; that Norwood had bought a lot in the town •of Prescott, and for the purpose of cheating and hindering his creditors, had caused the deed to be made to his wife. The prayer was for the subjection of the property to the satisfaction of the plaintiffs’ debt.

The defendants filed a-joint answer, in which they denied any fraud in the transaction, and averred that the lot was purchased and paid for with the wife’s own money. The bill was dismissed at the hearing.

The testimony developed these facts : Norwood was & country physician with a limited practice and utterly without means, until, in the year 1869, he married a widow, who had an'interest in her deceased husband’s estate. Erom this source he received fifteen 'hundred dollars. He invested eight hundred dollars in a farm, takiug the title in his own name, and lent such part of the remainder, as was not consumed in the support of the family, upon interest. He seems to have enjoyed a reasonable share of prosperity, cultivating his farm and practising his profession, until the year 1882, when he. removed to Prescott, the county seat of his county. He was then the o.wner of another small farm, in addition to the one previously, mentioned, was free from debt, and-had one thousand dollars or more due to him in notes and accounts. He was regarded by his neighbors as a man in.easy circumstances., About this time he was induced to sign a bond of $5,000; and the condition of the bond not having been performed, he and two other» of the sureties made their joint note' for $1,600 in adjustment of their liability. This nóte had not been paid down to the taking of the proofs in this cause and an action was. pending in the courts upon it. In the course of the complications growing out of this bond, andas soon as it was ascertained that the sureties were in for a loss, Norwood made a suspicious transfer of the smaller of his two farms- and of his book accounts-to a friend in Prescott. In the-fall of 1882 he also sold the other farm, and about the first of October in that year was admitted as a partner in. the mercantile firm of Nelson & Co.

On November 18th, 1882, he became surety on the bond of the postmaster at Prescott, and made oafh that he was-w’orth one thousand dollars over and above all debts, liabilities and exemptions. On November 21, 1882, occurred the transaction, which is the subject of this controversy, viz-: the purchase of the town lot for three hundred and sixty dollars and the conveyance of it to his. wife. A few days afterwards — not later than the first of' December following — Norwood’s firm failed in business,, or was closed out by creditors.' The plaintiffs recovered their judgment on September 4,1884. It does not appear-from the record when their debt was created. It is-probable that it was before the date of the conveyance,, which is attacked herein as fraudulent; since, as we have seen, the firm of Nelson & Co. failed very shortly after-wards. The plaintiffs were bankers at Prescott, and it would be strange if the firm of Nelson & Co. could have obtained so'large a credit on the verge of insolvency or after insolvency. Still on this point of the exact date of the accrual of the debt, theré is neither allegation, nor proof, and the plaintiffs must accordingly be treated as-•subsequent creditors.

1.Husband and wife Use money. The money which Norwood collected for his wife was rightfaliy hers and could have been secured to her use by an investment in real estate in her own name, or by an investment in personal property, a schedule of which was recorded in the" county of her residence: or, possibly, if it was desirable to keep it in money or choses in action, by holding it separately from that of her husband. It was her separate property so long as she chose to preserve its distinctive character, and did not entrust its management or control to him otherwise than as an agent. Beeman v. Couser, 22 Ark., 429; Constitution of 1868, art. XII, sec. 6; Humphries v. Harrison, 30 Ark., 79; Hydrick v. Burke, Ib., 124.

There is nothing to show that Norwood, in the investments he made, acted as his wife’s agent. On the contrary he purchased lands for his own benefit and dealt with her money as his own for a period of more than ten years, and obtained credit on the faith of its being his own. Mrs. Norwood is not shown to have objected to such use and her assent must be presumed. It is now too late to assert her claim to the money or its proceeds against her husband’s creditors. 2 Perry on Trusts, sec. 678; Schouler Domestic Relations, 3d Ed., sec. 119; Humes v. Scruggs, 94 U. S., 22.

