Berg v. Frantz , 113 Ky. 888 ( 1902 )

Opinion of tiie court by

JUDGE BURNAM

Affirming.

In March; 1891, the appellee, Farid Frantz, conveyed to his wife, Annie Frantz, in consideration of $1 and love and affection, a lionse and Jot on Washington street, in Louisville, which they had long occupied as a residence. The title remained in the wife, until August, 1893, when she conveyed the property to Ohas. L. Monsch, her son-in-law, for the, recited consideration of $7,000 cash. At the date of this transfer to Monsch he was the president and principal stockholder of the Farmers’ Tlome Hotel Company, a corporation conducting a hotel known as the “Farmers’ Home.” The articles of incorporation of the hotel company provided that, before the stock could be sold to an outsider, it should first be offered to the other stockholders; and it .appears from the minutes of the hotel company that a short time, previous to the conveyance of the Washington street property to Monsch he offered to sell 100 shares of his stock to the other stockholders. When they declined to purchase, he transferred 100 shares of his stock upon the transfer book of the company to his mother-in-law. In October, 1S95, Monsch reconveyed the property to Mrs. Frantz for the recited consideration of $7,000 cash. About the same time the hotel stock was transferred to Monsch" by Mrs. Frantz. In November, 1895, the appellant, Phillip Berg, instituted this suit against Charles L. and Henry Monsch on notes aggregating $2,500, and at the same time sued out a general attachment against their property. On the 13th of February, 1890, he filed an amended petition, in which he alleged that the conveyance of .('liarles L. Monsch to his mother-in-law, Mrs. Frantz, was without consideration, and was made by him and accepted by her for the'purpose of defrauding his creditors. He also alleged that Monsch was the owner of ten shares of the capital stock of the German Security Bank of Louisville, upon which the original attachment had been served, and asked that Monsch be required to produce his certificate, and that it be subjected to the payment of his demand. Shortly after the institution of thjs suit the other appellants instituted suit against Charles I. Monsch, all seeking substantially the same relief. The appellee Mrs. Annie Frantz answered, denying the alleged fraud in the transfer of the property, and further stated that her husband, in March. 1891. was not individually liable in any sum whatever, but was bound as guarantor on the bonds of the Kentucky Cattle Raising Company for a large amount of money; and that in August, 1,893. fearing financial disaster on account of this, and that the creditors of Ihe cattle company might undertake! to subject the property to the payment of their debts, she was persuaded by her husband to deed the property to their son-in-law, Monsch. for the pretended consideration of $7,000, but that as a matter of fact nothing was paid by Monsch for the property; and that the conveyance was made pursuant to an express understanding that he was to hold it in trust for her benefit, and was’ to reconvey it when demanded; that the sole purpose of the conveyance was to put ihe title beyond the festch of her husband’s creditors. Whilst the appellee David Frantz answered that Charles L. Monsch had pledged the ten shares of bank stock to him on December 24, 189-4, as collateral security for a note of $1,800, given on that dav for borrowed money, and asked that his lieu be enforced, and the property sold for the purpose of paying his debt. The. circuit judge dismissed the petition of appellants.

