(273 S.W.)

tent on the part of W. E. Whitaker to so cheat and defraud his creditors. The lower

court held the transfer fraudulent and from that judgment appellant appeals.

WHITAKER et al. v. DAVIDSON. (Court of Appeals of Kentucky. June 19, 1925.) [1-3] Appellant first insists that the peti214(3)-Allegation of petition tion is defective in that it fails to aver that taken as true on demurrer.

1. Pleading

Allegation of petition that transfer of note sought to be set aside was made without consideration must be taken as true on demurrer.

2. Fraudulent conveyances 169 Assignee of note, transferred without consideration, not "bona fide purchaser."

One to whom note is transferred without consideration is not bona fide purchaser, within saving clause of Ky. St. § 1906, though without knowledge of transferor's intent to defraud creditors.

[Ed. Note. For other definitions, see Words and Phrases, First and Second Series, Bona Fide Purchaser.]

3. Pleading 403(5)-Failure of petition to set aside transfer of note to aver assignee's knowledge of assignor's fraudulent intent held cured by answer and other pleadings.

Failure of petition to set aside transfer of note, as made to defraud creditors, to aver that transferee had knowledge of transferor's fraudulent intent, held cured by answer alleging lack of knowledge, which was traversed of record and treated as issue.

he had knowledge of the alleged fraudulent intent of his brother. The petition, however, avers that the transfer was made without consideration, and if that allegation be true, as it must so be taken on demurrer, then

appellant was not a bona fide purchaser of

the note, and so not within the saving clause of section 1906 of the statutes supra. Hence the petition stated a good cause of action. Moreover, in his answer, appellant specifically pleaded his lack of knowledge of the fraudulent intent of his brother, which allegation was traversed of record, and was treated by the parties as an issue in this case. It is therefore obvious that there is

no merit in the first contention of appellant.

[4] The other contention of appellant is that the evidence does not support the finding of the chancellor, and with this contention we agree. The facts shown are that about 1917 W. E. Whitaker, who was then in very good circumstances, bought a horse on credit from the appellant for the sum of $200. It is true that appellant does not remember where he got this horse, but, inasmuch as this suit was filed about 5 years after this transaction, during which time appellant had been a very busy man, this failure of memory on his part, while it may arouse a suspicion, does not amount to proof of fraud. In the same year appellant sold his brother, also on credit, $50 worth of hay. There was no charge made on any books for either the horse or the hay, nor was any note given for the same, but this is not even suspicious, because brothers who live in affectionate relationship and trust one another do not often require notes or make charges on books as evidence of transactions between them. Between 1917 and the fall of 1920, appellant lent his brother at various times sums of money; the last amount being $200, in September, 1920, at which time appellant

appellant a note covering the then indebted

W. J. Baxter, of Nicholasville, for appel- and his brother testified that the latter gave lants. Lewis L. Walker, of Lancaster, for appel-ness of W. E. Whitaker to appellant amountlee.

ing to $700. The United States revenue stamps on this note were canceled either one DIETZMAN, J. This is an action brought or two years after the date of the note. We by the assignee of W. E. Whitaker, under state it thus indefinitely as the note has been sections 1906 and 1907 of the Kentucky Stat- lost from the record; but it is agreed beutes, to set aside a transfer of a note by tween the parties that the statement as made W. E. Whitaker to his brother, the appel- is correct. Again it is sought to give a sinislant Arch Whitaker, because, as alleged, such ter aspect to this by inferring that the note transfer was made without consideration was dated back, but that the parties failed and for the purpose of cheating, hindering, to date the cancellation of the stamps back. delaying, and defrauding the creditors of W. On the other hand, it is well known that, in E. Whitaker. The appellant pleaded that transactions between laymen ignorant of the he was a bona fide purchaser for value of requirements of the United States revenue said note and without knowledge of any in-laws, notes were often given without stamps

