Fulton Investment Co. v. Smith

149 P. 444, 27 Colo. App. 279, 1915 Colo. App. LEXIS 33

Opinions

King, J.,

delivered the opinion of the court.

Action by Mary Smith to have cancelled, as fraudulent and void, a certain deed of real property standing in the name of The Fulton Investment Company, plaintiff in error, and to have the title thereto adjudged to be in William A. Trogler, in order to subject it to execution on a judgment in favor of said Smith against said Trogler.

On the 11th day of April, 1912, plaintiff- Smith obtained a judgment in the sum of $3,000 against said Trogler on a cause of action for tort, said to have béen committed on or about August 9, 1910, upon which an execution, directed to the sheriff of Jefferson County, was issued and levied upon 800 acres of land, with water rights, situate in said county, as the property of the judgment debtor Trogler. March 10, 1910,. or more than two years before the rendition of this judgment, and about five months before the tort upon which it was predicated was committed, the said real estate, alleged in the complaint herein to have been worth $50,000 or more, together with other property, was conveyed by Trogler to The Fulton Investment Company, and at all times since the record title thereto has been in said company. This action to have the deed from Trogler to the investment company cancelled is predicated on the allegation'that the conveyance in question was purely voluntary, without consideration, and made with the intention to injure, delay and defraud the grantor’s creditors existing and subsequent, especially one A. J. Ward, alleged to have been an existing creditor at the time of the conveyance; and upon the further allegation that the conveyance was made in trust for the grantor. By the decree of the court the deed was set aside, and Trogler was, ad judged to be the owner of the property levied on.

1. The plaintiff was a subsequent creditor, whether her standing as such be regarded as dating from the rendition of her judgment or of the commission of the tort (malicious prosecution) ; therefore, as to plaintiff, the conveyance, even if voluntary and without consideration, and for that reason void as against then existing creditors, if attacked by them, is not presumptively fraudulent or void when attacked, by her; but plaintiff must show, and the court must find, fraud in fact, and fraudulent intent on the part of the grantor of which the plaintiff may take advantage. Wallace v. Penfield, 106 U. S., 260, 27 L. Ed., 147, 1 Sup. Ct., 216; Moore v. Page, 111 U. S., 117, 28 L. Ed., 373, 4 Sup. Ct., 488; Phillips v. Wooster, 36 N. Y., 412; Carpenter v. Carpenter, 27 N. J. Eq., 503; Washington Nat. Bk. v. Beatty, 77 N. J. Eq., 252, 70 Atl., 442, 140 Am. St. Rep., 555. But the conveyance was not purely voluntary or without consideration. The property was conveyed to The Fulton Investment Company in consideration of the issuance of its capital stock. A transaction of that kind is sanctioned by statute; such consideration is a valuable consideration. Homestead Mining Co. v. Reynolds, 30 Colo., 330, 335, 70 Pac., 422. Under the statute, capital stock of a corporation is regarded as money or its equivalent. Robinson v. Canal Co., 2 Colo. App., 17, 27, 29 Pac., 750. Prima facie, the conveyance was bona fide, and for a valuable and lawful consideration. From the time of the transfer the corporation took, and thereafter maintained, exclusive possession of and dominion over the property. This was conceded by counsel for plaintiff on the trial, who stated that the only contention was as to the validity of the transfer.

There is not a scintilla of evidence, direct or circumstantial, nor anything from which a legitimate inference can be drawn, except the mere fact of the coveyance, that the deed was made for the purpose of hindering, delaying or defrauding the plaintiff herein, nor any other person who might subsequently become a creditor of the grantor, nor that any creditor of or other person having claims, debts or damages against the said grantor, plaintiff included, was in fact hindered, delayed or defrauded by reason of such conveyance. So far as disclosed by the record, Trogler was not, at the time of said conveyance, indebted to any person, with the exception of certain encumbrances on the said property which could not be affected by the conveyance. Nor were there any suits or claims against him, except the claims of said Ward. At the time of said conveyance two suits were, and for two years had been, pending in the District Court of Jefferson County, in which A. J. Ward was plaintiff and William A. Trogler was defendant, based upon allegations of tort, and demanding damages in the sum of $15,000. In each of those cases answer was filed, denying liability, and all material allegations of the complaint, and in one of them Trogler filed cross-complaint or counter-claim for fraud alleged to have been practiced upon him by said Ward. The pendency of those two suits was the basis of the present action, so far as concerned the existence of creditors who could have been hindered, delayed or defrauded by the conveyance from Trogler to The Fulton Investment Company. In one of said suits, for the largest demand, David E. Trogler and John C. Trogler, sons of William A. Trogler, were co-defendants. The evidence shows that on or about.the first day of April, 1912, the two suits were settled in full by David E. Trogler, by payment of $500, which settlement and payment was made while William A. Trogler was absent from the state, and without his knowledge or consent. There was no other proof' of the verity or legality of the claim of said Ward against Trogler, and no proof that the tort was committed as therein alleged. It is settled law that whenever the rights of an alleged creditor depend upon the existence of prior debts or demands, he must show that there are or were such debts or lawful demands. Homestead Mining Co. v. Reynolds, supra, p. 336, and cases there cited; Washington Nat. Bk. v. Beatty, supra, Bump Fraudulent Conv., Sec. 297, and cases there cited. In Washington Nat. Bk. v. Beatty, supra, under’circumstances strikingly similar to those at bar, the court held that a subsequent creditor who attacks a conveyance as made in fraud of a person who at the time of the conveyance was claiming damages based on the tort of the grantor must make legal proof of the verity and legality of said claim, citing Baker v. Gilman, 52 Barb. (N. Y.), 26. With such ruling we are in entire accord. In Homestead-Mining Co. v. Reynolds, supra, the court ruled that as against the mining company to which Wall and Pursel had conveyed real estate, the plaintiff Reynolds, who attacked the deed as fraudulent, must prove the existence of the indebtedness at the time of the conveyance, although such indebtedness had been merged into a judgment in favor of plaintiff and against said Wall and Pursel. We think there is no question that it was incumbent on plaintiff herein, by competent evidence, to prove the existence of a lawful and valid claim on the part of Ward against Trogler, and, failing so to do, the judgment cannot be sustained. The fact that David E. Trogler made settlement of the two suits is not sufficient. Either he or his father had a right to purchase his peace from such litigation, and the mere fact that either of them did so, of itself, raises no legal presumption that the claim was just or lawful. Nor can a settlement by the son be tortured into an admission by the father that the claim was meritorious or lawful as against him. Moreover, keeping in mind the fact, established by the proof, and not disputed, that the land was paid for by stock, and the stock assigned so that David E. and John C. Trogler received and held at least $10,000 of the same in amount and value, and that those two sons were co-defendants in the larger of the Ward suits, the assertion that the father, with intent to prevent the collection of a judgment, if one should be obtained, would transfer his property to his sons and co-defendants, in whose hands it would be none the less subject to execution than in his, is manifestly too absurd to be erediblé or worthy of consideration.

