Stolte v. Karren , 1916 Tex. App. LEXIS 1290 ( 1916 )

SWEARINGEN, J.

The appellant Wilhe-mina Stolte, joined pro forma by her husband, Christian Stolte, filed suit against appellees, M. Karren and John E. Trainer, constable, and prayed for a temporary injunction to restrain the sale under execution of certain property levied upon as the property of Christian Stolte, claimed by appellant as her separate property. Appellant also prayed to restrain the sale of other property claimed to be homestead and exempt. Appellees answered that the Smith tract was a donation to the appellant Wil-hemina Stolte by Christian Stolte, her husband, and that appellee Karren was a creditor of the donor prior to the date of the execution of the gift deed, which was, therefore, void; and further that the deed was made with intent to defraud appellee Kar-ren. Appellees further alleged that the indebtedness had been merged into a judgment subsequent to the date of the gift deed. The court heard evidence introduced by both parties and granted a temporary injunction restraining the sale of the homestead tract, and refused to enjoin the sale of the Smith tract. However, the court suspended his order refusing the injunction of the sale of the Smith tract pending an appeal to this court. The evidence shows the following facts:

Christian Stolte purchased the Smith tract March 12, 1915, the consideration being property conveyed in exchange. He executed a gift deed to his wife, Wilhemina Stolte, March 19, 1915.

Appellee M. Karren, on March 12, 1915, made claim from Christian Stolte of a debt due on that day as commission of 2½ per cent, for acting as broker and effecting an exchange of Christian Stolte’s property, conveyed as consideration for the Smith tract. At that time Christian Stolte denied the indebtedness; told Karren he owed him nothing. On April 3, 1915, AP Karren sued Christian Stolte for the indebtedness, alleging in detail the nature of the indebtedness. Citation was duly and properly served upon Christian Stolte. Christian Stolte took the citation to his attorney as soon as it was served on him. No answer was filed. Judgment by default was rendered by the court, and in May, 1916, made final. In August, 1916, the judgment creditor, M. Karren, had the execution issued and delivered to the constable, who levied upon the Smith tract and homestead, and was proceeding to sell both tracts when this present suit was filed. Christian Stolte testified at the injunction hearing for appellant that he had never been indebted to Karren.

Appellants’ first assignment complains that the court committed error in its judgment denying an injunction restraining the sale of the Smith tract claimed by appellant Wilhemina Stolte as her separate property, and, as a reason why it was error, recites that the evidence conclusively vested the legal title in Wilhemina Stolte on the 19th of March, 1915, and that defendants were attempting to sell the separate property of Wilhemina Stolte to satisfy a judgment for debt rendered in May, 1916, in favor of M. Karren, one of the appellees, against Christian Stolte; that appellant Wilhemina was not a party to the suit which resulted in the judgment for debt. Under this assignment it is contended by appellees that the remedy of injunction should be denied because appellant has an adequate remedy at law which precludes the equitable remedy.

This contention is in accord with the rules prevailing in Texas until the statute (article 4643) enlarged the remedy. This article of the statutes was construed in the case of Sumner v. Crawford, 91 Tex. 129, 41 S. W. 994, in accordance with the views herein expressed. Allen v. Carpenter, 182 S. W. 430.

It is further contended by appellees that the sale by virtue of the execution to satisfy the judgment against Christian Stol-te in favor of M. Karren would not cast a cloud upon appellant’s legal title. We are of the opinion that it would, for the reason that the prevailing title after the sale under the execution would be that one sustained by extraneous facts not apparent upon the record of either chain of title. Texas Mort. Co. v. Worsham, 5 Tex. Civ. App. 245, 23 S. W. 938. For instance, appellant Wilhemina Stolte’s deed makes a prima facie case in her favor.

If, under article 3967, R. C. S., appellee proves that he was a creditor of the grantor in the deed prior to its execution, the prima facie case of the grantee would fail unless the grantees proved that the grantor had other property with which to satisfy the debt, either when the gift conveyance was executed or when the execution was levied.

Whether or not the grantor, Christian Stolte was (a) indebted to appellee (b) and the indebtedness existed prior to the execution of the gift deed, and (c) the grantor was insolvent at the time of the execution of the deed, and (d) was insolvent at the date of the levy of the execution, are four distinct facts necessary to be proven by evidence not of record. Maddox v. Summerlin, 47 S. W. 1022; Id., 92 Tex. 486, 49 S. W. 1033, 50 S. W. 567.

