No. 80-232 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1981 

MONTANA NATIONAL BANK, a corp., 

Plaintiff and Respondent, 

ROY E. MICHELS,,) JR. , and 

SHIRLEY JEAN MICHELS,, , and 

JAMES V. CYBULSKI, 

Defendants and Appellants. 

Appeal from: District Court of the Fifteenth Judicial District, 

In and for the County of Sheridan, The Honorable 

M. James Sorte, Judge presiding. 

Counsel of Record: 

For Appellant: 

Jerome Wallander, Froid, Montana 

Robert Hurly, Glasgow, Montana 

For Respondent: 

John R. Hunt, Plentywood, Montana 

Submitted on Briefs: November 26, 1980 

Decided : MAR 4 - 19(W 

Filed: KkR 4 - 1987 

Clerk 
Mr. Justice Gene B. Daly delivered the Opinion of the Court. 

Plaintiff Bank brought this action in the District 

Court of the Fifteenth Judicial District of the State of 

Montana, in and for the County of Sheridan, seeking money 

due and owing on a promissory note and seeking to set aside 

and have declared as fraudulent conveyances two transfers of 

a parcel of land. The District Court, sitting without a 

jury, found in favor of plaintiff Bank, ordering payment by 

defendant Roy E. Michels, Jr., and setting aside the 

transf ers as fraudulent conveyances. From that judgment 

defendants appeal. 

On December 11, 1973, defendant Roy E. Michels, Jr., 

executed a promissory note payable to plaintiff Bank in the 

principal sum of $74,603.65 plus interest thereon at the 

rate of 9 percent per annum from the date of such note. The 

due date of the note was December 11, 1974. 

Prior to the execution of the note, on September 1, 

1972, Roy Michels entered into a contract for deed to 

purchase from Helen Hodges approximately 280 acres of land 

situated in Sheridan County, Montana, for a sum of $35,000. 

The subsequent transfers of this parcel are the subjects of 

this litigation. 

On December 16, 1974, Roy Michels conveyed and 

assigned all of his interest in the contract for deed and 

the above-descr ibed real property to his wife, defendant 

Shirley Jean Michels, in consideration of the sum of one 

dollar. At the time of this conveyance, the District Court 

found the fair market value of the property to be $41,508. 

The District Court found that at the time of the 
conveyance to his wife defendant Roy Michels owed the Bank 

the total sum of $81,504.49, including principal and accrued 

interest, with regards to the promissory note dated December 

11, 1973. The court also found that, as a result of the 

transfer on December 16, 1974, Roy Michels was rendered 

insolvent and had a negative net worth of $11,661.99. 

As a matter of law the District Court concluded that 

the conveyance of December 16, 1974, was fraudulent as to 

plaintiff in that it was made with the actual intent to 

delay, defraud and hinder plaintiff Bank as a creditor and 

in that it was made without fair consideration and rendered 

defendant insolvent. The District Court held that Shirley 

Michels was not a bona fide purchaser for value with respect 

to this conveyance and declared the conveyance be set aside 

as fraudulent. 

On February 19, 1975, Shirley Michels assigned and 

conveyed all of her interest in the contract for deed to 

defendant James V. Cybulski, an uncle of defendant Roy 

Michels. Roy Michels joined in this conveyance and 

assignment to Cybulski. At the time of this conveyance, the 

District Court found that the market value of the land was 

$41,508. 

The purported consideration for this conveyance 

consisted of the following items: (1) Cybulski assumed the 

outstanding principal and accrued interest on the existing 

contract for deed, such sum being $25,483.30; (2) Cybulski 

paid numerous creditors of Roy Michels in the total amount 

of $11,879.26, none of which was owed by Shirley Michels; 

and (3) Cybulski forgave an antecedent debt owed to him by 

Roy Michels in the amount of $1,200. 
The District Court found that Roy Michels was 

indebted to the Bank in the amount of $82,129 at the time of 

the conveyance to Cybulski with regards to the promissory 

note. The court also found that on February 19, 1975, prior 

to the transfer to Cybulski, Michels had a negative net 

worth of $57,478 and after the transfer, he had a negative 

net worth of approximately $45,598. 

As a matter of law, the District Court concluded that 

the transfer of February 19, 1975, be set aside as a 

fraudulent conveyance in that it was made without fair 

consideration at a time when defendant Michels was insolvent 

and that defendant had the intent to hinder, delay and 

defraud the Bank as a creditor. The court also held that 

Cybulski did not have the actual fraudulent intent to 

defraud, delay or hinder the Bank as creditor, but as 

consideration Cybulski only gave the sum of $25,483.30 

because the other items--the cancellation of the antecedent 

debt and the payment of creditors--did not consist of fair 

consideration for the reason that defendant Shirley Michels, 

as grantor, was not obligated under the indebtedness paid or 

forgiven by Cybulski. 

