Opinion ID: 1816534
Heading Depth: 1
Heading Rank: 3

Heading: did the chancellor err when he allowed reimbursement to m.c. clark for payments she made on the lake washington property?

Text: This assignment provides the heart of the Bank's claim. After finding that IPS's conveyance of the property to Clark was fraudulent, the trial court ruled that Clark was entitled to some $44,000.00 in reimbursements for payments made. This decision was made despite the fact that the appellees never requested such a remedy. The Bank now contends that this ruling was improper.
On initial consideration here is the authority of the chancellor to entertain this issue absent any request in the pleadings for a credit to be given to M.C. Clark Sarullo for monies expended in satisfaction of the Ingram's deed of trust. The answer filed by M.C. Clark did not request a credit, but proof was offered without objection as to the source of payments. It is uncertain as to whether the proof was offered for the purpose of establishing consideration for the conveyance or whether for the purpose of seeking reimbursement. If the purpose was for the latter reason, this Court has held that issues not raised by the pleadings, but tried by expressed or implied consent, shall be treated as if raised by the pleadings. Queen v. Queen, 551 So.2d 197 (Miss. 1989); Rankin v. Brokman, 502 So.2d 644, 646 (Miss. 1987). Assuming, but not deciding, that the issue was properly raised by implied consent, this Court now addresses the evidentiary sufficiency of the award.
It has been held that, in any conveyance of property involving close relatives, in this case husband and wife, the burden of proof falls on the grantee (Clark) to show by clear and satisfactory evidence not only a bona fide indebtedness, which was intended to be enforced, but also that the amount thereof was not materially less than the fair and reasonable value conveyed to [her]. Barbee v. Pigott, supra . The chancellor relied upon the general rule recited in 37 Am.Jur.2d, Fraudulent Conveyance § 130 as a basis for his opinion, which states: If the transferee is shown to be innocent of fraud, he may be allowed credit for any payments that he may have made in good faith. Furthermore, constructive fraud does not preclude him from reimbursement on account of sums which he is shown to have expended for the benefit or preservation of the property. Moreover, in the majority of cases, a fraudulent grantee, whether guilty of actual or of only constructive fraud, has been held entitled to set off against rents and profits at least some of the expenditures he has made in relation to the property conveyed, the theory of these cases being that the creditor is entitled merely to be placed as nearly as possible in the position he would have been in if the conveyance had never in fact been made and that the expenditures inured to the benefit of the defrauded creditors. The chancellor also relied upon Morgan v. Sauls, 413 So.2d 370, (Miss. 1982), a fraudulent conveyance case in which the Supreme Court reversed and remanded as to one conveyance. The part of the opinion held applicable by the chancellor reads: ... [T]hen, the chancellor should determine whether these grantees should be reimbursed from any sale of the property to the extent of their payments on the note and deed of trust against the land, plus lawful interest... .
The facts that relate to payment of the original purchase price of the house and lot for $50,000.00 are important to a resolution of this issue. The down payment of $10,000.00 was paid by IPS, with four equal installments due February 15 from 1978-1981, plus interest at 9%. In order to make the first payment due on February 15, 1978, the company borrowed in March, 1978, $10,000.00 from First National Bank of Jackson (now Trustmark), secured by a second deed of trust on the Lake Washington property. The installment was then paid to the Ingrams. Around August 10, 1979, the Second Deed of Trust held by First National Bank of Jackson was fully paid and satisfied. There is some conflict in the appellee's different versions of how the loan was paid. Sarullo testified that the First National Bank loan was paid off through money provided by his mother's trust fund. However, M.C. Clark, in her responses to the Bank's interrogatories stated that the funds were provided by her husband's personal funds. In Sarullo's answers to interrogatories, he adopted his wife's response as his own. In its opinion, the trial court found that the loan was paid off through Mrs. Frances Sarullo's trust fund as a gift to her daughter-in-law. In any event, it seems clear that M.C. Clark did not pay off any portion of this $10,000.00 (plus interest) debt, and the chancellor found that the money came from Frances Sarullo's trust and that it was a gift to Martha Carol Sarullo, but no fact in the record supports the gift theory. This Court therefore rejects the gift theory as being unsupported by the record. By a check dated August 15, 1979, KAPP paid $11,192.50 to the Ingrams as an installment payment on the house note (originally due February 15, 1979). Sarullo described this payment as a loan to his wife, by then the title owner of the house. A check from MCC, dated February 11, 1981, and in the amount of $15,000.00, was used to pay another installment on the house to the Ingrams. Sarullo once again testified that this payment constituted a loan to his wife. Finally, by a check dated September 18, 1981, MCC paid Greenville Gravel Company (owned by Ingram) $8,212.00, the balance due on the house payments. Ingram testified that he personally received this payment. In summary, no payment of the balance due on the house and lot deed of trust was paid by Martha Carol Sarullo, individually.
An argument can be made that, in spite of Clark's inability to show her good faith concerning the details of the transaction, there was likewise little testimony detailing her active participation in the fraudulent conveyance of the Lake Washington property. This argument has likewise been strongly refuted. `Conveyances from one relative to another when attacked by the creditors of the grantor, will always be closely scrutinized, for from the very relation of the parties it is scarcely to be supposed that the circumstances and intention of the grantor were not known to the grantee.' ... It is a presumption in such cases that the grantor's fraudulent intention is known and participated in by the grantee... . Jones v. Beers, 118 Or. 317, 246 P. 711, 712 (1926) (citations omitted). Even in cases where this strong presumption has not been followed, courts have adhered to the idea that certain knowledge may fairly be imputed to the grantee, in this case, Clark: To be regarded as a participator in the fraud, it is not necessary that the purchaser have actual knowledge of the debtor's fraudulent intent, but merely a knowledge of facts and circumstances sufficient to excite the suspicions of a prudent man and be put on inquiry, or to lead a person of ordinary perception to infer fraud. Alan Drey Company, Inc. v. Generation, Inc., 22 Ill. App.3d 611, 317 N.E.2d 673, 680 (1974). If the grantee has notice of facts putting him on inquiry as to the grantor's fraudulent intent, it is the same as if he too has the intent. J.C. Jacobs Banking Co. v. Campbell, 406 So.2d 834, 847 (Ala. 1981) (citations omitted). In light of this body of case law and the facts of this case, this Court concludes that Clark must be considered an active participant in the fraud perpetrated on the Bank. Her close relationship with Sarullo, in conjunction with the factors showing indicia of fraud present in this case, leads inescapably to the conclusion that she was at the very least chargeable with the knowledge of what her husband was attempting to do by conveying the property to her. Having established that Clark was guilty of perpetrating an actual fraud on the bank, the next question then becomes, does such actual intent serve to terminate her right to reimbursement for any money expended on the Lake Washington property? The answer to this question is unquestionably yes. Support for this position is found in this Court's seminal [3] decision in Blount v. Blount, 231 Miss. 398, 95 So.2d 545 (1957): Where the conveyance is founded in actual fraud the grantee is regarded as a particeps criminis, and is not entitled to reimbursement, or to have the conveyance stand for any purpose of reimbursement or indemnity, for the consideration paid... . If the grantee has been a conscious participant in the fraud, he is not, as against creditors, entitled to reimbursement for such expenditures... . Public policy forbids the reimbursement of a particeps criminis; otherwise one would hazard nothing by active participation in such unfair dealing. 95 So.2d at 560. (citations omitted). See also, Lynch v. Burt, 132 F. 417, 432 (8th Cir.1904). This rule has also been stated thusly: The correct doctrine must be in all such cases, where there is actual fraud, that the defrauded creditors are entitled to the full value of their debtor's property thus fraudulently conveyed, without regard to the loss that may fall upon those who have conspired to defeat them. This will also operate as a just punishment for the guilty, and deter men from participating in the perpetration of frauds upon honest creditors. If they are to be fully reimbursed upon detection in their fraud, there would be no restraint upon them. The heavier the loss upon them, the better will be the effect as an example, and the more the law will be exalted in the estimation of all good men. It would be but a mockery to allow men to enter into these fraudulent arrangements, and enjoy the chances of success, and when detected, saved from all loss by full reimbursement. This is not the policy of the law, nor is it law at all, in cases of actual fraud. State v. Nashville Trust Co., 28 Tenn. App. 388, 190 S.W.2d 785, 798-99 (1944). The facts of this case virtually mirror those found in Bank of Atkins v. Teague, 205 Ark. 38, 166 S.W.2d 1017 (1942). In that case, the husband had conveyed his 200-acre farm, a house, and some lots to his wife in an effort to defraud the creditor bank. The Supreme Court of Arkansas affirmed the trial court's decision that the conveyance was fraudulent as to the bank. Additionally, the Court reversed the lower court's decision to allow the wife a lien for the sums she had expended in extinguishing the mortgage indebtedness against said lands ..., holding that the wife had been an active participant in the fraud perpetrated against the bank, and as a consequence, she must be left in the snare her own devices have laid. 166 S.W.2d at 1018-19. The same reasoning is applicable here. This Court concludes that the trial court erred in allowing reimbursement to M.C. Clark for any sums expended by her in paying off the mortgage on the Lake Washington home. Therefore, that portion of the chancellor's decision allowing the reimbursement should be reversed.