Leavengood v. McGee

| Or. | Aug 20, 1907

Lead Opinion

Opinion by

Mr. Commissioner Slater.

1. At the hearing in this court a motion to dismiss the appeal was entered by plaintiff on the ground that the original testimony, and other papers in this cause, on which the decree of . the circuit court was based., had not been transmitted to the clerk of this court as required by Section 553, subd. 1, B. & C. Comp., and by Rule 1 of this court: 35 Or. 587 (37 Pac. -v). Before argument thereon defendants filed a counter motion, supported by an affidavit, for an order on the county clerk of Douglas County requiring him to complete the record by forwarding all the testimony and exhibits produced at the trial in the court below. A transcript in this ease was filed in this court on June 15, 1906, which, besides the pleadings, includes copies of the findings, the decree, notice of appeal and undertaking on appeal. No question is made by plaintiff that any of the necessary steps to perfect the appeal were omitted or were not taken in the time required by law to confer jurisdiction upon this court of the cause, and the filing of such a transcript here did confer jurisdiction. The filing of the testimony was not necessary to confer jurisdiction, and its absence would not destroy that jurisdiction, for there may be questions arising upon the pleadings to be tried on appeal, as well as whether the decree is supported by the pleadings and'the findings; but the absence of the testimony would prevent this court from trying the case de novo on the facts.

For appellants there was a brief and an oral argument by Mr. Commodore Stephen Jackson. ¡For respondent there was a brief over the names of C. I. Leavengood and Fullerton & Orcutt, with an oral argument by Mr. James Corwin Fullerton.

2. The plaintiff’s motion, however, amounts to a suggestion of a diminution of the record, and the deficiency may be supplied on order at any time before the final disposition of the cause: B. & C. Comp. § 445. The motion, therefore, must be depied, and, the testimony having been received by the clerk •since the submission of the case, it should be ordered filed.

Motion Denied.

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Opinion on the Merits

On the Merits.

Opinion by

Mr. Commissioner Slater.

3. It will not be necessary to separately consider the questions raised by the demurrer, but it will be considered and disposed of along with the merits. On behalf of defendants the contention is made that, before a creditor can maintain a suit to set aside as fraudulent a conveyance of his debtor, he must either establish his claim by judgment or acquire a lien by attachment; and such is the rule in this State: Dawson v. Coffey, 12 Or. 513" court="Or." date_filed="1885-11-30" href="https://app.midpage.ai/document/dawson-v-coffey-6894692?utm_source=webapp" opinion_id="6894692">12 Or. 513 (8 Pac. 838); Dawson v. Sims, 14 Or. 561" court="Or." date_filed="1887-03-07" href="https://app.midpage.ai/document/dawson-v-sims-6894985?utm_source=webapp" opinion_id="6894985">14 Or. 561 (13 Pac. 506); Bennett v. Minott, 28 Or. 339" court="Or." date_filed="1896-03-23" href="https://app.midpage.ai/document/bennett-v-minott-6896977?utm_source=webapp" opinion_id="6896977">28 Or. 339 (44 Pac. 288); Matlock v. Babb, 31 Or. 516" court="Or." date_filed="1897-07-31" href="https://app.midpage.ai/document/matlock-v-babb-6897456?utm_source=webapp" opinion_id="6897456">31 Or. 516 (49 Pac. 873); Fleischner v. Bank of McMinnville, 36 Or. 553" court="Or." date_filed="1898-10-24" href="https://app.midpage.ai/document/fleischner-v-bank-of-mcminnville-6898264?utm_source=webapp" opinion_id="6898264">36 Or. 553 (60 Pac. 603).

4., And they further contend that a trustee in bankruptcy, having no greater authority, is bound by the same rule, citing 30 Stat. 566, e. 541 (Section 70, subd. “e,” Bankr. Act Cong. July 1, 1898: U. S. Comp. St. 1901, p. 3452), which is as follows:

“The trustee may avoid any transfer by the bankrupt of his property, which any creditor of such bankrupt might have avoided, and may recover the .property so transferred, or its value, from the person to whom it was transferred, unless he was a bona fide holder for value prior to the date of the adjudication. Such property may be recovered or its value collected from whoever may have received it, except a bona fide holder for value.”

