Court Opinion

ID: 9618741
Source: CourtListenerOpinion
Date Created: 2023-08-22 05:16:38.026642+00
Date Added: 2024-06-11T12:03:47.758845
License: Public Domain

Shabp, J.,
concurring in result:
Defendant’s demurrer to the complaint presents this case: Defendant Etta Leggett (wife) and her husband Alex L. Leggett (husband) owned land as tenants by the entirety. Plaintiff recovered a judgment against the husband. Thereafter, without consideration, for the purpose of defrauding creditors, and without retaining property sufficient to pay his debts, husband conveys the land to wife. Plaintiff brings this action to set the deed aside. The trial judge ruled that plaintiff had not alleged a cause of action.
The majority opinion states the determinative question to be “whether or not during the lifetime of his wife, the rents, uses, issues and profits from the entirety land could be subjected to judgment taken solely against the husband.” The answer to the question upon which the majority opinion is predicated is, subject to certain limitations, Yes, but I do not deem this to be the ultimate question. The decisive question is this: Where the accrued rents and profits from land may be taken for an individual’s debts — but the land itself cannot be thus appropriated — may creditors object to a voluntary or gratuitous conveyance of the land by the debtor? Stated more specifically: Does a husband’s conveyance of his interest in entirety property, on which his creditors can acquire no lien and which they cannot reach during the lifetime of his wife, come within the prohibition against fraudulent conveyances? Both logic and authority answer this question, No.
*554The incidents of an estate by the entirety are fully set out in the majority opinion. Those pertinent to this opinion are briefly restated: Lands held by husband and wife as tenants by the entirety are not subject to levy under execution on a judgment rendered against one during the lifetime of the other. During their joint lives, the husband is entitled to the possession and control of the estate and to the rents and profits therefrom to the exclusion of the wife under that principle of the common law which vested in the husband the right to control his wife’s land and to take the rents and profits therefrom during coverture. Highway Commission v. Myers, 270 N.C. 258, 154 S.E. 2d 87; Duplin County v. Jones, 267 N.C. 68, 147 S.E. 2d 603; Johnson v. Leavitt, 188 N.C. 682, 125 S.E. 490; Davis v. Bass, 188 N.C. 200, 124 S.E. 566; Simonton v. Cornelius, 98 N.C. 433, 4 S.E. 38; 2 Lee, N. C. Family Law § 115 (3d ed. 1963). North Carolina, alone among the jurisdictions, allows a husband’s individual creditors to reach rents and profits from the property but not the property itself. See Phipps, Tenancy by Entireties, 25 Temp. L. Q. 24 (1951-1952).
This Court has held that crops (210 bushels of corn and 10 haystacks) grown upon lands owned by husband and wife as tenants by the entirety were subject to sale under execution issued upon a judgment against the husband alone. Lewis v. Pate, 212 N.C. 253, 193 S.E. 20. “. . . The fruits accruing during their joint lives would belong to the husband after separation from the land. . . .” West v. R. R., 140 N.C. 620, 621, 53 S.E. 477, 477; see also Simonton v. Cornelius, supra. Whenever the sheriff, seeking property from which to satisfy a judgment against the husband, can find rents and profits which have accrued to the husband from an estate by the entirety in an amount over and above his personal property exemption, he can levy upon them. The judgment creditor, however, is not entitled to have a receiver appointed to take possession of the land itself in order to rent the property and apply the rentals to the payment of the judgment. Grabenhofer v. Garrett, 260 N.C. 118, 131 S.E. 2d 675; 2 Lee, N. C. Family Law § 116 (3d ed. 1963).
By G.S. 39-15, fraudulent conveyances are made void as against creditors of the grantor. The statute is a substantial reenactment of the English statute 13 Eliz. c. 5 (1570). Bank v. Adrian, 116 N.C. 537, 21 S.E. 792 (dissenting opinion). The language of the statute is broad, declaring void . . every gift, grant, alienation, bargain and conveyance of lands, tenements and hereditaments, goods and chattels, by writing or otherwise, and every bond, suit, judgment and execution, at any time had or made . . .” with intent to “. . . delay, hinder and defraud creditors. . . .” Nevertheless, it was clear *555from an early date that not every conveyance by a debtor was within the prohibition of the statute. Thus, in the English case of Mathews v. Feaver, 1 Cox 278, 29 Eng. Rep. 1165 (1786), creditors of the father sought to have set aside as fraudulent a conveyance by the father to his son. There the Master of the Rolls said:
“But I am not satisfied as to the nature or value of the copyhold premises, which, generally speaking, are not subject to debts, and therefore the assignment of them can never be fraudulent against creditors.” Id. at 280, 29 Eng. Rep. at 1166. This rule in the United States is stated as follows in 37 C.J.S. Fraudulent Conyevances '§§ 17 and 29 (1943):
“A debtor will not be permitted to donate the use of property belonging to him to another in fraud of his creditors, and if he does so the earnings of such property may be reached and subjected by his creditors; but this ‘principle does not apply where the property is exempt from the claims of creditors. (Emphasis added.)
