No. 14202 

IN THE SUPREME COW OF TIE STATE OF MINTANA 

1979 

bKlIWANA ASSOCIATION OF CREDIT 

-, a corporation, 

Plaintiff and Respondent, 

-vsHERGEIiT et al. , 

Defendants and Appellants. 

Appeal frcan: District Court of the Thirteenth Judicial District, 

Honorable Charles Luedke, Judge presiding. 

Counsel of Wrd: 

For Appellants: 

Gary Wilcox argued, Billings, MDntana 

For Respondent: 

Fred Dugan argued, Billings, Mntana 

submitted: mch 22, 1979 

Decided: APR 26 1979 
Mr. Chief Justice Frank I. Haswell delivered the Opinion of 

the Court. 

Defendant appeals from a judgment rendered by the District Court, Yellowstone County, sitting without a jury, that 

plaintiff may proceed to levy execution against certain mining 

equipment, title to which the court concluded was held by defendant Elmer Hergert as involuntary trustee for Montana Mining 

and Development Company, now defunct, a corporation of which 

Hergert was a director. 

In the fall of 1973, one James M. "Mike" Morgan and 

several investors, including defendant-appellant, Elmer Hergert, 

joined together for the purpose of forming a mining venture. 

Morgan owned a lease on mining property near Virginia City, Montana. The lease and the actual working of the mine were to be 

Morgan's contribution to the venture, while the other parties 

were to invest capital. Appellant Hergert contributed a total 

of $30,000; a check for $15,000 on October 31, 1973, and another 

check for the same amount two and one-half months later on January 14, 1974. The other investors contributed much smaller 

sums. The initial structure of the venture was such that each 

investor received for his investment a percentage interest in 

the lease owned by Mike Morgan. 

On November 1, 1973, Morgan used some of the invested 

capital to make a $5,000 down payment on a piece of equipment 

known as a trornmel, or washing plant, for use in the mining operation. The remaining balance on the trommel was to be paid in 

two major installments, with a $6,000 payment due in 60 days and 

the remaining balance of $11,000 due in late spring of 1974. 

In February 1974 the mining venture was incorporated as 

"Montana Mining & Development Co." A bank account was opened 

in the corporate name, into which the invested funds were deposited. No formalities of incorporation other than the filing 

of articles, however, were ever complied with; no bylaws were 
adopted, no meetings held, no stock certificates issued. ~ppellant Hergert's name appeared in the articles of incorporation 

as a director of the corporation, but he never performed any 

functions in that capacity or received any salary or dividends. 

The actual operation of the mine was conducted by Mike 

Morgan and his father. It was they who purchased the mining 

equipment and incurred the expenses of the venture, and only 

they were authorized to write checks on the corporation's account. No transfer to the corporation of the lease owned by 

Mike Morgan, and supposedly divided into percentages among the 

investors, was ever made. 

A meeting of the investors in the venture was held on 

November 14, 1974. The meeting revealed that the Morgans had 

been less than efficient in operating the mine. They had accumulated substantial past due indebtedness and had failed to make 

the payments on the trommel. The trommel was to be repossessed 

the next day. To avoid this eventuality, it was agreed that appellant Hergert would obtain a loan and pay off the balance on the 

trommel. Hergert contacted his banker and was informed that he 

could borrow the necessary funds only if title to the trommel 

would be in his individual name. The loan was made and appellant 

paid the balance due on the trommel of $12,000 plus $682 interest, 

receiving in return a bill of sale reflecting that he was its individual owner. 

The original purchase price of the trommel was $22,000. 

At the time Hergert took title in his individual name, $9,940 

had been paid towards that purchase price; $5,000 by Mike Morgan 

on November 1, 1973 (prior to incorporation) from the funds 

invested by Hergert, and $3,500 in cash and $1,440 in gold by 

the corporation during the year 1974. 

Among the obligations incurred by Morgan in the operation 

of the mine was one for the purchase of equipment from Tri-State 
Equipment, Inc. This was a matured obligation, due and payable, 

at the time "ownership" of the trommel was assumed by Hergert. 

When Montana Mining and Development Co. failed to meet this obligation, the account was assigned for collection to respondent, 

Montana Association of Credit Management. A complaint demanding judgment on the account in the sum of $4,494.47 was filed in 

the District Court on March 11, 1975. Judgment by default was 

entered in favor of Montana Association of Credit Management on 

April 9, 1975, for $4,583.28, the amount due plus interest. 