We are of the opinion that the sale under the execution might cast a cloud upon appellant’s title, and that an injunction was an appropriate remedy. An examination of the transcript and statement of facts leads us to believe that the trial court did not refuse the injunction for the reasons as contended by appellee, viz. that a sale would not cast a cloud, and that injunction was not an appropriate remedy. On the other hand, we do not believe the undisputed evidence shows that appellant Wilhemina Stolte had an absolute legal title unaffected by the statute of frauds as contended by appellant. It seems probable to us that the trial court considered that the judgment and execution against Christian Stolte in favor of M. Kar-ren conclusively established the four facts necessary for appellee’s cause, viz.: (1) That Christian Stolte was indebted to M. Karren; (2) that the indebtedness existed prior to the execution of the gift deed; (3) that Christian Stolte, the grantor of the gift deed, was insolvent at the time of the execution of the gift deed; and (4) that the grantor was insolvent when the execution was levied — and further considered that the creditor’s judgment was binding upon appellant Wilhemina Stolte, though she was not a party to that suit, thus in effect holding that the creditor’s judgment could not be collaterally attacked even by a stranger, in suits like the one at bar. There is much apparent authority for such an opinion. The question, what effect will he given to an “in personam” judgment for debt used to establish the status of pri- or indebtedness as a basis for a suit to avoid a gift deed has been considered by the courts of England and America many times since the passage of the English statutes of 13 & 27 Elizabeth, from which our articles 3966 and 3967 were derived. And these many decisions by their conflicts present an interesting illustration of the confusion of clear legal principles made possible by the double meaning of words in our language and the absence or presence of various facts in each individual case. Some courts of unquestioned ability hold that the judgment cannot be admitted at all in the second suit. Inman v. Mead, 97 Mass. 310; Yeend v. Weeks, 104 Ala. 331, 16 South. 165, 53 Am. St. Rep. 50; Hartman v. Weiland, 36 Minn. 223, 30 N. W. 815. Others of equal eminence hold that the judgment can be introduced in the second suit for any purpose and is pri-ma facie evidence. Finch v. Kent, 24 Mont. 268, 61 Pac. 657; Hinde’s Lessee v. Longworth, 24 U. S. (11 Wheat.) 199, 6 L. Ed. 454. Many of the decisions hold that the judgment rendered subsequent to the gift conveyance establishes the indebtedness, and that the grantee of the gift conveyance cannot inquire into its correctness except for fraud or collusion; but does not establish that the indebtedness existed prior to the execution of the gift deed. Schmitt v. Dahl, 88 Minn. 506, 93 N. W. 665, 67 L. R. A. 590.

The correct rule we believe to be: That in suits by prior creditors to avoid a gift conveyance because made by an insolvent, the creditor’s judgment, though rendered subsequent to the execution of the gift conveyance, and though the grantee in the gift conveyance was not a party to the creditor’s suit which resulted in the judgment for debt against the grantor, is admissible in evidence for the purpose of establishing the indebtedness, and as to the grantor is final and conclusive and cannot be collaterally impeached; but, as against the grantee of the gift conveyance, is only prima facie evidence of the facts it purports to adjudicate. Parks v. Worthington, 101 Tex. 505, 109 S. W. 909; Hinde’s Lessee v. Longworth, 24 U. S. (11 Wheat.) 199, 6 L. Ed. 454; Bump on Fraudulent Conveyances (4th Ed.) § 585; 2 Black on Judgments, § 605, note 490; McCamant v. Roberts, 66 Tex. 260, 1 S. W. 260. Against the grantor, the judgment is conclusive. Against the grantee, it is only prima facie evidence. “Prima facie evidence of a fact,” says Mr. Story, “is such evidence as, in the judgment of the law, is sufficient to establish the fact, and, if not rebutted, remains sufficient for that purpose.” 6 Words and Phrases, 5549.

To admit a judgment in personam as prima facie evidence in a suit with a stranger to that judgment is an exception to the established rule of law, which is that, as to parties and privies, the judgment is final and cannot be collaterally attacked, but, as to strangers thereto, the judgment can be collaterally attacked. Judgments in rem, or upon public matters, or in prize courts' are final against the world. But judgments “in personam” bind only parties and privies. 1 Bl. on Judgments, § 245; Read v. Allen, 56 Tex. 180; Bradford v. Knowles, 78 Tex. 109, 14 S. W. 307; Cole v. Terrell, 71 Tex. 557, 9 S. W. 668; McCamant v. Roberts, 66 Tex. 260, 1 S. W. 260.

