| Ark. | Apr 9, 1892
after stating the facts as above reported.
The defendants in the cross-complaint having failed to controvert the allegations therein, the same should have been taken as true. The circuit court treated them as confessed. Mansf. Dig., sec. 5072.
The conveyance of the lots in controversy by Divil- • bliss and wife to the appellant was virtually a conveyance by George H. Rudy to his son, John M. Rudy, the same having been purchased and paid for by the father. It was a voluntary conveyance. Was it void' as to the creditors of Rudy ?
A debtor has the right to make reasonable provisions in property for his wife or children, according to his state and condition in life. But in doing so he must retain in his possession property amply sufficient to pay all his debts. If he does so fairly and honestly, the child or wife for whom the provision was made is not bound to refund the advancement, for the benefit of creditors, in the event the parent or husband should subsequently fail or become unable to pay the debts he owed when the provision was made. Bertrand v. Elder, 23 Ark., 494.
The law requires every man to be just before he is generous. If he makes a voluntary conveyance while he is in debt, it presumes that it is fraudulent as to existing creditors, and the burden is on those claiming under the conveyance to repel the presumption. If he be insolvent, unable to pay his debts, the presumption that it is fraudulent as to antecedent creditors is conclusive. The rule is correctly stated in Driggs v. Norwood, 50 Ark. 46, as follows : “ Every voluntary alienation of his property by an embarrassed debtor is presumptively fraudulent against existing creditors. Indebtedness raises a presumption of fraud, which becomes conclusive upon insolvency. But as to subsequent creditors, a voluntary conveyance by a person in debt is not fier se fraudulent. To make it so, proof of actual or intentional fraud is required.”
According to the uncontroverted allegations of the cross-complaint George H. Rudy was unquestionably insolvent; and the conveyance to his son was void as to existing creditors. Was it void as to subsequent creditors ?
Against subsequent creditors a voluntary conveyance executed by a grantor in debt at the time is not void, unless actually fraudulent. To make it fraudulent proof of actual or intentional fraud is required. As to what will be sufficient proof of such fraud the authorities are obscure and conflicting.
In order for a subsequent creditor to avoid a voluntary conveyance it is not sufficient to show that there are ‘ ‘ debts still outstanding, which the grantor owed at the time he made it,” as held in Toney v. McGehee, 38 Ark. 427. Mere indebtedness is no evidence of fraud as to such creditors. But the insolvency of the grantor at the time of the conveyance is at least prima facie evidence of a fraudulent intent as to them, “because a transfer of property under such circumstances affords a reasonable ground of presumption that the intention with which it was made was to put beyond the reach of creditors,. future as well as present, the property to which they had a right to resort for the payment of their debts.” This presumption would necessarily arise if the grantor contracted debts immediately or so soon thereafter as to show that he reasonably had in contemplation the contracting of such debts at the time the transfer was made. Prom his inability to pay and the voluntary alienation the conclusion would naturally follow that .he did not intend to pay such debts when they were contracted, and that the conveyance of the property was intended to delay or prevent the collection thereof by the sale of the property under due process of law. Winchester v. Charter, 12 Allen, 606 ; Winchester v. Charter, 97 Mass. 140" date_filed="1867-09-15" court="Mass." case_name="Winchester v. Charter">97 Mass. 140; Morrill v. Kilner, 113 Ill. 318" date_filed="1885-03-30" court="Ill." case_name="Morrill v. Kilner">113 Ill. 318, 322 ; Moritz v. Hoffman, 35 Ill. 553" date_filed="1864-04-15" court="Ill." case_name="Moritz v. Hoffman">35 Ill. 553 ; Taylor v. Coenen, 1 Ch. Div. (L. R.) 636, 641; Reade v. Livingston, 3 Johns. Ch. 501, 502 ; Redfield v. Buck, 35 Conn. 328" date_filed="1868-09-15" court="Conn." case_name="Redfield v. Buck">35 Conn. 328, 337 ; Ridgeway v. Underwood, 4 Wash. C. C. 137; Howe v. Ward, 4 Greenl. (Me.) 195, 206 ; Sexton v. Wheaton, 8 Wheat. 229" date_filed="1823-02-13" court="SCOTUS" case_name="Sexton v. Wheaton">8 Wheat. 229, 252 ; Horn v. Volcano Water Company, 13 Cal. 71-2 ; Bump on Fraudulent Conveyances (3d ed.), p. 322; 2 Bigelow on Frauds, pp. 99, 181, 200 ; May on Fraudulent Conveyances, p. 75; 1 American Leading Cases (5th ed.), 42 ; 2 Pomeroy’s Fquity Jurisprudence, sec. 973.
