Wellcraft Marine Corp. v. Roeder

COLE, Judge. We shall herein affirm a trial court which set aside a deed of trust as a fraud on creditors. As a consequence, the subject property may be sold and the proceeds used to satisfy the grantor’s indebtedness. The facts may be summarized as follows.

In May, 1981, Cap’n Stan’s Boat Center, owned by Samuel and Mary Auxier, closed due to financial difficulties. The petitioner herein, Wellcraft Marine Corporation (Wellcraft), sued Samuel and Mary on Cap’n Stan’s debt, which Samuel and Mary had personally guaranteed, and obtained a judgment in the amount of $172,833.32 as of September 29, 1981. To satisfy the judgment, a sheriff’s sale of the Auxiers’ two Silver Spring properties was set for August, 1985. However, in July of that year, Samuel’s sister-in-law, Helen Auxier, through her trustee, the respondent herein, Rita Roeder (Roeder), foreclosed on a deed of trust to the properties dated January, 1979, but not recorded until April, 1980.

The deed of trust purported to secure a $100,000 loan from Helen to Samuel. Helen then purchased the two properties ¹⁸⁸ at the foreclosure sale for $100,000; nevertheless, Samuel and Mary retained possession of the properties. Wellcraft contested the validity of the deed and the resulting foreclosure sale, contending that Samuel Auxier had created the deed of trust to defraud his creditors. Wellcraft’s exceptions to the sale were heard in the Circuit Court for Montgomery County (J. McKenna, presiding).

To attack the deed, Wellcraft called only one witness, Samuel Auxier, who testified that in 1978, with Helen’s approval, he drew three checks on the account of the Dismer-Auxier Co. (a business owned by Helen and managed by Samuel) totaling $100,000. The Dismer-Auxier check journal, maintained by Samuel, listed these checks as “Loan-SJA,” (SJA being Samuel’s initials). Samuel testified that this loan provided the consideration for the deed of trust. Roeder called the only other witness, Helen, the grantee, whose testimony substantially corroborated Samuel’s.

However, serious doubt was cast upon Samuel’s credibility and upon the bona fides of the “loan” when Wellcraft showed that Samuel had failed to list the deed of trust to Helen on his personal financial statement for the year 1979. In addition, Samuel’s own testimony revealed that he misrepresented his assets at a 1982 deposition taken by Well-craft. Moreover, Wellcraft introduced into evidence Helen’s deposition, in which she admitted that she recalled no conversations with Samuel regarding any repayment obligation, from the time Samuel wrote the checks in 1978 until Wellcraft began legal action against Samuel in 1981. In short, the only evidence that the loan was secured from its inception by the deed of trust was the testimony of Samuel and Helen and documents generated by them.

After considering all of the foregoing, the trial judge found that the testimony of Samuel (and presumably Helen) lacked credibility, and further, that by clear and convincing evidence, the conveyance was fraudulent and therefore invalid. Roeder appealed this outcome to the Court of Special Appeals. The intermediate appellate court reversed the trial court, holding that the evidence was insufficient to ¹⁸⁹ establish that the deed of trust was invalid as a fraudulent conveyance. Roeder v. Auxier, 70 Md.App. 50 , 519 A.2d 1323 (1987).

Wellcraft then petitioned this Court for a writ of certiorari which we granted. We begin our analysis by noting that Maryland Rule 8-131(c) requires that the judgment of the trial court be left undisturbed unless clearly erroneous and due regard will be given to the opportunity of the trial court to judge the credibility of the witnesses. The party alleging that a conveyance should be set aside as fraudulent initially bears the burden of proving the fraud. Sullivan v. Dixon, 280 Md. 444, 448-449 , 373 A.2d 1245 (1977).

Nevertheless, “[i]t is well established in this State that facts and circumstances may be such as to shift the burden to the grantee to establish the bona fides of the transaction.” Berger v. Hi-Gear Tire and Auto Supply Inc., 257 Md. 470, 475 , 263 A.2d 507 (1970). This Court has long recognized this procedure. In McCauley v. Shockey, 105 Md. 641 , 66 A. 625 (1907), we stated: From the nature of the case, a creditor attempting to set aside a conveyance as fraudulent can seldom prove as an independent fact the knowledge of or participation in the fraud of the grantor by the grantee. That knowledge or participation must be gathered from the various facts and incidents composing the transactions and its environment.

The primary presumption here as elsewhere is in favor of innocence and good faith, but a state of facts may be shown which will negative that presumption and cast upon the grantee the burden of proving his good faith and nonparticipation in the fraudulent purpose of the grantor. 105 Md. at 646 , 66 A. 627 . In Berger , we set forth nine “generally recognized” indicia of