This rule that a creditor must reduce his claim to a judgment, before he will be allowed to attack in a court of equity a conveyance of his debtor for fraud is based upon two reasons: (1) That the claim must be a liquidated claim, so that an equity court will not be required to stop and inquire into the validity of the claim. The object of a creditors’ bill is not to ascertain or determine the amount and validity of the claim or debt, but that is the province of the law. (2) A judgment and the issuance of an execution and its return nulla bona is required as an evidence that all the remedies at law have been exhausted before resort is made to equity. This is the reason of the law, but there are exceptions to the general rule: Note to Section 1415, Pomeroy, Equity. A judgment is not necessary to enable a trustee in bankruptcy to maintain a suit to set aside transfers of property by the bankrupt in fraud of creditors, since under the bankruptcy act neither the trustee nor the creditor whom lie represents could obtain such a judgment: Mueller v. Bruss, 112 Wis. 406" court="Wis." date_filed="1901-12-17" href="https://app.midpage.ai/document/mueller-v-bruss-8187147?utm_source=webapp" opinion_id="8187147">112 Wis. 406 (88 N. W. 229). But a method is provided by the procedure in bankruptcy whereby the claims of creditors may be legally adjudicated and before the trustee should be permitted to attack by a suit in equity the conveyance of the bankrupt he shall allege and prove by the record of the referee that such procedure has been followed and that the claims on which he bases his contention have been ascertained and established. In this case the claim of Edwin Weaver, amounting to $97, dated January 8, 1901, 'is, according to the contention of plaintiff, of some importance, because of the close proximity of the date of its occurrence to the date of the deed from the McGee Company to James T. McGee. But the rightfulness of it is assailed by the defendants, who claim the note upon which the claim is based has been paid in full and $3.72 overpaid. The claim has not been acted upon by the referee, and hence it cannot be made a basis for a suit of this character.

5. It is difficult, however, to determine from the averments of the complaint upon what particular ground of fraud plaintiff relies to avoid the deeds. It is alleged that the deed by McGee and wife to the corporation was made with the intention of putting the title beyond the reach of his creditors, and that it was in fraud of his creditors; but it is not alleged that McGee at that time had any creditors, nor that-he was then in failing circumstances or insolvent, and that the property conveyed was all of the property possessed by him at that time—facts necessary to be alleged to make a case of constructive fraud. It is alleged that P. T. McGee was adjudged a bankrupt on December 1, 1904, in the District Court of the Dnited States for the District of Oregon, and “that the debts which are the basis of said claims filed against said bankrupt estate were made and incurred at divers dates between the 1st day of January, 1897, and tlxe 1st day of December, 1904”; but, while that allegation may be true, it does not follow therefrom that any of the debts presented and allowed were incurred or existed on or prior to March 1, 1898, the date of' the first deed. There must be alleged and proven facts out of which a constructive fraud will arise by force of law, or facts constituting actual or expressed fraud. “And the rule is that the facts upon which fraud is predicated must be specifically pleaded. A mere general averment of fraud is nothing but the averment of a conclusion, and will not suffice. It presents no issue for trial, and is bad on demurrer. Such an averment not only renders the bill or complaint demurrable, but it will not even sustain a decree”: 20 Cyc. 734; Leasure v. Forquer, 27 Or. 334" court="Or." date_filed="1895-07-20" href="https://app.midpage.ai/document/leasure-v-forquer-6896856?utm_source=webapp" opinion_id="6896856">27 Or. 334 (41 Pac. 665).

