Brasie v. Minneapolis Brewing Co.

67 L.R.A. 865, 92 N.W. 340, 87 Minn. 456, 1902 Minn. LEXIS 661

Opinions

BROWN,' J.

Action to recover the possession of real estate, which was dismissed on the trial in the court below, and plaintiff appealed from an order denying a new trial.

The complaint alleges substantially the following facts: On December 3, 1888, one Austin Knights was the owner of the real' estate in question, and was then indebted to plaintiff in the sum of $160. That on or about January 1, 1889, he executed and caused to be recorded a deed of the property to Michael Knights, his brother. That the deed was without consideration, and was executed and recorded for the sole purpose of placing the property beyond the reach of the creditors of Austin Knights, and to hinder, delay and defraud them. Though it was claimed on the argument that the deed was never in fact delivered, the facts stated in the complaint show a delivery, beyond any serious doubt. It is alleged that the deed was executed and recorded pursuant to a conspiracy between the two Knights, and for the purpose of hindering and defrauding creditors. Clearly, they intended the title to pass from one to the other, and the'delivery of the deed is sufficiently shown.

The complaint further alleges that on May 23, 1890, in an action brought by plaintiff in the district court of Wright county against Austin Knights, plaintiff recovered a judgment for the indebtedness due bim, which judgment was duly docketed as required by statute. Thereafter an execution was duly issued upon such judgment, and the property in question levied upon, and on April 15, 1893, sold by the sheriff; plaintiff being the purchaser at the sale. It further alleges that on May 31, 1897, Michael Knights, the alleged fraudulent grantee of Austin Knights, conveyed the property to-one Carroll; that on February 11, 1899, Carroll conveyed it to-defendant in this action; and it also alleges that Carroll and this-defendant had notice prior to their purchase of the fraudulent character of the deed from Austin to Michael; that defendant is' in possession of the property; and the prayer for relief is that such possession be awarded to plaintiff. Plaintiff does not, in his demand for relief, ask to have the alleged fraudulent conveyance set aside, or the record thereof cancelled, but simply demands judgment for the possession of the premises. This action was commenced September 25, 1899,- — more than ten years after the date-of the alleged fraudulent conveyance, and more than six years after the sale on execution. The complaint does not allege when plaintiff discovered the alleged fraudulent character of the conveyance from Austin to Michael.

The answer of defendant denies that the conveyance was fraudulent; alleges that it was made in good faith; that defendant was-a purchaser of the property for a valuable consideration; sets up certain improvements under the occupying claimant’s act; and pleads the statute of limitations.

Plaintiff, in reply, puts in issue the new matters alleged in ¿he answer, but does not set forth any facts to obviate defendant’s' plea of the statute of limitations. No attempt is made to bring the case within any of the exceptions preventing the running of the statute.

At the trial the court dismissed the action, upon defendant’s motion, on the ground that, upon the face of the pleadings, plaintiff’s cause of action, if any he had, was barred by the statute of limitations, the same not having been commenced within six years after the discovery of the fraud complained of; and this order dismissing the action is the only error complained of by appellant. The position of appellant is that the question of the statute of limitations has no application to this case. It is insisted that, though the complaint sets out all the facts, — those upon which plaintiff relies to establish his title to the property, and those upon which he relies to impeach defendants’ title, — the action is one in ejectment, pure and simple, and that the question whether the conveyance from Austin to Michael Knights was fraudulent, and made for the purpose of hindering and defrauding creditors, and therefore void as to them, is merely incidental to the relief he demands, which he insists may be determined without reference to the statute of limitations.

Where property is transferred by an insolvent debtor for the purpose of placing it beyond the reach of creditors and defrauding them, the defrauded creditor has the election of one of three remedies: First, he may place his demand in judgment, levy upon the property alleged to have been fraudulently transferred, cause the same to be sold under execution, and leave the purchaser at the sale to contest the validity of the fraudulent grantee’s title; second, he may bring suit against the grantor, and, upon the recovery of judgment against him, bring an action in equity to remove the alleged fraudulent conveyance as an obstruction to the •enforcement of his lien, and await the result of the action before selling the property; or, third, he may, on the return of his writ of execution unsatisfied, bring an action in the nature of a creditors’ bill to have the conveyance adjudged fraudulent and void as to his judgment, and have the land sold by a receiver, or other officer of the court, and the proceeds applied to the satisfaction of his claim. Jackson v. Holbrook, 36 Minn. 494, 32 N. W. 852.

Plaintiff in this action adopted the first, — proceeded to judgment on his claim, the issuance of an execution, and the sale of the property thereunder; and it is his contention at this time that the legal title to the property passed to him at such sale, entitling him to its possession. This is not strictly true; for the question whether the legal title was vested in him by the sale on execution depends upon the further question.whether the conveyance alleged to have been executed to hinder and defraud creditors -was so executed, in point of fact. Presumptively, the transfer was made in good faith, with honest motives, and for a valuable consideration. The burden was upon plaintiff to prove to the contrary, and, manifestly, until be established that fact, and obtained a judicial determination of it, the legal title to the property remained in the alleged fraudulent grantee.

