Berger v. Hi-Gear Tire & Auto Supply, Inc.

Smith, J., delivered the opinion of the Court. We are here involved with the propriety of the action of a trial judge (Pugh, J.), sitting in equity, in setting aside a deed of trust as a fraud on creditors. We shall affirm the action of the chancellor. Bernard and Bernice Berger entered the automobile accessory business in the summer of 1965.

They did so under a franchise from appellee, Hi-Gear Tire and Auto Supply, Inc. (Hi-Gear). Credit was extended by Hi-Gear. A financial statement was submitted to Hi-Gear signed by Bernard Berger prior to this extension of credit. The business did not prosper.

Two stores were opened, one in Montgomery County, Maryland, and one in Arlington, Virginia. The Maryland store was closed in December, 1966, and the merchandise moved to Virginia. Hi-Gear sued Mr. and Mrs. Berger on December 30, 1966, in the Circuit Court for Montgomery County. They were served on January 12, 1967.

Judgment was entered in favor of Hi-Gear against Mr. and Mrs. Berger in the amount of $10,760.91 in March of 1967. While the Hi-Gear — Berger litigation was in progress, a second lien, a deed of trust, was placed on record ⁴⁷² against the home of Mr. and Mrs. Berger. It was dated January 3, 1967, acknowledged January 30, 1967, with affidavit of consideration likewise executed on January 30, 1967. It purported to secure payment of an alleged indebtedness of $17,500.00 from them to Louis Schwartz, the father of Mrs. Berger.

Hi-Gear filed a bill of complaint under Code (1957), Art. 39B, § 7 to have this deed of trust declared invalid. Reference was made in the bill of complaint to the financial statement of July, 1965, and the fact that no indebtedness to Schwartz was there listed. Parties defendant were Mr. and Mrs. Berger, Mr. Schwartz and the trustees. No active opposition was presented by the trustees.

Although an answer was filed on his behalf by the same attorneys who represented Mr. and Mrs. Berger, Schwartz did not testify relative to any indebtedness from Mr. and Mrs. Berger to him. In fact, a subpoena issued by Hi-Gear to require his attendance at the trial of this case was returned “non est”. Mr. and Mrs. Berger are appellants here. No appeal was entered on behalf of Schwartz or the trustees.

Mr. Berger testified that the deed of trust was to secure his father-in-law for advances made to him “over many years”, running “back to the beginning of [the] marriage”- of Mr. and Mrs. Berger. At the time of trial they had been married 25 years. No written evidence of the indebtedness was presented. At one point Berger was interrogated by the court and the record is as follows: “THE COURT: In other words, this $17,500 is an accumulation of loans he made to you ? “THE WITNESS: Yes, sir. “THE COURT: Did he give you the money or did.you borrow it? “THE WITNESS: We asked if he would just give it to us. “THE COURT: Did you execute a promissory note for any of it? “THE WITNESS: No, sir. ⁴⁷³ “THE COURT: Did you pay any interest on it? “THE WITNESS: No, sir. “THE COURT: Was the money loaned to you, loaned to you or your wife, or to you and your wife? “THE WITNESS: Just to me. “THE COURT: Your wife was not named in the transaction at all? “THE WITNESS: No, sir. “THE COURT: In other words, isn’t it a fact that you knew you were about to have a judgment entered against you and you wanted your father-in-law to get ahead of that judgment? “THE WITNESS: No, sir, I wouldn’t say that was the reason.

When I went out of business I saw another attorney and I told him that things were going badly with me. I owed my father-in-law. I felt he should have some sort of preference if there’s any money. “THE COURT: That’s why you executed the trust to your father-in-law for preference? “THE WITNESS: Preference; well, I would suppose it would be preference. “THE COURT: You wanted to prefer him against any of your other creditors ? “THE WITNESS: No, sir. First preference, not final preference.” Mrs. Berger did not testify.

The only evidence offered relative to the indebtedness from Mr. Berger to Mr. Schwartz was Mr. Berger’s testimony. The Berger home is owned as tenants by the entireties. Berger declined at the trial to give a value for the property although in the financial statement he placed a $29,000.00 value on it. He did testify that the parties paid “either $25,000.00 or $23,500.00” for it in 1960.

It is the subject of a mortgage on which, according to Berger’s testimony, a balance of $18,000.00 to $19,000.00 remained due at the time of trial. ⁴⁷⁴ Appellants contend that they were not made insolvent by the placing of the second lien on their home. Mr. Berger’s testimony in this regard is not exactly a model of precision. He claimed not to know the meaning of the word “assets” when asked what assets this deed of trust left unencumbered. He gave no testimony as to any bank account he might have had.at that time.

He admitted, however, that when questioned under supplementary proceedings on August 31, 1967, he said that he had as of that date “maybe $15.00 in the bank”, that he had no securities and no assets which could be attached. The assets which he testified to having owned in addition to the home at the time of the execution of the deed of trust in January of 1967 were a 1965 Pontiac and the stock-in-trade in the store in Arlington, Virginia. As to the Pontiac he said, “I don’t know the value of it.” It was originally financed for $1800.00 on a three-year basis. There was some testimony indicating that at the time of trial there might have been $1100.00 due on it.

Whether this car was owned by Berger or by Mr. and Mrs. Berger does