Why an exception to the general rule is made, so that judgments in personam are admissible in evidence as prima facie evidence of the facts determined therein against the grantee of a gift conveyance, a stranger to the judgment, in suits by prior creditors to avoid the gift conveyance, is not clear. We have been unable to find a sufficient reason assigned in any of the text-books or decisions upon the subject in our hasty, though somewhat extensive, research. The reason assigned in note 2, p. 158, in Bigelow on Fraudulent Conveyances (Revised Ed. 1911) consists of a quotation from Mr. Justice Holmes in Brigham v. Fayerweather, 140 Mass. 411, 5 N. E. 265. An examination of that case will disclose that the distinguished judge held that the judgment was binding only upon the parties to that judgment, designated in the opinion as A. and B. Then the court says:

“On the contrary, those judgments, such as sentences of prize courts, to which the greatest effect has been given in collateral proceedings, are said to be conclusive evidence of the facts upon which they proceed only against parties who were entitled to be heard before they were rendered. The Mary, 9 Cranch, 126, 146, 3 L. Ed. 678; Salem v. Eastern R. Co., 98 Mass. 431, 449, 96 Am. Dec. 650; Baxter v. New England Ins. Co., 6 Mass. 277, 286, 4 Am. Dec. 125; Whitney v. Walsh, 1 Cush. (Mass.) 29, 48 Am. Dec. 590.”

The New York cases are not relevant to construction of the Texas statute, article 3967. No Texas case holds that such a subsequent judgment is more than prima facie evidence. On the contrary, Mr. Justice Williams, in Parks v. Worthington, 101 Tex. 505, 109 S. W. 909, holds that if such a judgment is admissible at all in suits lik$ the one here considered, it is only prima facie, and proceeds in the case being considered to determine that the uncontradicted creditor’s judgment introduced in evidence did not warrant a finding in favor of the judgment creditor.

Furthermore, in addition to the general rule that strangers to a judgment “in per-sonam” are not bound thereby, there is the rule, thoroughly established, that declarations and acts of grantors made after the execution of the grant are not admissible in evidence against the grantee in suits where the validity of the grant is involved. De Garca v. Galvan, 55 Tex. 57. The allegations of the petition in the suit for debt by appellee Kar-ren against Christian Stolte, to which appellant Wilhemina Stolte was not a party, were certainly declarations made after the gift deed. Date of gift deed March 19, 1915, Karren petition filed April 3, 1915. Judgment rendered May, 1916.

The judgment for debt was by default. The defendant therein, Christian Stolte, never answered and never appeared. Upon this lack of diligence or failure to act on the part of Christian Stolte, the judgment was permitted. Neither the declarations of Karren nor those of Christian Stolte made after the execution of the gift deed could be introduced in evidence in the suit at bar. What law effects ' the strange alchemy by which these subsequent declarations of Karren and the negligence of Christian Stolte are conclusive against a stranger to that suit? Wilhemina Stolte was not a party to that suit; had no right to introduce evidence, nor cross-examine; no right of appeal; no right to attack it for fraud in a direct proceeding, because not a party to it. It was and is a final judgment forever determining that Christian iStolte is indebted to M. Karren, so far as they or. their privies are concerned, and the stranger, Wilhemina Stolte, could not in direct proceeding have the judgment set aside and the cause retried.

The gift deed vested the legal title in Wilhemina Stolte (Lewis v. Simon, 72 Tex. 470, 10 S. W. 554; De Garca v. Galvan, 55 Tex. 56), and neither her husband nor his subsequent creditors or purchasers could question her deed. Only the prior creditor of the grantor could question its validity, and it would not be void even at the suit of the prior creditor if the grantee proved that the grantor was solvent at the date of the gift deed or was solvent when the execution was levied. Maddox v. Summerlin, 47 S. W. 1020.

The grantee’s title, under our statute and decisions, was not a trust for the grantor or his creditors, but was a valid legal title against the world unless, in truth and in fact, there was a prior creditor of the grantor and the grantee failed to prove the solvency of the grantor either at the date of the gift deed or when the execution was levied. If a valid prior debt against the grantor be proven by the prior creditor, and solvency is not proven by the grantee, then, and in that event only, will grantee’s gift deed be void and as if it had never been executed. Maddox v. Summerlin, 92 Tex. 487, 49 S. W. 1033, 50 S. W. 567. The property became the separate property of the wife, and the husband could not without her divest her of her title. Williamson v. Conner, 92 Tex. 583, 50 S. W. 697.

