Opinion
No. 35555.
February 28, 1944.
1. FRAUDULENT CONVEYANCES.
Where there exists between husband and wife a valid indebtedness equal to fair value of property, insolvent husband may convey property to wife notwithstanding that conveyance defeats husband's other creditors of their rights or that conveyance is made on account of pendency of suits by other creditors.
2. FRAUDULENT CONVEYANCES.
A conveyance by insolvent husband to wife in good faith for a valuable, though inadequate, consideration was voluntary as to husband's creditors to extent that value of property exceeded consideration.
3. FRAUDULENT CONVEYANCES.
Proof that value of land conveyed by husband to wife was several thousand dollars greater than recited consideration in deed not considering personally conveyed by such deed, which conveyance made husband insolvent, made out a prima facie case for setting aside deed as a fraud upon rights of husband's creditors.
APPEAL from the chancery court of Sharkey county, HON. J.L. WILLIAMS, Chancellor.
Clements Clements, of Rolling Fork, for appellant.
The court erred in sustaining the motion to exclude the evidence at the conclusion of appellant's testimony and in rendering a decree dismissing the bill with prejudice. This assignment of error brings the entire case before this court in review.
Illinois Cent. R. Co. et al. v. State ex rel. District Attorney, 94 Miss. 759, 48 So. 561.
The decree was contrary to the law and the evidence.
Brown v. Bond, 190 Miss. 774, 1 So.2d 794; Whelchel v. Stennett, 192 Miss. 241, 5 So.2d 418; Hooker v. Federal Land Bank, 192 Miss. 352, 5 So.2d 688; Capital Paint Glass Co. v. St. Paul Mercury Indemnity Co., 180 Miss. 341, 176 So. 729; Hopkins v. Miller, 182 Miss. 861, 183 So. 378.
This transaction between husband and wife was not bona fide and not for the full value of the property conveyed.
Holman v. Hudson, 188 Miss. 87, 193 So. 628; Reed v. Lavecchia, 187 Miss. 413, 193 So. 439; Graham v. Morgan, 83 Miss. 601, 35 So. 874.
There was no pre-existing debt from the appellee, husband, to the appellee, wife, in this case to constitute a valuable consideration for this deed.
Granham v. Morgan, supra; Savage v. Dowd, 54 Miss. 728, 732.
As to the cancellation of the P.P. Williams deed of trust, claimed as a mistake or unintentional, the statute places the burden of proof on the person claiming it to show the mistake.
Code of 1930, Sec. 2779.
A deed made for an inadequate consideration between husband and wife is a voluntary conveyance, and under the law the burden of proof shifts to the appellee to set out and show that he owned property, subject to the judgment, in sufficient amount to take care of his indebtedness. This was not done in this case.
Ames v. Dorrah, 76 Miss. 187, 23 So. 768; Golden v. Goode, 76 Miss. 400, 24 So. 905.
A prima facie case of fraud is made by proof that a confidential relation existed between the grantor and the grantee of a deed.
Fant v. Fant, 173 Miss. 472, 162 So. 159.
John B. Gee, of Rolling Fork, for appellees.
Having charged the defendants with simulation, fraud, conspiracy and fictitious consideration conjunctively, it devolved upon the appellant to prove that charge, and the burden of proof was upon the appellant as to prove the charge to the satisfaction of the trial court.
Virden et al. v. Dwyer, 78 Miss. 763, 30 So. 45.
This burden the appellant failed to meet. It follows, therefore, that the court properly sustained the motion and dismissed the cause.
We think the most conservative valuation that could be put upon the land by a person ready, willing and able to pay for the same would not have exceeded $60 an acre, especially so taking into consideration that the instant lands had produced only 67 bales of cotton in the year next preceding it. Based upon a valuation of $60 an acre the instant lands would have yielded $42,000. Based upon $70 an acre, the valuation placed upon the land by the appellant's witnesses, we arrive at the figure of $49,000 as being the value of the tract of lands conveyed to Dorothy Cole Phelps in this instance. We find that the actual consideration written into the deed is the sum of $42,269.86. Therefore, the consideration is commensurate with the actual value of the lands and does not permit any other reasonable conclusion. The learned chancellor sitting in judgment in this case presides over a jurisdiction in which comparable lands and the value thereof are brought to his attention constantly. It was he who heard the evidence of the witnesses testifying to the values, and it was he who was sitting in a position to take notice of their demeanor and to weigh their testimony and to also take notice of the consideration expressed in the deed of conveyance in question here and to determine which was the most correct.
A husband has a right to transfer property to his wife for the purpose of paying a debt, though by doing so his other creditors are defeated of their rights and even though the conveyance is made on account of the pendency of suits by other creditors against him; the only condition being that there must be existing between husband and wife a valid indebtedness equal to the fair value of the property conveyed.
Graham v. Morgan, 83 Miss. 601, 35 So. 874.
At the time of the conveyance of this property to the wife, it was subject to liens aggregating $27,000 and a judgment aggregating $9,500, the latter held by her, and in order to protect the judgment, together with approximately $6,000 additionally advanced to her husband, she assumed as a consideration payment of the prior liens, all of which constitutes consideration. It follows, therefore, that the consideration aggregating over $42,000 constitutes a valid indebtedness equal to the fair value of the property conveyed and falls squarely within the principle announced in that case.
