Oklahoma Nat. Bank v. Cobb

The plaintiffs in error urge that the trial court committed error in admitting parol evidence that John O. Cobb had the patent to this land issued in the name of Henry C. Cobb to hold in trust for himself and the other children of John O. Cobb by a previous marriage, on the ground that parol evidence is not admissible to prove an express trust. But the trust in this case was fully executed when Henry C. Cobb, the trustee, executed and delivered the deed to his sisters (Logan v. Brown,20 Okla. 334, 95 P. 441, 20 L. R. A. [N. S.] 298), and the evidence was clearly competent to rebut the allegation of fraud. The cause of action set out in the plaintiffs' petition on which they sought to subject this land to the payment of their judgments, was that Henry C. Cobb conveyed it to Mrs. McCaffrey without consideration and with intent to hinder and delay the plaintiffs in the collection of their claims, and that the land was received by Mrs. McCaffrey with full knowledge of such intent and to assist Henry C. Cobb in his unlawful purpose. To meet this issue, it was competent for the defendants to show what the true consideration of the deed was. In.2 Moore on Fraudulent Conveyances, p. 904, it is said:

"The recitals in a deed are not evidence as to third parties, and when a fact put at issue by the pleadings is particularly within the knowledge of the defendant, such as the consideration of a conveyance or transfer made by him, the burden of proof is on him to show the fact."

And see Bump on Fraudulent Conveyances, sec. 66; Wait on Fraudulent Conveyances, secs. 219 and 221, where it is said that there is a manifest tendency in the courts to admit parol evidence of the true consideration of a deed in almost any case. In Runyon v. Lear, 20 N.C. 373, it is held that mattersdehors the deed may be resorted to for repelling as well as founding a presumption of fraud. And see Powell v. Heptinstall,79 N.C. 207.

In the case at bar the uncontradicted evidence shows that J.O. Cobb had the patent issued in the name of Henry C. Cobb to hold in trust for the other children of J.O. Cobb, and at least this imposed on him the moral duty of executing the trust. In I Moore on Fraudulent Conveyances, p. 295, it is said that a moral obligation to perform a duty to convey property is sufficient to sustain a conveyance of the property by a debtor as against the debtor's creditors. It is true that the author points out that there is a conflict in the authorities on this question, but in our opinion the weight of reason is with the doctrine as laid down in the text.

In the case at bar the petition does not allege that Henry C. Cobb was insolvent when he executed the deed to Mrs. McCaffrey. It is true that on November 1st execution on one of these judgments issued and was afterwards returned unsatisfied. In order to reach property voluntarily conveyed in fraud of creditors, which is the allegation in this petition, it is essential that there be alleged and proved insolvency at the time the conveyance was made. In Nevers v. Hack, 138 Ind. 260, 37 N.E. 791, 46 Am. St. Rep. 380, it is held:

"In an action to set aside a fraudulent conveyance, it must be both alleged and proved, before the plaintiff can succeed, that at the time of the conveyance, and at the time the suit was brought, the debtor did not have enough property left, subject to execution, to pay his debts. The fact that insolvency exists at the time suit is brought to set aside a fraudulent conveyance does not raise the presumption that insolvency existed prior to that time, and does not extend the insolvency back to the time the conveyance was made."

In the case at bar the evidence shows that Henry C. Cobb held this land under a parol trust from his father, for the benefit of himself and the four other children of his father; that on August 1, 1912, in the execution of this trust, he conveyed land to Mrs. McCaffrey, and there is no evidence that she knew of his pecuniary condition, and there is no contradiction of her testimony that she had no intention of committing any fraud when she took it; and that her brother's one-fifth was deeded to her to settle her interest in her father's estate, of which Henry C. Cobb was administrator. This being a case cognizable in equity under the former practice, we have carefully examined the evidence, and are satisfied that it sustains the finding of fact by the trial court.

Plaintiffs in error rely on Rev. Laws 1910, section 6673, which provides:

"Where an express trust is created in relation to real property, but is not contained or declared in the grant to the trustee, or in any instrument signed by him, and recorded in the same office with the grant to the trustee, such grant must be deemed absolute in favor of the subsequent creditors of trustee, not having notice of the trust, and in favor of the purchasers from such trustee without notice, and for a valuable consideration."

There can be no question but that, under the provisions of this statute, Henry C. Cobb held this land, as far as creditors are concerned, just as if there was no trust; and if there had been an allegation of insolvency in the petition, and proof that he was insolvent when the deed was made to Mrs. McCaffrey, the land would have been subject to his debts. But this statute does not make the trust property more liable for his debts than property he owns unincumbered with any trust. The burden of proving Henry C. Cobb's insolvency was on the plaintiffs in error, and if he was solvent when he made the deed to Mrs. McCaffrey, he had the undoubted right to fulfill the conditions of his trust, and creditors could not complain, because, if he was solvent, they are not injured.

Again, the evidence shows that, whatever might have been the intent of Henry C. Cobb, Mrs. McCaffrey did not participate in it, and whatever his intent was, it does not avoid the deed, if made to pay a bona fide debt, unless the creditor also has such fraudulent intent. Reiger v. Davis, 67 N.C. 185; Stone v.Marshall, 52 N.C. 300. And in Lee v. Flannagan, 29 N.C. 471, it is held that, where the loss of the creditor is the consequence of paying a just debt, the transaction is not fraudulent, in the absence of intent to defraud the creditor.

What we have said disposes of the action of the court in rejecting the evidence, offered by the plaintiffs in error, that before making the loan to Henry C. Cobb they investigated the records, and found a large amount of real estate in the name of Henry C. Cobb, with nothing to show that he held this land as trustee. If an allegation had been made in the petition, and evidence offered, that at the time the deed of August 1st was executed Henry C. Cobb was insolvent, a very different question would have been presented; but, in the absence of such allegation and evidence, there was no error in rejecting this evidence.

We therefore recommend that the judgment be affirmed.

By the Court: It is so ordered.