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being affixed thereto, and later, when some [ February came on to be tried and a verdict question came up in law about such notes, was rendered against him for $5,500, which stamps were then affixed and canceled. W. E. Whitaker was solvent at the time this note was given. It was payable in January, 1921. After giving the note, he entered into a contract to purchase some land. He had been dealing extensively in lands and, when the slump came in the winter of 1920 and spring of 1921, he was unable to meet his maturing obligations. In February, 1921, he was sued on this land contract made in the previous fall. In the meantime he had been unable to meet the note due appellant in January and he gave to him as collateral security a note for $1,750, the maker of which was one Whiteted. Whiteted made an assignment for the benefit of his creditors in February, 1921. It is not clear by any means that, excluding the contingent liability W. E. Whitaker was under on account of the suit filed against him in February, he was then insolvent in the sense that his assets were not equal in value to his liabilities, although he was having a hard time to met his maturing obligations, due to lack of ready cash.

The evidence, without a doubt, discloses that, in order to raise ready cash, he tried to sell this Whiteted note to other people in Garrard county, and for as low a sum as $1,250. He was unable to sell it, however, because although, as it turned out, the property on which this note was a first lien was amply sufficient to discharge it in full, and did so do, yet at that time the maker of the note had made an assignment, there was about two years back interest on it unpaid, both of which facts affected its marketability very much. Moreover, securities of the highest type, such as government bonds, were then selling at a great discount and the prevailing rate of interest in Garrard county, where money was exceedingly hard to get and land values were dramatically tumbling, was 8 per cent. Being in need of some ready cash, W. E. Whitaker on March 3, 1921, transferred the note to the appellant in payment of the $700 note that had fallen due in the previous January and for an additional sum of $700, which the evidence clearly and satisfactorily shows was then paid by appellant to his brother in cash and out of his bank account in the Farmers' Exchange Bank of Nicholasville, in which town appellant then was and had been for some time conducting a restaurant business. A copy of his bank account has been brought to this court, beginning August 10, 1920, and running to June 29, 1921. It shows that his balance during that period, except toward the latter part thereof, averaged from $400 to $600 and ran as high as even $800. We do not think there can be any doubt but that this money was paid to W. E. Whitaker, and was appellant's money.

In August, 1921, the suit which had been

verdict probably made W. E. Whitaker insolvent. He thereafter filed his assignment and still later his petition in bankruptcy. The appellant says that he did not know anything about this suit being filed against his brother until long after the verdict above mentioned had been rendered. At this time they were living some 16 or 20 miles apart, and there is nothing unusual in this statement. There was a great deal of evidence introduced, to which no objection has been made, to the effect that the appellant and his brother were both men of high character and integrity, well thought of as honest men in the community in which they lived. Both of them swear that there was no intent to cheat or defraud any creditors and that Arch Whitaker particularly took this note innocently and for value. W. E. Whitaker swears that he thought himself solvent in the spring of 1921, in that his assets equalled his liabilities, and he still insists that, had he not been pushed, he could have paid out in full, at least in the absence of the verdict rendered against him in the following August. Appellant and his brother have both made a full disclosure of all the transactions surrounding the transfer of this note. It is true that the note on their statement was sold at quite a discount, but, as pointed out above, even government bonds were selling at a discount of almost 15 per cent. at this time, and the market value of a note, as is well known, is undoubtedly affected by the fact that the maker of the note has made an assignment, and there is much back interest unpaid. Hence we do not regard the discount at which this note was sold under the facts of this case as a very convincing badge of fraud.

[5] Fraud must be proven. In the case of Winfrey's Trustee v. Winfrey, 150 Ky. 138, 150 S. W. 42, which was an action brought to set aside an alleged fraudulent conveyance, this court said:

"It is frequently difficult to prove fraud, save by circumstantial evidence; and where the parties, charged with the fraudulent collusion, occupy the position of parent and child, brother and sister, or husband and wife, the court will scrutinize most closely transactions between them. The mere fact of relationship of the parties, and loss to the creditors, is not sufficient to establish fraud. The presumption of integrity of purpose in their transactions is not overcome, except by direct or circumstantial proof sufficient to produce a conviction of the existence of fraud." Cf. S. Rose Co. v. Hasenzahl, 141 Ky. 676, 133 S. W. 547.

