Wilkinson, Ignatius M.

English

Fordham University School of Law

Fordham Law Review Volume 2 Issue 4 Article 1 1916 When is a Voluntary Conveyance Fraudulent in New York? Ignatius M. Wilkinson Follow this and additional works at: https://ir.lawnet.fordham.edu/flr  Part of the Law Commons Recommended Citation Ignatius M. Wilkinson, When is a Voluntary Conveyance Fraudulent in New York?, 2 Fordham L. Rev. 77 (1916). Available at: https://ir.lawnet.fordham.edu/flr/vol2/iss4/1 This Article is brought to you for free and open access by FLASH: The Fordham Law Archive of Scholarship and History. It has been accepted for inclusion in Fordham Law Review by an authorized editor of FLASH: The Fordham Law Archive of Scholarship and History. For more information, please contact tmelnick@law.fordham.edu. FORDHAM LAW REVIEWVOL. II APRIL, i916 No. 4WHEN IS A VOLUNTARY CONVEYANCEFRAUDULENT IN NEW YORK?"A conveyance . . . of an estate or interestmade with the intent to hinder, delay, or defraud creditorsor other persons of their lawful suits, damages, forfeitures,debts or demands or a bond or other evidence of debtgiven, suit commenced, or decree, or judgment suffered,with the like intent, is void as against every person sohindered, delayed, or defrauded."Sec. 263, Real Property Law."The question of fraudulent intent in a case arisingunder this article shall be deemed a question of fact, andnot of law, and a conveyance or charge shall not be ad-judged fraudulent as against creditors, purchasers, or in-cumbrancers solely on the ground that it was not foundedon a valuable consideration."Sec. 265, Real Property Law."There is no question that at the time these conveyanceswere made the defendant Lancelot M. Berkley was indebtedto the plaintiff, and the rule of law as stated in Smith vs.Reid, 134 N. Y. 569, is that a voluntary conveyance by oneindebted at the time the conveyance is made is presumptivelyfraudulent as against existing creditors."Per Cohalan, J., in Buhby vs. Berkley, 85 Misc.178.The apparent contradiction between the provisions of thestatute relating to fraudulent conveyances and the opinions anddecisions of the courts, as well as the increasing frequency oflitigation in which unsatisfied creditors seek to set aside disposi-tions of property by their debtors, seems to warrant an examina-tion into the authorities on this subject. The provisions of theReal Property Law quoted (there are similar enactments in thestatutes relating to personal property: Sections 35, 37, 38,Personal Property Law) are only re-enactments of a law whichFORDHAM LAW REVIEWhas been upon the statute books from a very early period in ourjudicial history (2 R. S., Chap. 7, Tit. 3, Secs. 1, 4).The earliest important case in this state dealing with the ques-tion, and the case which ultimately led to the enactment of theprovisions of law referred to, is Reade vs. Livizgston (3 Johns.Ch. Rep. 481), decided by Chancellor Kent in 1818. In that casea creditor attacked a voluntary settlement made by a debtor uponhis wife, and the Chancellor laid down the rule that any voluntarysettlement or disposition of property by a man indebted at thetime was conclusively fraudulent and open to attack at the in-stance of an unsatisfied creditor. This conclusion, reached afteran extended examination of the English cases, he states as followsat page 500 of his opinion:"The conclusion to be drawn from the cases is that ifthe party be indebted at the time of a voluntary settlementit is presumed to be fraudulent in respect to such debts,and no circumstance will permit those debts to be affectedb the settlement or repel the legal presumption of fraud.The presumption of law in this case does not depend uponthe amount of the debts, or the extent of the property insettlement, or the circumstances of the party."This doctrine, that a man's debt casts a shade over all hisproperty, however extensive, preventing any voluntary dispositionof it, comes directly in conflict with the feeling inherent in mostof us and fostered by the common law, that one's property, pro-vided it be more than sufficient to meet his obligations, is his ownto do with as he will. It is not surprising, therefore, that criti-cisms of the rule soon appeared in the cases,' nor that ultimatelythe statutes relating to fraudulent conveyances were enacted tolimit its effect. The purpose of these statutes and their effectwas to make what formerly had been an absolute conclusion oflaw, a question of fact, to be decided in each case, with theproviso, however, that no conveyance should be adjudged fraudu-lent solely upon the ground that it was voluntary.2 The determin-ing element in each case under the statute is the intent with whichthe conveyance is made.3 This element, in addition to the pro-vision that no conveyance should be adjudged fraudulent solelybecause voluntary, it appears has given rise