Peoples v. AuburnBank

Citations: 814 So. 2d 297; 2001 Ala. Civ. App. LEXIS 152; 2001 WL 367589Docket: 2991325

Court: Court of Civil Appeals of Alabama; April 13, 2001; Alabama; State Appellate Court

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AuburnBank filed a lawsuit against Teoples, Inc., Danny Peoples, and Denise Peoples on March 29, 1999, claiming default on a promissory note and a fraudulent conveyance of real property under Ala. Code 1975, sections 8-9A-4 and 8-9A-5. The bank asserted that Teoples entered into a 'floor-plan agreement' to finance used car purchases, with Danny personally guaranteeing the promissory note. AuburnBank alleged Danny provided a financial statement listing real property to induce the bank’s approval and, on the same day, conveyed that property to Denise without adequate consideration, intending to defraud the bank.

AuburnBank sought a judgment for the amount due on the defaulted note and requested to set aside the property conveyance as fraudulent, aiming to place a lien on the property. Following an ore tenus proceeding, the trial court ruled in favor of AuburnBank, awarding $143,711.37, including interest, and reestablishing Danny's title to the property while imposing a lien in favor of the bank. Denise’s post-judgment motion was denied, leading her to appeal the decision.

Denise's parents had previously gifted her and Danny three acres of land, where they placed a mobile home funded by a lawsuit settlement. Denise later purchased 3.9 acres of land from Freddie Hinson in November 1991. In May 1992, they sold the gifted land and mobile home and used the proceeds, alongside her savings, to construct a house on the new property, which was mortgage-free at the time of occupancy.

During their marital issues, while separated in December 1996, Danny bought 4.53 acres and a mobile home at 345 Lee Road, financing it through a $47,000 promissory note to Farmers National Bank. Denise learned of this purchase after reconciling with Danny in March or April 1997.

Denise testified that she sold the property at 1150 Lee Road for $150,000 to finance the purchase of a more advantageous property at 345 Lee Road, due to Danny's inability to pay a note owed to Farmers National Bank. After selling 1150 Lee Road, she received $147,106.10 and used $48,147.01 to pay off the note on 345 Lee Road, depositing the remaining funds into her personal checking account at Farmers National Bank, which did not include Danny's name. Denise and Danny had an agreement that in return for her paying the note and building a house on 345 Lee Road, Danny would convey his interest in the property to her.

Denise confirmed there was no mortgage on the property and provided canceled checks from mid-1997 that indicated funds were used for construction. A former lending officer testified that Danny borrowed $30,000 in late 1997 to complete home construction, which Denise denied was used for that purpose. When Denise attempted to convey an acre of 345 Lee Road to her daughter, she discovered that the property had not yet been deeded to her, despite their agreement. 

On January 9, 1998, Danny contacted their attorney regarding the deed, which was prepared and signed on February 12, 1998, with a nominal consideration of $10.00. At the same time, Danny executed a promissory note for a $150,000 loan renewal to AuburnBank, based on a financial statement that falsely represented he still owned 345 Lee Road. The loan later went into default. Denise and Danny divorced in July 1998, and the divorce judgment awarded Denise full ownership of 345 Lee Road, free from Danny's claims.

The supreme court outlines three elements necessary to declare a conveyance fraudulent: 1) existence of a creditor to be defrauded, 2) the debtor's intent to defraud, and 3) a conveyance of property from which the creditor could have satisfied their claim. Constructive fraud is established when a debtor conveys property without receiving valuable consideration, regardless of actual intent. In family transactions, the burden shifts to the grantee to prove the legitimacy of the transaction. 

In the case of Champion v. Locklear, a wife purchased property jointly with her husband, making significant financial contributions while the husband was unable to work due to illness. After a judgment was entered against the husband, the creditor sought to set aside the conveyance from husband to wife as fraudulent. The trial court initially agreed, citing constructive fraud. However, the supreme court reversed this decision, highlighting the wife's substantial financial contributions documented through checks and receipts, which supported the conveyance's bona fide nature. The court emphasized that the grantee's proof could include evidence of financial contributions beyond the actual consideration paid. The case illustrates the importance of demonstrating adequate consideration in familial property transactions, even when the conveyance appears to lack it. Additionally, evidence showed that Denise and Danny financed their property purchase through various personal funds, which was not disputed by the opposing party.

AuburnBank did not contest the testimony regarding Denise's financial transactions. Records show Denise deposited $99,314.18 into her checking account, which did not include Danny's name. Denise claimed these funds were used to build the house at 345 Lee Road, with her testimony corroborated by canceled checks. The review of the evidence led to the conclusion that Denise proved she provided valuable consideration for the property, establishing the legitimacy of the transfer from Danny to her. Consequently, the trial court's judgment is reversed, and the case is remanded for further proceedings in line with this decision. Judges Pittman and Murdock concur, while Crawley and Thompson concur in the result. Danny and his partner Gene Tucker operated Teoples, Inc., doing business as D. G Auto Sales, which sold used cars. Neither Danny nor Teoples responded to the complaint, and Danny's location is currently unknown. Although both parties agree the 345 Lee Road parcel is 5.5 acres, a financial statement suggests it is actually 4.5 acres.