Opinion
Argued October 15, 1925
Affirmed November 24, 1925 Rehearing denied January 26, 1926
From Marion: GEORGE G. BINGHAM, Judge.
For appellant there was a brief and oral argument by Mr. John Bayne.
For respondents there was a brief and oral arguments by Mr. W.C. Winslow.
For the petition, Mr. John Bayne. Contra, no appearance.
This suit was prosecuted by plaintiff, as trustee in bankruptcy, against J.B. Peyree and Ida Peyree, husband and wife, and their son, John Peyree, for the purpose of canceling two deeds to real property made by the son to his father on November 3, 1920, which property consisted of an undivided one-half interest in 98.6 acres of farm land in Polk County and an undivided one-half interest in a house and lot in Salem, Marion County. Plaintiff asserts that the conveyances created voidable preferences under subdivisions (a) and (b), Section 60, of the federal Bankruptcy Act (U.S. Comp. Stats., § 9644), and that they were executed by John Peyree with the intent and purpose on his part to hinder, delay and defraud his creditors in the collection of their claims against him, in violation of subdivision (e), Section 67, of that act (sec. 9651).
On February 2, 1921, an involuntary petition in bankruptcy was filed in the United States District Court of Oregon, against Peyree Company, a partnership consisting of John Peyree and George B. Jacobs, and against each of the partners individually. Among other things, the petition alleged that, on October 29, 1920, the partners were insolvent and were without funds to meet their debts, and that, on that date, for the purpose of preferring the First Bank of Bay City, to which bank they were indebted in the amount of $5,000, they transferred all the partnership property to the bank by executing a mortgage lien thereon to secure the payment of such sum. The alleged bankrupts, through their attorney, confessed the petition and were adjudged bankrupts as partners and individually. The plaintiff is the duly appointed, qualified and acting trustee of the estate and effects of the bankrupts.
The fourth paragraph of plaintiff's complaint avers that John Peyree, for the purpose of hindering, delaying and defrauding his creditors in the collection of their lawful demands, conveyed his real property to his father, J.B. Peyree, and without any consideration moving from the father to the son; that the grantee accepted such conveyance knowing that the grantor designed and intended thereby to hinder, delay and defraud his creditors in the collection of their just debts, and that at that time the grantee had reasonable cause to believe, and did believe, that his son John was then insolvent; further, that J.B. Peyree, at the time the conveyances were executed and delivered to him, had reasonable cause to believe that the enforcement of such transfers of real property would effect a preference in his favor and would enable him to realize a greater percentage on his debt than any of the other creditors of the same class would be enabled to realize.
For answer, the defendants admit the filing of a petition in bankruptcy and the adjudication of the material facts therein averred, the election and appointment of the plaintiff as trustee as averred in the complaint, and the execution of the deeds in question, but deny each and every allegation contained in the complaint not admitted. For further and separate answer the defendants allege, among other things, that John Peyree was indebted to J.B. Peyree in the sum of $7,750, and that, on November 3, 1920, in consideration and satisfaction of that indebtedness, John Peyree made and delivered to J.B. Peyree two deeds conveying to him an undivided one-half interest in the property described in the complaint. They then allege that the conveyance was made in good faith between the father and the son.
The plaintiff replied to the new matter contained in the answer. On the trial, the court made the following findings of fact and conclusions of law: That on November 3, 1920, John Peyree was indebted to his father, J.B. Peyree, in a sum in excess of $7,000, for moneys advanced to him by J.B. Peyree from time to time and used by him in his sawmill business in Tillamook County, Oregon; that prior thereto defendant John Peyree was the owner of a half interest in and to the real property described in plaintiff's complaint, and that, on that date, to secure J.B. Peyree in the payment of the moneys advanced to him, John Peyree made, executed and delivered to J.B. Peyree deeds conveying his undivided one-half interest in and to that property, which deeds constitute mortgages against the property; that on November 3, 1920, the date the transfers were made and accepted, J.B. Peyree had no reason to know, and did not know, that John Peyree was insolvent or intended to create a preference, nor did he have sufficient knowledge or information to put him on inquiry as to the financial condition of John Peyree, and that J.B. Peyree, in accepting the deeds as security, acted in good faith.