In the case at bar, the facts to establish fraud are no stronger than those held insufficient in the Winfrey Case, supra, and in the cases of American Brewing Co. v. McGruder, 32 S. W. 603, 17 Ky. Law Rep. 762;

(273 S. W.)

956; Interstate Petroleum Co. v. Farris, 159 | Ky. 820, 169 S. W. 535; and Carter v. Braswell, 186 Ky. 760, 217 S. W. 1019.

Therefore the judgment of the lower court, holding the transfer here in question was fraudulent, is erroneous, and for that reason it is reversed, with directions to dismiss appellee's petition.

In 1907, W. T. Ferguson died. Thereafter a dispute arose between the Ferguson heirs and Kirtley, as to who would own the coal under this land after October 1, 1922, when the lease to Moore expired. This matter was submitted to arbitration. The arbitrators decided that Kirtley should be the owner of three-tenths and the Ferguson heirs seventenths. Just why the Ferguson heirs agreed to this we cannot understand, nor are we concerned in it, as they did agree to it. Aft

The record in this case is of the same character as that condemned in the case of Pendleton v. Garrard Bank & Trust Co. (Ky.) 272 S. W. 917, decided on June 5, 1925. How-er this arbitration, the Ferguson heirs, as ever, as the clerk and reporter who made the record in that case are the same as the ones who made it in this case, we will not add a penalty in addition to that imposed in the case supra, but simply call attention again to the fact that records of this character should not be sent to this court.

parties of the first part, and Kirtley and his wife, as parties of the second part, leased this coal to the defendant, Memphis Coal Company, as party of the third part, and inserted in the lease this provision:

"In the event said mines should, during the continuation of this lease, be abandoned by party of the third part, or if it shall, during said time, cease the operation of its mines for a period of 12 consecutive months, or if it shall

MEMPHIS COAL CO. et al. v. FERGUSON cease the operation of its mine 12 consecutive

Wilkins & Sparks, of Greenville, for appellants.

months for any cause, except for necessary repairs, or on account of strikes, panic, or for other causes unavoidable, and without its control, then this lease, in that event shall terminate and cease, and said property, herein mentioned and leased, shall revert to the parties of the first and second parts."

This lease merely extended the former lease for 50 years, or until March 9, 1972. Some years after this lease was made, the mining of the coal under this property ceased, and no coal was mined for a period of 8 years, and during that time the Ferguson heirs stated that they had canceled the lease, and when asked to waive the forfeiture and permit the property to be developed, refused to do so. For some reason, which we cannot understand, the defendants concluded would be to vest the title to this coal in the

that the effect of the cancellation of the lease

Kirtleys, and accordingly, they took a deed from the Kirtleys for the coal underlying this tract of land, and when the Ferguson

R. Alexander, of Calhoun, and T. F. Birk- heirs brought this suit to quiet their title to head, of Owensboro, for appellees.

DRURY, C. The appellees, whom we shall refer to as "the Ferguson heirs," were adjudged to be the owners of seven-tenths of the coal underlying 140 acres of land. In 1902, W. T. Ferguson, ancestor of appellees, leased to J. W. Moore the coal underlying 140 acres of land for a period of 20 years. Moore assigned and transferred this lease to the defendant, Memphis Coal Company. In 1905, W. T. Ferguson sold the surface of this tract of land to the defendant H. K. Kirtley, and inserted this in the deed:

"The party of the first part (W. T. Ferguson) reserves the coal as per conditions named in the lease to J. W. Moore dated October 1, 1902, and recorded in Deed Book T, page 429, in the McLean county clerk's office."

this coal, the defendants in their answer set up these matters, and pleaded that the plaintiffs, by stating that this lease had been canceled and by refusing to waive the forfeiture, had induced them to believe that the title to this coal was vested in the Kirtleys; that after that they bought from the Kirtleys and that the Ferguson heirs are now estopped to assert title to these premises. They rest their whole case upon this plea of estoppel. A more feeble and visionary defense than this would be hard to imagine. Just how they reason out that the forfeiture of this lease would vest the title in the Kirtleys, we cannot see, and as no other defense is suggested, the court's action in sustaining a demurrer to the pleading of the defendants, and in adjudging the Ferguson heirs to be the owners of seven-tenths of this coal is correct.

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(273 S.W.)

Moore & Moore, of Hazard, for appellant. | could not do this. The council cannot repeal Faulkner, Stanfill & Faulkner, of Hazard, the statute. The duty and power to receive for appellee. taxes is the duty and power to collect them. There was no duty imposed on plaintiff, as city clerk, to collect these sums, and, as it was imposed on him in addition to his regular duties, plaintiff relies on the case of Slayton et al. v. Rogers et al., 128 Ky. 106, 107 S. W. 696, where this court said:

DRURY, C. Appellant, whom we will refer to as plaintiff, was the clerk of the city of Hazard. He sued the city to recover a balance of $2,280.06, which he claims is due him for collecting street improvement taxes. The court sustained a demurrer to his petition, and he has appealed. His suit is based on this action taken by the city council on October 11, 1920:

"Geo. E. Saufley, having accepted the appointment for the collection of the street improvement tax, and requests that he be allowed the sum of 12 per cent. for the collection of said tax, and keeping the books thereon against each property owner, and, upon motion duly made and seconded, it is ordered that he be allowed said amount for collecting said taxes; all voting for same."

Section 161 of our Constitution is:

"The compensation of any city, county, town or municipal officer shall not be changed after his election or appointment, or during his term of office; nor shall the term of any such officer be extended beyond the period for which he may have been elected or appointed."

Plaintiff was at that time the clerk of the city of Hazard. This would be in addition to his salary as city clerk, and hence this action of the city council was void. Section 3563 of the Statutes among other things provides:

walks

"The improvement of public ways and side* shall be made at the exclusive cost of the owners of real estate abutting on such improvement, * ** and a tax shall be levied upon such lots or parcels of real estate for the payment of the cost assessed thereon, which tax shall be due and payable at the city treasurer's office," etc.

Also:

"The city treasurer shall keep in his office, in a book to be provided for that purpose, a record of all assessments of local taxes as

provided in this section, showing the name and portion of the street in which the improvement is made, the character of the improvement and the names of the persons against whose property the assessments are made."

And:

"Upon payment of any improvement tax to the treasurer, he will make proper entry thereof in the record book herein provided for, whereupon the lien for such tax shall stand released."

This shows conclusively that it was the duty of the city treasurer to collect this tax; and it is shown by the petition herein that the city then had a treasurer and the council sought by this action to relieve the reasurer of work imposed on him by the statutes. It

"Where an officer or employé performs extra services outside of official duties, and with which they have no affinity or connection, and which do not interfere with his official duties, he is entitled to compensation."

However, in that case, the services performed were rendered under an appointment which the fiscal court had the power to make. The services there were not by law imposed on any one else, and in this case they were. Hence the council had no authority in this case to employ plaintiff to do something that it was made the duty of the treasurer to do by the statute. The judgment is affirmed.

[Ed. Note.-For other definitions, see Words and Phrases, First and Second Series, Trial by Jury.]

2. Jury29(5)-Trial for felony by seven jurors by agreement held unauthorized and unconstitutional.

Conviction of accused for a felony, on trial by seven jurors instead of 12 by agreement of parties, held void as denial of ancient mode of trial by jury guaranteed by Const. § 7, and not authorized by Const. § 248, and Ky. St. §§ 2252, 2268; accused's bad faith in making such agreement being immaterial.

3. Criminal law 1090(1)-Only errors not appearing on face of record must be made part of record by bill of exceptions.

Only errors not appearing on face of record must be made part of record by bill of exceptions to merit review. 4. Criminal law

1090(1)-Bill of exceptions held not necessary, where error appeared on face of record.

Bill of exceptions held not necessary, where error in trying accused before jury of less than 12 appeared on face of record in trial court.

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