Court Opinion

ID: 3275669
Source: CourtListenerOpinion
Date Created: 2016-07-05 16:44:16.748008+00
Date Added: 2024-06-11T13:11:21.600161
License: Public Domain

Judge SMITH and I dissent in this case because we believe that, when the evidence is viewed in the light most favorable to appellee, we have the case of an insolvent debtor, or one whose embarrassment resulted in insolvency, making a voluntary conveyance of a part of his lands to his wife, which prevented appellant from collecting its debt.
Under our former decisions, such disposition is conclusively fraudulent as against existing creditors; and a mortgagee whose debt is due at the time of the voluntary conveyance is an existing creditor. In Wilks v. Vaughan, 73 Ark. 175, Chief Justice HILL, speaking for the court, said:
"It is thoroughly settled in equity jurisprudence that conveyances made to members of the household and near relatives of an embarrassed debtor are looked upon with suspicion and scrutinized with care; and, when they are voluntary, they are prima facie fraudulent, and, when the embarrassment of the debtor proceeds to financial wreck, they are presumed conclusively to be fraudulent as to existing creditors."
This holding has been quoted with approval in our later decisions. McConnell v. Hopkins, 86 Ark. 225,110 S.W. 1039; Brady v. Irby, 101 Ark. 573, 142 S.W. 1124; Simon v. Reynolds-Davis Gro. Co., 108 Ark. 164,156 S.W. 1015; Burke v. New England National Bank,132 Ark. 268, 200 S.W. 1018; Davis v. Cramer, 133 Ark. 224,202 S.W. 239; Farmers' State Bank v. Foshee,170 Ark. 445, 280 S.W. 380; and Papan v. Nahay, 106 Ark. 230,152 S.W. 107.
These cases are cited in 27 C.J. 643 in support of the text, which is as follows:
"In other jurisdictions, if the conveyance is voluntary, it is only prima facie fraudulent; but, where the debtor is insolvent at the time of the transfer, of his embarrassment results in insolvency, such conveyances *Page 41 
are conclusively presumed to be fraudulent as against existing creditors, although there is no actual fraudulent intent."
As above stated, the undisputed facts bring this case within the rule. In June, 1922, appellant brought suit against John H. Schichtl to foreclose a mortgage given to secure an indebtedness which was due and unpaid. On the 20th day of September, 1922, John H. Schichtl made the voluntary conveyance in question to his wife. Appellant, who was the plaintiff in the foreclosure suit, proved its mortgage debt; and, no proof having been adduced therein by appellees, who were the defendants in the suit, judgment was rendered against them for the amount of the mortgage debt, and a foreclosure decree was entered of record on September 27, 1922. The lands were sold under the foreclosure decree on January 23, 1923, and appellant became the purchaser, as stated in the majority opinion. This left a deficiency decree of over $16,000. Schichtl had no property out of which to satisfy the deficiency judgment except the property he conveyed to his wife just seven days before the decree in the foreclosure suit.
Our later decisions support the above interpretation. In Brady v. Irby, 101 Ark. 573, 142 S.W. 1124, Mr. Justice FRAUENTHAL delivered the opinion of the court, and said: "But it is also well settled that a voluntary transfer of property by one in debt is presumptively fraudulent as to creditors then existing; and if the debtor is, at the time of such gift, insolvent, or if the gift is of such amount, or made under such circumstances, that it will hinder or delay or defraud existing creditors of such donor, then such voluntary conveyance or transfer becomes conclusively fraudulent and invalid as to such existing creditors."
At the conclusion of the discussion it was said: "From this it results that we have here a case where a husband, engaged in business and involved in debt resulting in insolvency, made a voluntary transfer of property to his wife. Under the law, it follows that, as *Page 42 
against existing creditors, such transfer was fraudulent, no matter how pure the motive which induced it, because, from the testimony, the result of such transfer was to reduce the assets of the husband to such an extent as to delay and hinder his creditors in the collection of their debt. May v. State Nat. Bank, supra."