6. To avoid a deed as to future creditors, constructive fraud will not be sufficient, but express fraud is essential. “If a creditor assails a conveyance made before the debt was contracted, he must as a rule allege and prove that the conveyance was made with the intent to put the property beyond the reach of creditors with whom the grantors intended to deal upon the faith of his owning the property transferred, and that upon that faith he did contract debts which he did not intend to pay” (20 Cyc. 738), or that “the transfer was made with a view of entering into some new and hazardous business, the risk of which the grantor intended to be cast upon the parties having dealings with him in the new business. Such conveyance is fraudulent as to subsequent creditors and may be attacked by them. However, a mere expectation of future indebtedness, or even an intent to contract debts, if it be only an intent, not coupled with a purpose to convey the property in order to keep it from being reached by the creditors, will not make the deed invalid as against such future creditor”: 20 Cyc. 425.

7. We do not find such averments in the complaint, nor any evidence in the record tending to prove any of such requirements. The facts which we gather from the record are about as follows: For many years prior to March 1, 1898, the date of the first deed, P. T. McGee had been engaged in a general merchandise business at Myrtle Creek, with his son Hugh as an associate. In 1895 their store was destroyed by fire, at which time they had a stock of goods estimated in value by them at about $20,000, all of which was destroyed. They had insurance, to the amount of $8,000; but, payment being resisted, they coml, promised for $4,000 and received that amount. With this sum|j to which was added $2,000 ■ borrowed by P. T. McGee from the State school fund upon a mortgage of his and his wife’s farm, they páid all their debts and resumed business in a small way. Desiring to. change the manner in which they had previously been doing their business, they incorporated the McGee Co. on November 19, 1897, with a capital of $5,000; P. T. .McGee, his wife, and son Hugh being the incorporators—the former being the main stockholder, while his wife and son had only a nominal interest. The stock of goods, store fixtures, and the lots described in the deed were turned in to the corporation in payment for his interest in the stock; and to accomplish the transfer -of the lots he and his wife, on March 1, 1898, made the first deed to the corporation which is assailed. This deed was recorded on March 2, 1898. The store business was then conducted in the name of the corporation for some three or four years. On the 14th day of December, 1900, the corporation conveyed the lots by deed to James T. McGee, another son. This deed was acknowledged January 14, 1901, and was recorded January 17th following. The consideration' expressed therein is the sum of $1,000, which the grantee swears he paid the corporation in money, by having loaned to it at some time previous thereto the sum of $200, and at another time $400, which amounts the corporation was owing him at the date of the making of the' deed, and the balance of the consideration, namely $400, he paid the corporation at the time of receiving the deed. This testimony is corroborated by P. T. McGee, and we do not find anything in the record tending to rebut it. P. T. McGee continued to occupy the premises, living in one of the old buildings thereon, and renting and collecting and receiving the rent from the other buildings, giving the receipts, sometimes in Ms own name, and at other times in the name of James T. McGee, his son. In one instance he executed a lease to another in his own name for a portion of the premises. The rents were used by P. T. McGee in making repairs and for his personal expenses; but for a short time James used and occupied a part of the premises for a blacksmith shop and built a shed or addition to one of the buildings, in which he stored for a time some farm machinery. James and his father both swear that the latter was allowed to occupy a portion of the premises, which had always been his home, and to manage and rent the remainder, and to keep the rents as an offset and exchange for the rent of the farm belonging to P. T. McGee and his wife, which James was living upon without the payment of any other rent; and it also appears that James always paid the taxes upon the property in controversy. Some time after the conveyance by the corporation to James of these lots it ceased to do business, and P. T. McGee resumed business in his own name, and it was during that time that most of the debts now claimed against him were incurred.