2. Although the'findings of the court were general, and to the effect that all allegations of the complaint were sustained, we cannot assume that the court found that the deed to the real estate was made in trust for the grantor, for there is no evidence to support such finding. There was no such reservation in the deed; no evidence of a secret agreement or understanding as to the real estate. The only evidence suggesting a trust agreement or understanding had reference entirely to the manipulation of the capital stock. After the capital stock had been issued to Trogler in payment for the deed to the land’ mentioned in the complaint, and other property, real and personal, but long prior to the alleged tort, he assigned to his wife and children all but one share Of said stock. Upon receiving her stock, the wife made an endorsement thereof in blank, and delivered it to her son, David E., and left it, with other stock so assigned, in a safety deposit box, of which he had all the keys, but which bore the name of himself and father. The father, however, never exercised control over the box or the stock. The wife died December 23, 1911. One week prior thereto she assigned all her stock to her children, and the certificates theretofore held by her were cancelled and the stock re-issued in the name of the children. The evidence also tends to show that the stock issued to the children was, or was understood to be, assigned in blank and deposited in like manner as that of the wife. The statute of frauds provides that all deeds of gift, all conveyances, and all transfers or assignments, verbal or written, of goods, chattels or things in action, made in trust for the use of the person making the same, shall be void as against creditors existing of such person. Section 2665, R. S. ’08. It will be observed, however, that this section applies to existing creditors only, and is limited to transfers of personal prporety. Under it there is no necessity of proving intent to defraud, but if the assignment is shown to be in trust for the grantor, it is, as to existing creditors, the same as if no transfer had been made. Upon the question of whether there is sufficient evidence to support a finding that the stock, or any of it, was assigned in trust for the grantor, we express no opinion; but even if it be conceded that the evidence was sufficient to sustain an inference of a trust for the grantor as to the stock, that fact would not sustain a judgment setting aside the conveyance of the real estate; but if it were possible to sustain this judgment so as to subject either the real estate or the capital stock to execution for payment of the judgment against Trogler, it would be unconscionable, a reproach to the courts in the administration of justice, to permit the - sacrifice of 800 acres of land, which plaintiff herself alleges to be worth $50,000, to satisfy an execution for $3,000, when, so far as the record shows, the capital stock could be as well and readily subjected to execution as could the real estate, and in sufficient quantities only to satisfy the judgment, with costs.

We have said that the record contains no competent evidence, direct or circumstantial, that the deed was made with actual intent to defraud creditors, existing or subsequent, except the mere fact that the conveyance was made, and that at the time it was made two suits were pending, in neither of which plaintiff herein was a party. There is no testimony of statements by Trogler that he would make, or admissions that he had made, the deed to defeat such suits or claims. On the contrary, there is the testimony of the Troglers, father and son, that the deed was not made with such intent or purpose; that the Ward claims were not discussed at the time of the transaction or while it was under consideration. The grantor testified that the corporation was formed, and the property conveyed to it by him for its capital stock, under advice of counsel, because of his advanced age, and his desire to retire from the active control of business, and to avoid the necessity of a will and its probate, and the administration of the estate, in the event of his death. These statements, both as to the purpose of the incorporation and deed to it, and that the Ward suits and claims did not induce it or enter into the discussion of it, were fully corroborated by two lawyers who had so advised Trogler, one of whom prepared the articles of incorporation. So far as disclosed by the evidence, the acts of Trogler were perfectly consistent with good faith. We have often said that proof of fraud in its odious sense, i. e., actual, intentional fraud, such as is here charged, and which if true amounted tp a crime (sections 1846 and 1847, R. S. ’08), must be strong and convincing, in order to sustain a verdict or a judgment. It must not be founded on mere suspicion. Applied to the facts of this case, we think that the evidence of intent to defraud Ward must be so clear, precise and indubitable as to exclude the presumption of good faith, or wholly fail. D. & R. G. v. Sullivan, 21 Colo., 302, 41 Pac., 501. The finding of the trial court is so manifestly against the weight of the evidence that this court-is not bound to sustain it. Thuringer v. Trafton, 58 Colo. 250, 144 Pac., 866.

The judgment is reversed and the cause remanded, with directions to vacate and annul the levy of execution made on the real estate of defendant, and any sale thereunder, and for further proceedings in conformity with the views herein expressed.

Reversed and remanded.