Title: NORTH CAR. NAT. BANK v. Evans

State: north-carolina

Issuer: North Carolina Supreme Court

Document:

250 S.E.2d 231 (1979) 296 N.C. 374 NORTH CAROLINA NATIONAL BANK v. Henry Thomas EVANS, et al. No. 6. Supreme Court of North Carolina. January 4, 1979. *232 Everett & Cheatham by James T. Cheatham and Edward J. Harper, II, Greenville, for plaintiff-appellant. Williamson, Shoffner, Herrin & Stokes by Robert L. Shoffner, Jr., Greenville, for defendant-appellee, Wooten. HUSKINS, Justice: This appeal presents two questions: Did the trial court err in granting partial summary judgment for defendant Wooten? Did the trial court err in striking the notice of lis pendens? The guiding principles applicable to summary judgment under Rule 56, Rules of Civil Procedure, have been discussed numerous times by this Court. See, e. g., Caldwell v. Deese, 288 N.C. 375, 218 S.E.2d *233 379 (1975); Kessing v. Mortgage Corp., 278 N.C. 523, 180 S.E.2d 823 (1971). An apt statement of these principles for the purposes of this appeal is found in Zimmerman v. Hoff & Allen, 286 N.C. 24, 209 S.E.2d 795 (1974): The legal principles with respect to fraudulent conveyances are set out in Aman v. Walker, 165 N.C. 224, 81 S.E. 162 (1914), as follows: Here, plaintiff contends the disputed conveyances were voluntary, i. e., without adequate consideration, and that defendants Evans did not retain property fully sufficient and available to pay their existing debts. Alternatively, plaintiff contends the conveyances were voluntary and made by defendants Evans with the actual intent to defraud plaintiff, even though sufficient property was retained by defendants Evans to pay their existing debts. Essential to both principles relied on by plaintiff is the element of voluntariness, i. e., inadequate consideration. In support of his motion for partial summary judgment defendant Wooten submitted affidavits tending to show that the disputed conveyances were supported by an adequate consideration. The trial court found that Wooten's affidavits established that the element of inadequate consideration asserted in plaintiff's pleadings was nonexistent. Perceiving no genuine dispute of fact on the consideration issue, the trial court concluded that there was adequate consideration *234 for the conveyances as a matter of law and granted Wooten's motion for partial summary judgment. Plaintiff did not respond to defendant's affidavits with any evidence tending to show that the claim of inadequate consideration presented a genuine issue for trial. Even so, defendant still has the burden of showing that there is no triable issue of fact and that he is entitled to judgment as a matter of law. "Hence plaintiff may yet succeed in defending against the motion for summary judgment if the evidence produced by the movant and considered by the court is insufficient to satisfy the burden." Page v. Sloan, 281 N.C. 697, 190 S.E.2d 189 (1972). Thus, the precise question before us is whether defendant Wooten met his burden of establishing: (1) that the claim of inadequate consideration presented no triable issues of fact, and (2) that he was entitled to a judgment as a matter of law. In order to decide the precise question posed we must first determine what constitutes a valuable consideration in the law of fraudulent conveyances. Under the case law interpreting our statutes on fraudulent conveyancesG.S. 39-15 et seq."a determination that a conveyance was not made for valuable consideration means that the conveyance was `voluntary.'" Comment, 50 N.C.L.Rev. 873, 878 (1972). A conveyance is deemed to be voluntary "when the purchaser does not pay a reasonably fair price such as would indicate unfair dealing and be suggestive of fraud." Gas Co. v. Leggett, 273 N.C. 547, 161 S.E.2d 23 (1968) (emphasis added). A valuable consideration in the law of fraudulent conveyances is not the same as a valuable consideration in the law of contracts. See Knight v. Bridge Co., 172 N.C. 393, 90 S.E. 412 (1916). This crucial distinction was explained by Chief Justice Ruffin in Fullenwider v. Roberts, 20 N.C. 420 (1839). Mere inadequacy of price is not sufficient to set aside a contract as between two parties for the reason that "if one will, without imposition, distress or undue advantage, make a bad bargain with his eyes open, he must stand to it. His agreement is sufficient, because his interests alone are affected by it." Id. However, different policy considerations come into play when the transaction involves the interests of a creditor who is not a party to the transaction. As against such creditors "the price must be sufficient in itself to sustain the deed, without the aid of their acceptance, for no such acceptance exists." Id. Since the creditor has no control over the amount of consideration which his debtor will accept in relinquishing assets, the law requires that the debtor receive "a fair and reasonable price, according to the common mode of dealing between buyers and sellers." Id. This does not mean that the debtor "should [be] paid every dollar the land was worth, but he should [be] paid a reasonably fair price,such as would indicate fair dealing, and not be suggestive of fraud." Austin v. Staten, 126 N.C. 783, 36 S.E. 338 (1900). Such a requirement prevents a debtor from placing his assets beyond the reach of his creditors by transfers to friendly parties for nominal considerations. Thus for defendant Wooten to meet his burden of establishing that there is no triable issue of fact on the question of adequate consideration and that the conveyances to him were not fraudulent as a matter of law, he must demonstrate that he paid a "fair and reasonable price" to defendants Evans for the several tracts of land they conveyed to him. Due consideration of the affidavits offered by Wooten in support of his motion for partial summary judgment leads us to conclude that Wooten failed to meet this burden and that the granting of partial summary judgment by the trial court was erroneous. The affidavits submitted by defendant Wooten tend to prove in pertinent part the following facts. In March of 1976 defendants Henry Thomas Evans and wife, Betty Lou Tripp Evans, conveyed to defendant Wooten all their interest in certain properties described in the deeds. As consideration for said conveyances Wooten agreed to assume all outstanding balances *235 due on any and all notes secured by any and all deeds of trust on said properties in favor of First Federal Savings & Loan Association of Pitt County and to hold defendants Evans harmless on account of the notes. Further, defendant Wooten agreed to assume the outstanding balance on a certain unsecured note at Planters National Bank in Ayden, North Carolina, which defendants Evans had signed as makers and Wooten as an endorser. The outstanding balance on this note was at least $7000. The unpaid balance on this note has been paid in full by defendant Wooten. We cannot determine from the evidence presented by defendant Wooten in support of his motion for summary judgment whether or not he paid a reasonably fair price for the property conveyed to him by defendants Evans. Wooten's evidence does not indicate the fair market value of the several tracts. Nor does it disclose the balance due on the secured notes payable to First Federal Savings & Loan. Wooten's evidence merely indicates that he paid $7000 plus other unspecified consideration for real property of unspecified value. At most, such evidence tends to establish that a legal consideration was given in return for the conveyances in question; but such evidence fails to establish that the legal consideration also constituted a fair and reasonable price for the property. In this posture we hold that a genuine issue of material fact remains on the question of whether Wooten paid Evans a fair and reasonable price. Since the allegations in plaintiff's amended complaint present triable issues of fact, we conclude that summary judgment for defendant Wooten on the fraudulent conveyance claims was improvidently granted. Since we hold that the affidavits submitted by Wooten did not entitle him to summary judgment, we need not determine whether portions of these affidavits were inadmissible. Plaintiff filed a notice of lis pendens contemporaneously with the commencement of its action, and we must now determine whether the notice of lis pendens was properly stricken. "The common law rule of lis pendens has been replaced in this State by the provision of G.S. 1-116 to G.S. 1-120.1. Arrington v. Arrington, 114 N.C. 151, 19 S.E. 351. Thus, there can be no valid notice of lis pendens in this State except in one of the three types of actions enumerated in G.S. 1-116(a), which reads as follows: Since it appears clearly from the plaintiff[`s] statement of the nature of [its] action that it does not fall into Class 2 or Class 3, the alleged notice of lis pendens is not valid unless this is an action `affecting title to real property.'" Cutter v. Realty Co., 265 N.C. 664, 144 S.E.2d 882 (1965). Does a claim for relief by a creditor seeking to set aside a fraudulent conveyance pursuant to G.S. 39-15 constitute an action "affecting title to real property" within the meaning of the lis pendens statuteG.S. 1-116, et seq.? The answer is yes. In Whitehurst v. Abbott, 225 N.C. 1, 33 S.E.2d 129 (1945), we construed the term "action affecting the title to real property" as embracing "all judicial proceedings affecting the title to real property or in which title to land is at issue." Id. Such is a proceeding by a creditor to set aside a conveyance as fraudulent. The object of such a proceeding is to set aside a conveyance or transfer in "which the owner of real or personal property has sought to place the land or goods beyond the reach of his creditors, or which operates to the prejudice of [the] legal or equitable rights [of creditors]." *236 37 Am.Jur.2d, Fraudulent Conveyances, § 1. It follows that any action seeking to set aside a conveyance of real property as fraudulent "directly assails the validity of such conveyance and necessarily involves the title. Hence the filing of notice under the lis pendens statute is essential to give constructive notice to those who are not directly interested in the proceedings." Whitehurst v. Abbott, supra. We thus hold that a claim for relief by a creditor seeking to set aside a fraudulent conveyance pursuant to G.S. 39-15 et seq. constitutes an action "affecting title to real property" within the meaning of G.S. 1-116(a)(1). Semble, Morgan v. Bostic, 132 N.C. 743, 44 S.E. 639 (1903); McRary v. Fries, 57 N.C. 233 (1858). Cf. Whitehurst v. Abbott, supra (caveat proceeding constitutes action "affecting title to real property"). Accord, Blitman Const. Corp. v. Denbel Realty & Const. Co., 13 Misc.2d 888, 178 N.Y.S.2d 249 (Sup.Ct.1958). See generally, Annot., 74 A.L.R. 690 (1931). For the reasons stated the decision of the Court of Appeals upholding the judgment of the district court is reversed. The case is remanded for further proceedings in accord with this opinion. REVERSED AND REMANDED. BRITT and BROCK, JJ., did not participate in the consideration or decision of this case.