Benson v. Harriman

The action was brought by a judgment creditor to set aside an alleged fraudulent transfer, and from the judgment in favor of plaintiff the appeal has been taken.

[1] A general demurrer was interposed to the complaint, and the first point made is that the trial court erred in overruling it. The objection upon which appellants seem to rely chiefly is that it does not appear in the complaint that there was an exhaustion of legal remedies so as to authorize the equitable action. The allegation in that respect is: “That execution was issued upon said judgment on the twenty-first day of December, 1917, and placed in the hands of the sheriff of the county of Stanislaus, state of California for execution, and said execution was returned unsatisfied.” This seems to be sufficient to make out a prima facie ease of insolvency. (Calkins v. Howard, 2 Cal. App. 233 [ 83 Pac. 280 ].) But if it should be thought that the complaint was incomplete in that respect, it is quite apparent that it was entirely without prejudice to appellants, since the evidence shows that the judgment debtor had transferred, or, at least, had attempted to transfer, all of his property prior to the issuance of said execution. Since he had in fact rendered himself insolvent he cannot complain because greater efforts were not made by the creditor to collect his judgment by legal proceedings before resorting to an action in equity. According to appellant’s own theory

[2] Moreover, the rule in this state is that if a conveyance is mdde with intent to defraud creditors, it is void, notwithstanding the debtor has other property ample in amount to satisfy his creditors. (Bekins v. Dieterle, 5 Cal. App. 690 [ 91 Pac. 173 ]; Slade Lumber Co. v. Derby, 31 Cal. App. 155 [ 159 Pac. 881 ]; Johns v. Baender, 40 Cal. App. 790 [ 182 Pac. 55 ]; First Nat. Bank of Los Angeles v. Maxwell, 123 Cal. 360 [ 69 Am. St. Rep. 64 , 55 Pac. 980 ].) The authorities are fully reviewed in the foregoing decisions and the conclusion reached as stated in 2 Bigelowon Fraud, page 393: “Indeed, it matters not, where personal intent to defraud is shown, that the fraudulent conveyance, if allowed to stand, would not harm anyone, by reason of the fact that the debtor has other property ample in amount within the reach of his creditors.” These authorities hold that the possession of other means, though competent as evidence to rebut the inference of fraudulent intent, is not conclusive against it, and, if the fraudulent intent exists the conveyance is void, notwithstanding the debtor may own other property. In this connection we may say that the complaint is full and explicit in its allegations of the fraudulent intent with which the transfer was made.

Appellants are mistaken in the assertion that these earlier cases have been overruled by Evans v. Sparks, 170 Cal. 532 [ 150 Pac. 372 ]. On the contrary, the court held therein that fraud may be shown and may invalidate the deed, even where the grantor does not entirely strip himself of assets, citing First Nat. Bank v. Maxwell, supra; but the evidence was considered insufficient to support the finding that a fraudulent intent existed.

In fact, however, the complaint is broad enough to fall within the contemplation of section 3439 and also section 3442' of the Civil Code. As to this latter consideration, we notice that the complaint alleges that the transfer was made “without any consideration, and that by reason of

[3] Where the transfer renders one insolvent his insolvency is contemplated by the very act of making the transfer. (Knox v. Blanckenburg, 28 Cal. App. 298 [ 152 Pac. 59 ].)

[4] It is also true that the intent is immaterial where the transfer is made without consideration and. in contemplation of insolvency. (Atkinson v. Western Development Syndicate, 170 Cal. 503 [ 150 Pac. 360 ].)

Upon either of these theories, we think the complaint is amply sufficient to state a cause of action.

Some objection is made to the action of the court in granting a preliminary injunction restraining the defendant “from disposing of, selling, making away with, secreting, assigning, hypothecating” said bonds, but since the court, after full hearing, granted a perpetual injunction, the action as to the former becomes unimportant and the inquiry here should be limited to the final determination of the controversy. (Sheward v. Citizens' Water Co., 90 Cal. 635 [ 27 Pac. 439 ]; County of Tehama v. Sisson, 152 Cal. 167 [ 92 Pac. 64 ]; Knight v. Cohen, 5 Cal. App. 296 [ 90 Pac. 145 ].)

[5] There is no merit in the claim that the court erred in striking out portions of the answer of appellants. The character of such averments may be shown by the following quotation: ‘ ‘ That on or about the 17th day . of January, 1917, plaintiff commenced an action in the Superior Court of the State of California, in and for the County of Stanislaus, against said defendants Frank G-. Harriman and John T. Harriman and the Modesto Bank, a corporation, for damages for an alleged breach of contract for an alleged violation of the said purported contract heretofore mentioned. That said action was subsequently dismissed as to the defendant, John T. Harriman, and the Modesto Bank and upon trial before a jury a verdict was rendered by said jury in favor of plaintiff and against the defendant for the sum of Four Thousand Four Hundred eighty-nine