To satisfy the default judgment, Montana Association of 

Credit Management attempted under a writ of execution to attach 

the property of Montana Mining and Development Company. The mining company was insolvent and the only piece of equipment of any 

significant value used in its operations was the trommel. When 

respondent served notice of attachment under execution on the 

trommel, however, Hergert denied that the insolvent corporation 

had any interest in it. He maintained that the bill of sale 

issued to him in his individual name when he had paid off the 

balance due on the trommel was conclusive that it was not an 

asset of the corporation and could not be attached to satisfy the 

corporate debts. 

On December 30, 1976, a complaint was filed in the District 

Court, Yellowstone County, by respondent Montana Association of 

Credit Management in an attempt to free the trommel for attachment. The complaint named both the corporation and Elmer Hergert, 

individually and as involuntary trustee for the corporation, as 

defendants. It was framed as two "claims", predicated on two 

separate although interrelated theories. 

The first "claim" alleged that the other investors had 

agreed that Hergert was to take title to the trommel in the name 

of the corporation, or in his own name in trust for the corporation, but not individually. Thus, it was argued, Hergert was 
in violation of his fiduciary duty as a director in denying 

any interest of the corporation in the trommel. The second 

"claim" alleged that the transfer to Hergert of the title to 

the trommel "rendered the Defendant corporation insolvent, was 

given without adequate or fair consideration, and in bad faith 

with respect to the Defendant corporation on the part of the 

Defendant Hergert." No statutory authority was cited in the 

complaint, but the language quoted from the second claim is taken 

from section 29-104, R.C.M. 1947, now section 31-2-311 MCA, of 

the Uniform Fraudulent Conveyance Act (UFCA). 

The single prayer for relief encompassing the two "claims" 

requested, in pertinent part: 

"1. That the Defendant, Montana Mining & Development Co., 

be adjudged to be the owner of and entitled to possession of the 

[trommel] . . . 

"2. That the Defendant, Elmer Hergert, be declared to 

hold the same in trust for said Defendant. 

"3. That it be adjudicated herein that Plaintiff holds 

a valid lien by attachment upon said property. 

"4. That the Defendant, Elmer Hergert, be required to 

execute a proper instrument of transfer of the legal title to 

said property to the Defendant corporation, and that both Defendants be required to surrender possession of said property to the 

Sheriff of the County of Madison, State of Montana, subject to 

Writ of Execution levy and sale . . ." 

On March 1, 1977, Hergert filed an answer to the complaint, 

specifically denying the allegations and praying that it be dismissed. No responsive pleading was ever filed on behalf of the 

corporation and default was entered against it. 

Trial of the claims against Hergert was had on August 

16, 1977 before Judge Charles Luedke. Extensive findings of fact 

and conclusions of law were subsequently entered concluding, in 
summary, that the transfer of the trommel to Hergert by the 

corporation was voidable with respect to plaintiff because it 

was made without fair consideration at a time when the corporation was insolvent and was therefore in bad faith as to the 

creditors of the corporation as a matter of law. From the 

judgment subsequently entered ordering that plaintiff may proceed to levy execution on the trommel, this appeal has been 

brought. 

We find this appeal to be entirely without merit. Because there are several matters of some consequence raised by 

appellant which we discuss further below, we will not go so far 

as to say the appeal is frivolous. The simple fact is, however, 

that here an insolvent corporation transferred its only major 

asset to appellant for approximately half of the asset's value. 

Seen from another perspective, appellant took title in his own 

name to a piece of property in which the corporation had more 

than $9,000 equity and gave the corporation nothing for that 

equity. The result of the transaction was that the rights of 

creditors who had relied on the responsibility of the corporation and its management in extending credit to them were infringed. This is clearly a proper case to disregard or set aside 

the conveyance as fraudulent under the UFCA. 

Because plaintiffts complaint stated one of its claims 

in terms of an involuntary trust arising in Hergert for violating his fiduciary obligations as a director of the corporation, 

much of the argument in appellant's brief is directed to the 

applicability on these circumstances of section 86-210, R.C.M. 

1947, now section 72-20-111 MCA, the statute concerning involuntary trusts. It is clear from the District Court's findings 

and conclusions, however, that the case was decided on the basis 

of the Uniform Fraudulent Conveyance Act (UFCA) rather than on 

the involuntary trust theory. Therefore, appellant's arguments 
in this regard are superfluous and will not be rebutted herein. 

The issues we must address to properly resolve this 

appeal are as follows: 

1. Whether Montana Association of Credit Management 

was a proper party to the action. 

