Durrett v. Harris , 148 Ark. 4 ( 1921 )

McCulloch, C. J.

D. F. Harris, one of the appel-lees, was for many years prior to the year 1911 engaged in the sawmill business, and became heavily indebted to creditors; the Merchants’ & Farmers’ Bank of Junction City, Arkansas, one of the 'appellants in this action, being one of them. He owed the bank three notes, one for $1,000, one for $1,973 and the other for $2,500. Harris resided in Junction City and owned an undivided half interest in a tract of land in that (Union) comity, containing 424 acres; Ms brother, C. A. Harris, being the owner of the other half interest. The bank instituted an action at law in the circuit court of Union County against Harris to recover on the said note for the sum of $2,500, and sued out an order of general attachment, which was levied on the Union County land. Judgment was rendered in favor of the bank in that action, the attachment was sustained, and the land was ordered sold. At the sale, which was held on January 6, 1912, the bank became the purchaser of Harris’ undivided half-interest in the •land for the sum of $1,800, which was credited on the judgment, and received from the sheriff a certificate of purchase. A few days prior to the expiration of the period allowed for redemption from the sale, Mrs. C. D. Harris, the wife of D. F. Harris, paid to the bank the sum of $2,080, and the latter assigned to Mrs. Harris the certificate of purchase, upon which the sheriff executed to her a deed conveying the land attached and sold. Mrs. Harris and the other tenant in common subsequently divided the land and a part of the tract containing 200 acres was conveyed to her in severalty. She sold forty acres of the land to another person and then purchased forty acres more, which gave her the amount of acreage she received in the division. Mrs. Harris continued as the owner of the 200 acres, which was a farm partly in cultivation, until November, 1918, when she sold and conveyed it to S. E. Bass for the consideration of $5,000, of which $1,500 was paid by check on another bank in Junction City, the remaining sum of $3,500 being evidenced by note executed by Bass to Mrs. Harris.

The present action was immediately instituted by the Merchants’ & Farmers’ Bank in the chancery court of Union County against D. F. Harris and his wife to subject the proceeds of the sale to Bass (check and note) to the payment of the remainder of the debt still owing by D. F. Harris to the bank, the basis of the action being the charge that the funds used by Mrs. Harris in payment to the bank of the consideration ($2,080) for the assignment of the certificate of purchase were really the funds of Harris himself, fraudulently accumulated and held in the name of liis wife for the purpose of hindering the bank and other creditors in the collection of these debts. Shortly after the institution of this suit, D. F. Harris filed his petition in bankruptcy, and was duly adjudged a bankrupt, and appellant Durrett was elected trustee of the estate and intervened in this action, asking that the funds in controversy be decreed to be the property of the estate of the bankrupt. The chancery court, on the final hearing of the cause, dismissed the original complaint of the bank, as well as the complaint of the trustee as inter-vener for want of equity.

The testimony adduced in the case establishes the fact that the funds used by Mrs. Harris in paying the bank for the purchase of the land were accumulated in the business operations of D. F. Harris in the name of his wife, and that such operations were so conducted in the name of Mrs. Harris for the express purpose of putting the proceeds beyond the reach of Harris’ creditors. When Harris became insolvent in the year 1911, he divested himself of all of his property, except this undivided half-interest in the Union County land which he held with his brother. He had no other property left, nor did his wife-own any property. She was not a business woman, and gave her entire time and attention to housekeeping. Harris himself seems to be a capable business man, and he found an opportunity to secure contracts with the Federal government to furnish timber for use in constructing locks and dams in the Ouachita River at Camden and in the Sunflower River in the State of Mississippi. He availed himself of this opportunity, and, in 'order to prevent interference from creditors, he took the contracts in the name of his wife and operated the business in her name. No capital was required, and the skill and efforts of Harris were substantially all that were involved in the enterprise. Harris managed the business openly and entirely, using his wife’s name in the contracts and in his dealings with the proceeds arising from those business operations. Mrs. Harris had nothing to do with the business except to permit the use of her name. This state of affairs seems to have been well known and a matter of notoriety in the community where the business was carried on, and where the Har-rises resided, where the bank operated its business and its officers resided. The business was profitable, and from the accumulated profits the sum of $2,080 was used to purchase from the bank for Mrs. Harris the tract of land which the bank had acquired at the attachment sale. Learned counsel for appellants say that, since the holding of the funds in the name of Mrs. Harris was colorable and in fraud of the rights of creditors, the purchase of the certificate amounted to no more than a redemption of the land from the sale. Conceding that to be true as to other creditors of Harris, it ought not to be so treated as to the bank which received the funds as a payment by Mrs. Harris for the purchase of the land. The bank made its election to accept the funds in purchase of the land. It accepted the funds, not as the property of Harris, the debtor, but as the property of Mrs. Harris. The bank knew or could have known then as well as now the source of those funds and how they were accumulated. In order to escape the effect of its election at that time to treat the funds as being those of Mrs. Harris and to accept the same from her in purchase of the land, it devolves on the bank to show that it accepted the funds in ignorance of their source. It is inconceivable that the bank did not know or have abundant opportunity to ascertain at that time the true state of affairs in regard to those funds. Mrs. Harris had no property, and was apparently not engaged in any business whereby there could be accumulated e'arnings. Her husband attended to the business, and he also made the purchase of this land from the bank for his wife.

We tliink that the hank is bound by its election and can not now be heard to say that the funds used in the purchase of the land should, in equity, be treated as the property of Harris and followed through the land to the proceeds of the sale to Bass, so as to subject those proceeds to payment of the debt of Harris to the bank. Under such circumstances, a court of equity will not lend its aid to uncover an alleged fraud. Whatever the rights of other creditors of Harris might have been, the bank is not in an attitude to set up the fraud for the purpose of subjecting the proceeds of the sale of the land to the payment of their debt.

The trustee is in no better attitude as the representative of the bank, a creditor of the bankrupt. A trustee in bankruptcy may, under section 70 of the National Bankruptcy Statute, “avoid any transfer by the bank-rapt of his property which any creditor of such bankrupt might have avoided,’’ and this is the extent of his rights and authority. Boyd v. Arnold, 103 Ark. 105.

Since appellant bank is not in the attitude to avoid the transfer by. Harris, the trustee can not do so for it. There is no proof in this record to show that there" are other creditors who are entitled to avoid the conveyance.

Decree affirmed.