Morgan v. Gates

396 So. 2d 1386
CourtLouisiana Court of Appeal
DecidedMarch 23, 1981
Docket14505
StatusPublished
Cited by11 cases

This text of 396 So. 2d 1386 (Morgan v. Gates) is published on Counsel Stack Legal Research, covering Louisiana Court of Appeal primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Morgan v. Gates, 396 So. 2d 1386 (La. Ct. App. 1981).

Opinion

396 So.2d 1386 (1981)

Jarrell MORGAN, Plaintiff-Appellee,
v.
Harry S. GATES et al., Defendants-Appellants.

No. 14505.

Court of Appeal of Louisiana, Second Circuit.

March 23, 1981.

*1387 James B. Wells and Associates by James B. Wells, Bossier City, for defendants-appellants.

Donald R. Miller, Shreveport, for plaintiff-appellee.

Before PRICE, HALL and JASPER E. JONES, JJ.

HALL, Judge.

Plaintiff, judgment creditor of Harry Gates, filed this action in April, 1980 seeking to annul a certain sale by Gates to his parents of immovable property in Webster Parish. Plaintiff alleged that the sale of the immovable property by the defendant— debtor to his parents, who were also named defendants, was a simulated sale or, alternatively, was a sale in fraud of his rights as the vendor's creditor. The trial court ruled in favor of plaintiff and ordered the purported sale annulled and set aside. Defendants appealed.

On October 8, 1979, plaintiff filed suit against defendants Harry and Rubert Gates which culminated in a judgment against those defendants, in solido, for $10,000 plus interest and attorney fees. On October 23, 1979, after plaintiff's original suit was filed but before judgment was rendered on January 30, 1980, Harry Gates executed an act of sale to his parents conveying three lots in a Webster Parish subdivision together with all buildings and improvements thereon. The act of sale recited a cash consideration of $5,000 plus assumption of a $13,525 mortgage, a $805.07 judgment, a $17,700 mortgage, and a $96.50 judgment. It was established at trial that all of the assumed debts had been satisfied prior to the transfer except the $17,700 mortgage which had a balance of $17,400.

When the act of sale was signed, Harry Gates was in severe financial straits. He testified as to his numerous outstanding debts which totaled over $50,000 at the time the act of sale was signed. His principal asset was his equity in the property he sold to his parents; he valued the property at $30,000, leaving an equity of approximately $12,600. The value of his other assets, automobiles *1388 and equipment, was not established. Gates testified that his parents were generally aware of his financial condition on the date the act was signed.

When questioned about his motive for executing the deed to his parents, Harry Gates responded that he needed some cash to pay overdue debts on two vehicles so that they would not be seized. He stated that he received the recited cash consideration from his parents in the form of a cashier's check and had used the proceeds to pay some past due notes. The cashier's check was filed into evidence. Gates further testified that the parties did not execute any counter letters nor did the parties agree that Harry was to repay the $5,000 consideration.

The testimony of Vernon Gates, father of Harry Gates, was in accord with the testimony of his son. Vernon Gates testified that his son needed some cash, but that he, Vernon, had loaned Harry $7,000 in the past and he felt it would be unfair to his other children to give Harry more money without some collateral. Therefore, Vernon and his wife agreed to purchase Harry's property for $5,000 cash and assumption of the mortgage on the property.

Harry continued to live in the house located on the property. His parents, the vendees, never occupied the premises. Additionally, Harry Gates filed a homestead exemption on the property subsequent to October 23, 1979. Although Harry continued to live on the premises and did not pay rent, his parents gave him the money to pay the house note each month. The vice president of the bank holding the mortgage on the property testified that he and the other bank officers were unaware of the transfer. Harry Gates continued to pay the mortgage note in person each month with funds given to him by his mother.

The plaintiff testified that he had obtained a judgment against Harry and Rubert Gates, in solido, that he had not been paid any sum under the judgment and that his judgment debtor has not pointed out to him any property or any way he could collect his judgment.

The trial court apparently determined that the purported transfer was a simulated sale based on LSA-C.C. Art. 2480 which creates a presumption of simulation if the thing sold remains in possession of the vendor. The presumption may be rebutted by proof establishing the good faith of the parties and the reality of the sale. Although the trial court determined that the vendees were acting in good faith, a conclusion we agree with, it apparently found that the parties had not sufficiently established the reality of the sale.

We hold that the sale in this case was not a simulation because the parties to the sale established that consideration had been given by the vendees and received by the vendor. The jurisprudence of this state is settled that if any consideration, however small, is given for the property, the sale may not be set aside as a simulation. Russell v. Culpepper, 344 So.2d 1372 (La.1977); Bell v. Bell, 339 So.2d 1333 (La.App. 3d Cir. 1976); Adams v. Trichel, 304 So.2d 740 (La. App. 2d Cir. 1974). The trial court was in error in declaring the sale a simulation.

As noted above, plaintiff's petition sought to have the sale set aside on the grounds that it was a simulated sale or, alternatively, on the grounds that it was a contract made in fraud of his rights as a creditor. While plaintiff's attempt to have the sale declared a simulation is without merit, his alternative revocatory action has merit. The rules governing revocatory actions, principally LSA-C.C. Arts. 1968, et seq., form the basis for our opinion.

The revocatory action is an action which the law grants to every creditor to annul any contract made in fraud of his rights. LSA-C.C. Art. 1970. In order to exercise this action, it must be established that the debtor does not have property sufficient to satisfy the debt of the complaining creditor. LSA-C.C. Art. 1971. Additionally, the complaining creditor must obtain a judgment against his debtor which liquidates the debt owed. LSA-C.C. Art. 1972.

The following articles impose additional proof requirements on the creditor bringing the revocatory action:

LSA-C.C. Art. 1978:

*1389 "No contract shall be avoided by this action but such as are made in fraud of creditors, and such as, if carried into execution, would have the effect of defrauding them. If made in good faith, it can not be annulled, although it prove injurious to the creditors; and although made in bad faith, it can not be rescinded, unless it operate to their injury."

LSA-C.C. Art. 1979:

"If the contract be onerous, and the original debtor made it with intent to defraud his creditors, but the person, with whom he contracted, was in good faith, the contract can not be annulled, except under the circumstances and in the manner hereinafter provided."

The prerequisites for the revocatory action have been summarized as follows: (1) insolvency of the debtor; (2) injury to the creditor; (3) intent to defraud the creditor; and (4) preexisting and accrued indebtedness. Redding v. Rupp, 375 So.2d 761 (La. App. 4th Cir. 1979), writ denied 378 So.2d 437 (La.1979); Perigoni v. McNiece, 307 So.2d 407 (La.App. 4th Cir. 1974); National Bank of Bossier City v. Hardcastle, 204 So.2d 142 (La.App. 2d Cir. 1967).

The plaintiff in this case has adequately established that he stood as a creditor of Harry Gates at the time of the purported transfer; thus, there was an accrued indebtedness at that time.

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Bluebook (online)
396 So. 2d 1386, Counsel Stack Legal Research, https://law.counselstack.com/opinion/morgan-v-gates-lactapp-1981.