Appellant, as complainant in a bill in chancery against appellees as defendants therein, sought to set aside, as a fraud upon its rights as a creditor of Henry V. Phelps, a deed executed by him to Mrs. Dorothy Cole Phelps, his wife, conveying to her a plantation of 705 acres of land and much personal property all located in Sharkey County, Mississippi. When complainant rested its case, the court sustained a motion of appellees to exclude the evidence and dismiss the bill. From this decree the appeal is taken. The only question involved is whether the evidence offered by appellant-complainant, tested by the rules of law this court has announced in such cases, makes out a prima facie case for setting aside said deed. Defendants offered no proof.
As to the rules, this court, in Graham v. Morgan, 83 Miss. 601, 35 So. 874, 875, said: "Under uniform decisions of our court, a husband, though insolvent, has a right to prefer his wife, and protect her interest by conveying his property to her, even though by so doing his other creditors are defeated of their rights, and even though the conveyance is made on account of pendency of suits by other creditors against him; the only condition being that there must be existing between husband and wife a valid indebtedness equal to the fair value of the property conveyed." In Savage v. Dowd, 54 Miss. 728, 732, the court conditioned the validity upon "full value" of the land. In Holman v. Hudson, 188 Miss. 87, 193 So. 628, 629, the court used this language: ". . . but a conveyance made in good faith and for a valuable, though inadequate, consideration (the value of the property conveyed being substantially in excess of the consideration paid therefor) will be held in equity to be voluntary as to the grantor's creditors to the extent of the value of the property in excess of the consideration paid therefor. Willis v. Gattman, 53 Miss. 721. . .," and then detailed the method of applying the proceeds of the sale so as to work out equity between all parties.
As to the evidence, it shows that Henry V. Phelps had been indebted to appellant for some three or four years. At first the debt was small and was carried as an open account. It grew larger and in 1936 Phelps, to secure it, executed a deed of trust on certain gin machinery and equipment. The debt continued to grow and, in 1939, discussions and negotiations were had between the parties with a view to increasing the security therefor, including the use of some property belonging to Mrs. Phelps, and rearranging the maturity dates. These negotiations failed and appellant notified Mr. Phelps it would have to foreclose its trust deed and sue for the balance of the debt, if any, after such foreclosure. Phelps replied: "Well, if you enter suit I am going to transfer my farm property to my wife." The property in the trust deed was advertised for sale, and on July 15th, before the sale on July 26, 1939, Mr. Phelps executed the deed to his wife. On August 4th appellant sued Phelps for the balance of the debt and on September 7, 1939, obtained a judgment by default against him for $4,843.04. In the meantime, and on September 2nd, Phelps had informed appellant he intended to go into bankruptcy. It is also shown, as a fair inference from this record, that Phelps, after the execution of this deed, did not own sufficient property out of which this debt could be made, and that Mrs. Phelps knew of his financial condition, the collapse of the negotiations, and of the action to foreclose the trust deed.
The consideration is stated in the deed to be (1) the assumption by Mrs. Phelps of certain existing encumbrances against the property conveyed by the deed; (2) the cancellation of a debt aggregating, principal and interest, $5,956.25, money loaned by the wife to the husband as of January 1, 1935; and (3) the satisfaction of a judgment against Mr. Phelps in favor of Williams Company, amounting, principal and interest, to $9,493.73, which judgment appellees claim Mrs. Phelps had theretofore paid and which had been assigned to her, the total recited consideration in the deed, including the assumed encumbrances, being $42,270.11. Appellant contends that the actual consideration was not near so large as that stated in the deed. It says the loan by Mrs. Phelps, if actually made, was much less than that claimed by appellees, and that, in any event, it had been repaid in 1938 by a conveyance to Mrs. Phelps by Mr. Phelps of certain real property in the Town of Nitta Yuma. It also says that the Williams judgment is barred by the statute of limitations, having been obtained October 23, 1931, and that Mrs. Phelps paid of her funds for such judgment only the sum of $1,037, all of which should inure to the benefit of appellant in this litigation. There is evidence tending to support the asserted facts, but it is not necessary for us to now decide whether they are established by the proof in this record, nor to pass upon the legal contentions in respect thereto, for the reason that the undisputed proof shows that this plantation was worth, at the time of its conveyance, between fifty thousand and seventy thousand dollars, and that, therefore, its fair value was several thousand dollars greater than even the recited consideration in the deed. And this does not take into consideration the value of the personal property conveyed by such deed. This consisted of the crop to be grown on the plantation in 1939; 3 tractors; 37 cultivators; 24 plows; 4 wagons; 1 hay press; 29 mules and 1 horse, and considerable other farming tools and implements, and also all dies, equipment and appliances in a certain machine shop located in Nitta Yuma. There is no proof in the record of the value of this personal property, but apparently, from the nature and amount thereof, it was worth considerable money when conveyed.
Applying the above stated legal rules to the foregoing situation, it is clear that appellant, by its proof, made out a prima facie case for setting aside this deed as a fraud upon its rights, calling for evidence on behalf of appellees to offset the case so made, and that it was error to sustain the motion of appellees to exclude the evidence of appellant and dismiss the bill.
Reversed and remanded.