Stability and certainty of land titles is of greater moment than the prevention of inconvenience to creditors. In this case the gift deed was put of record March 19, 1915, notice of which the creditor had. How simple for him to have joined,the grantee in the suit filed by him on April 3, 1915, and thus have but one trial of the merits of'his claimed indebtedness. This was the course pursued in Cole v. Terrell, 71 Tex. 557, 9 S. W. 668.

On the other hand, the record of the suit between the grantor and Karren was not notice to the grantee, and it would be well-nigh impossible for the grantee or her assigns to know when and where judgments for debt might be rendered against the grantor.

It is our conclusion that the judgment in favor of the creditor, Karren, was admissible in evidence and was prima facie evidence of the facts necessary for that judgment; that unless rebutted by other evidence it would be sufficient to avoid the gift deed. But it is also our opinion that it is only prima facie evidence of the facts necessary to that judgment and that Wilhemina Stolte has the right to introduce evidence in the suit at har for the purpose of proving that there was no indebtedness against Christian Stolte in favor of M. Karren, or that the indebtedness did not exist prior to the gift deed and thus destroy the effect of that judgment in so far as it affects her and her property. In short, Wilhemina Stolte has the legal right to prove in the case at bar that Christian Stolte was not indebted to M. Karren in any sum for anything at any time.

Authority can be found for the objection that Christian Stolte will not be permitted to deny the indebtedness merged into the judgment against him. But in our opinion he can testify to the truth in the suit at bar, notwithstanding that he is bound by that judgment himself.

The record before us shows that appellant introduced evidence that appellee was not in fact a creditor of Christian Stolte prior to the execution of the gift deed; that appellee introduced the judgment and petition, the basis of the judgment, and thereby introduced prima facie evidence of the fact that appellee was a prior creditor of the grantor. This presents a material issue of fact which appellant has the legal right to have determined by a jury upon the trial of the main suit and not predetermined in an ancillary proceeding by the court in chambers. She has the further legal right to have the status of the property involved in this litigation remain as it is until this suit is determined upon its merits. The following authorities contain discussions of the admissibility of subsequent judgments in suits of tne cnar-acter of the instant suit: Hoerr v. Meihofer, 77 Minn. 228, 79 N. W. 964, 77 Am. St. Rep. 674: State Ins. Co. v. Prestage, 116 Iowa, 466, 90 N. W. 62; Willett v. Malli, 65 Iowa, 675, 22 N. W. 922; Homestead M. Co. v. Reynolds, 30 Colo. 330, 70 Pac. 422; Tarbell v. Jewett, 129 Mass. 457; Simmons v. Shelton, 112 Ala. 284, 21 South. 309, 57 Am. St. Rep. 39; Perrine v. Perrine (N. J. Ch.) 50 Atl. 694; Sullivan v. Ball, 55 S. C. 343, 33 S. E. 486; Snodgrass v. B. B., 25 Ala. 161, 60 Am. Dec. 505; Hunsinger v. Hofer, 110 Ind. 390, 11 N. E. 463; Curry v. Curry (Pa.) 11 Atl. 198; Suber v. Chandler, 36 S. C. 344, 15 S. E. 426; Mattingly v. Nye, 75 U. S. (8 Wall.) 370, 19 L. Ed. 380; 67 L. R. A. 590, note citing many cases.

Appellants’ first assignment is sustained.

Appellants’ second assignment complains of error by the court in the judgment because the indebtedness was not the character of indebtedness required by the statute (articles 3966 and 3967) to render the gift deed void. There is no merit in this assignment, for if there was any prior indebtedness at all it was for services rendered by appellee and received by the grantor, Christian Stolte, in pursuance either of an express or implied contract, or was a quantum meruit indebtedness, any of which, if prior to the gift deed, and if the grantor was insolvent at date of gift deed and at time of levy of execution, or intended to hinder the creditor, would constitute the character of indebtedness sufficient to avoid the deed. Bigelow on Fraudulent Conveyances, p. 163, § 3; Holden v. McLaury, 60 Tex. 228.

The second assignment is overruled.

For the reasons given in our discussion of the first assignment the order of the trial court, in so far as it refuses an injunction restraining the sale of the 'Smith tract of land, should be reversed and the trial court instructed to order the issuance of a temporary injunction restraining the sale of said Smith tract of land as well as the homestead, sale of which was enjoined in the order appealed from.

Reversed and remanded, with instructions.