to most of the mis-'Mohawk Bank vs. Atwater, 2 Paige 54, 58; Wickes vs. Clarke, 3 Edw.Ch. 58, 61; Seward vs. Jackson, 8 Cow. 406, 422.'Babcock vs. Eckler, 24 N. Y. 623.'Citizens National Bank vs. Fonda, 18 Misc. 114.FoRDHAm LAw REI Ewunderstanding of the statute by lawyers, and to the apparentlyconflicting decisions of the courts. If a man's state of mind beinnocent of any fraud, the question naturally presents itself, canany disposition of his property, however disastrous to creditors,be declared fraudulent. The courts have met this difficulty byholding that a man is deemed to intend the necessary consequencesof his acts, and that where the inevitable result of his conduct isto prevent payment of his creditors, however innocent his mo-tives, a fraudulent intent will be spelled out as a fact.4 It hasbeen held further that the provisions of the statute that fraudulentintent should be deemed a question of fact do not interfere withthe prerogative of the court to direct a verdict, provided thefraudulent intent be conclusively established on the face of theinstrument of transfer, or by the uncontradicted verbal evidence.5The reason for this is that, in such a case, to direct a verdict, orto set aside'a finding of a referee to the contrary, does not involveimplying a presumption or conclusion of law that the transactionis fraudulent. It merely means that the proof in a particular casepresents no issue of fact for a .jury, and, irrespective of any legalpresumption, conclusively shows fraud in fact.What circumstances then, conclusively warrant the court infinding a fraudulent intent as a fact, and secondly what class ofclaims, coming to the attention of a possible debtor, render anysubsequent transfer of his property without consideration open tofuture attack? Taking up the second question first, the statutehas been liberally construed as its terms warrant, and its operationis not limited merely to the benefit of creditors in the ordinarysense of the term. It has been held that a contingent liability, asendorser on a promissory note,6 a tort liability,7 and even a pos-sible future liability consequent upon engaging in a hazardousbusiness, where property was transferred immediately before en-tering on the same,8 are all such claims as come within the purvieuof the statute. As to the first question, insolvency at the time ofconveyance,9 a conveyance of all one's property when indebted orsubject to contingent liability1" or a conveyance of so much of itas to leave an insufficient amount to pay creditors' claims11 have"Cole vs. Tyler, 65 N. Y. 73; Coleman vs. Burr, 93 N. Y. 17.'Bulger vs. Rosa, 119 N. Y. 459.'Citizens National Bank vs. Fonda, supra.'Martin vs. Walker, 12 Hun, 46.'Young vs. Hermans, 66 N. Y. 374.'Erickson vs. Quinn, 47 N. Y. 410."'Tanner vs. Eckhardt, 107 App. Div. 79.'Cole vs. Tyler, subra.FORDHAM LAW REVIEWall been held to conclude the courts in finding a fraudulent intentin. fact. It may well be questioned whether in so holding thecourts have not overridden the statute's literal requirements thatthe fraudulent intent is always a question of fact on all the cir-cumstances. However, whether justifiably or not, it is settledthat in determining the fraudulent intent the courts will deem actsof more import than words.12 Hence if a party does an act whichmust defraud another, his declaration that he did not intend todefraud, according to the decisions, is weighed down by the evi-dence of his own act. There can be no quarrel, however, withthe expediency of the rule which holds that a man's intent willbe deemed fraudulent if, while indebted or subject to the claimsof others for damages, he disposes of all his property.It is quite another thing, on the other hand, for a court to hold,as in Bushby vs. Berkley, supra, that a voluntary conveyance byone indebted is presumptively fraudulent. This would seem evento disregard the plain terms of the statute which make the ques-tion of fraudulent intent a question of fact. However, a rightunderstanding of the cases and of the purpose intended to beeffected by the statute will, we believe, resolve the question. Thestatute was passed to overcome the effect of the decision in Readevs. Livingston, .supra. That case made fraudulent intent a mat-ter of law whenever a voluntary conveyance while indebted wasshown. In cases criticizing it, it was suggested that in such acase the conclusion of fraud was not absolute, but prima facieonly, in other words, a presumption in the strict sense of the term.The statute, it is submitted, was enacted merely to give effect to'"The statute provides that the question of fraudulent intent in casesof this character 'shall be deemed a question of fact and not of law', and theclaim is made that here there is no finding by the referee of fraudulent intent;but that on the contrary he has found the whole transaction to be fair andhonest. He has, however, found facts from which the inference of fraudis inevitable, and although he has characterized the transactions as honestand fair, that does not make them innocent nor change their essential char-acter in the eye of the law. Mr. Burr must be deemed to have intended thenatural and inevitable consequence of his acts, and that was to hinder, delayand defraud his creditors", per Earl, J., in Coleman vs. Burr, supra."It is also claimed that there was no intent on Crawford's part to defraudhis creditors and that the findings of the judge upon this subject were notsustained by the evidence. It was not necessary that there should be anyactual fraudulent intent. * * * This presumption (of fraud), however,is not to be overthrown by mere evidence of good intent or generous im-pulses or feelings. It must be overcome by circumstances showing on theirface that there could have been no bad intent, such as that the gift was areasonable provision and that the debtor still retained sufficient means topay his debts", per Dwight, C., in Cole vs. Tyler, supra.FORDHAM LAW REVIEWthe doctrine of the cases in support of this latter rule." Thisbeing its purpose as construed by the courts, though its termsadmittedly are much broader, its effect is merely to remove theconclusive rule of law which formerly existed. There are twoleading cases that seem to confirm this. (Kain vs. Larkin, 131N. Y. 300, and Smith vs. Reid, 134 N. Y. 568.) In Kain vs.Larkin, which was an action by a judgment creditor (the judg-ment resulting from a tort liability) to set aside a conveyance bythe debtor, the Court of Appeals, which at that time consisted oftwo divisions, held that under the statute a voluntary conveyance,even by one indebted at the time, was perfectly proper, unlessother circumstances were shown which would justify a finding offraudulent intent in fact. Chief Judge Earl, writing the opinion,said at page 307:"An owner of real estate can make a voluntary settle-ment thereof upon his wife and children without any con-sideration, provided he has ample property left to satisfyall just claims of his creditors . . . and when a judg-ment creditor assails a conveyance made by the judgmentdebtor, he cannot cast upon the grantee the onus of show-ing good faith and of establishing that the grantor wassolvent after the conveyance by simply showing that thedeed was not founded upon a valuable consideration, butthe person assailing the deed assumes the burden of show-ing that it was executed in bad faith and that it left thegrantor insolvent and without ample property to pay hisexisting debts and liabilities."In Smith vs. Reid, which reached the other division of the Courtof Appeals shortly afterward, the court came to an apparentlyopposite conclusion. In that case, per Brown, J., the court said:"The rule is well settled that a voluntary conveyanceby one indebted at the time is presumptively fraudulent."Both of these decisions were considered by the Court of Appealsrecently in the case of Kerker vs. Levy," and finding an apparent""In Jackson vs. Seward, 8 Cow. 406, it was held by the Court of Errorsthat a conveyance or settlement in consideration of blood and naturalaffection, though by one indebted at the time, was prima facie only and notconclusively fraudulent. Subsequently by Section 4 of Title 3, Chapter 7,Part 2 of the Revised Statutes (2 R. S. 137) it was declared that thequestion of fraudulent intent in all cases arising under the provisions ofthat chapter should be deemed a question of fact. * * * The statutesubstantially declares and was intended to declare the doctrine held inJackson vs. Seward." Per Sutherland, J., in Babcock vs. Eckler, supra, atp. 633.206 N. Y. 109.FORDHAM LAW REVIEWcontradiction in them the court, in a short per curiam opinion, heldthat the rule laid down in Smitl vs. Reid was to be preferred tothat of Kain vs. Larkin. It is submitted, however, that rightlyunderstood there is no necessary conflict between the decisions,and that in reality both state correct propositions of law. Thesolution is found in the old distinction between the strict burdenof proof, and the burden of going forward with the proof or theburden of evidence. 15 It seems that the true rule is, and alwayshas been, that, under the statute as interpreted by the deci-sions, there is nothing wrong or to be condemned in a voluntaryconveyance by one indebted whose property remains ample to meethis obligations. A judgment creditor attacidng such a dispositionwould have to show on the whole case the fraudulent intentrequired by the law. In other words, such circumstances sur-rounding the conveyance as insolvency, or a grant of so much ofthe debtor's property as to leave him fairly unable to meet hisobligations, would have to appear to warrant the court in findingthe presence of this intent.1 This is very different, however, fromwhat the course of events would be on the trial of the issues in-volved. It seems that, on such a trial, upon proof of the twofacts of existing indebtedness and voluntary conveyance of thedebtor's property, prima facie a presumption of fraudulent intentarises. Hence a judgment creditor attacking such a conveyance,upon proof of these two facts, could rest his direct case, because,until some explanation were offered, the law would then implysome ulterior motive as the reason for the conveyance, which atthis stage would require a finding of fraudulent intent. Theburden of evidence, or the burden of going forward, would thenshift to the defendant to show, in any way proper to the case, thatno fraudulent intent within the meaning of the law existed infact. Then the burden of evidence to rebut such proof wouldrevert back to the plaintiff. On the whole case, however, theplaintiff could only succeed, since the true burden of proof or theburden of establishing never leaves him, by showing by evidenceclearly preponderating in his favor the existence of facts and cir-"'"But, passing this point with this mere observation, the contestantsassert that the burden of proof is always on the proponents. They seem tohave confounded the 'burden of proof' with the 'burden of evidence'. Thedistinction between the rules relating to either of these burdens is clearlylaid down by late writers of authority on the law of evidence. In thisproceeding when the proponents had rested, the burden of taking up theproof or in other words the 'burden of evidence' was on the contestants,"per Fowler, Surrogate, in Matter of Sperb, 71 Misc. 378.'Babcock vs. -Eckler, supra.FORDHAm LAW REVIEWcunstances from which, as a fact, under the authorities, the con-clusion of fraudulent intent must follow. That this is the trueline of distinction in the cases is evident from the statement ofBrown, J., in Smith vs. Reid, supra:"There was no evidence introduced by the defendantupon the question, and we are of the opinion that the factsstated" (a voluntary conveyance -while indebted) "raiseda presumption that the deeds were executed by Taylor withintent to defraud his creditors, and in the absence of anyexplanation thereof it was the duty of the court to havedetermined the fact of the grantee's indebtedness in accord-ance with such presumption."Clearly, then, the rule of Smith vs. Reid applies only to the primafacie case. In Kain vs. Larkin, supra, there was proof by thedefendant that the conveyance was not voluntary because madein consideration of services rendered and moneys expended by adaughter of the grantor. The conclusion of the trial court wasthat the services would not constitute a sufficient consideration.The Court of Appeals held that it was not clear whether the trialcourt deemed such a contract invalid as a matter of law, orwhether it meant to hold merely that, in this instance, the serviceswere disproportionate in value to that of the property transferred.Hence it sent the case back for a new trial. It is clear, however,that the court's expressions in dealing with the plaintiff's burdenreferred to his burden on the whole issue involved, because thatwas the matter before the court, and not merely to the establish-ment of a prima facie case. It seems, therefore, that the true rulein this state is that a voluntary conveyance by one indebted is notnecessarily improper and subject to avoidance by creditors, ifexplained by circumstances leading to a finding in fact of nofraudulent intent. What these circumstances usually are are dis-cussed supra in this article. Prima facie, however, such a con-veyance unexplained will be presumed fraudulent as a fact.Hence, in the absence of an assumption of the burden of goingforward with the evidence on the part of the defendant, it willnecessitate a finding of fraudulent intent in fact and a decisionsetting aside the conveyance which is the subject of attack.17Although under this rule it seems that the courts have prob-ably carried out the purpose of the legislature in enacting thestatute, which, as stated above, was merely to do away with the"Wilks vs. Greacen, 155 App. Div. 623; Sanitary Fire Proofing andContracting Company vs. Scheidecker, 165 App. Div. 294.84 FORDHAM LAW REVIEWeffect of the decision in Reade vs. Lizingston, it seems equallytrue that in so doing they have disregarded the plain language ofthe law, which is certainly broad enough to make the question offraudulent intent a question of fact in every case and never thesubject of a legal presumption.IGNATIUS M. WILKINSON.FORDHAM LAW SCHOOL.

When is a Voluntary Conveyance Fraudulent in New York?

https://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=1021&amp;context=flr

When is a Voluntary Conveyance Fraudulent in New York?

Abstract

Similar works

Full text

Available Versions

Fordham University School of Law