Ferguson v. Little Rock Trust Co. , 99 Ark. 45 ( 1911 )

Kirby, J.,

(after stating the facts). It is contended, on the one hand, that the conveyances were simulated and not bona fide, made with- the understanding that W. B. Ferguson was to retain an interest in and control the property as he had done before and to shield it from his creditors, and, upon the other hand, that it was an actual exchange and transfer of property of approximately equal value by the said W. B. Ferguson to his daughter to secure for himself and his family the homestead occupied by them and owned by her.

Fraud is never presumed, but must be proved, which may be done 'by inferences from circumstances tending to show it; but no such inference can arise from doing an act warranted by law. It is the policj'’ of the law in this State to protect the home, and a debtor is allowed a homestead exempt from the claims of all his creditors. As to it, there are no creditors, -and there can be no fraudulent disposition of it. The exemption laws operate alike in favor of the evil and the good,- the just and the unjust.

W. B. Ferguson, without regard to any question as to the fairness or unfairness of his dealings in manipulating his corporations to secure credit, and wit-h his creditors, regardless of whether, they may have been deceived and misled to become such, had the right, under the law, to exemption of his homestead from their claims, if he had one, and equally the right, if he had none, of acquiring a homestead with any assets belonging to him that he could use for that purpose before his creditors fixed a charge or lien thereon. This of course if the transaction was made in good faith to acquire a homestead without regard to whether by so doing his creditors would necessarily be deprived of the price thereof, which they otherwise might have received on the payment of their debts.

In First Nat. Bank v. Glass, 79 Fed. 706, the Court of Appeals said: “An insolvent debtor may use with impunity any of his property that is free from liens and vested equitable interest of his creditors to^ purchase a homestead for himself and family in his own name. If he takes property that is not exempt from judicial sale and applies it to this purpose, he merely avails himself of a plain provision of the Constitution or statute enacted for the benefit of himself and his family. He takes nothing from his creditors by this action in which they have any vested right. The Constitution or statute exempting the homestead from the judgments of creditors is in force when they extend the credit to him, and they do so in the face of the fact that he has this right. Nor can the use of property that is not exempt from execution to procure a homestead be held to be a fraud upon the creditors of an insolvent debtor1, because 'that which the law expressly sanctions and permits cannot be a legal fraud.”

In Finn v. Krut, 34 S. W. 1013, the court approved the conclusion of law of the lower court: “If it be not a fraud to place property on hand, which is subject to execution, out of the reach of creditors by making a home on it, It cannot be fraudulent to exchange property which might have been thus converted into a home for other land, with the intention of converting the property acquired into a home. If there is no fraud on the part of the vendor, the vendee must be permitted to hold the land conveyed, because it is not on account of fraud on the part of the vendee that avoids the sale; it is the fraud of the vendor, brought to the knowledge of the vendee or of which he may have constructive notice, which avoids the sale. There cannot be a fraudulent purchaser without a fraudulent vendor. Sanger v. Colbert, 84 Tex. 673.”

In Jacoby v. Parkland Distilling Co., 43 N. W. 52, the debtor nnoved into property which he owned, to save it'from execution. The court said he had a right to do this. “Even if he disposes of bis property subject to execution for the very purpose of converting the proceeds into exempt property,- this will not constitute legal fraud. This he may do at any time before the creditors acquire a lien upon the property. It is a right which the law gives him, subject to which every one gives him credit, and fraud can never be predicated on an act which the law permits.”

Our court has held that a debtor may fix his homestead upon any lands he may own, regardless of his debts and the rights of his creditors, if he can do so before liens attach. Gibbs v. Adams, 76 Ark. 577.

In this case Ferguson actually resided upon the. premises and occupied them as a homestead, and, although he may have had a life estate therein, had the right to acquire the whole property as such homestead, that his widow and children might enjoy it after him, and he states it was his intention to do so in making the unconditional conveyance he did make to his daughter of the lots in controversjc She certainly had the right to exchange her title to this homestead for these lots if she cared to do so; and she has stated that she did this, as her unconditional transfer of the homestead in payment therefor shows. She is not shown •to have been cognizant of the financial condition and embarrassment of her father, and there is no testimony whatever that there was any agreement or understanding that an interest was reserved in the lots conveyed by her father, or that he should thereafter derive any benefit from them. It is true that she at the same time executed a mortgage covering these lots to secure the payment of a loan of $10,000 at the suggestion of her father to be used in the construction of buildings thereon, to produce an income for her benefit, and it is also true that he was to expend this money in the construction of such buildings and intended to purchase the lumber from his lumber company with which to do it.

It will not be questioned that he had the right to contract for these buildings and furnish the material therefor. Of course, this exchange of property and these conveyances do have the effect of depriving the creditors of this debtor of property that was not exempt from their claims before the exchange, but the debtor could purchase and acquire a homestead knowing that this would be true, without any fraud, so far as their claims were concerned.

We hold- the proof is not sufficient to show this exchange of property merely colorable and simulated with the intent and purpose of shielding the lots conveyed to the daughter from the claims of her father’s creditors, and that, since it was an actual bona fide transaction to acquire a homestead, which the debtor had the right to do, his conveyance to his daughter of said lots, not greatly differing in value from the homestead conveyed to him in payment therefor, was valid and not fraudulent as to .creditors, even though they are thereby deprived of property that could have been subjected to the payment of their debts, if such exchange, had not been made.

It follows that the decree of the chancellor was erroneous, and it is reversed, and the cause is remanded, with directions to enter -a decree in accordance with this opinion dismissing the complaint for want of equity.

Justices Wood and FrauEnthar dissent.