Wallace v. Phillips , 195 N.C. 665 ( 1928 )

OlaeicsoN, J.

The following questions presented in brief of defendants, appellees, we think, from the record, cover practically the present controversy for our determination:

“1. Is the sale of the reversionary interest in the homestead of a bankrupt upon orders of the bankrupt court void, so that a creditor of the bankrupt whose debt arose several years after the sale and conveyance of such reversion may still treat the property as being the homestead of the bankrupt and subject to levy?

“2. In this case, plaintiffs seek to set aside the deed of a trustee in bankruptcy as being a fraud on creditors; but it appears from the complaint ' that plaintiffs’ debt arose long after such conveyance. Have plaintiffs any cause of-action based on fraud in such conveyance?

“3. Where a creditor attempts to follow the investment of a debtor (husband) in his wife’s property upon the grounds of fraud, is an averment in the complaint sufficient, which merely states that the investment was fraudulent, without stating facts or particulars constituting the fraud, and especially without stating that the debtor was at the time of such investment insolvent and did not retain property fully sufficient and available to pay his debts then existing?”

The first interesting question: See Williams v. Scott, 122 N. C., p. 545 and cases cited; Joyner v. Sugg, 131 N. C., p. 324; Watters v. Hedgepeth, 172 N. C., at p. 314; Hartman v. Flynn, 189 N. C., p. 452. The record discloses that on 15 January, 1913, R. B. Phillips and wife, Maggie Phillips, brought an action against Chas. A. Jones to partition the lands which were originally deeded to Chas. A. Jones and R. B.Phillips, as tenants in common, each owning an undivided one-half interest. The Phillipses alleged in the-partition proceeding that at the time R. B. Phillips was the owner of life estate and Maggie Phillips the reversionary interest in one-half of said land. Commissioners were duly appointed and the land actually partitioned by metes and bounds and one-half allotted to R. B. Phillips and Maggie Phillips, in accordance with the petition. It must be conceded that all of the parties, who were sui juris, are bound by the final decree rendered upon the merits, without fraud or collusion in the partition proceeding and the same is conclusive on tbe rights of tbe parties or tbeir privies.

In 20 R. C. L., part sec. 57, p. 785, it is stated thus: “It is a well affirmed principle of law that a judgment or decree in a partition suit, when the court has jurisdiction over the parties and the subject-matter, is as conclusive between the parties upon all the material issues in the case which the court was called upon to examine, and which, under the pleadings, were tried and determined, as are judgments in other actions; but rights of defendants, as between themselves, wbicb were not brought to the attention of the court are not concluded.” See Walker v. Walker, 185 N. C., 380; Cook v. Sink, 190 N. C., 620; Randolph v. Edwards, 191 N. C., 334; Garris v. Tripp, 192 N. C., 211; Valentine v. Granite Corp., 193 N. C., 578. Ordinarily, when there is a partition of realty, by deed or action, between tenants in common, it only severs the unity of possession and conveys no title. Here the parties changed the title and created a new one, at least consented and agreed to a new title.

By the solemn allegations of the petition and decree taken in connection therewith, R. B. Phillips bad a homestead life estate and Maggie Phillips the reversionary interest in the land in controversy. Conceding, but not deciding, that the sale of the reversionary interest to Maggie Phillips conveyed no title — then her husband owned it and in the petition in the partition proceeding, which be and she join in, it was expressly alleged that be owned a life estate and she the reversionary interest. It was allotted to them in accordance with the petition. Tbe petition was a solemn admission of her ownership of the reversionary interest. He recognized her right and if the deed to her was inoperative, be bad a right to recognize and agree that it was operative and give this reversionary interest to her, provided, in accordance with C. S., 1007: "If property, at the time of making such gift or settlement fully sufficient and available for the satisfaction of his then creditors be retained by such donor or sellleiand there is no actual intent to defraud. There is no allegation that be bad creditors at the time. Tbe law presumes a gift to the wife. Carter v. Oxendine, 193 N. C., 478; Bank v. Crowder, 194 N. C., 312.

The second question: we do not think plaintiffs can sustain. The partition proceeding was instituted 15 January, 1913. Years afterwards, on 24 January, 1918, plaintiffs instituted an action against R. B. Phillips and recovered a judgment duly docketed for $1,239.75, for debts contracted, most of them long before 10 January, 1917. There is no allegation that these debts were contracted before the partition in 1913, when, as we construe the facts of record, R. B. Phillips bad a homestead life estate in the land and Maggie Phillips a reversionary, interest in fee actually allotted to them.

The controlling principle is stated in Aman v. Walker, 165 N. C., 224, 227, 81 S. E., 162, as follows: “If the conveyance is voluntary, and the grantor did not retain property fully sufficient and available to pay bis debts then existing, it is invalid as to creditors; but it cannot be impeached by subsequent creditors without proof of the existence of a debt at the time of its execution, which is unpaid, and when this is established and the conveyance avoided, subsequent creditors are let in and the property is subjected to the payment of creditors generally.” Sutton v. Wells, 177 N. C., 524, 527, 99 S. E., 365; Tire Co. v. Lester, 190 N. C., 411.

