AGGREGATES ASSOCIATED INC v. M. L. Smith, dba M. L. Smith Construction Co., et al., Defendants.*

Reset A A Font size: Print

District Court of Appeal, First District, Division 1, California.

AGGREGATES ASSOCIATED, INC., a California corporation, dba San Jose Transit Mix Co., Plaintiff and Respondent, v. Paul PACKWOOD, Appellant, M. L. Smith, dba M. L. Smith Construction Co., et al., Defendants.*

Civ. 19921.

Decided: April 17, 1962

Gilbert Moody and J. Hilary Cook, Turlock, for appellant. Frederick S. Reinheimer, San Jose, for respondent.

Defendant Paul Packwood (hereinafter referred to as ‘defendant’) appeals from a judgment in favor of plaintiff in the sum of $1,819.84.


1. Does the evidence support the findings:

(a) That the transfer of Smith's property to defendant was with intent to defraud creditors?

(b) That the transfer was without fair consideration and not accompanied by an immediate change of possession?

2. Did a personal judgment against defendant lie?

3. Were the findings adequate?


Since 1957 defendant Smith had owed plaintiff a sum of money. In April, 1959, Smith was awarded a contract with the city of Turlock to demolish and salvage a block of buildings. Defendant Packwood had been introduced to Smith by one Snider, who had purchased from Smith one of the buildings to be demolished, and who found that Smith was unable to furnish the necessary performance bond to enable him to obtain the contract. Defendant, under an agreement with Smith to be paid $3,000 therefor, put up with the city $10,000 as a performance bond for Smith. In the agreement Smith assigned to defendant, for the payment of the $3,000, moneys to be received from the city contract, and authorized defendant, in case of any default by Smith, to perform the city's contract.

In August, 1959, when all but two of the buildings had been demolished, it became apparent that the work was not going to be completed on time, if at all. Smith was not paying the bills incurred in the demolition work. His workmen's compensation policy had been cancelled for nonpayment of premiums, and the work had stopped. Defendant went to see the Turlock City Attorney who informed him that unless defendant took over the job the city would foreclose on the $10,000 bond and have the work done and the cost taken from the bond money. The city attorney stated that if defendant could make arrangements with Smith to hire defendant to go ahead with the job the city would ‘leave the contract as it is.’ Defendant and Smith's then entered into another contract. In essence defendant was to be Smith's foreman in charge of the Turlock contract to complete the job at a wage of $5 per hour. The contract assigned to defendant ‘all buildings, improvements and property’ acquired by Smith under the city contract. Defendant was to sell the salvaged property, pay Smith's indebtedness incurred or to be incurred on the job, pay himself $2,300 and any loss he might incur on the $10,000 cash bond and return the balance, if any, to Smith at the completion of the city contract. At this time Smith had a considerable amount of material from the wrecked buildings stacked or stored on the sites of the former buildings and in other places.

The day after the execution of the second contract defendant was notified of plaintiff's claim. Defendant thereafter kept the men working on the job, sold some of the salvaged materials, and disbursed the receipts to the creditors supplying labor and equipment on the job. He received $6,627.75 and paid out $5,914.31, or a net of $713.44. His wages came to $820, leaving a balance unpaid thereon of $106.56.1 There is evidence that defendant took a small amount of brick and materials for his own use, crediting their value to Smith's account. Apparently Smith was left in complete possession of much of the stored salvaged material. As a matter of fact, while the second agreement assigned the stored material to defendant, the parties apparently ignored this fact as Smith remained in possession of most of it. Of this stored material defendant apparently sold only two steel beams and the above mentioned small amount of other material, for all of which he accounted in the $6,627.75 exhibit. Smith at all times continued to work on the job. November 14, 1959, the city, after payment to it for $500 for uncompleted work, considered the contract ended.

Plaintiff filed this action against Smith on the debt and against defendant on the theory that the latter was a participant in a transfer to defraud creditors, particularly plaintiff. Smith defaulted and did not appear as a witness. Defendant testified, in effect, that the purpose of the transfer was to enable defendant by completing the job to get his money back, and to save the Turlock contract for Smith.

The court found that on or about August 18, 1959, while insolvent, Smith transferred to defendant his interest in the salvaged building materials and the proceeds thereof, without fair consideration and with the actual intent to defraud plaintiff as a creditor of Smith; that defendant knew of Smith's fraudulent intent; that as a result of the transfer, Smith had no property out of which plaintiff could satisfy its claim; further, that the transfer was not accompanied by a change of possession and control of the property transferred and was not done in compliance with the Bulk Sales Law, section 3440.1, Civil Code. The court rendered judgment against both defendants. Smith did not appeal.


The findings state that while Smith was insolvent, Smith conspired with defendant to transfer and that he did transfer to the latter all the salvaged building materials and the proceeds from the sale thereof; and that such transfer was made with actual intent on the part of Smith and defendant to hinder, delay and defraud plaintiff as a creditor of Smith and that defendant received said transfer with knowledge of Smith's fraudulent intent.

Under the well known rule our duty is to determine if there is any substantial evidence, or any reasonable inferences that may be drawn from the evidence, to support the court's findings.

Section 3439.07 provides: ‘Every conveyance made * * * with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors.’

The question of fraudulent intent is always one of fact. (Fross v. Wotton (1935) 3 Cal.2d 384, 390, 44 P.2d 350.) Direct proof of the fraudulent intent of parties is generally an impossibility. For this reason ‘and because the real intent of the parties and the facts of the transactions are peculiarly within the knowledge of those sought to be charged with the fraud, proof indicative of fraud must come by inference from the circumstances surrounding the transaction, the relationship and interests of the parties.’ (P. 393, 44 P.2d p. 354.)

While insolvency of the transferor is not a necessary element of actual fraud under section 3439.07, where it exists it is a circumstance to be considered in determining the intent of the parties in acting. At the time of the second agreement between the parties, Smith owed plaintiff over $1,800. He owed defendant $2,300. The Credit Bureau was moving against him, and later repossessed his car. He had been unable to produce sufficient collateral to get the bond required by Turlock. Smith had sold to Snider one of the buildings to be demolished, for which Snider had paid Smith $3,000 which Smith had used as premiums on two insurance policies required by Turlock. Smith told Snider he could not get the $10,000 completion bond, and therefore could not deliver the building. Snider introduced Smith to defendant. Work had stopped because Smith was in arrears in payment of workmen's compensation insurance on the job as well as in other bills incurred on the job. Smith's only apparent asset was his Turlock contract. While there is no direct evidence that Smith had no other assets, a reasonable inference from the above facts is that had he had such assets he would not have been reduced to the straits of having to pay the extremely high premium of $3,000 for a $10,000 bond.

Defendant was a used car dealer and therefore must have had some experience in business transactions. It is also reasonable to infer that before defendant would risk $10,000 for Smith, defendant would inquire of Smith exactly what his financial situation was, and had Smith disclosed to him any assets additional to the contract, defendant would have so testified. Moreover, defendant did not testify whether he had or had not asked Smith concerning his financial condition. This failure is significant. From it and the fact that a business man would hardly put up $10,000 for another without inquiring concerning his financial condition, the reasonable inference is that defendant did ask and was told of the indebtedness to plaintiff. Thus, the court's finding that Smith was insolvent and that defendant knew it, is supported by the evidence.

Then we come to the second contract which, to say the least, is a peculiar one. The first agreement had assigned to defendant the ‘moneys to be collected and received by him [Smith] from demolition of buildings * * *.’ It also provided that in the event of default by Smith in performance of the Turlock contract defendant ‘shall have full power and authority to perform for and on behalf of the undersigned, charging the cost and expense of such performance to the undersigned.’ The agreement also assigned to defendant $1,500 to be deposited by Snider with Moody as trustee, to be held as security for defendant.

Notwithstanding the protection given defendant by that agreement, the second agreement is entered into, which, strangely enough, although binding Smith does not bind defendant. Smith, a contractor, hires defendant, a used car dealer, as his foreman in the demolition work, and agrees to pay him $5 per hour for his services. There is no indication that Smith was not competent to carry on the work, hire and fire employees, authority for which was given to defendant. Actually Smith continued to keep the time of the employees, and defendant paid them only on Smith's order. Smith's troubles apparently were not inability to superintend the work. His only troubles appear to have been financial. Why hire a used car dealer? Smith divested himself of all interest in the buildings yet to be demolished, in the materials from those already demolished, and from all money to come from either source—of everything under the contract except the bare contract itself. Probably the reason that the contract itself was not assigned was because defendant was assuming no obligations to do anything either under the Smith agreements or the Turlock contract. ‘The rights, title and authority given to Packwood under the terms of this agreement * * * shall not imply any obligation or agreement on the part of Packwood to keep or perform any of the obligations of said Contract.’ Defendant conceded that if he had taken everything assigned to him by Smith, the latter would have had nothing left.

It is true that the agreement states that the ‘title and authority’ given defendant remains in effect only until all sums owing or to be owed defendant have been paid and the $10,000 deposited with Turlock returned to defendant. This would mean until the Turlock contract was completed. An interesting circumstance bearing on the intent of the parties is that although the title to all the buildings and materials was assigned to defendant, Smith remained in possession of most of the materials, other than the two buildings demolished after the agreement was made.

While, if there is actual intent to defraud on the part of both the transferor and the transferee, the question of whether or not there was fair consideration for the transfer is not material (Abbey v. Zimmerman (1936) 12 Cal.App.2d 311, 55 P.2d 903), lack of such consideration may be considered as bearing upon intent. Obviously there was no fair consideration for the transfer. Defendant bound himself to give Smith nothing in return for the transfer to defendant of all his property. Apparently at the time of signing the second agreement the parties themselves had some question about the adequacy of the consideration, for after signing the typed portion of the agreement which made no mention of consideration, they added in handwriting and signed, ‘In addition to the promises and agreements required herein of Packwood [as we have pointed out there were none], Packwood agrees to pay to Smith $1.00 * * * as additional consideration * * *.’ This, of course, did not help the situation or constitute a fair consideration.

Defendant testified: ‘* * * I could see the handwriting on the wall by that time that I wasn't going to get paid unless I helped myself, and he agreed that I could go ahead and take them off.’ Defendant was talking about brick which he took off the job. His statement that Smith ‘agreed that I could * * * take them off’ is illuminating. