Opinion
Decided April 24th, 1936.
1. Defendant, at the time he made the conveyance of his homestead to his daughter for a nominal consideration, was not insolvent, did not act with intent to defraud his creditors and did not, by his act, divest himself of all his apparent assets. In fact, at the time he executed the conveyance which complainant seeks to have set aside, he was worth $87,000 above his indebtedness. Held, the conveyance will not be set aside as made to hinder and delay creditors.
2. The fact that defendant was subsequently unable to pay his debts should not, under the facts of this case, justify the drawing of the unfavorable inference that defendant intended to hinder and delay his creditors by making the conveyance in question.
3. To draw an inference of fraud when the opposite inference may be drawn, and fairly so, is not the province of a court of equity.
4. The Uniform Fraudulent Conveyance act changed the former rule that there is an irrebuttable presumption of fraud as to a voluntary conveyance made by one indebted. Under the act, in the absence of proved fraud, that is, actual intent instead of intent presumed in law — a solvent debtor is permitted to make a gift of a portion of his estate without subjecting the property so disposed of to successful attack.
On appeal from a decree of the court of chancery advised by Vice-Chancellor Sooy, who filed the following opinion:
"Complainant seeks to set aside a conveyance of real estate made by Mr. and Mrs. Godfrey to their daughter, Eugenie, which deed bears date October 7th, 1931.
"The consideration for the conveyance was merely nominal.
"Complainant obtained a judgment against the defendant on January 7th, 1935, for approximately $30,000. The indebtedness for which the judgment was obtained was incurred, as to the greater part of it, prior to the date of the conveyance.
"Complainant concedes that it may not succeed under the Uniform Fraudulent Conveyance act because the evidence discloses that the conveyance did not render Mr. Godfrey insolvent at the time of the making thereof, but complainant contends that independently of that statute, it is entitled to have the conveyance set aside, the argument being that Godfrey, owing at the time of the conveyance $166,735, the court has a right to infer and should decide that the purpose of the conveyance was to hinder and delay creditors, especially in view of the fact that the assets of the grantor had decreased from December, 1930, to October 7th, 1931, to the extent of $106,815 and that Godfrey had owned the property conveyed since 1912, and it is argued that if his intent was not to hinder and delay his creditors he would have made a will.
"Complainant advises the court that it relies on Semenowich v. Melnyk, 93 N.J. Eq. 615, and Federal Reserve Bank v. Slotoroff, 117 N.J. Eq. 419. In the first case the court held:
"`Where both grantor and grantee to a deed acted with intent to defraud the grantor's creditors, the deed is void.'
"In that case, both parties to the conveyance testified to facts from which the only conclusion that the court could draw was that both grantor and grantee had participated in the conveyance in order that the grantor's creditors might be staved off until a more propitious time for the sale of grantor's property. In the instant case the testimony warrants no such finding, as will be developed by a statement of the evidence.
"In the second case, Federal Reserve Bank v. Slotoroff, supra, the debtor conveyed to her husband for a consideration less than the value of the property. The conveyance was made while the grantor was indebted. The grantor had no other property, so that when she conveyed to her husband `she divested herself of all her apparent assets,' of which fact the grantee `must have been aware,' as well as of the existence of the grantor's indebtedness. This is not the situation in the instant case.
"Complainant called as its witnesses the defendants Mr. and Mrs. Godfrey who testified that the deed in question was executed by them and delivered to their daughter, Eugenie, to hold title as trustee for herself and her sisters. The conveyance was of the homestead. Both Mr. and Mrs. Godfrey said that for some time prior to the conveyance they had been in failing health and that they desired their children to have title to the home; that they did not consider accomplishing their purpose by the making of a will and that they believed they had a right to dispose of the home in such a manner as they deemed fit. Mr. Godfrey said that at the time of the conveyance he had assets of the value of $166,733, with liabilities of $79,545.41, so that his net worth was $87,188.23. He further says that no creditors were `pushing' him and that he believed he could have paid off his entire indebtedness, if required to do so, within thirty or sixty days. No one disputes this testimony.
"Mr. Godfrey admits that his assets had shrunk, as hereinbefore indicated, during the interval from December of 1930 to October of 1931, but still insists that notwithstanding that shrinkage, he was perfectly solvent and had assets over liabilities of over $80,000, as above set forth, and again there is no disputing evidence.
"Complainant showed by the testimony of Mr. Godfrey that at or about the same time of the conveyance in question he assigned to his wife an $18,500 mortgage on property at 2512 Atlantic avenue, but this assignment of the mortgage is not in question, in view of the fact that the wife only held the mortgage for thirty days, when it went back to Mr. Godfrey.
"If the conveyance is to be set aside, it cannot be accomplished from a consideration of the direct testimony in the case. The only conclusion that can be arrived at from a consideration of that testimony is that Mr. Godfrey, being worth over $87,000 above his indebtedness, desired to give to his children his residence. He did not divest himself of all of his assets but still had approximately $150,000. He did not render himself insolvent by the conveyance, nor was his intent other than he says it was, in so far as the direct testimony was concerned.
"May the court, under the direct evidence as above outlined, draw an inference that the conveyance in question was made to hinder and delay Mr. Godfrey's creditors? An unfavorable inference may not be drawn by reason of Mr. Godfrey's subsequent inability to pay his debts. In Kearny Plumbing Supply Co. v. Gland, 105 N.J. Eq. 723, Vice-Chancellor Backes held:
"`What the debtor's financial condition was at the time of the conveyance is not to be judged by his inability to pay his debts two years later. No unfavorable inference as to him is to be drawn after such an elapse of time. The condition must be established by proof.'
"It is true that the economic situation at the time of the conveyance was not in good condition, but the banks had not closed, nor did they, until 1933. There is nothing to suggest that Mr. Godfrey knew or had reason to believe that the banks would close, nor is there anything to indicate that he knew or had reason to believe that the economic condition would grow worse instead of better, and unless the court is justified in drawing an inference of fraud on the part of Mr. Godfrey, rather than an inference of lack of fraud, the conveyance should not be set aside. To draw an inference of fraud when the opposite inference may be drawn, and fairly so, is not the province of a court of equity and it seems to me that unless the conveyance in question is upheld on the evidence produced by the complainant, that a father and mother, who are perfectly solvent, may not make a gift to their children which will not be the subject of attack in future years, when at the time of the conveyance the father and mother happened to be indebted. In other words, that all gifts of such character must be burdened with a guarantee to the grantor's then existing creditors that if at any time in the future the grantor shall become insolvent, prior to the payment of his then existing debts, that the intended gift shall be set aside.
"In the instant case the conveyance was made in October of 1931 and complainant's judgment was not obtained until January 7th, 1935, and in the interval Mr. Godfrey, like many others, had seen his assets depreciate, the banks to whom he was indebted became insolvent, and he is now charged with a fraudulent intent based, not on the evidence, but on inferences drawn by the Federal Reserve Bank of Philadelphia, who succeeds to the assets of the defunct bank to which Mr. Godfrey was indebted, and that defunct bank, notwithstanding the conveyance of 1931 and its subsequent early record, did nothing to realize on Mr. Godfrey's then admitted surplus of assets, and its successor did nothing to realize thereon until January of 1935.
"Of course the court is aware of the fact that prior to the Uniform Fraudulent Conveyance act ( 1 Cum. Supp. Comp. Stat. p. 647), `as to a voluntary conveyance made by one who is indebted, there is an irrebuttable presumption of fraud' ( Horton v. Bamford, 79 N.J. Eq. 356 ), but the Uniform act changed the former rule so that, in the absence of proved fraud, i.e., `actual intent as distinguished from intent presumed in law,' a solvent debtor is permitted to make a gift of a portion of his estate without subjecting the property so disposed of to successful attack. Such was the ruling in Superior Finance Corp. v. Santucci, 115 N.J. Eq. 504.
"The bill of complaint dismissed, with costs."
Messrs. Cole Cole, for the appellant.
Messrs. Endicott Endicott, for the respondents.
The decree appealed from will be affirmed, for the reasons stated by Vice-Chancellor Sooy in the court of chancery.
For affirmance — THE CHIEF-JUSTICE, LLOYD, CASE, BODINE, DONGES, HEHER, PERSKIE, HETFIELD, DEAR, WELLS, WOLFSKEIL, RAFFERTY, JJ. 12.
For reversal — None.