The District Court set aside the two transfers as 

fraudulent based on defendant's intention and insolvency. A 

determination of defendant 's intention will be disposit ive 

of this appeal; therefore, it is unnecessary to determine 

the issue of insolvency. The question and arguments hinge 

on substantiality of evidence. 

Section 31-2-314, MCA, provides: "Every conveyance 

made and every obligation incurred with actual intent, as 

distinguished from intent presumed in law, to hinder, delay, 
or defraud either present or future creditors is fraudulent 

as to both present and future creditors." 

The difficulty in establishing a conveyance as 

fraudulent was characterized by Justice DeWitt in Merchants' 

National Bank v. Greenhood (1895), 16 Mont. 395, 41 P. 250, 

in the following manner: 

"Fraud cannot often be proven by direct 

evidence. Fraud conceals itself. It does 

not move upon the surface in straight lines. 

It goes in devious ways. We may with difficulty know 'whence it cometh and whither it 

goeth. ' It ' loveth darkness rather than 

light, because its deeds are evil.' It is 

rarely that we can lay our hand upon it in 

its going. We are more likely to discover it 

at its destination, before we know that it 

has started upon its sinuous course. When we 

so discover it, the searchlight of a judicial 

investigation goes back over its trail and 

lightens it from beginning to end. As the 

woodsman follows his game by slight indications, as a broken twig or a displaced 

pebble, so fraud may become apparent by 

innumerable circumstances, individually 

trival . . but in their mass 'confirmation 

strong as proofs of holy writ."' 41 P. at 

259. 

Actual fraudulent intent within the meaning of the 

Uniform Fraudulent Conveyance Act may be established by 

circumstantial evidence. Continental Bank v. Marcus (1976), 

242 Pa.Super. 371, 363 A.2d 1318; see also, Fross v. Wotton 

(1935), 3 Cal.2d 384, 44 P.2d 350. Where the effect of a 

particular transaction with a debtor is to hinder, delay or 

defraud creditors, the law infers or supplies the intent, 

even though there may be no direct evidence of a 

dishonorable motive but, on the contrary, an actual, honest, 

but mistaken, motive exists. National Bank of Anaconda v. 

Yegen (1928), 83 Mont. 265, 271 P. 612. 

We have previously used "badges of fraud" to 

determine if a conveyance is fraudulent and should be set 
aside. In Humbird v. Arnet (1935), 99 Mont. 499, 512, 44 

P.2d 756, 761, we stated: 

"Fraud in cases where it is sought to set 

aside fraudulent conveyances, and thereby 

reach assets on behalf of the creditor or 

other person claiming to be entitled to such 

assets, is ordinarily indicated and ad judged 

by the presence of what the law has come to 

denominate 'badges of fraud. ' They are said 

to be facts which throw suspicion on a 

transaction, and which call for an 

explanation. It has been said that they are 

inferences drawn by experience from the 

customary conduct of mankind, and that they 

afford grounds of inference from which the 

court or jury are authorized to conclude that 

a transaction surrounded by them is 

fraudulent. More simply stated, they are 

signs or marks of fraud. They do not of 

themselves or per se constitute fraud, but 

they are facts having a tendency to show the 

existence of fraud, although their value as 

evidence is relative not absolute. They are 

not usually conclusive proof; they are open 

to explanation. They may be almost 

conclusive, or they may furnish merely a 

reasonable inference of fraud, according to 

the weight to which they may be entitled from 

their intrinsic character and the special 

circumstances attending the case. Of ten a 

single one of them may establish and stamp a 

transaction as fraudulent. When, however, 

several are found in the same transaction, 

strong, clear evidence will be required to 

repel the conclusion of fraudulent intent 11 ... 

The generally recognized badges of fraud are the lack 

of consideration for the conveyance, the transfer of the 

debtor's entire estate, relationship between transferor and 

the transferee, the pendency or threat of litigation, 

secrecy or hurried tra.nsaction, insolvency or indebtedness 

of the transferor, departure from the usual method of 

business, the retention by the debtor of possession of the 

property, and the reservation of benefit to the transferor. 

37 Am.Jur.2d Fraudulent Conveyances, S 10 at 701. 

It is undisputed that on December 16, 1974, the date 

of the property conveyance from Roy to Shirley Michels, the 
two parties were legally married. This Court has said on 

many occasions that a court cannot scrutinize too closely 

the relation between husband and wife with respect to 

business dealings between them where creditors are 

concerned. Keller v. Flanagan (1923), 66 Mont. 144, 158, 

213 P. 222, 225. The marital relation is often a convenient 

means for the perpetration of a fraud, and when claims of 

indebtedness are made between husband and wife, they must be 

subjected to the most searching examination, if not indeed 

suspicion. Lambrecht v. Patten (1895), 15 Mont. 260, 38 P. 