The third question: we do not think plaintiffs can sustain. The plaintiffs were allowed to amend their complaint by adding “While the indebtedness to plaintiffs from E. B. Phillips herein alleged subsisted.” E. B. Phillips had a homestead exemption in the land and Maggie Phillips the reversionary interest in fee, according to the partition decree. The plaintiffs’ allegations are to the effect that while E. B. Phillips was indebted to the plaintiffs, he increased the value of his homestead exemptions by taking large sums of money that he should have paid the plaintiffs, his creditors, and made many and valuable improvements on his homestead tract. It is an old saying founded on good morals, that a man must be just before he is generous. He must pay his debts first. In good conscience he should not be allowed to materially enhance the value of his homestead at the expense of his creditors, and especially would this be so as in the present case, the reversionary interest goes to another than the creditors at his death. This is an equitable and just principle.

In the case of Michael v. Moore, 157 N. C., at p. 465, citing numerous authorities, it was said: “We entertain no doubt as to the plaintiffs’ right to follow the fund invested by his debtor in improvements upon his wife’s land. No principle is better settled by our decisions than the one that an insolvent debtor cannot withdraw money from his own estate and give it to another to be invested by him in the purchase or improvement of his property, and when it is done, creditors may subject the property so purchased or improved to the payment of their claims.” In the above case, the facts show: “At the time of the transaction the defendant J. O. Moore was insolvent. After plaintiff had exhausted his legal remedies by execution and supplemental proceedings, he instituted this proceeding for equitable relief.”

In Garland v. Arrowood, 177 N. C., at p. 374, it is said: “The jury have found that there was no actual intent to defraud or, in other words, no mala mens, but if the defendant, the donor of the gift, failed to retain property fully sufficient and available for the satisfaction of his then creditors, the gift was void in law, without regard to the intent witb which.-it was made. Black v. Saunders, 46 N. C., 67; Aman v. Walker, 165 N. C., 224; Michael v. Moore, 157 N. C., 462. The burden of at least going forward with proof of such retention of property is upon the defendant, where, as found in this case by the jury, there is a voluntary gift or settlement. Brown v. Mitchell, 102 N. C., 347, 369; Tredwell v. Graham, 88 N. C., 208; Cook v. Guirkin, 119 N. C., 13; Aman v. Walker, supra.”

In Garland v. Arrowood, 179 N. C., 697, the issue submitted was: “Did the defendant, Luther C. Arrowood, at the time he invested his individual funds in the improvements on the land of "William Arrowood, known as the ‘home place/ retain property fully sufficient and available for the satisfaction of his then creditors? The jury responded that he did not.” In the opinion it is said: “We think that the land should be subjected to a lien for the increased value added to it, and no further.”

C. S., 1007, is as follows: “No voluntary gift or settlement of property by one indebted shall be deemed or taken to be void in law, as to creditors of the donor or settler prior to such gift or settlement, by reason merely of such indebtedness, if property, at the time of making such gift or settlement, fully sufficient and available for the satisfaction of his then creditors, be retained by such donor or settler; but the indebtedness of the donor or settler at such time shall be held and taken, as well with respect to creditors prior as creditors subsequent to such gift or settlement, to be evidence only from which an intent to delay, hinder or defraud creditors may be inferred; and in any trial shall, as such, be submitted by the court to the jury, with such observations as may be right and proper.”

In the Aman case, supra, at p. 227, it is held: “If the conveyance is voluntary, and the grantor retains property fully sufficient and available to pay his debts then existing, and there is no actual intent to defraud, the conveyance is valid.” The allegations show a voluntary gift or settlement of property (many and very valuable improvements) by R. B. Phillips, while indebted to plaintiffs, on his homestead, the reversionary interest being owned by Maggie Phillips. This, under the statute, is not to be deemed or taken to be void in law by reason merely of such indebtedness, if property at the time of making such gift or settlement, fully sufficient and available for the satisfaction of his then creditors, be retained by such settler, and there is no actual intent to defraud. “This is made a condition precedent in order to bring a case within the operation of the act.” Black v. Sanders, 46 N. C., at p. 69.

The defendants demur on the ground that the complaint “does not allege the insolvency of the defendant, Phillips, and that he did not retain sufficient property to pay his debts.” We think the complaint to be good should have alleged that at the time of making such gift or settlement property fully sufficient and available for the satisfaction of bis then creditors was not retained. This was a material ingredient of the cause of action and should have been alleged. When fraud is sufficiently pleaded, see Colt v. Kimball, 190 N. C., p. 171.

The other matters we need not now consider. For the reasons given, the judgment of the court below is

Affirmed.