On the 9th day of November, 1904, he filed his voluntary petition in bankruptcy in the United States District Court of the District of Oregon. Plaintiff was appointed his trustee and qualified. Claims to the amount of about $1,500 were presented to the referee, and most of them were allowed; but of these none were incurred prior -to March 1, 1898, the date of the insolvent’s deed to the corporation, and the only debts which were incurred by McGee before January 21, 1901, the date on which he acknowledged for the corporation its deed to James, are as fallows: The claim of the Acme Harvesting Company for $57, which was incurred September 29, 1900, and the claim of Edwin Weaver, dated January 3, 1901, already referred to as not having been ascertained and allowed by the referee in bankruptcy at the time of the commencement of this suit and at the time of the taking of the testimony. All the remaining claims were incurred by McGee from one to three years after the date of the corporation deed to James. It also appears from the testimony that during all this time, and up to March 11, 1902, he owned his equity of redemption in the farm and four other lots in Myrtle Creek, which were of considerable value; for on that date he mortgaged them to Kate Miller to secure the sum of $200. So that it does not appear from the evidence that there were any facts from which a presumption of constructive fraud could arise, nor any tending to establish express fraud by McGee, when making his deed to the corporation on March 2, 1898. So that, if the corporation was such a legal entity as to be capable of receiving and conveying title t-o another, plaintiff must fail, unless a ease may be made of a reservation by P. T. McGee of some secret interest or title in the property in fraud of his creditors.

8. Plaintiff alleges and contends that the McGee Company was not legally organized as a corporation; that no stock was taken or subscribed, and no officers were elected; and hence, he concludes, as a corporation it could not contract for of purchase or take the title to real property, nor could it convey the title to another. Put plaintiff offers in evidence a certified copy of articles of incorporation of the McGee Co., which appear to have been properly executed on November 29, 1897, and were filed with the county clerk and recorded December 5, 1897, with power therein conferred upon the corporation, among other things, to run and operate a general country merchandise store and to buy and sell real property. The offering of the certified copy of the articles of incorporation makes a prima facie case of the legal existence of such corporation and of its right to do the business mentioned in the articles: Laws 1905, c. 50, p. Ill, § 1. 'P. T. McGee swears that the corporation was fully organized, with a full complement of officers, and that it conducted a general merchandise business for several years. This, taken with the fact that the corporation executed, by Hugh McGee as its president, and P. T. McGee, as its secretar y, the deed conveying the premises to James, shows that it has attempted to do the business which it was authorized by its charter to do, and this established it at least as a corporation de facto.

9. Under these circumstances the legality of its organization cannot be inquired into in any action other than by the State: Marsters v. Umpqua Oil Co. 49 Or. 374" court="Or." date_filed="1907-05-28" href="https://app.midpage.ai/document/marsters-v-umpqua-oil-co-6900427?utm_source=webapp" opinion_id="6900427">49 Or. 374 (90 Pac. 151). And it is well settled that a conveyance of property to or by a corporation de facto will be binding and valid as against all parties except the state: Finch v. Ullman, 105 Mo. 255" court="Mo." date_filed="1891-04-15" href="https://app.midpage.ai/document/finch-v-ullman-8010130?utm_source=webapp" opinion_id="8010130">105 Mo. 255 (16 S. W. 863: 24 Am. St. Rep. 383).

The corporation, then, having taken the title to the lots in question by the deed to P. T. McGee and wife, executed on March 1, 1898, free from any fraud of the grantor, its title would not be affected by any of his subsequent creditors, unless the conveyance is made with the intent to defraud future creditors; but, as we have already seen, there is no averment in the complaint that P. T. McGee, when he and his wife made the conveyance, intended to deal with these creditors in the future and to incur these subsequent debts on the faith of his ownership of the property in question, nor is there any proof to that effect; nor is there any averment that when the conveyance was made he was about to engage in a hazardous enterprise, and that it was made so as to throw the burden of loss on his anticipated creditors, hut the proof shows that, by conveying the property to the corporation and the business being thereafter conducted in the name of the corporation, the property was exposed to all the hazards of the business of the corporation, and hence it could not have been that such fraud was intended. The evidence, we think, shows quite clearly that, when James T. McGee took the title from the corporation by its conveyance, he paid the consideration expressed in the deed, and that there was no secret reservation of any interest therein by P. T. McGee. The explanation of the subsequent possession of the premises by P. T. McGee is sufficient to satisfactorily rebut any possible inference that might otherwise arise from such facts that P. T. McGee had retained a secret interest in the property.

For these reasons, it follows that the decree should be reversed, and one entered here dismissing the complaint.

Motion Denied: Eeversed.