As a conclusion of law, the court found that the deeds executed by John Peyree to J.B. Peyree constituted mortgages to secure to the mortgagee the indebtedness then existing and owing to him by the mortgagor.
Based upon its findings and conclusions, the court decreed that the plaintiff's complaint be dismissed.
The plaintiff, appealing, asserts that the court erred in excluding testimony on the ground of "privilege," and in making certain findings of fact.
AFFIRMED.
Since this case was appealed, and during the month of January, 1925, J.B. Peyree died in Marion County, Oregon; and, upon her application therefor, Ida Peyree, administratrix, was, by an order of this court, made a party respondent herein in lieu of J.B. Peyree, deceased.
The deeds involved in this suit were drawn by A.O. Condit, attorney at law, now deceased, who was offered as a witness by plaintiff to prove declarations made by defendants J.B. Peyree and John Peyree. The first assignment of error relates to the court's refusal to permit Mr. Condit to testify for plaintiff as to what the defendant J.B. Peyree "said concerning the intent and purpose of executing the deeds described in the complaint" when he called at Condit's office just prior to November 3, 1920, and advised him that John Peyree would be in to have him prepare the deeds. Objection was interposed on the ground that the communication was privileged.
For centuries, the common-law doctrine has maintained the rule that communications between an attorney and his client during and by reason of their relations as such, made in confidence and to enable the attorney to perform his professional duty in regard to the subject matter of the communication, are deemed privileged. The common law recognized such communications as privileged, and our Code, at Section 733, has enacted:
"There are particular relations in which it is the policy of the law to encourage confidence, and to preserve it inviolate; therefore, a person cannot be examined as a witness in the following cases: * *
"(2) An attorney shall not, without the consent of his client, be examined as to any communication made by the client to him, or his advice given thereon, in the course of professional employment. * *"
Note the language. The seal of secrecy is placed upon "any communication" made by a "client" to his attorney "in the course of professional employment."
See State v. Gleason, 19 Or. 159 ( 23 P. 817); Minard v. Stillman, 31 Or. 164 ( 49 P. 976, 65 Am. St. Rep. 815); Young's Estate, 59 Or. 348 ( 116 P. 95, 116 P. 1060, Ann. Cas. 1913B, 1310); McNamee v. First Nat. Bank of Roseburg, 88 Or. 636 ( 172 P. 801); Bryant v. Dukehart, 106 Or. 359 ( 210 P. 454); 10 Encyclopedia of Evidence, 205; Weeks on Attorneys at Law, §§ 141-182 incl.; 4 Jones' Commentaries on Evidence, § 748; 5 Wigmore on Evidence, §§ 2290, 2291, 2292, 2297; 1 Thornton on Attorneys at Law, Chap. 6; notes, Ann. Cas. 1913A, 3-14; 66 Am. St. Rep., 213-226.
"The term `client,' as used in a statute, should be understood in its most enlarged sense, and the prohibition should close the mouths of all who have listened to disclosures looking to professional aid." Weeks on Attorneys at Law, § 143.
It is suggested that the attorney had not been paid at the time of the communication. While some kind of employment establishing the professional relation must exist, a formal retainer is unnecessary. Moreover, the seal of secrecy does not rest upon the payment of a retaining fee: 1 Thornton on Attorneys at Law, § 109; Weeks on Attorneys at Law, § 154.
The question of the competency of the witness to testify to the matter alleged to be privileged was a question of law to be determined by the court from a preliminary examination of the witness. If the attorney was employed as a mere scrivener to draft the deeds in question, he was a competent witness: 4 Jones' Commentaries on Evidence, § 751a, p. 504. On the other hand, if the attorney acquired his knowledge of privileged matter from a communication made to him by a client by virtue of and in the course of the attorney's employment as such, he was not a competent witness. It is essential, however, that the communication, to be privileged, be conveyed to the witness while the relation of attorney and client exists, or during a conference held for the purpose of forming such relation: 10 Ency. of Evidence, p. 230.
From time to time, the seal of secrecy may defeat justice. But eminent courts have declared:
"Truth, like all other good things, may be loved unwisely, may be pursued too keenly, may cost too much; and surely the meanness and the mischief of prying into a man's confidential consultations with his legal adviser, the general evil of infusing reserve and dissimulation, uneasiness, suspicion and fear into those communications which must take place, and which, unless in a condition of perfect security, must take place uselessly or worse, are too great a price to pay for truth itself." Pearse v. Pearse, 1 De Gex S. 25.