2. Whether the attached property which is the subject 

of this suit was a corporate asset. 

3. Whether there was sufficient evidence presented to 

support a finding of constructive fraud under the Uniform Frauulent Conveyance Act. 

4. Whether the District Court was correct in its finding that less than fair consideration was paid for the trommel. 

Hergert argues that plaintiff was not a proper party to 

the action because it was not a creditor of the corporation but 

merely an assignee of Tri-State Equipment Company. The validity 

of the instrument by which Tri-State Equipment Company assigned 

its claim against Montana Mining & Development to plaintiff 

Company for collection was not questioned by appellant. All that 

is necessary to constitute a plaintiff the "real party in interest" within terms of a statute authorizing him to sue is that 

he be vested with legal title, and hence an assignee of a cause 

of action for collection may sue. Rae v. Cameron (1941), 112 

Mont. 159, 114 P.2d 1060; Washington Water Power Co. v. Morgan 

Electric Co. (1968), 152 Mont. 126, 448 P.2d 683. 

The issue of whether the trommel was a corporate asset 

merely goes to the sufficiency of the evidence to support the 

court's finding to that effect. Hergert contends that the tromme1 was not a corporate asset because it was purchased some three 

months prior to incorporation, with funds supplied by him. He 

further argues that the only evidence at trial that the trommel 

was a corporate asset was an unaudited balance sheet prepared by 
Mike Morgan and supported only by Morgan's self-serving testimony. Respondent rebuts these contentions by pointing out that 

Hergert's funds were invested in the venture, not in the trommel, and that substantial payments on the trommel were made 

after incorporation with funds drawn from the corporate bank 

account and with gold produced by the corporation utilizing the 

trommel in the corporate enterprise. "The standard of review in 

a nonjury case is simply to determine if there is substantial 

evidence to support the findings of the trial court. This Court 

will not reverse such findings of fact unless there is a clear 

preponderance of evidence against the findings." Hayden v. 

Snowden (1978), Mont . , 576 P.2d 1115, 1117, 35 St.Rep. 

367, 369, citing Merritt v. Merritt (1974), 165 Mont. 172, 177, 

526 P.2d 1375. " . . . the credibility and weight given to the 

witness, especially where the evidence is conflicting, is a 

matter for the District Court's determination in a nonjury case." 

Olson v. Carter (1977), Mont. , 572 P.2d 1238, 1240, 34 

St.Rep. 1539, 1541, citing Miller v. Fox (1977), Mont . I 

571 P.2d 804, 34 St.Rep. 1367. We find no error. 

The remaining two issues of whether there was sufficient 

evidence to support a finding of constructive fraud under the 

UFCA and whether the District Court correctly found that Hergert 

had not paid fair consideration for the trommel are interrelated 

and will be addressed together. Prefatorily, we note that appellant's arguments, both in his brief and during oral presentation, 

relied on a line of authority represented by Polk v. Polk (1972), 

210 Kan. 107, 499 P.2d 1142, for the proposition that constructive fraud can only be found where certain "badges of fraud", 

such as intent to hinder, delay, or defraud creditors, or cooperation between a grantor and grantee to that end, are present. 

Polk did not arise under the UFCA and has no bearing on this case. 

The UFCA declares certain conveyances to be fraudulent regardless 
of the presence or absence of any actual intent to defraud. 37 

Am Jur 2d Fraudulent Conveyances S3. 

Montana has adopted the UFCA as Title 29, Chapter 1, 

R.C.M. 1947, now Title 31, Chapter 2, Part 3, MCA. Section 29- 

104, R.C.M. 1947, now section 31-2-311 MCA, provides: 

"Every conveyance made and every obligation 

incurred by a person who is or will be thereby 

rendered insolvent is fraudulent as to creditors 

without regard to his actual intent if the conveyance is made or the obligation is incurred 

without a fair consideration." 

It is beyond dispute that a corporation is a "person" 

within the meaning of the UFCA. See Vol. 7A Uniform Laws 

Annotated, Fraudulent Conveyance Act 54 Note 32. Thus, the only 

questions the District Court faced in reaching its conclusion 

here were whether Montana Mining & Development Company was insolvent at the time Hergert took title to the trommel in his 

own name or was rendered insolvent thereby, and whether the conveyance to Hergert was made without fair consideration. 

In a trial memorandum submitted to the District Court in 

conjunction with this action, Hergert admits that the corporation 

was insolvent at the time he "purchased" the trommel. Trial 

Memorandum of Elmer Hergert, p. 6, line 6-7. There is therefore 

no issue as to sufficiency of the evidence in that regard. 