Transfers of property made for the purpose of hindering and defrauding creditors are not absolutely void. They are only voidable, at the election of the creditors defrauded. While the statutes pronounce such transfers void, the word “void,” as there used, is construed by all the courts to mean voidable. 14 Am. & Eng. Enc. (2d Ed.) 280, and cases cited. They are valid between the parties, and operate to transfer the title to the grantee, subject to-being impeached at the suit of creditors. Spooner v. Travelers Ins. Co., 76 Minn. 311, 79 N. W. 305; Hathaway v. Brown, 22 Minn. 214. The mere election by the creditor to treat the conveyance as fraudulent and void, by levying upon and selling the property under execution, cannot have the effect of canceling or annulling it, as a matter of law. The creditor must procure its cancellation in some judicial' proceeding instituted for that purpose. As remarked in Wait, Fraud. Conv. § 60, “The seizure of property on execution in cases of this kind subjects the creditor to the peril incident to proving that the transfer was fraudulent.” If the creditor fails to do so, the transfer becomes effectual as to all the world. The logical conclusion, therefore, is that prima facie the legal title to property alleged to have been transferred with intent to defraud creditors is in the fraudulent grantee, the fraudulent character of the transfer not appearing on its face; and this continues, notwithstanding a sale of the property by a creditor on execution against the fraudulent grantor, until the fraud is exposed and the transfer set aside.

Plaintiff in this action was not, therefore, strictly speaking, the holder of the legal title to the property in question, and could not recover the possession thereof, without first obtaining a judicial determination that the transfer was in fact fraudulent and void. Perhaps his contention in this respect would be sound if the invalidity or fraudulent character of the deed appeared upon its face. In that case no judicial proceedings would be necessary to cancel or set it aside. It would not constitute a cloud upon the title,, and plaintiff would be the legal owner and entitled to the possession. But in a case like that at bar, where extrinsic evidence is necessary to show the invalidity of the alleged fraudulent transfer, an action of some nature must be brought, wherein that question may be litigated in the usual way; and that, too, before the title of the fraudulent grantee becomes fully vested by operation of the statute of limitations.

But it is urged that the question may be determined in this action, — one to recover the possession of the property, — and that plaintiff is entitled to prove the fraudulent character of the conveyance, and thus defeat it. The authorities sustain the proposition that the question ma3r be determined in an action of ejectment, but it is clear, upon principle, that it must be tried as all other issues and questions are tried, and determined and judged by the rules of law, statutory and otherwise, applicable generally to litigated questions. In this action plaintiff made the fraudulent character of the transfer, by his complaint, an affirmative issue in the action; and the burden was upon him to establish all the material allegations there set forth, to warrant a recovery in his favor. The situation with respect to the trial of this particular question would be the same, however, if the allegations of the pleadings were general, alleging title in the respective parties in general terms. In that case no opportunity would be given to plead the statute of limitations (it was pleaded in this case), and advantage could be taken thereof upon the fact appearing from the evidence offered on the trial. 13 Enc. Pl. & Pr. 187; Dreutzer v. Baker, 60 Wis. 179, 18 N. W. 776; Emery v. Keighan, 88 Ill. 482; Fairbanks v. Long, 91 Mo. 628, 4 S. W. 499.

The authorities are very uniform, wherever the question has been presented, to the effect that the title of a fraudulent grantee is protected by the statute of limitations; and if creditors do not, by proper judicial proceedings, effect the cancellation of his title within the statutory period, it becomes final and conclusive. Bump, Fraud. Conv. § 571; Porter’s Lessee v. Cocke, Mart. & Y. 264; Reeves v. Dougherty, 7 Yerg. 221; Blantire v. Whitaker, 11 Humph. 313; Lockard v. Nash, 64 Ala. 385; Osborne v. Wilkes, 108 N. C. 651, 13 S. E. 285; Strutton v. Young (Ky.) 25 S. W. 109. Nor is the fraudulent grantee precluded from invoking the statute by the fact that he is, in law, held as a trustee for the benefit of creditors; for he is so held against his will. Musselman v. Kent, 33 Ind. 452; Bobb v. Woodward, 50 Mo. 95; Sims v. Gray, 93 Iowa, 38, 61 N. W. 171. This court, in Lane v. Innes, 43 Minn. 137, 45 N. W. 4, recognized the necessity of bringing an action to cancel a fraudulent conveyance after the sale on execution; for it there said, speaking in reference to the different remedies creditors have in such cases, that a judgment creditor may bring an action to remove the obstruction caused by a fraudulent conveyance before selling the property, or “he may acquire title by execution sale, and then bring his action.” Of necessity, such an action must be brought, or at least the question as to the fraudulent character of the conveyance must be determined, in some proceeding, and in accordance with the rules of law applicable to all controverted questions. So long as it remains undetermined, the legal title to the property remains in the fraudulent grantee, and becomes final and conclusive after the lapse of six years from the discovery of the fraud by creditors. The question as to the fraudulent character of the conveyance is not a mere incidental fact, but a vital and controlling issue between the contending parties.

G. S. 1894, § 5136, provides that an action for relief on the ground of fraud shall be brought within six years from the discovery of the fraud; and it has been held by this court that an action to set aside a conveyance alleged to have been executed for the purpose of defrauding creditors comes within the meaning of that statute. McMillan v. Cheeney, 30 Minn. 519, 16 N. W. 404; Duxbury v. Boice, 70 Minn. 113, 72 N. W. 838. The complaint in the case at bar contains no allegations as to when plaintiff discovered the fraud complained of; but, presumably, it was discovered by him at the time of the levy upon the property under his execution, for he now insists that he then elected to treat the transfer as fraudulent. This being the fact, his right of action to have the conveyance set aside is barred by the lapse of six years from that time. The statute must run from the date of the sale on execution, and not, as suggested by plaintiff’s counsel, from the expiration of the period of redemption. Whatever title plaintiff' acquired under bis execution became vested at tbe time of sale, subject to being defeated by redemption. Curriden v. St. Paul & N. P. Ry. Co., 50 Minn. 454, 52 N. W. 966. So that, immediately upon tbe completion of tbe sale and tbe execution of tbe sheriff’s certificate, plaintiff was in position to maintain an action of this kind, and tbe statute must run from that date.

Statutes of limitations, affecting, as they do, legal remedies only, are universally regarded with favor by tbe courts, as statutes of repose, and are construed liberally. They fix periods within which controversies and disputes with respect to rights and liabilities must be brought to an end, and beyond which courts will not lend their aid to litigants. The courts do not volunteer their enforcement when not insisted upon by the parties, nor refuse to aPPly them when properly invoked to do so; neither will the courts aid or facilitate parties in their attempt, by “mere strategy in judicial proceedings,” or by circuitous route of action, to avoid and escape their consequences. Such statutes are applied alike to all. Yet to adopt the contentions of appellant would result in permitting him to accomplish that which he could not accomplish in any other form of action, viz., avoid the statute. Had he brought an action direct for the express purpose of procuring a decree of the court cancelling the alleged fraudulent conveyance, he could, not have maintained it, because of the bar of the statute; and there is no sound logic or reason in permitting him to effect that result in this indirect manner. The cases cited in his behalf from Massachusetts, which seem to sustain him, are illogical, and were, no doubt, influenced to some extent, at least, by the old judicial prejudice against the statute of limitations.

The case of Jackson v. Holbrook, 36 Minn. 494, 32 N. W. 852, cited and relied upon by plaintiff, is not in point, except that it tends to sustain the position of the defendant. In that case it appeared that an insolvent debtor conveyed his property for the purpose of hindering and defrauding creditors, and that subsequent to the conveyances several judgments were obtained against him upon debts and obligations existing at the time of the conveyance. Some of the junior judgment creditors brought an action to set aside the conveyances as fraudulent, and were successful. They then caused the land to be sold under executions, from which’, no redemption was ever made, and they subsequently conveyed the’ title thus acquired to a third person. Thereafter, and within ten years from the entry of his judgment, the plaintiff in the judgment first entered caused an execution to be issued on his judgment, and the property levied upon and sold, from which the purchaser from the junior judgment creditors redeemed. He then brought that action to recover against the junior judgment creditors for’ breach of the covenant of quiet enjoyment contained in the deed from them to him. All the court decided in that case was that the senior judgment creditor had the right to proceed as he did,— to cause the land to be sold on execution, without first applying to equity to cancel the alleged fraudulent conveyance. No action was brought by such senior judgment creditor to cancel the conveyance, but his right to do so had not expired at the time of the? redemption from his execution sale. The court stated at the close of the opinion that his right to bring such an action did not. accrue until his purchase at the execution ’ sale. The statute of limitations, as applied to this particular case, was not there involved, though the court intimates strongly that the statute bars-the right to have a transfer of the kind set aside.

This court has never had occasion to pass upon the precise question involved in this action; nor have we ever held that the act of the creditor in causing property alleged to have been fraudulently transferred to be levied upon and sold on execution against the fraudulent grantor, wholly ex parte and non-judicial in its nature,, operates ipso facto to cancel the alleged fraudulent conveyance,., and vest the absolute title to the property in the purchaser at the-sale. The farthest we have gone in that direction is to sanction and approve such proceedings; and the most that can be deduced, from the decisions is that the sale in such cases places the creditor • or purchaser, as the case may be, in position to attack the convey- ■ anee. The result of the decisions is that the creditor may bring an. action to set aside the alleged fraudulent conveyance before sale on execution, and then make the sale, or he may make the sale,, and then bring the action. In either case he must get rid of the alleged fraudulent conveyance.

Our conclusions from these considerations are that, without regard to the form of the action, the question as to the fraudulent character of a transfer such as that here complained of must be judicially determined within the period covered by the statute of limitations, or it ripens into full title as against creditors and all others, and that, as it conclusively appears from the pleadings in this action that the plaintiffs right to have the fraudulent conveyance set aside is barred by the statute, the court below rightly dismissed the action, and the order denying a new trial is affirmed.

Order affirmed.