“As a general rule a debtor in disposing of property can commit ■a fraud on creditors only by disposing of such property as the creditor has a legal right to look to for satisfaction of his claim, and hence a sale, gift, or other disposition of property which is by law absolutely exempt from the payment of the owner’s debts'cannot be impeached by creditors as in fraud of their rights. Creditors have no right to complain of dealings with property which the law does not allow them to apply on their claims, even though such dealings are with a purpose to hinder, delay, or defraud them.
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“Where the interest of neither spouse in real property held as an estate in entirety is liable for the debts of the other, ... a conveyance by one spouse of his interest to the other, directly or indirectly, or to a third person is not in fraud of the grantor’s creditors.”
In Wylie v. Zimmer, 98 F. Supp. 298 (U. S. Dist. Ct., E. D. Penn.), the husband' and wife, as tenants by the entirety, owned land which they conveyed to a third party, who immediately reconveyed it to the wife. This transfer of title was made with the intent to defraud creditors. Thereafter the husband was adjudged bankrupt, and the trustee in bankruptcy brought suit against the wife to set the two deeds aside. Under applicable Pennsylvania law, the Federal District Court- held that a judgment creditor of one spouse “has no right or claim to that property [entirety] during the lifetime of the other spouse and has no standing to complain of a conveyance which prevents the property from falling into his grasp.” Id. at 299. The court said it would be futile to set aside the transfer and reinvest title in *556the husband and wife since the trustee could not acquire the husband’s contingent interest in the property. In reaching its decision the District Court relied upon C. I. T. Corp. v. Flint, 333 Pa. 350, 5 A. 2d 126, 121 A.L.R. 1022. Accord, Hertz v. Wells, 166 Md. 492, 171 A. 709.
In American Wholesale Corp. v. Aronstein, 10 F. 2d 991, a case similar to Wylie v. Zimmer, sufra, the court said: “. . . [Appellants were not entitled to subject the separate interest of Aronstein [husband] to the payment of their claims. His conveyance to his wife accordingly could not hinder or delay them in the collection of their judgments.”
In Vasilion v. Vasilion, 192 Va. 735, 66 S.E. 2d 599, a husband and wife who owned land by the entirety conveyed it to the wife. Thereafter, a creditor of the husband sought to set aside the conveyance as a fraud upon creditors. The Supreme Court of Appeals of Virginia, after stating the rule that the entire property held by a husband and wife as tenants by the entirety, “as well as the expectancy attendant upon survivorship, is free from judgment or execution liens against either of them,” said:
“Therefore, if the property can be conveyed by the husband and wife jointly, free from liens or claims of creditors, to a third party, there is no reason why it cannot be so conveyed by the husband and wife to himself or herself. Code 1950, § 55-9.
“No question of fraud is involved as property so held is insulated against the claims of creditors of the individual spouse.”
North Carolina has applied the general rule that “statutes invalidating fraudulent conveyances are applicable to all property which may be subjected to the payment of debts, and to no other property,” 24 Am. Jur. Fraudulent Conveyances § 106 (1939), to cases involving a creditor’s disposition of personalty falling within his personal property exemptions. N. C. Const, art. X, § 1; G.S. 1-369; Winchester v. Caddy, 72 N.C. 115; Duvall v. Rollins, 71 N.C. 218. In Winchester v. Gaddy, supra, it is said:
“A conveyance of property by a debtor for his own ease and favor, whereby creditors are delayed or hindered, is fraudulent and void; and that even when the conveyance is made for a valuable consideration, or to pay or secure a bona fide debt. But a manifest qualification of this rule is that the property must be such as the creditor has the right to subject to the payment of his debt.
“If a debtor sells his ‘wearing apparel, Bible and hymnbook, loom,’ etc., which are exempt from execution for debt, no matter how or for what purpose he makes the sale, his creditors cannot *557complain; because under no circumstances can the creditor subject that property to the payment of his debt. He cannot therefore be defrauded.
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“It is true that if she [debtor] had died without having sold it, he [creditor] would have been entitled to have it applied to his debt in whole or in part as the case might be, but she did sell it to the defendant in such manner as to divest the title out of her, in satisfaction of a debt which she owed the defendant of more than $1,000.”
The case Winchester-Simmons Co. v. Cutler, 199 N.C. 709, 155 S.E. 611, although distinguishable from the instant case in that it involved a conveyance by both husband and wife, is nevertheless, an application of the controlling principles. It was an action in which the plaintiff, a judgment creditor, sought to set aside a conveyance of land owned by the defendant, judgment debtor, and his wife as tenants by the entirety. The complaint alleged these facts: The defendant and his wife, who was on her death bed, conveyed the land to their granddaughter without consideration. The defendant’s purpose in making the conveyance was to defeat the plaintiff’s right to have the land sold under execution in the event he should become the owner by survivorship. The defendant’s wife died four months after she executed the deed. In sustaining the defendant’s demurrer to the complaint, this Court held: The judgment in favor of the plaintiff was not a lien upon the land at any time during the joint lives of the defendant and his wife, nor was the land subject to sale under execution for the satisfaction of the judgment during that time. Since the creditors of the defendant husband had no right to subject the land to the satisfaction of his debts during the lifetime of the wife, the husband and wife were at liberty to convey it, and such conveyance could not be held fraudulent as to the husband’s creditors.