As to the issue of fair consideration, the UFCA provides: 

"Fair consideration is given for property, or 

obligation, 

"(a) When in exchange for such property, or obligation, as a fair equivalent therefore, and in 

good faith, property is conveyed or an antecedent 

debt is satisfied, or 

"(b) When such property, or obligation is received 

in good faith to secure a present advance or 

antecedent debt in amount not disproportionately 

small as compared with the value of the property 

or obligation obtained." Section 29-103, R.C.M. 

1947, now section 31-2-303 MCA. 

Hergert directs our attention to White v. Nollmeyer 

(1968), 151 Mont. 387, 443 P.2d 873, where we said that the test 
to be applied to determine fair consideration for purposes of 

the UFCA is "whether the disparity between the true value of 

the property transferred and the price paid is so great as to 

shock the conscience and strike the understanding at once with 

the conviction that such transfer never could have been made 

in good faith." Nollmeyer, 151 Mont. at 406, 443 P.2d at 883. 

This language in Nollmeyer is taken from Hart-Parr Co. v. Schafer 

(1925), 73 Mont. 429, 236 P. 675, and applies to the phrase 

"adequate consideration" in relation to an alleged fraudulent 

conveyance under the law in existence prior to enactment of the 

UFCA. It sets a much more stringent standard for finding a lack 

of fair consideration under the UFCA than do the authorities 

generally, and we hereby repudiate it. 

Under the UFCA: 

"What is 'fair consideration' must, of course 

be determined on the facts and circumstances of 

each particular case, and the question must be 

determined from the standpoint of creditors. A 

'fair consideration' may be defined generally as 

one which fairly represents the value of the 

property transferred, and as against creditors, a 

consideration that is merely good and valuable 

will not support a conveyance which will render 

the grantor insolvent. In general, the test of 

what constitutes a fair consideration would seem to 

be whether or not the conveyance renders the debtor 

execution proof . . . It is also essential that the 

consideration be not only fair, but that it pass 

into insolvent's estate." 37 C.J.S. Fraudulent 

Conveyances S140. 

Applying these standards to the circumstances present 

here, it is apparent to us that the District Court was correct 

in its conclusion that Hergert did not give fair consideration 

when he assumed ownership of the trommel in his own name. In 

order to determine fair consideration, however, "the value of 

the property on the date of the transfer is the critical date 

against which the validity of the transfer must be tested." 37 

Am Jur 2d Fraudulent Conveyances S18. The District Court's findings in this case did not include a specific finding of the 

value of the trommel on the date Hergert assumed ownership. 
Respondent contends that even in the absence of such a specific 

finding, the surrounding circumstances were sufficient to support 

the conclusion that less than fair consideration was paid because at the time Hergert paid $12,000 and took title to the 

trommel in his own name, only a year had passed from the time 

its original purchase price was set at $22,000. Hergert, on the 

other hand, argues that without a specific finding of the value 

of the trommel on the date of the transfer to him, the court had 

no basis to determine whether or not the consideration paid was 

"fair". He contends that the District Court's failure to make 

such a specific finding requires reversal, and cites Bailey v. 

Leeper (1956), 142 Cal.App.2d 460, 298 P.2d 684, in support of 

that contention. Hergert has misconstrued Bailey; the case stands 

for just the opposite principle. In a suit to set aside a fraudulent conveyance, where the disparity between value received and 

obligations assumed is so great that the trial court would and 

should have made the same decision, failure to make a specific 

finding of the value of the property transferred as of the date 

of the transfer is not reversible error. Bailey v. Leeper, supra. 

We hold that the circumstances present here fall within this rule. 

Section 29-109, R.C.M. 1947, now section 31-2-321 MCA, 

provides in pertinent part: 

"(1) Where a conveyance or obligation is fraudulent as to a creditor, such creditor, when his 

claim has matured, may as against any person except a purchaser for fair consideration without 

knowledge of the fraud at the time of the purchase 

or one who has derived title immediately or mediately from such a purchaser: 

"(a) have the conveyance set aside or obligation 

annulled to the extent necessary to satisfy his 

claim; or 

"(b) disregard the conveyance and attach or levy 

execution upon the property conveyed." 

The judgment entered here by the District Court ordered that 

plaintiff may proceed to levy execution against the trommel. 
This is a remedy clearly within paragraph (1) (b) above. The 

District Court has properly applied the UFCA in all respects. 

The judgment appealed from is affirmed. 

Chief Justice 

We concur: