Opinion ID: 1935867
Heading Depth: 1
Heading Rank: 1

Heading: The Conveyances to Micro Data

Text: Since we accept the finding of the trial court on this aspect of the case, we here give only an outline of the evidence and its general nature. The transaction which ultimately gave rise to this action had its origin in a loan of $360,000 made in 1965 by the plaintiff to the defendant First Cadco Corporation. The loan was secured by a first mortgage on real estate of the corporation in Lincoln, Nebraska. The note evidencing the loan was signed not only by the mortgagor, but also by Charles C. Lukovsky, Evelyn Lucas, and certain other individuals. All these persons and the individual defendants in this action are closely related. The purpose of having Lukovsky and the others sign the note was to guarantee its payment. Lukovsky was a man of considerable wealth. In 1965 he owned 2,300 acres of farmland in Harrison County, Iowa. He had made loans to relatives and also had guaranteed loans to First Cadco Corporation in addition to that previously mentioned. These totaled more than $500,000. He was called upon to make good upon these guarantees and began to liquidate his assets to do so. He sold six or seven farms. The obligations, together with the taxes and expenses incurred in the course of liquidation, totaled more than $550,000. The evidence indicates that by August 1969 his sole remaining assets were two Iowa farms totaling about 520 acres. It was the conveyance of these two properties by Lukovsky to Micro Data which the trial court found void. The plaintiff's loan to First Cadco Corporation came into default and on April 18, 1967, plaintiff commenced an action on the note against First Cadco, Lukovsky, Evelyn Lucas, and others, and on January 2, 1970, obtained a money judgment in the amount of $461,736. Execution was issued and returned unsatisfied. For convenience and clarity we now identify some of the persons and entities involved. The defendants Robert Lucas and Patricia Lucas are husband and wife. Robert Lucas is a nephew of Dr. Lukovsky. Evelyn Lucas is Robert's mother. Dr. J. F. Lucas, now deceased, was Robert's father. The witness, Calvin Ragle, was the incorporator and president of the defendant Micro Data. He was a friend and associate of Robert Lucas. Wallace Ruffcorn was a tenant on one of the two remaining Iowa farms and became the purchaser from Micro Data of that farm. Chester Investment is a limited partnership and it became the purchaser from Micro Data of the other farm. It conveyed to Micro Data as part of the purchase price real estate known as the Villa Rouge Apartments. This latter property is one of the items which the trial court found was subject to the lien of the plaintiff's judgment. The trial court found that Robert Lucas and Patricia Lucas, acting through various business entities controlled by them, participated in a plan to and organized the procedure for the fraudulent conveyances, and arranged to receive the proceeds from these conveyances. This finding is compelled by the evidence. The witness, Ragle, aged 25 at the time of trial, was an acquaintance of Robert Lucas. They had at one time both worked for or were associated with the same trucking company. Ragle at the time of trial had returned to truckdriving. Ragle and Lukovsky met on one occasion at the Lucas home, apparently shortly before the various events we now relate transpired. What occurred at that meeting the record does not show. Micro Data came into existence on September 22, 1969. Ragle was the incorporator and president. He was present when the articles of incorporation were typed by Patricia Lucas from some other articles in the Lucas library. Ragle testified he had consulted with the Lucases prior to forming the corporation, but stated he was only seeking Robert Lucas' advice. Micro Data was formed for the ostensible purpose of engaging in the business of microfilming business records, but the business was never launched. A few days prior to the incorporation, Ragle, who had no experience in real estate transactions, at the request of Robert Lucas went to Iowa and looked at the Lukovsky farms. Ragle was paid for these services and other services claimed to have been rendered for Lukovsky on a billing to Lukovsky by Sales Engineering, an entity or name under which Robert Lucas did business. According to Ragle's testimony he reported to Lucas: Well, there wasI just reported that there was some farm land there, and thatI mean, what can you report? The farm land was there, it was in cultivation, and that was just about it, it was level. A few days after the incorporation one farm was conveyed by deed to Micro Data and a week or so later the other farm was conveyed. The purported terms and circumstances of the sales are significant. Lukovsky testified the motivation for the sale was his desperate need for money, especially to pay one of the encumbrances on this land. The conveyances were made by warranty deed. Existing mortgages on the land were assumed, including the one which desperately needed to be paid. There was no downpayment. No mortgage was given by Micro Data to Lukovsky, nor lien of any kind retained to secure payment of the unpaid balance which admittedly was in excess of $100,000. There was no formal contract, just a memorandum, signed by Lukovsky and on behalf of Micro Data by Ragle, showing computation of the purchase price, including crops, deduction of the encumbrances (which were overstated by $37,500) assumed, balance due, and a notation of the amount of a monthly annuity payable to the seller. This latter item was, Ragle testified, later changed to a sum certain payable monthly. No interest on the unpaid balance was called for by this modification. Micro Data had no assets. It had no income, and until it acquired the farms, it had no means of paying the encumbrances or the annuity except from the land itself or its income, or the proceeds of the sale of the farms themselves. Although it purportedly purchased the growing crops, when these were harvested the proceeds, or a part of them, went to Lukovsky. In December 1969 Micro Data sold both farms, one to Ruffcorn, the tenant on that farm, and the other to Chester Investment for cash and the Villa Rouge Apartments properties. The evidence showed that after the sale Micro Data would make available to Lukovsky in addition to the monthly payments other sums if he wanted additional money. The trial court found the conveyances to Ruffcorn and Chester Investment were for value and without notice by the purchasers of the fraud in the conveyances by Lukovsky to Micro Data. The evidence indicates Ragle was a mere figurehead as far as the operation of Micro Data was concerned. Patricia Lucas, the corporation secretary-treasurer, operated it in her own way and to suit her own purposes. Most of the proceeds of the sale to Chester Investment and Ruffcorn ended up in the possession and control of Patricia Lucas or Robert Lucas under the guise of business entities controlled by them. These proceeds are specifically identified in the findings of the trial court and are fully justified by the evidence. The following are examples: R. Frederick II & Associates, Ltd., was controlled by Patricia Lucas. In the sale to Ruffcorn this entity took a note and mortgage on the farm for a purported loan of $21,900 to help Ruffcorn finance the purchase. It made a check to Ruffcorn in the amount. Ruffcorn made a check to Micro Data for the amount of this purported loan plus the additional downpayment. Micro Data transferred the check or made a check for the amounts to R. Frederick II & Associates. Robert Lucas had guaranteed to an Omaha bank a note in the amount of approximately $40,000 of a corporation in which he apparently had an interest. Micro Data assumed this obligation, became the principal paper debtor, and began, using the proceeds of the farm sales, to pay off this loan at $500 per month. These payments purportedly were in consideration for services rendered by Robert Lucas as a consultant to Micro Data. The nature and extent or value of these services is not disclosed. One of the services rendered was the recommendation that Micro Data assume the $40,000 loan so as to establish a credit rating. The $40,000 was shown on Micro Data books as an asset. Contradictory explanations for this are given. Patricia Lucas kept the books. Income from the Villa Rouge Apartments netted about $3,000 monthly. This property was managed for a fee by National Realty, a Lucas entity. One method used to transfer assets was the purported purchase for cash by Micro Data of the stock of a no-asset corporation controlled by Lucas. A further enumeration of the devices used would unduly lengthen this opinion. The following principles of law are applicable: Every conveyance made with the intent to hinder, delay, or defraud creditors or persons of their lawful debt or demands is void. § 36-401, R.R.S.1943. The question of fraudulent intent in all cases arising under the provisions of sections 36-401 to 36-409, R.R.S.1943, is a question of fact, and not of law. § 36-406, R.R.S.1943; First State Bank of Scottsbluff v. Bear, 172 Neb. 504, 110 N.W.2d 83; Walkenhorst v. Apolius, 175 Neb. 583, 122 N.W.2d 875. A creditor may usually follow and subject to his claim the fund or proceeds resulting from a fraudulent conveyance and may pursue the same into any property in which it may have been invested, so far as it can be found. 37 C.J.S. Fraudulent Conveyances § 32, p. 883; Lambert v. Reisman Co., 207 Iowa 711, 223 N.W. 541. A conveyance in fraud of creditors may be effected by the organization of a corporation and the transfer of property to it with intent to hinder, delay, or defraud creditors. 37 C.J.S. Fraudulent Conveyances § 48, p. 898; Shapiro v. Wilgus, 287 U.S. 348, 53 S.Ct. 142, 77 L.Ed. 355, 85 A. L.R. 128. The provisions of sections 36-401 to 36-409, R.R.S.1943, do not impair the title of a purchaser for valuable consideration unless the purchaser had previous notice of the fraudulent intent of his immediate grantor, or of frauds rendering void the title of the grantor. § 36-407, R.R.S. 1943. Inadequacy of consideration is a badge of fraud. Farmers State Bank of Ewing v. Dierks, 137 Neb. 442, 452, 289 N.W. 860, 866. A conveyance in consideration of an agreement for future support may, where it has the effect of hindering, delaying, or defrauding creditors, be evidence of fraudulent intent. Lincoln Trust Co. v. Sweeney, 124 Neb. 686, 248 N.W. 67; Blanchard v. McMillan, 113 Neb. 275, 202 N.W. 878. If the value of the property conveyed exceeds the amount of the encumbrances thereon, an agreement by the grantee to pay off the encumbrances is not a valuable consideration as against the grantor's creditors. The ability of the grantee to pay the encumbrance is also a fact to be considered. 37 C.J.S. Fraudulent Conveyances § 153, p. 973; Buell v. Waite, 200 Iowa 1020, 205 N.W. 974; Holley v. Iron Mountain Co., 332 Mo. 1243, 62 S.W.2d 740. A transfer by which a grantor reserves to himself a benefit to the detriment of his creditors may constitute evidence of fraud. Corn Belt Savings Bank v. Burnett, 203 Iowa 271, 211 N.W. 217. Depending upon the facts and circumstances, one who is the beneficiary of a fraudulent conveyance may be required to account for the rents and profits thereof, including the rents and profits from the proceeds. First Nat. Bank of Plattsmouth v. Gibson, 80 Neb. 577, 114 N.W. 777, reversed on other grounds, 80 Neb. 580, 116 N.W. 1127; Wright v. Salzberger, 121 Cal.App. 639, 9 P.2d 860; Sakis v. Sawyer, 143 Kan. 813, 57 P.2d 52; 37 C.J.S. Fraudulent Conveyances § 279, p. 1113. Where there is a conveyance between close relatives without adequate consideration, the burden is upon the parties to the transaction to establish that it was done in good faith. Lincoln Savings & Loan Assn. v. Mann, 129 Neb. 26, 260 N. W. 559; Lincoln Trust Co. v. Sweeney, supra ; Christensen v. Smith, 123 Neb. 388, 243 N.W. 118. We conclude as did the trial court that the conveyances by Lukovsky to Micro Data were for the purpose of hindering or delaying and defrauding the creditors of Lukovsky and specifically the plaintiff, and that Micro Data was a knowing party to the fraudulent conveyances as were the Lucases and the entities controlled by them. We adopt as our own the findings of the trial court as to the specific assets which fraudulently came into possession of the Lucases and their business entities. We find that the proceeds of the sales to Ruffcorn and Chester Investment are subject to the lien of the plaintiff's judgment. We further find that the judgment of the trial court should be generally affirmed, except in the respects hereinafter in this opinion specifically excepted and otherwise dealt with.