As stated in the majority opinion, the futility of avoiding husband’s deed to defendant ■ wife is apparent. Were title in the property revested in them as tenants by the entirety, plaintiff could not levy on the land nor could he have a receiver appointed to collect and accumulate the rents (if any) in order to pay the judgment. Only accrued rents which husband could not claim as a part of his personal property exemption would be subject to the sheriff’s levy under execution. Furthermore, husband and wife together could, by voluntary conveyance, transfer the property to any third person, free from the claims of their individual creditors. Neither, of course, could convey any interest in the land to a stranger without the join-der of the other. Here, however, husband alone has conveyed it to *558the only person to whom he could convey without the wife’s signature, the wife herself. G.S. 39-13.3 (c). Thus, by express statutory authority, husband has conveyed to her the title which he and she formerly held, not as two individuals but as one — that legal personage known as husband and wife. Woolard v. Smith, 244 N.C. 489, 94 S.E. 2d 466. The legal consequences of husband’s conveyance to wife, therefore, are the same as if the two of them had conveyed to a third person.
This case does not involve a lease, a sale or a mortgage of husband’s right to the possession of the land, or the right to receive the rents and profits from it during his lifetime as did Dorsey v. Kirkland, 177 N.C. 520, 99 S.E. 407; Greenville v. Gornto, 161 N.C. 341, 77 S.E. 222; Bynum v. Wicker, 141 N.C. 95, 53 S.E. 478. See also Davis v. Bass, supra at 204-206, 124 S.E. at 568-69. It does not involve the disposition of accrued rents and profits as did Lewis v. Pate, supra. Plaintiff does not seek to set aside an assignment or conveyance of any property of which husband could dispose. He seeks to preserve an estate by the entirety in the hope that husband may acquire the fee by outliving his wife. This he is not entitled to do, for the possibility of survival, which is not the subject of sale or lien, cannot serve as the basis of an action to set aside a deed as .a fraud upon creditors. “The [judgment] lien extends to and embraces only such estate, legal and equitable, in the real property of the judgment debtor as may be sold or disposed of at the time it attached.” Bruce v. Nicholson, 109 N.C. 202, 205, 13 S.E. 790, 791; accord, Bristol v. Hallyburton, 93 N.C. 384.
The rationale of the North Dakota Supreme Court in Olson v. O’Connor, 9 N.D. 504, 84 N.W. 359, is applicable here. In Olson, the husband, a judgment debtor, conveyed his homestead to his wife. Thereafter, the husband gave the judgment creditor a chattel mortgage on grain growing upon the land. The sheriff levied upon the grain and sold it at an execution sale. The wife sued both the sheriff and the creditor for the value of the grain. With respect to the property conveyed, the court observed: “But that was his homestead, and was exempt. It was property to which the lien of the judgment .did not attach and was beyond the reach of an execution issued thereon. It was not possible to defraud his creditors by transferring the title to his wife, for it was property to which they could not look for the collection of the claims.” Id. at 510, 84 N.W. at 362. Thus, the creditor sought to appropriate the usufruct from land which (he conceded) was not subject to his debt. The creditor’s contention was that the transfer to the wife was “void for the reason and to the extent that it affects the title to the crops thereafter grown on such *559land.” His position was that if the husband had not transferred the title to the land, he — not the wife — would have been the owner of the grain subsequently grown thereon. The court, in rejecting the defendant’s position, reasoned as follows: “As a statement of fact, this [i.e., that Olson would have owned the grain but for the transfer] is true; but as a ground for claiming that the transfer of the land was in fraud of creditors, it is not sound. Its fallacy lies in falsely assuming that the transfer of the title then and there conveyed something of value other than the land itself, namely, the crops subsequently grown. Of course, Olson transferred to plaintiff nothing more than he had then, and that was the land itself. At that time these subsequent crops had no existence of value. By transferring the land to his wife he did not transfer crops afterwards grown.” Id. at 510, 84 N.W. at 362.
The majority opinion says that, since the lien of plaintiff’s judgment cannot attach to the land itself, and, since “the pleadings do, not allege that there were rents, income, issues or profits accrued or accruing from the entirety property,” the demurrer was properly sustained. In my view, the complaint would not state a cause of action even if it alleged that there were rents or profits “accrued or accruing.” Such an allegation would add nothing to the assertion that the transfer of the land was fraudulent. This is true because: (1) The prohibition against fraudulent conveyances has no application to property which is not liable for one’s debts; it applies only to property which is subject to levy and sale under execution at the instance of the creditor who seeks to set the conveyance aside. (2) This case involves only the land — not severed crops, accrued rent payable in cash, or other personality belonging to the husband.
Bobbitt, J., joins in the concurring opinion.