Title: Production Credit Ass'n of Mandan v. Olson

State: north-dakota

Issuer: North Dakota Supreme Court

Document:

280 N.W.2d 920 (1979) PRODUCTION CREDIT ASSOCIATION OF MANDAN, North Dakota, a Corporation, Plaintiff and Appellee, v. Alvin Otos OLSON, Defendant and Appellee, Judith P. Garlington, Defendant and Appellant, and Helen E. Olson, Defendant and Appellee. Civ. No. 9577. Supreme Court of North Dakota. June 18, 1979. Rehearing Denied July 11, 1979. *921 Bair, Brown & Kautzmann, Mandan, for plaintiff and appellee, Production Credit Association of Mandan; argued by Malcolm H. Brown, Mandan. Mackoff, Kellogg, Kirby & Kloster, Dickinson, for defendant and appellant, Judith P. Garlington; argued by Gordon W. Schnell, Dickinson. Dale W. Moench, Dickinson, for defendant and appellee, Helen E. Olson. Jerome L. Jaynes, Bozeman, Mont., for defendant and appellee, Alvin Otos Olson; no appearance. ERICKSTAD, Chief Justice. Judith Garlington appeals from a district court judgment dated September 11, 1978, that held the transfer of certain real estate from the defendants, Alvin and Helen Olson, to defendant, Judith Garlington, was a fraudulent transfer of real property pursuant to Sections 13-01-05 and 13-02-04, N.D.C.C. The judgment also provided that title to the property remain in Alvin and Helen Olson, subject to a previous judgment of the plaintiff, Production Credit Association of Mandan (PCA). We affirm. In 1964, John and Pearl Olson conveyed 560 acres of real estate located in Adams County, North Dakota, which is the subject matter of this lawsuit, to their son, Alvin Olson. They also conveyed 320 acres each to their daughters, Judith Garlington and Joyce Olson. John and Pearl reserved a life estate in each of the conveyances. In 1965, Joyce died. In 1973, John died, and on March 16, 1974, Pearl released her life estate in the property conveyed to Alvin and Judith. Following the conveyance of the property, Alvin was in farming and cattle feeding business with his wife, Helen, and also owned other real estate. In 1968, Alvin and Helen began to finance their business through PCA. They continued to borrow money from PCA, signing their last promissory note in November, 1974, for an amount in excess of $500,000. These PCA obligations were secured by security agreements covering cattle, machinery, and real estate. PCA did not have a security interest in the real estate involved in this action. Late in 1974, PCA advised Alvin that it could no longer finance his operation due to his increased debt. Alvin subsequently began to liquidate his operation. By June, 1975, the Olsons had liquidated all of their cattle and machinery and some of their real estate, but were still indebted to PCA in the amount of $237,579.33. On July 8, 1975, PCA brought suit in Adams County District Court seeking to foreclose on real estate mortgages given by Alvin and Helen on real estate located in Adams County, but not including the 560 acres involved in this action. On February 10, 1976, judgment was entered in favor of PCA for $172,989.94. On May 6, 1976, the real property subject to the judgment was sold and PCA subsequently commenced a deficiency judgment action against Alvin and Helen for the balance. On April 5, 1977, the district court awarded PCA a deficiency judgment of $98,250.92. Prior to these lawsuits by PCA, Alvin and Helen transferred the 560 acres in question to Alvin's sister, Judith Garlington. Although the date of this conveyance is disputed, the district court found that the deed, dated December 4, 1974, was signed on April 25, 1975, and recorded on April 29, 1975. On April 26, 1975, Judith transferred the real property back to Helen Olson by quit claim deed. In February, 1977, Alvin obtained the original of the quit claim deed and destroyed it. PCA instituted this action against Garlington and Alvin and Helen Olson by amended summons and complaint dated December *922 9, 1977, alleging that the transfer of the property to Garlington was fraudulent and should be set aside. The district court made the following conclusions of law, all of which are in essence challenged on this appeal: The appellant states the following issues for review in this court: Garlington first argues that PCA failed "to plead the essential elements of the statutory remedies which it is seeking." Sections 13-01-05 and 13-02-04, N.D.C.C., are the relevant statutes and provide as follows: See also Section 13-02-07, N.D.C.C.; H. A. Thompson & Sons, Inc. v. Hahn, 135 N.W.2d 166 (N.D.1965). Garlington argues that PCA did not properly allege in its complaint in this action that Alvin made the transfer in question with "intent to delay or defraud any creditor", which is an element of Section 13-01-05, *923 N.D.C.C., and it did not allege that the transferor "is or thereby will be rendered insolvent," which is required by Section 13-02-04, N.D.C.C. PCA responds that its complaint constituted a sufficient pleading pursuant to the North Dakota Rules of Civil Procedure. PCA also argues that because Garlington did not make a motion to dismiss the complaint at any time for lack of a specific allegation, even if the issues were not properly raised by the pleadings, they were tried with the parties' consent. See Anderson v. Mooney, 279 N.W.2d 423 (N.D.1979); Sobolik v. Vavrowsky, 146 N.W.2d 761, 766 (N.D. 1966). PCA contends that paragraph IX of its amended complaint and the prayer for relief provide the crucial allegations: Although the prayer for relief does not constitute part of the complaint, the court may look to the prayer for relief as a means of clarifying the contentions of the parties and the issues raised. Trauger v. Helm Bros., Inc., 279 N.W.2d 406 (N.D. 1979); In re Murray, 145 N.W.2d 899 (N.D. 1966), overruled on other grounds, Kee v. Redlin, 203 N.W.2d 423, 426 (N.D.1973); Rank v. Krug, 90 F. Supp. 773 (S.D.Cal. 1950). Rule 8, N.D.R.Civ.P., provides the general rules of pleading, and subsections (a), (e), and (f) are especially relevant: *924 Wright and Miller in their treatise on the Federal Rules of Civil Procedure, after which the North Dakota Rules are patterned, state the objective and function of pleadings under the modern rules: Thus, the objective of the Rules of Civil Procedure, as indicated by Rule 8, is "to avoid technicalities and to require that the pleading discharge the function of giving the opposing party fair notice of the nature and basis or grounds of the claim and a general indication of the type of litigation involved; the discovery process bears the burden of filling in the details." Wright & Miller, supra, § 1215; see also Stearns v. Twin Butte Public School District No. 1, 185 N.W.2d 641, 645 (N.D.1971). *925 We believe that the complaint in this case served this function. Garlington argues, however, that because an allegation of fraud is involved in this case, Rule 9(b), N.D.R.Civ.P., applies and more specificity is required than is mandated by Rule 8. Sobolik v. Vavrowsky, supra at 765-766. Rule 9(b) provides in part that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Wright and Miller comment on the particularity requirement of Rule 9(b) as follows: We hold that PCA's pleadings were sufficient pursuant to Rules 8 and 9, N.D.R. Civ.P. Garlington next argues that PCA failed to prove the elements of a fraudulent transfer pursuant to Section 13-01-05, N.D.C.C. or Section 13-02-04, N.D.C.C. She contends that PCA failed to prove that Alvin was insolvent at the time of the transfer complained of or that the transfer was without a fair consideration pursuant to Section 13-02-04, N.D.C.C. She also argues that PCA failed to prove an intent to defraud pursuant to Section 13-01-05, N.D. C.C. The district court made the following relevant findings of fact on this issue: *926 When reviewing findings of fact made by the trial court, we are governed by Rule 52(a), N.D.R.Civ.P., and we will not set aside the findings unless they are clearly erroneous. Stee v. "L" Monte Industries, Inc., 247 N.W.2d 641, 644 (N.D.1976); In re Estate of Elmer, 210 N.W.2d 815, 819-820 (N.D.1973). Thus, the trial court's findings are glossed with a "presumption of correctness which an appellant must overcome." Stee v. "L" Monte Industries, Inc., supra at 644. Chapter 13-02, N.D.C.C., is the North Dakota codification of the Uniform Fraudulent Conveyance Act and has been adopted in 25 states. The commissioners' prefatory note states that a gift by an insolvent is a fraudulent transfer regardless of the donor's intent. 7A Uniform Fraudulent Conveyance Act (U.L.A.) 161-62. Section 13-02-02(1), N.D.C.C., defines a person as insolvent when "the present fair salable value of his assets is less than the amount that will be required to pay his probable liability on his existing debts as they become absolute and matured." Section 13-02-03, N.D.C.C., defines "fair consideration" as follows: Garlington argues that Alvin transferred the property to her to fulfill a request made by their mother in October 1973. Garlington contends that Alvin had borrowed a substantial sum of money from his parents and the conveyance was made in an attempt to equitably distribute the estate. Thus, Garlington argues that the transfer was for fair consideration pursuant to Chapter 13-02, N.D.C.C. We find, after reviewing the transcript, that substantial evidence exists from which the district court could conclude that the conveyance was without fair consideration, including Pearl Olson's will, a letter by Pearl explaining her intentions regarding the division of her estate, and testimony by Helen Olson. Without deciding whether or not Alvin had any intent to defraud PCA pursuant to Section 13-01-05, N.D.C.C., we find that there is substantial evidence to support the district court's findings that Alvin was insolvent at the time of the transfer and that the transfer was without fair consideration pursuant to Chapter 13-02, N.D.C.C. Garlington's remaining issue is that the district court erred in allowing Helen Olson to testify in this case because of the husband-wife privilege. The North Dakota Rules of Evidence were adopted by the North Dakota Supreme Court on December 1, 1976, and were effective on February 15, 1977. Thus, they were applicable at the time of the trial in this case. Rule 504 deals with husband-wife privilege and provides as follows: *927 Although Garlington acknowledges that Rule 504, N.D.R.Evid., provides for a husband-wife privilege only in criminal cases, he argues, without citing any authority, that because Section 31-01-02, N.D.C.C., was in effect at the time of the communication testified to by Helen, Alvin had a vested right under the statute "to be free from his wife testifying against him", and this could not be destroyed by the adoption of the Rules of Evidence.[1] The North Dakota Supreme Court has the authority pursuant to Section 87 of the North Dakota Constitution to promulgate rules of procedure to be followed by the courts of this state. See also Sections 27-02-07 through 27-02-15, N.D.C.C. In Arneson v. Olson, 270 N.W.2d 125, 131 (N.D. 1978), we stated that "`procedure' includes pleading and evidentiary matters." The Procedure Committee Notes to Rule 504 state that Section 31-01-02, N.D.C.C., is superseded by the Rule. Consequently, we hold that the trial court did not commit error in refusing to apply Section 31-01-02, N.D.C.C., to this case. We affirm the district court judgment. SAND, PAULSON, PEDERSON, and VANDE WALLE, JJ., concur. [1] "31-01-02. Competency of husband or wife as witnessCommunications made during marriageExceptions.A husband cannot be examined as a witness for or against his wife without her consent, nor a wife for or against her husband without his consent, nor can either, during the marriage or afterwards, without the consent of the other, be examined as to any communication made by one to the other during the marriage. This section, however, shall not apply to a civil action or proceeding by one against the other, nor to a civil action or proceeding where one spouse attacks the character of the other, nor to a criminal action or proceeding for a crime committed by one against the other, nor to an action or proceeding to enforce support of minor children." § 31-01-02, N.D.C.C.