Watzel v. Beardslee

The decree of the lower court should be affirmed. On August 12, 1935, the date of the conveyance in question, Walter Beardslee admittedly had liabilities of $1,999.58, $1,899.58 of which was due the receiver of the First State Savings Bank of Muskegon. Beardslee testified his assets at that time aggregated $3,335.67, which would leave a net worth of $1,336.09. Since insolvency under the fraudulent conveyance act is determined on the basis of nonexempt assets (3 Comp. Laws 1929, § 13392 [Stat. Ann. § 26.881]), there must be deducted from the net worth $500, representing exempt household furniture, and $300, the claimed value of an automobile used in his business. Of the remaining assets, $500 represented the value of the household furniture not subject to the exemption, and for which, as Beardslee himself acknowledged, there was little, if any, market demand; $121.02 constituted a claim against a defunct national bank; $564.65 was a credit in Beardslee's favor on the books of Hulbert, Warren Chandler, being a deposit on a margin account for the purchase and sale of grain. The record discloses circumstances which make the claimed value of each of these assets appear highly conjectural at best. It would be wholly unrealistic to attribute to them a "salable value" within the meaning of 3 Comp. Laws 1929, § 13393 (Stat. Ann. § 26.882). If they are excluded from consideration, Beardslee's total assets, with the exception of the alleged claim against his son, were only $1,850, almost $150 less than his outstanding liabilities. Because the "present fair salable value of his assets," exclusive of the alleged claim against the son, was less than the amount required to pay his probable liability on his debts, Beardslee was clearly insolvent under the statutory definition contained in 3 Comp. Laws 1929, § 13393 (Stat. Ann. § 26.882):

"A person is insolvent when the present fair salable value of his assets is less than the amount that will be required to pay his probable liability on his existing debts as they become absolute and matured."

The weakness of Beardslee's financial condition is thus strikingly emphasized by the fact that the alleged obligation of his son is crucial to his status as a solvent or insolvent debtor.

What is the nature of this claim? It consists of the promise of William Walter Beardslee to repay his father for the expenses of his education at a preparatory school and at college. When the alleged promise was first made, the son was a minor and, of course, legally incapable of binding himself by contract. It is contended that when he became of age, however, he verbally ratified the promise. The principal testimony supporting that conclusion is the following statement of the son:

"I asked him (the father) if it would be agreeable if he would let me pay this money to him directly by helping him in such ways as putting my sister through college, and I told him I wanted it specifically understood that that was in payment of the debt, and he agreed."

The parties considered neither the time nor the amount of the payments to be made. If it was "specifically understood" that the debt was to be retired by putting the sister through school, it might very well be that the promise was for a personal performance conditioned on the continued college attendance of the sister. In any event, the testimony reveals not a solemn ratification of an antecedent debt, but a statement of the son's willingness to assist his father and an agreement as to the manner in which it should be done.

The indefinite nature of the arrangement is confirmed by its actual execution. As the sister required tuition to be paid or books and clothes to be purchased, the brother advanced the necessary funds. Although the promise was alleged to have been made in June, 1934, when $500 was paid directly to the father out of the son's college savings, the only payment made for the sister's benefit up to the time of the conveyance was in the early part of 1935. At that time William was earning $150 a month. The clear inference from the testimony of father and son is that the son would not have been subjected to legal proceedings or any other pressure had he lost his job or become unable to make payments to the father or sister, when and if demanded. As a result, a not unreasonable interpretation of the son's promise is that it amounted at most to a conditional ratification, an engagement to pay when able, which would be, in the hands of the father, an asset subject to a serious contingency. See 31 C. J. p. 1063, § 155. Or if unconditional, there is still grave doubt that it was a bona fide ratification of a promise made during infancy. I agree with the circuit judge who stated:

"I am not impressed that the item listed as 'Claim against son,' in the sum of $1,075, should be considered in arriving at the total assets of Walter E. Beardslee at the time in question. So far as the record shows it was never evidenced by note or other formal writing. Considering its inception, the relationship of the parties, and the manner in which it was ultimately discharged, it seems to me that it was strictly a recognition of a moral obligation."

The law has always looked suspiciously upon transactions between members of the same family wherein lurk the dangers of fraud on creditors. Bentley v. Caille, 289 Mich. 74. Likewise, when finding ratification by an infant of an executory promise to pay money, a clear showing has been demanded. See cases cited in 31 C. J. p. 1065, notes 64-70. Before both principles are here overturned at the expense of bona fide creditors, there should be clear evidence that a bona fide claim existed against the erstwhile minor son. Otherwise, we bestow a sanction upon fraudulent conveyances by debtors with grateful or obliging families who can create domestic obligations at will to swell the apparent assets of the debtor's estate.

Moreover, even if the contract is held binding, the fact that it was subsequently performed by the son does not prove that it was an asset which had a "present fair salable value" at the time the real estate was transferred without consideration to the defendant. Founded on a mere oral promise to pay back a sum of money in indefinite amounts and at indefinite intervals, this doubtful obligation could have no market value, book value, or other salable value within the contemplation of this section. See Glenn, Fraudulent Conveyances (1st Ed.), p. 365, and cf. Schmitz v. Wenzel, 166 Minn. 435 (208 N.W. 184). Whatever worth it had, it could not have substantially increased Beardslee's ability to pay his creditors the debt he owed them. In that event, the law does not permit him to give away a part of his property without consideration. See Glenn, Fraudulent Conveyances (1st Ed.), p. 366.

The decree of the lower court should be affirmed, with costs to plaintiff.

SHARPE and NORTH, JJ., concurred with BUTZEL, C.J.