[6] Likewise, we think there is no merit in the contention that the evidence is insufficient to support the findings of the court that the transfer of the bonds, stocks, and securities was made without consideration and for the purpose of defrauding plaintiff and while the said Benson was a creditor of said Frank G. Harriman, and that by said transfer and pthers, which are set out in the findings, the said Harriman “became insolvent and rendered himself insolvent and the said Frank G. Harriman has no property of any kind whatever and by reason of said transaction thereby rendered himself execution proof; that by reason of the transfer of said bonds, stocks, and securities to the defendant, John T. Harriman, he thereby placed without his possession all of the property subject to execution in this state, and the transfer of said bonds, stocks, and securities to the said John T. Harriman proximately resulted in depriving B. M. Benson from collecting his judgment from the defendant, Frank G. Harriman.”

We have carefully read the record and can readily understand how the trial court reached such conclusions. The evidence warrants this statement of the facts substantially as made by respondent: The plaintiff was an attorney at law residing at Portland, Oregon, in April, 1914, at which time he was employed in writing by said Frank G. Harriman to act for him as his attorney in all matters relating to the settlement of the estate of one C. H. Fellows, deceased, in the

Again, the court was justified in concluding that the attempted transfer of the bonds in question was voluntary, although he testified it was to secure his care and support-—an explanation, it may be said, similar to that given for the other transfers. In this connection it is well to note that, at said supplementary hearing he virtually admitted that it was a gift. At any rate, the trial court was in a better position than this court to properly appraise his veracity.

[7] As to this the rule is that the existence of an indebtedness at the time of a voluntary conveyance creates at least a prima facie presumption of fraud. (12 R. C. L. 476.)

Furthermore, “as against existing creditors no one can transfer all of his property in consideration of future support so as to defeat any such creditor in enforcing his claim, for under such circumstances the law presumes the act to be done with fraudulent intent to hinder and delay the creditor in the collection of his debt. This is by reason of the fact that every person is presumed to know what the direct result of his acts will be.” (Baxter v. Baxter, 19 Cal. App. 238 [ 125 Pac. 359 ].) And, assuredly, it would make no difference whether the property is all disposed of in one transaction or in several as in the case at bar.

The other theory, to which we have adverted, that the transfers were all voluntary and that thereby he rendered himself insolvent and hence subject to the provisions of said section 3442 of the Civil Code finds support also in a rational inference from the evidence.

We deem it unnecessary to comment specifically upon the so-called “badges of fraud,” recognized by the authorities and enumerated in volume 12, R. C. L., pages 478, 485, 496, 545, and 546, which respondent claims are all present herein, as we think sufficient has been said to vindicate the view of the trial court as to the fraudulent character of the transaction.

There is also a finding, as we have seen, that there was no actual delivery and continued change of possession of said stocks and bonds, thus bringing, the ease within the provisions of section 3440 of the Civil Code. We cannot say that the court was not justified in this conclusion, but it is unnecessary to consider this feature more specifically.

The judgment seems to be just and legally sound and it is therefore affirmed.

Hart, J., and Finch, P. J., concurred.

A petition to have the cause heard in the supreme court, after judgment in the district court of appeal, was denied by the supreme court on January 30, 1922, and the following opinion then rendered thereon:

TITB COURT.—The petition for a rehearing of this cause in the supreme court is denied.

[8] The opinion seems to be in doubt on the proposition that in a complaint by a creditor to set aside a transfer made with intent to defraud creditors, the allegation that plaintiff has recovered a judgment on his debt, that it is unpaid, and that an execution has been issued thereon and has been returned unsatisfied, is sufficient to show that plaintiff is entitled to appeal to equity. We do not share in the doubt. The proposition has been settled by many decisions (Thornburg v. Hand, 7 Cal. 561 ; Bickerstaff v. Doub, 19 Cal. 112 [ 79 Am. Dec. 204 ]; McMinn v. Whelan, 27 Cal. 315 ; Ohm v. Superior Court, 85 Cal. 545 [ 20 Am. St. Rep. 245 , 26 Pac. 244 ]; Blanc v. Paymaster M. Co., 95 Cal. 533 [ 29 Am. St. Rep. 149 , 30 Pac. 765 ]; Brown v. Campbell, 100 Cal. 644 [ 38 Am. St. Rep. 314 , 35 Pac. 433 ]; Sewell v. Price, 164 Cal. 270 [ 128 Pac. 407 ]; Sewell v. Johnson, 165 Cal. 767 [Ann. Cas. 1915B, 645, 134 Pac. 704 ]).

[9] The suggestion that the action in which the plaintiff recovered judgment against Frank Gr. Harriman was an action in tort for damages may be misleading. It was an action to recover of the defendant Frank- Gr. Harriman a debt owing by him to plaintiff on agreement whereby plaintiff was employed by Harriman to. render certain services to

Shaw, C. J., Shurtleff, J., Sloane, J., Lawlor, J., Wilbur, J., and Waste, J., concurred.