In Simon v. Reynolds-Davis Grocery Co., 108 Ark. 164, the court said: "While the burden of proof is upon the plaintiff who alleges fraud to show it, yet that burden has been discharged where, as in this case, he shows that an embarrassed debtor, pending a suit against him by his creditors, has made conveyance of all the land he owned, except his homestead, to his sons, for a consideration which, upon the face of the conveyance, appears to be a grossly inadequate one. Such circumstances are sufficient to raise a suspicion of fraud and to cast a doubt upon the legality of the transaction, and the burden is then on the one holding under the deed to show a consideration. (Leonard v. Flood, supra)."
In Farmers' State Bank v. Foshee, 170 Ark. 451,280 S.W. 382, the court said: "It impresses us that the purpose of all these conveyances of the property of W. F. Foshee was to place the property beyond the reach of his creditors. The result of all the conveyances was that the property, which was the property of W. F. Foshee when the debts were contracted, became, through the various deeds, the property of Mrs. Foshee, the wife and mother. The law is well established in this State, and by the authorities generally, that `where an embarrassed debtor makes conveyances to members of his own family — his near relatives — such conveyances are looked upon with suspicion and scrutinized with care; when voluntary, they are prima facie fraudulent; and, when the embarrassment of the debtor proceeds to financial wreck, they are presumed conclusively to be fraudulent as to existing creditors.' Wilkes v. Vaughan, 73 Ark. 174-179; Harris v. Smith, 133 Ark. 250-260; Davis v. Cramer, 133 Ark. 224." *Page 43 
If, as stated in the majority opinion, the language referred to in Wilks v. Vaughn, supra, refers to insolvency at the time the voluntary conveyance is made, the result would be the same. The words "when the embarrassment of the debtor proceeds to financial wreck" would certainly be a definition of insolvency, or they would mean nothing and had better never have been used.
As we have already seen, the conveyance was made just seven days before the foreclosure decree, and no attempt was made to disprove the amount of the mortgage. This shows that Schichtl knew that he owed the amount of the debt secured by the mortgage, and that a decree of foreclosure would be entered when the case was reached on the call of the calendar. There is no claim that there was any fraud in the foreclosure sale. It was made in due course, and the voluntary conveyance to his wife left Schichtl without any property to satisfy the deficiency decree. Thus it will be seen that the embarrassment of Schichtl proceeded to financial wreck within four months after the voluntary conveyance was made, and no new cause contributed to this result. These facts are undisputed; and it does not make any difference what caused the depreciation in the value of lands between the date of the execution of the mortgage and the date of the foreclosure sale, for it was a depreciation common to all lands, and existed at the time the voluntary conveyance was made. No matter how pure his motives were, Schichtl made the voluntary conveyance to his wife at a time when he was being sued for a debt past due, which he was unable to pay, and the embarrassment resulted in his financial wreck within four months.
That appellant was an existing creditor is settled by James v. Mallory, 76 Ark. 509, 89 S.W. 472. In that case the court said: "If he (James) was insolvent at the time, and voluntarily conveyed away his property without consideration, the conveyance is void as against creditors, even though he used no actual intent to defraud." *Page 44 
The court then said that the conveyance of James to Mallory  Company, although absolute in form, was not, under the facts, in extinguishment of the debt, but as security therefor. Hence it was said that Mallory 
Company must be treated as creditors whose debts existed at the time of the fraudulent conveyance.
In 27 C.J., 472, it is said that existing creditors are, as the words imply, persons having subsisting obligations against the debtor at the time the fraudulent alienation was made.
In accordance with this rule is the case of Papan v. Nahay, 106 Ark. 230, 152 S.W. 107. There a voluntary conveyance was made by a person against whom a suit for unliquidated damages was pending. No defense was made to the action, and it resulted in a judgment against the defendant. The plaintiff was held to be an existing creditor.
Indeed, in the absence of authorities, it would seem to be rather a strange and novel doctrine to hold that the holder of a note and mortgage, which are past due, and whose satisfaction is being sought by a pending suit, is not an existing creditor.