Upon-this appeal they rely for a reversal on two grounds: First, it is contended that the conveyance from Mrs. Frantz to Monsch on August 14, 1893, was an absolute conveyance, made in good faith, in consideration of tht> transfer to her of the hotel stock, without any understanding that it should bo reconveyed: second, that, even if it be conceded that the facts -as to the transfer were as alleged by Mrs. Frantz,this defense is founded in fraud, and the creditors of Monsch are entitled to subject the property to the payment of their demands, especially those which were created whilst he held the title to the property, notwithstanding the fact that he had reconveyed the property prior to the institution of their suits and tlie suing out of- tlieir attachment. To support the first contention, they point to the transfer of ihe hotel stock and show by the testimony of one of the employes of the hotel that in 1893 this stock had some pecuniary value, but that at the time of the reconveyance to 'Monseh the stock of the company had become worthless, and h>6 himself insolvent. On the other hand, both Mrs. Frantz and Monseh testify to the facts relied on in her answer, and that Mrs. Frantz never knew anything about the transfer of his hotel stock to her; that during the interval between the two deeds a dividend was declared upon this identical stock, which was placed to the credit of Monseh; and that he voted the stock and controlled it exactly as his own. It is also shown that Mrs. Frantz continued to occupy the premises exactly as she had done before the deed of August,,1893. It seems to us that there can be no doubt that there was no real consideration for the deed of August 11, 1893, and that it was made alone for the purpose of putting the property beyond the reach of the creditors of Mrs Frantz’s husband; and there can be no doubt that any creditor of David Frantz under the testimony could have set aside his conveyance to his .wife and that to Monseh by his wife as without consideration. Whilst a court of equity will not grant relief to a party who has made a conveyance in secret trust for the purpose of defeating his creditors, and so long as the vendee holds title thereto it is subject to the claims of his creditors to the same extent as any.other property to which he has title; and whilst there is some diversity of opinion in the judgments upon this point — the decided weight of authority is that, until the creditors of the fraudulent-vendee obtain a lien on the property, the vendee’s right of alienation is perfect in respect to it, and it is not fraud upon his creditors for him to re-convey it to Ins vendor. Until then the creditors of the vendee have no legal or equitable claim in respect to it superior to that of the vendor. See 14 Am. & Eng. Ency. Law (2d Ed.), p. 259; Bank v. Brady, 96 Ind., 498; Bank v. Hostetter, 61 Iowa, 395, 16 N. W., 289: Cramer v. Blood, 18 N. Y., 684; Davis v. Graves, 39 Barb., 480; Powell v. Ivey, 88 N. C., 256; Stanton v. Shaw, 3 Baxt., 12; Peck v. Jones, 10 Tex. Civ. App., 335, 30 S. W., 382. Bump. Fraud. Conv. (Gray’s 4th Ed.), section 203. says: “To the proposition that a conveyance in pursuance or in consideration of an agreement which can not be enforced is voluntary, there is one exception. Whenever there is a moral obligation, which,can not be enforced on account of the provisions of the statute, there the party may waive the benefit of the statute, and the transfer will he valid as .against creditors. Thus a debt which is barred by the statute of .limitations, or a discharge in bankruptcy, is a good consideration for a conveyance. The statute of frauds is a defense which, ihe. debtor may waive, and, if he, does so, a conveyance in consideration of a claim that is within the statute will he valid. If h© receives Ihe title to land which is paid for by another upon .a promise.to hold it for the latter, lie has the right to perform the promise, and convey if to the real owner. If the title to property is improperly taken in Ir.s nam'd, he may convey it to the real owner, or to a Irusiee for Ins benefit, for the purpose of correcting the mistake, whether a trust could be enforced in his favor or not. When a parol partition has been made of land, and 'each party has carried it out by taking possession of the part allotted' to him, a deed may subsequently be made in pursuance of if. The moral obligation resting upon tire, grantee holding under a fraudulent transfer is sufficient to support a reconveyam-e against his creditors.’' Hoe, also, the case of Petty v. Petty, 31 N. J. Eq., 8. This 'axact question was considered by this court in Clark’s Adm’r v. Rucker, 46 Ky., 583. In tliat case'John Clark made to his brother, William, a bill of sale of all hi» slaves for the purpose of placing them beyond the reach of his creditors, with a secret understanding that William was to hold them in trust for the benefit of the vendor's wife and infant child. Shortly afterwards John Clark died, and William took possession of the slaves, claiming them as his own. Subsequently becoming insolvent, he executed a hill of sale to the slaves to the widow and infant child of John Clark. The creditors of William Clark sought to have this last conveyance set aside on the ground that it was fraudulent and without consideration. Tn that case it was held that: “If the fraudulent vendee had still retained the title to the slaves they would have been liable for the payment of his debts, because as between the parties this contract, being executed, would have been obligatory on them, and revocable at the instance, of the creditors of'the vendor from whom the title passed by the bill of sale. But as the slaves could have been subjected to the debts of the fraudulent vendeor, the creditors of the fraudulent vendee could not subject ihern after the title and . possession had been conveyed to the widow and children of ,the fraudulent vendor before the creditors of the fraudulent vendee had acquired any title to them.” It is insisted for appellant that the reasoning in this ease, is not sound, and that it was repudiated in Anderson v. Anderson, 80 Ky,, 638 (4 R., 579). although uoi expressly overruled. In the Anderson case, it was contended for Clay that in 1870 he procured Holly to convey a Tract of 223 acres of land to -A. H. Anderson to hold for him in secret trust whilst he took the bankrupt law, and that after liis discharge Anderson had conveyed the property to him "pursuant to this agreement. The creditors of Anderson, on the other hand, insisted that Clay, in his bankrupt proceedings, had sworn that he had no interest in any real estate, either under his control or held by any other person in trust for his use: and that he had no property whatever in reversion, remainder or expectancy; and whilst he claimed to have had a bond for a title from Holly, yet no attempt was made to prove its contents. In that case his contention was denied purely upon the facts of the case. There was no intimation of a purpose on the part of the court to abandon the law as announced in the earlier case of Clark’s Adm’r v. Rucker. After a careful consideration of the very able brief of counsel for appellants and the authorities relied upon, we are of the opinion that tine law as heretofore announced in Clark’s Adm’r v. Rucker should be adhered to. In regard to the ten shares of bank stock pledged by Monsch to Frantz to secure the $1,800 note, we think the claim of Frantz is fully substantiated by the testimony.

For reasons indicated, the judgment is affirmed.