1063; Koopman v. Mansolf (1915), 51 Mont. 48, 149 P. 491. Of 

course, the fact that such relationship exists between a 

grantor and a grantee is not of itself a badge of fraud. 

Hale v. Belgrade Co. (1925), 75 Mont. 99, 242 P. 425; 

Harrison v. Riddell (1922), 64 Mont. 466, 210 P. 460. 

Based on appraisals given at trial the fair market 

value of the land at the time of conveyance to Shirley 

Michels was $41,508. However, she paid only one dollar in 

consideration. We have long recognized inadequacy of 

consideration as a badge of fraud. Dick v. King (1927), 80 

Mont. 40, 257 P. 1022; Roman v. Albert (1928), 81 Mont. 393, 

264 P. 115. In Bump on Fraudulent Conveyances (4th Ed.), S 

57, we find this language: 

"To justify an inference of fraud from the 

inadequacy of the price alone, the 

consideration must be so clearly below the 

market value as to strike the understanding 

at once with the conviction that such a sale 

never could have been made in good faith." 

At the time of the conveyance to his wife, Roy 

Michels was indebted to plaintiff in the amount of 

approximately $80,000. This debt was in addition to various 

other liabilities. 
In financial statements submitted to the Bank by Roy 

Michels, the subject land represents a substantial asset. 

Michels, however, failed to notify the Bank of a planned or 

consummated conveyance to his wife. In fact, it was not 

until February 17, 1975, that plaintiff Bank learned of the 

conveyance through its own investigations. 

After the conveyance, Roy Michels retained possession 

of the land. His explanation of the transfer was that it 

was for estate planning purposes and to provide security for 

his wife in the event of his death. However, in light of 

the above facts surrounding the transaction and the 

conveyance of the land to Cybulski two months later, this 

explanation bears no logical relationship to the events 

which actually occurred. 

We hold the foregoing evidence substantiates a 

finding that the conveyance of December 16, 1974, was made 

with actual intent on the part of Roy Michels, Jr., to 

hinder, defraud and delay plaintiff Bank as a creditor. We 

also agree with the District Court that Shirley Michels was 

not a bona fide purchaser for value and that the Bank is 

entitled to have the conveyance declared fraudulent and set 

aside. 

On February 17, 1975, defendant Roy Michels and his 

attorney met with Bank officials to discuss Michels' 

financial problems and possible solutions. At this meeting, 

liquidation of assets and bankruptcy were discussed. The 

vice president of the Bank testified that the meeting was 

the first time the Bank learned of the conveyance from Roy 

to Shirley Michels. At that time defendant promised 

officials that he would not transfer the land for a period 
of ninety days. 

Two days after this meeting, on February 19, 1975, 

without notifying the Bank, defendants Roy and Shirley 

Michels conveyed and assigned all interests in the real 

property to defendant Cybulski, the uncle of Roy Michels. 

This transaction occurred after only four or five days of 

negotiations. As stated previously, secret or hurried 

transactions or transactions made under threat of litigation 

are considered badges of fraud. See United States v. 

Leggett (6th Cir. 1961), 292 F.2d 423, cert. denied 368 U.S. 

914, 82 S.Ct. 194, 7 L.Ed.2d 131, reh. denied 82 S.Ct. 476, 

368 U.S. 979, 7 L.Ed.2d 441; Matter of Estate of Reed (Wyo. 

1977), 566 P.2d 587. 

It is undisputed that on February 19, 1975, defendant 

Roy Michels owed the Bank over $82,000, with regards to the 

promissory note dated December 11, 1973. Defendant was also 

indebted to numerous other creditors at that time. 

Once again, after the conveyance to Cybulski, both 

Roy and Shirley Michels retained possession and lived on the 

property without paying any rent. 

At the time of conveyance to Cybulski, the fair 

market value of the land was $41,508. As purported 

consideration, Cybulski (1) assumed the outstanding 

principal and interest on the contract for deed amounting to 

$25,483.30, of which $19,577.73 was actually paid at the 

time of trial; (2) paid numerous creditors of Roy Michels in 

the amount of $11,879.26; and (3) forgave an antecedent debt 

owed to him by defendant in the amount of $1,200. We agree 

with the trial court that the last two items given did not 

consist of valid consideration for the reason that Shirley 
Michels, as grantor, was not obligated under the 

indebtedness paid or forgiven by Cybulski. See Hansen v. 

Cramer (1952), 39 Cal.2d 321, 245 P.2d 1059. 

We hold that the secret conveyance of February 19, 

1975, for inadequate consideration, while defendant was 

indebted to the Bank and under the threat of bankruptcy, was 

made with the actual intent on the part of Roy E. Michels, 

Jr., to defraud, hinder and delay the Bank as creditor, and, 

therefore, must be set aside as a fraudulent conveyance. 

The judgment of the District Court is affirmed. 

Justice 

We concur: 

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