2. Voluntary Conveyacen: When fraudulent against subsequent creditors, K plaintiffs’ debt was in existence, when the trans-for was made, there could not be any doubt of their right impeach it. For everv voluntary alienation of his pro- * perty by an embarrassed debtor is presumptively fraudulent against existing creditors. Indebtedness raises a presumption of fraud, which becomes conclusive upon insolvency. But as to subsequent creditors, a voluntary conveyance by a person in debt is not per se fraudulent. To make it so, proof of actual or intentional fraud is required. Sexton v. Wheaton, 8 Wheat., 229 ; S. C. 1 Am. Lead. Cas. 17 and notes; Hinde’s Lessee v. Longworth, 11 Wheat., 199; Mattingley v. Nye, 8 Wall., 370; Wallace v. Penfield, 106 U. S., 260; Payne v. Stanton, 59 Mo., 159; Beade v. Livingston, 3 John. Chy., 501; Mittelbury v. Harrison, 11 Mo. App., 136, affirmed on error, 3 S. W. Rep., 203.

The cases have always made this distinction between the two classes of creditors,-as to the burden and quantum of proof. But in the text books and in the decided cases, there is some obscurity and perhaps conflict as. to what are the frauds of which subsequent creditors may take advantage. Where the fraud is directed specifically against them, as where a voluntary settlement is made with a view to becoming subsequently indebted, there can be no difficulty. Such a ease was Savage v. Murphy, 34 N. Y., 508, where the judgment debtor, being engaged in an extensive business and already considerably indebted, stripped himself of the title to all his property by'transfer to his wife and children, with the intent to contract a future indebtedness on the credit of his apparent ownership of the property transferred, of which he still remained in possession.

But is it necessary in every such attack to show a specific intent to defraud future creditors ? Or may the transfer be avoided at the suit o.f a subsequent creditor, on proof that it was a fraud upon the rights of previous creditors ?

In Tony v. McGeehee, 38 Ark., 427, it was said : “ A voluntary conveyance may be impeached by a subsequent creditor, on the ground that it was made in fraud of existing cteditors ; but to do so, he must show either that actual fraud was intended, or that there were debts still outstanding, which the grantor owed at the time he made it.”

As we have stated above, a creditor who assails a conveyance of his debtor’s property made before the creation of his debt, must show fraud in tact. Existing indebtedness is not conclusive, but only a circumstance from which the fraudulent ihtent may be inferred. Pepper v. Carter, 11 Mo., 543 Rose v. Brown, 11 W.Va., 134.

In Cunningham v. Williams, 42 Ark., 170, it was said that the intention must have been to put the property beyond the reach of debts which the settlor intended thereafter to contract, and which he did' not intend to pay, or had not reasonable expectation of being able to pay. Compare 1 Amer, Lead. Cases, 5th Ed., 40 et seq.; Wait on Fraudulent Conveyances, Ch. VI; Bump on Fraudulent Conveyances, Ch. XIII; Graham v. Railroad Co., 102 U. S., 148; Horback v. Hill, 112 U. S., 144; Read v. Livingstone, 3 John. Chy., 497; Shand v. Hanley, 71 N. Y., 319; Parkman v. Welch, 19 Pick., 237; Day v. Cooley, 118 Mass., 527; Claflin v. Miss., 30 N. J. Eq., 211; Johnson v Skaggs, Court of App. Ky., Jan., 1887, 2 S. W. Rep., 493.

3. same. Post-nup-tial settlemant upon wife. ’ But whether it be sufficient for the subsequent creditor to , * that the conveyance was intended to defraud existing: creditors, or whether he must prove that it was executed as a cover for future schemes of fraud, the deed under consideration must he condemned. It was á voluntary post-nuptial settlement by Norwood upori his wife. He was at that time, according to his own account, largely insolvent as an individual, and the firm, of which he was a member, was on the brink of min. The amount he settled upon his wife exceeded in value the rest of his property. The deed to the wife was never acknowledged before an officer by the grantor until about two years after its execution and since the commencement of this suit. Without acknowledgement it could not be recorded. The possession of the property and the concealment of the transfer may have enabled Norwood to obtain a false credit. And shortly after the transfer, his firm contracted a debt of considerable magnitude to the plaintiffs, which they had no reasonable grounds to believe they would be able to pay. The transaction wears the badge of fraud.

The decree is reversed and the cause remanded with directions to grant to the plaintiffs the relief they pray for.