So far as disclosed by the record, the declaration sought to be adduced as evidence in the instant case was within the rule that the subject matter of the communication made by the client to his attorney must relate to the business and interest of the client. J.B. Peyree had, directly or indirectly, loaned to his son John Peyree about $7,000, taking notes as security therefor. The trial court found this to be the sum due the father, which fact was established by abundant evidence, including that of the assistant cashier of Ladd Bush Bank, where John had received the money. From time to time the son, when obtaining loans of money, promised his father that he would secure him for all advances by a conveyance of the real property involved herein. John Peyree resided in Tillamook County, while the father's home was in the Waldo Hills in the county of Marion. Whether the son ever visited his father at any time other than when he wanted money, we are not informed. However, the son came from Tillamook County just prior to the making of the deeds on November 3, 1920, and remained at his father's home overnight. Immediately thereafter, the father visited the law office of his former attorney and told the attorney, in substance, that John would come to his office soon to have some deeds drawn conveying real property to him, the father. In keeping with the engagement of the father, the son soon thereafter appeared at the office of the attorney. The deeds were drawn by the attorney and executed by the son. The attorney witnessed the son's signature, took his acknowledgment thereto, and thereafter caused the deeds to be recorded. The recordation of these deeds inured to the benefit of J.B. Peyree, the father.
The question propounded to the witness, that called forth the objection, reads:
"What did he (J.B. Peyree) say, if anything, with reference to the reason for wanting you to draw the deeds?"
Whether the answer expected from the witness was competent as evidence we are unable to say. Counsel made no statement to the court as to what he expected to prove by the witness. But we gather from his brief that J.B. Peyree made communications to the attorney tending to show that he was a preferred creditor. This is a case in equity, but the testimony was not taken under the rule governing procedure in an equity suit. The attorney never testified in any proceeding as to what declarations were made to him by J.B. Peyree. He did testify, however, concerning representations made to him by John Peyree, but such testimony was given only after John had removed the seal of secrecy by taking the witness-stand in his own behalf. Section 734, Or.L., provides:
"If a party to the action, suit, or proceeding offer himself as a witness, that is to be deemed a consent to the examination also of a wife, husband, attorney, clergyman, physician, or suregon, on the same subject, within the meaning of subdivisions 1, 2, 3, and 4 of the last section."
See local citations in annotations to section quoted.
The defendant J.B. Peyree was called as a witness by the plaintiff, but was not placed on the witness-stand by the defense. John Peyree was called by the defendant and testified to a number of things, including his visit to, and business transacted at, the attorney's office. Thereafter, the attorney was called and permitted to testify, in the matter of the statements made to him by John Peyree that —
"After the deeds were drawn and signed and the transaction was practically completed, he told me that he had made the deeds to his father to secure him for about $4,000 which his father had advanced to him. He said he did it because he thought some of his creditors were trying to take an undue advantage of him, and he was going to show them a trick or two."
The defendants assert that John Peyree was not an insolvent on the date he executed the deeds involved herein. A judgment rendered in the federal court is conclusive as to all matters actually determined by the court: Or. L., § 756. See, also, United States Nat. Bank v. Shehan, 98 Or. 155, 161 ( 193 P. 658); Haney v. Neace-Stark Co., 109 Or. 93 ( 216 P. 757, 219 P. 190); 7 C.J. 88. We have seen that the court decided that the partnership and the individuals constituting such partnership were bankrupt at a time prior to the execution of the deeds in question. The act of bankruptcy charged in the petition is of date October 27, 1920: Lazarus v. Eagan, 206 Fed. 518, 30 Am. Bankr. Rep. 287, and authorities therein noted.
It is earnestly contended that the deeds assailed in this suit are null and void as against creditors. Every conveyance of lands made with intent to hinder, delay or defraud creditors of their lawful demands is void as against the person so hindered, delayed, or defrauded: Or. L., § 10170. Further, it is not material whether the debt was contracted at the time of the conveyance, if the parties executed the conveyance for the purpose of defrauding creditors: United States Nat. Bank v. Thebaud, 65 Or. 317, 320 ( 132 P. 1168). Again, a conveyance of land to relatives is always closely scrutinized when the good faith of the transaction is assailed by the creditors of the grantor: Garnier v. Wheeler, 40 Or. 198, 201 ( 66 P. 812). But if such conveyances are made in good faith, and are genuine, and violate no rule of law, they will be sustained: Jolly v. Kyle, 27 Or. 95 ( 39 P. 999), and cases cited.
