Title: HA Thompson & Sons, Inc. v. Hahn
Citation: 135 N.W.2d 166
Docket Number: 8210
State: north-dakota
Issuer: north-dakota Supreme Court
Date: May 13, 1965

135 N.W.2d 166 (1965) H. A. THOMPSON &amp; SONS, INC., a corporation, Plaintiff and Appellant, v. M. C. HAHN, a/k/a Martin Hahn, and Florence C. Hahn, individually and doing business under the name and style of Hahn Home Builders, Defendants and Respondents. No. 8210. Supreme Court of North Dakota. May 13, 1965. *167 Fleck, Smith, Mather, Strutz &amp; Mayer, Bismarck, for appellant. Zuger, Zuger &amp; Bucklin, Bismarck, for respondents. ERICKSTAD, Judge. This is an appeal from a judgment dismissing the complaint of the plaintiff, H. A. Thompson &amp; Sons, Inc., alleging that a transfer by Martin C. Hahn to his wife, Florence C. Hahn, of Martin's interest in certain real property was made with intent to hinder, delay, or defraud his creditors, and praying that said transfer be set aside, therefore, as void. The case was tried to the court without a jury. The plaintiff demands a trial de novo. In 1958 Martin C. Hahn was the sole proprietor of a house building business. In the latter part of 1958 and the first part of 1959 twelve lots in Morningside Heights Addition to the City of Bismarck were conveyed by Consumer Sales Company to Martin C. Hahn and Florence C. Hahn, as joint tenants. In 1960 Mr. Hahn was indebted to a number of creditors, including the plaintiff, in the total amount of approximately thirty-seven thousand dollars. Of this amount, eleven thousand dollars was due and owing the plaintiff for plumbing work done by the plaintiff in houses built by Mr. Hahn on other lots. Before the 20th of April, 1961, Mr. Hahn had at least one conference with his creditors, including the plaintiff, as a group, and also conferred with a number of his creditors individually, including the plaintiff. These conferences resulted from the pressure for payment being brought to bear upon Mr. Hahn by his creditors. The conferences failed to result in agreement for the payment of the debts. On April 20, 1961, Martin C. Hahn conveyed his undivided one-half interest in and to the lots in Morningside Heights Addition to his wife Florence without receiving consideration therefor. Slightly less than six months thereafter, on October 6, 1961, the plaintiff, along with two other creditors, filed a petition to have *168 Martin C. Hahn and Florence C. Hahn, individually and as partners, adjudicated bankrupt. In the bankruptcy proceeding the defendant, Martin C. Hahn, filed a list of assets and liabilities indicating total assets of $85,450, and total liabilities of $37,715. He therein declared that the twelve building lots located in Morningside Heights Addition were of the value of $24,750. On November 18, 1961, Charles C. Pollock, the Referee in Bankruptcy, dismissed the petition on various grounds, the ground pertinent to our decision being that the said Martin C. Hahn was not insolvent under the Bankruptcy Act. On November 29, 1961, the plaintiff commenced an action against Martin C. Hahn in Burleigh County District Court on the indebtedness aforementioned. Pursuant to stipulation, a judgment for the plaintiff against the defendant Martin C. Hahn for approximately $11,000 was entered on April 10, 1962. On May 24, 1963, an execution on the aforesaid judgment was issued and thereafter was returned unsatisfied. The plaintiff subsequently initiated its action to have the conveyance by Martin C. Hahn of his interest in the lots in Morningside Heights Addition set aside on the grounds that the conveyance was made while the said Hahn was insolvent and with intent to hinder, delay, or defraud his creditors. The defendant, Martin C. Hahn, denies that he was insolvent or that he was made insolvent by the conveyance to his wife of his interest in the lots and further argues that the dismissal by the Referee in Bankruptcy in Federal District Court was a determination that he was not insolvent and that, as this order has not been appealed from, it is res judicata as to all the issues in this action. Without deciding whether the decision of the Referee in Bankruptcy in Federal District Court was res judicata, the trial court held that the plaintiff failed to prove by a preponderance of the evidence that the conveyance was with intent to defraud, hinder, or delay creditors, and, accordingly, dismissed the complaint. It is from this judgment that the plaintiff, H. A. Thompson &amp; Sons, Inc., appeals. In reaching this conclusion the trial court seemed to stress the fact that the conveyance did not make the defendant insolvent. The following is part of the testimony of Mr. Hahn in response to questions intended to discover the reason for the conveyance of the Morningside Heights Addition lots to his wife. In connection with the transfer of these lots, Mrs. Hahn testified as follows: An analysis of this testimony causes us to believe that the conveyance of these lots was made for the purpose of placing this property beyond the reach of creditors at a time when the creditors were pressing Mr. Hahn for payment of their accounts. It appears, therefore, that unless the failure of the conveyance to make Mr. Hahn insolvent prevents it from being with intent to defraud, hinder, or delay creditors, this conveyance was with such intent and should be set aside. In considering this question the Supreme Court of California, prior to California's adoption of the Uniform Fraudulent Conveyance Act, said: Sections 3442 and 3439 of the Civil Code of California in effect at that time read as follows: *171 Section 13-01-10 of the North Dakota Century Code reads as follows: Section 13-01-05 of the North Dakota Century Code is quite similar to Section 3439 of the Civil Code of California in effect at the time of Fross. California repealed Sections 3439 and 3442, previously set forth herein, in 1939 when they adopted the Uniform Fraudulent Conveyance Act. The Uniform Act is now contained in Sections 3439.1 through 3439.12 of West's Annotated California Codes, Civil, vol. 12 (1954). North Dakota adopted the Uniform Fraudulent Conveyance Act in 1943. It was embodied in the Revised Code of 1943 as a part of the code revision and now appears as Chapter 13-02 of the North Dakota Century Code. In explaining the reason for recommending the adoption of the Uniform Fraudulent Conveyance Act and for retaining Chapter 13-01, the Code Revision Commission said: Section 13-02-07 of the North Dakota Century Code is identical with Section 3439.07 of the California Civil Code: Decisions have been rendered in California since the adoption of the Uniform Fraudulent Conveyance Act to the same effect as the earlier decisions. In 1940 a Federal Circuit Court of Appeals said: A California District Court of Appeal in 1951 said: In a decision rendered in 1953, a California District Court of Appeal said: In 1963 a California District Court of Appeal said: Adopting the view of California, we hold that to find a conveyance fraudulent under § 13-02-07 of our Code, it is not necessary that the conveyance make the debtor insolvent. Where actual intent to defraud, hinder, or delay creditors is proved by clear and convincing evidence, the conveyance should be set aside, even though it did not render the debtor insolvent. The admissions by the debtor and his wife herein are to the effect that the purpose of the conveyance was to place the conveyed property beyond the reach of the debtor's creditors. Such an admission under the circumstances of this case, where the debtor was being pressed for the payment of his accounts and foreclosure proceedings were under way in connection with the bulk of his other property not exempt from execution and where the conveyance was to the debtor's wife without consideration, constitute an admission of a conveyance with intent to defraud, hinder, or delay creditors. The defendant's contention that the judgment of the Referee in Bankruptcy in Federal court is res judicata of all issues is without merit. The Federal law applied in connection with the petition filed by the plaintiff herein and others reads as follows: It appears clear from the foregoing sections of Federal law that our Uniform Fraudulent Conveyance Act applies a different rule in determining whether a conveyance is with intent to defraud, hinder, or delay creditors from the rule applied under Federal law to determine whether a person has committed the first act of bankruptcy. The dismissal by the Referee of the petition in bankruptcy was on the ground that the debtor was solvent. As proof of solvency under Subsection c of Section 21 was a complete defense to any proceeding under the first act of bankruptcy, the dismissal of the petition was not res judicata on the issue of whether or not the conveyance under Section 13-02-07 of our code was with actual intent to defraud, hinder, or delay creditors. The dismissal was without a determination of actual intent. For the reasons expressed herein the judgment of the trial court is reversed and the case is remanded, with instructions to the court to set aside the conveyance of the debtor, Martin C. Hahn, to his wife of the twelve lots in Morningside Heights Addition to the City of Bismarck. BURKE, C. J., and STRUTZ, TEIGEN and KNUDSON, JJ., concur.