Long v. Dixon

Hammond, J., delivered the opinion of the Court. This appeal is from a decree of the Circuit Court for Caroline County dismissing a bill of complaint brought by a creditor of the grantors of two deeds in an effort to set them aside on the ground they were fraudulent as to the complainants as subsisting creditors of the grantors. The deeds conveyed two farms in ³²³ Caroline County, a 72 acre farm to one son of the grantors and a 132 acre farm to the other. The grantees asserted their right to retain the farms conveyed to them respectively on the basis that they were likewise subsisting creditors at the time of the conveyances, and that the deeds were executed for a fair consideration in satisfaction of a bona fide past due indebtedness, and were accepted by them in good faith.

In Drury v. State Capital Bank, 163 Md. 84 , 161 A. 176 , Judge Parke, delivering the opinion of the court, went fully into the law of fraudulent conveyances. He pointed out that the Maryland statutes, declaring the common law, render void all conveyances made with intent to delay, hinder or defraud creditors. The statutes are concerned with legal and not moral intent; if the direct and inevitable consequence of an act is to delay, hinder or defraud creditors, there arises a conclusive presumption that the legal object furnished one of the motives for the doing of the act, and whatever the real intent, a fraud exists in law. Preferences are not necessarily fraudulent and, aside from a statute of insolvency or bankruptcy, an innocent creditor who can secure enough to satisfy his claim is entitled to hold it against other creditors, although the debtor is insolvent.

This rule is subject to the qualification that the property transferred must be fairly equivalent to the debt satisfied. Thus, a debtor for a fairly equivalent consideration, whether presently arising or being in satisfaction of an antecedent debt, may transfer in good faith all or a part of his property to one of his creditors. Even if the grantor has a fraudulent intent this will not vitiate or impair a conveyance unless the grantee participates in the fraudulent intent. McCauley v. Shockey, 105 Md. 641, 645 , 66 A. 625 ; Kennard v. Banking & Trust Co., 176 Md. 499 , 6 A. 2d 258 .

A recent review of the authorities was had in Kline v. Inland Rubber Corp., 194 Md. 122, 137 , 69 A. 2d 774, 780 . Judge Markell there said, for the court: ³²⁴ “Aside from bankruptcy or insolvency statutes, preferences are not unlawful. They are not per se fraudulent, even when given to a wife or other near relative.” He pointed out further in this opinion, although he who alleges fraud generally must prove it, “facts and circumstances of a conveyance, especially one between near relatives, may be such as to shift to one who claims to be a bona fide purchaser for value the burden of proving that he is.” He continued: “If a conveyance is made and accepted with intent to hinder, delay or defraud creditors, it matters not that a full consideration has been paid.” The parties agree, as did the lower court and as do we, that the burden of proof is on the grantees of the farms to show that they are entitled to retain them under the rules stated. The decision in the case must turn on whether or not they have met that burden.

Armine C. Dixon and his wife purchased one of the farms in question in Caroline County in 1943 and the other in 1945. They lived on the one first purchased until about the first of January, 1949. They had three sons, John, William, and Owen. John and William both entered the Navy, John in 1942 and William in 1943.

Owen was too young for military service. Both were discharged in 1946. Immediately after he returned to civilian life, John went to work with his father on the farms. William entered the Law School of the University of Maryland, graduating and becoming a member of the bar in 1949.

In 1948 John seemingly became dissatisfied with farming and his father and mother then decided to engage in some other form of activity. They answered an advertisement of John R. and Alma T. Long, his wife, the appellants, who were endeavoring to sell the Crystal Laundry at Hollywood, St. Mary’s County. After some negotiations, a contract was entered into in December, 1948, for the purchase of the ³²⁵ Laundry for the sum of $35,000, of which $5,000 was to be paid in cash, and $10,000 was to be paid by two promissory notes for $5,000 each, maturing respectively January 1, 1950 and January 1, 1951, and secured by a second mortgage on the property involved. The balance of the purchase price was represented by an existing lien indebtedness then outstanding against the Laundry Plant and its equipment in the sum of approximately $20,000.

This first lien required instalment payments at the rate of $500 a month. Shortly after the purchase of the Laundry, Mr. and Mrs. Dixon left the farms, having had one sale of personal property in 1948 and another sale of the remainder in January 1949. John and Owen came to the Laundry with their parents and assisted in its operation. John stayed for only a few months, while Owen stayed until his parents left finally in November 1949.

Mr. and Mrs. Dixon made the monthly payments of $500 each through July 1949. In that month, Mrs. Dixon became ill, the onset of the illness from which she ultimately died in November 1951. John married in Washington on August 6, 1949, and some two weeks thereafter, on August 17, the two deeds here involved were executed and delivered. John received a deed from his parents for the so-called small farm of 72 acres.

The farm referred to as the large farm of 132 acres was deeded to William. Mr. and Mrs. Dixon did not make the monthly payment of $500 in August or any time thereafter. Mrs. Dixon having become much worse in health, Mr. Dixon asked the Longs to take over the Laundry. They ignored this request and, on November 1, 1949, Mr. Dixon abandoned the plant, locked it up, and sent Mr. Long the key by mail.

Shortly thereafter, the holder of the first mortgage on the Laundry foreclosed. At the mortgage foreclosure sale held early in 1950, the property brought a price insufficient to pay the mortgage debt. Several months later, Mr. Long located Mr. Dixon in Virginia where he was living, and judgment was entered against him in July 1951 by a Virginia court ³²⁶ for $10,000 less a credit of $210. There followed the creditors’ bill which is here involved.

The claim of the sons to a bona fide antecedent indebtedness, which was satisfied by the conveyances to them, is as follows: William, from his pay in the Navy as an ensign and lieutenant, and by reason of a period of special service in Washington where he received some $500 a month, was able to save and send home substantial sums of money. In addition, he won between two and three thousand dollars gambling at poker; on one occasion $1,500, and this too was almost all sent home. The moneys so sent were either invested in bonds in his name and his mother’s, or deposited in a joint account in her name and his. In 1944, he lent his father and mother $1,300 of his gambling receipts, and in 1945 lent them $1,000.

Shortly after he left the Navy, in 1946, he bought six cows for $965, which were ultimately sold to his father and his brother John jointly, for the amount of the purchase price. William’s claim, therefore, is that his father and mother were indebted to him in the sum of $2,300 plus one-half of $965, $482.50, or a total of $2,782.50 on August 17, 1949. John’s claim to being a bona fide creditor of his father is that he had sent home $700.00 of his pay to his father and mother. His rank was not equal to William’s, and neither, apparently, was his gambling skill or luck.

When he was mustered out, he received $300 and about that time borrowed $2,000 from the Ridgely Bank. His $1,000 plus the $2,000 borrowed he contributed to an agreed joint venture with his father and mother, in which they were to contribute the two farms, (the large farm was subject to a $4,000 mortgage) and all stock and equipment on both. Armine Dixon and John were to contribute their services to the two farms, and John was to acquire a one-half interest in both farms, one-half interest in the stock and equipment thereon, and a half interest in the profits of the operation. It was further understood and agreed that in the event of liquidation of assets, any indebtedness to William should ³²⁷ be paid from the proceeds of sale of the joint property.

John says that, pursuant to this agreement, he entered into the farming operations in 1946, and actively assisted until December 1948, when he went to Hollywood to work in the Laundry. He stayed until April 1949, when he left and married in Washington, in August. Immediately after he was married, he decided he would again try farming, and requested his parents to deed him the small farm in satisfaction of the moneys due him from the partnership venture. This was done by the deed of August 17th, and William received the large farm for his indebtedness.

The first sale of personal property on the farms produced $3,300, and the second, $6,300. John received $100 of the $3,300, his father received $1,600, and $1,500 was put in a joint account of father and son, the father ultimately using the money. John claims, therefore, that he was entitled to one-half of the proceeds of the $6,300 sale, or $3,150, and $1,500 from the first sale, making a total of $4,650. $1,400 of his share was applied in payment of the balance due the Ridgely Bank on his $2,000 note, leaving a net balance due him of $3,250 plus a one-half interest in the equity of the two farms. The complainants and respondents are in sharp disagreement, as are the experts who testified for each, as to the fair market value of the two farms.

The Chancellor found the large farm to be reasonably worth between six and seven thousand dollars, less the mortgage lien of four thousand dollars, and the small farm to be fairly worth between seventy-five hundred and eighty-five hundred dollars. On the Chancellor’s appraisal, which to us seems fair and reasonable, John had a debt due him of $3,250 for his share of the personal property, and a half interest in an equity of $2,500 for the larger farm, and $8,000 for the smaller farm, or $5,250. He was thus due $8,500, which is fairly equivalent to the market value of the farm he received. ³²⁸ William’s claim is that on the Chancellor’s appraisal the fair market value of