In the case at bar, an affirmative defense of the good faith of the transaction is pleaded as new matter in the answer, and it becomes necessary for the defendants to prove the allegations of good faith. It is likewise necessary for the plaintiff to establish the material allegations of his complaint. A case in point is that of Homan v. Hirsch, 106 Or. 98 ( 211 P. 795), wherein a mortgage deed was assailed upon the ground that it preferred the grantee as a creditor over other creditors of the grantor, who was alleged to have been an insolvent at the time of the transaction. In discussing that case, Mr. Chief Justice BURNETT, speaking for this court, said:
"In order to defeat the deed, the trustee must show (1) that there was a transfer; (2) that at the date thereof the debtor was insolvent; (3) that the transfer operates as a preference in favor of the creditor to whom it is given over other creditors of the same class; and (4) that the individual receiving the transfer shall then have reasonable cause to believe that the transfer would effect a preference."
There is in the cause at issue proof of the transfer and the insolvency of the debtor. The evidence also shows that because of the transfer the grantee would have been enabled to obtain a greater percentage of the amount of money due him than the other creditors of the same class will receive. However, the trial court found as a fact that J.B. Peyree neither knew nor had reasonable cause to believe that the transfer would effect a preference over other creditors of the same class, or that John was an insolvent. Moreover, we believe that the trial court rightly found the facts. The declaration hereinbefore noted of John Peyree, the son, to the attorney, was not made in the presence of the father. It is evidence against the declarant, but it is not competent as against his absent codefendant, to whom the conveyance was made. We have searched the record for all testimony in support of the averments of the complaint. We have weighed and considered the effect of all the evidence disclosed by the record. There is an insufficiency of proof of the fourth requisite, as held in Homan v. Hirsch, supra, and cases therein cited, to set aside the deeds. We are not authorized by the law to suppose, imagine, conjecture or guess the old man's rights away. The evidence does show that the father advanced money and credit to his son. It shows that the son failed in business. It shows that the transaction in question was based upon a valuable consideration, but that it took place within four months of the filing of petition in bankruptcy. It shows that the grantor slept under his father's roof the night preceding that parent's visit to the attorney's office to arrange for the drawing of the deeds. But neither one nor all of these circumstances constitute proof that J.B. Peyree was engaged in defrauding the other creditors. Suspicion is not proof. There is testimony to the effect that the grantee not only did not know that his son was an insolvent, but that he had no notice thereof that would have caused him to suspect such insolvency.
In attempting to establish his cause, the plaintiff called J.B. Peyree to the witness-stand. The story told by him upon direct and cross-examination reads like the testimony of an honest man, who possessed full confidence in his son's ability and integrity; and in this conclusion we are corroborated by the testimony of the assistant cashier of the bank. Finally, the testimony of J.B. Peyree, weighed in connection with other evidence, establishes his good faith in taking deeds to the property.
After a full and careful consideration of the whole record and the law applicable to the questions involved, we are compelled to affirm the holding of the lower court. AFFIRMED.
McBRIDE, C.J., and BEAN and BELT, JJ., concur.
Rehearing denied January 26, 1926. ON PETITION FOR REHEARING. ( 242 P. 1112.)
For the facts in this case and the issues made by the pleadings, see our original opinion rendered on November 24, 1925, and reported ante, p. 107 ( 241 P. 62). In that decision, we discussed the case on the theory upon which it had been tried in the court below and upon the assignments of error. After hearing the evidence, the trial court found:
"The said deeds were given by the said John Peyree to the said J.B. Peyree as security, to secure the said J.B. Peyree in the payment of the moneys advanced to the said John Peyree, and such deeds constitute mortgages; that at the time of said transfers, to wit, on the 3d day of November, 1920, and at the time said transfers were accepted by the said defendant, J.B. Peyree, said J.B. Peyree did not know that defendant John Peyree was insolvent, or that said defendant John Peyree intended thereby to create a preference, nor did said defendant J.B. Peyree have such reasonable cause to believe that the said John Peyree was insolvent or intended thereby to create a preference, nor did the said defendant J.B. Peyree at said time have sufficient knowledge or information to put him upon his inquiry as to the financial condition of the said John Peyree or as to his intention in making said deeds, and that the said J.B. Peyree, in accepting said deeds as security, acted in good faith."