This case is a fair illustration of the rule. At the time of the execution of the conveyance in question George H. Rudy was insolvent; his liabilities far exceeded his ability to pay. His vocation was farming. He had been engaged in that business for many years previous to the execution of the deed by Divilbliss and wife, and continued to farm many years thereafter. He had no other occupation, so far as is shown by the evidence. In following his vocation he purchased, extensively, goods, wares, merchandise and supplies needed to support his family and in his farming operations, on a credit, from merchants in Van Burén. He made large crops, and, when gathered, delivered them to the merchants to whom he was indebted to be appropriated to the payment of his accounts. His crops would fall far short of paying his debts, and the result was he continued to farm and contract debts and pay them in this manner every year, so far as the proof shows, using' the crops of one year to pay the debts contracted in the preceding year and the current year, so far as they would extend, and was always in debt vvith his merchants. In this way he did business with Lynch prior to and at the time of the execution of the deed to appellant; and was in debt to him when the lots in controversy were conveyed to his son. In this way he continued to do business with him until he became a partner of Neal. In 1871, a short time after the execution of the deed in question, he commenced buying of Neal, and in this way purchased from him and delivered crops on account until 1874, when- he and Lynch became partners, and in this way did business with them until 1881. And in this way commenced business with Austin in 1876, and did business with him in the years 1876 and 1877. His habits and necessities of business were such as to plainly show that he, at the time he caused the lots to be conveyed to his son, necessarily had in view and knew that he would contract debts in the manner he did, and that his intention, in procuring the execution of the deed to his son, was to put beyond the reach of his creditors, antecedent and subsequent, the lots in controversy and to deprive them of the right to appropriate them by due process of law to the payment of his indebtedness. He could not reasonably have had any other motive. His son was about six years old, and there was no occasion for making any such provision at that time. All these facts go to prove the uncontroverted allegation of the cross-complaint that-, he caused the deed to bé made to the appellant in order to defraud his existing creditors ‘ ‘ and in anticipation of and reference to his subsequent indebtedness and insolvency ” — to defraud his subsequent creditors.
In paying the debt which he owed to Lynch, at the time of the execution of the deed to his son, he did so by contracting another with Lynch and Neal in lieu of it, and thus continued to pay one by contracting another until he contracted the indebtedness of $6000, in the payment of which he attempted to convey the lots in controversy, by authority of the probate court. . In this way Lynch and Neal, if not Austin, became subrogated to the right Lynch had to treat the conveyance in question as fraudulent (he being a creditor at the time it was • executed), and to have the same set aside; became entitled to the same rights as those of the creditors whose debts their means have been used to pay. Barhydt v. Perry, 57 Iowa, 416" date_filed="1881-12-15" court="Iowa" case_name="Barhydt & Co. v. Perry">57 Iowa, 416, 419 ; Madden v. Day, 1 Bailey, 337, 587 ; Mills v. Morris, Hoffman, 419 ; Brown v. McDonald, 1 Hill, Ch. 297, 304; Savage v. Murphy, 34 N.Y. 508" date_filed="1866-01-05" court="NY" case_name="Savage v. . Murphy">34 N. Y. 508 ; Churchill v. Wells, 7 Cold. 364 ; Wilson v. Buchanan, 7 Gratt. 334" date_filed="1851-04-28" court="Va." case_name="Wilson v. Buchanan">7 Gratt. 334 ; Paulk v. Cooke, 39 Conn. 566, 572 ; Anon, 1 Wall. Jr. 107" date_filed="1843-10-15" court="U.S. Cir. Ct." case_name="Anonymous">1 Wall. Jr. 107 ; Creed v. Lancaster Bank, 1 Ohio St. 1; Bump on Fraudulent Conveyances (3rd ed.), p. 322 ; Wait on Fraudulent Conveyances (2d ed.) 103 ; American Leading Cases (5th ed.) 44.
Our conclusion is, that the conveyance to the appellant was fraudulent, and can be so treated by the creditors in this action. Acts of 1887, p. 193.
As it does not appear that George H. Rudy had any at the time of his death, except Bynch, Neal J aad Austin, and the lots in controversy are not worth exceeding $2000, and as the indebtedness, in satisfaction of which the same were sold, amounted to $6000, exclusive of interest, and as it is to the interest of Rudy’s estate and heirs that the contract .of Rudy and his creditors, and the sale made in conformity therewith, should be permitted to stand, and as the conveyance .to John M. Rudy is fraudulent and void, and he concedes that, this being true, he has no further interest in this cause, and has no objection to any course that this court may take in appropriating the lots in controversy to the payment of his father’s debts, we decline .entering into .the consideration of what the proper practice as to the disposal of the lots is, and, no one concerned, under the circumstances, objecting, affirm the decree of the circuit court.
Affirmed.