The assignments of error relate to the admissibility of evidence, and to the findings set forth above.
Our discussion on the merits did not go beyond the assignments of error. For the purpose of this opinion, we shall assume that the petition is based upon an assignment of error involving Section 67e of the federal Bankruptcy Act (U.S. Comp. Stats., § 9651). Plaintiff not only attempted to prove that the father knew his son to be insolvent, but he undertook to prove that no consideration at any time passed from father to son for the conveyances. His contention was defeated, however, by the evidence, which clearly established a pre-existing and present valuable consideration. The testimony showed that the making and delivery of the deeds was the culmination of a contract long in existence.
Now, referring to the cause of suit based upon the alleged fraud of John Peyree: The plaintiff failed to prove as an essential element of his cause of suit that the son made the conveyance to the father with the intent and purpose of defrauding creditors. Such proof is a prerequisite of the annulment of a conveyance of property on the ground that the transfer was made to defraud creditors within the meaning of Section 67e of the federal Bankruptcy Act: Coder v. Arts, 213 U.S. 223 ( 53 L.Ed. 772, 16 Ann. Cas. 1008, 29 Sup. Ct. Rep. 436, 22 Am. Bankr. Rep. 15, see, also, Rose's U.S. Notes). To establish his cause, plaintiff placed each of the then codefendants upon the witness-stand. They failed to support his averments of fraud.
"When a party producing a witness calls him to the stand, he thereby represents him to the court as worthy of credit, or at least not so infamous as to be wholly unworthy of it." State v. Steeves, 29 Or. 85, 103 ( 43 P. 947, 952).
To like effect is Gowan-Lenning-Brown Co. v. Kingman (Or.), 242 P. 351, decided by this court on January 12, 1926. We find a similar situation in the case of Chance v. Graham, 76 Or. 199 ( 148 P. 63). In that case the plaintiff called the defendant as a witness. Concerning such procedure, this court, speaking through Mr. Justice BURNETT, said:
"The plaintiffs called as their first witness the defendant Marion C. Young, thereby vouching for his credibility."
Under the federal Bankruptcy Act, deeds or mortgages executed within four months prior to the filing of a petition in bankruptcy are not prima facie fraudulent. The burden of proving that the transaction is fraudulent is upon the person instituting the suit to annul the transfer: Halbert v. Pranke, 91 Minn. 204 ( 97 N.W. 976, 11 Am. Bankr. Rep. 620). In Coder v. Arts, 152 Fed. 943, 947 (82 C.C.A. 91, 15 L.R.A. (N.S.) 372), we find the following illuminating exposition of the provisions of Section 67e from the pen of Judge SANBORN.
"It is every intent to hinder, delay, or defraud creditors unlawfully only, not every intent to hinder or delay them, that avails to avoid a transfer made for a pre-existing debt under Section 67e. * * A transfer made in good faith to pay or to secure an honest antecedent debt by an insolvent within four months of the filing of a petition in bankruptcy by or against him constitutes no evidence of an intent on his part to hinder, delay, or defraud other creditors, within the meaning of Section 67e of the Bankruptcy Law, notwithstanding the fact that its necessary effect is to hinder and delay them, and to deprive them of the opportunity they otherwise might have had to collect their claims in full."
That case was appealed to the Supreme Court of the United States, where Mr. Justice DAY, in rendering the opinion, wrote:
"What we hold is that, to constitute a conveyance voidable under Section 67e, actual fraud must be shown." Coder v. Arts, 213 U.S. 223 ( 53 L.Ed. 772, 16 Ann. Cas. 1008, 29 Sup. Ct. Rep. 436, see, also, Rose's U.S. Notes).
That the transfer of the real property involved herein was made by John Peyree to J.B. Peyree with the intent upon the part of John to defraud his creditors is not established by the evidence submitted by plaintiff.
The petition for rehearing is denied.
REHEARING DENIED.
McBRIDE, C.J., and BEAN and BELT, JJ., concur.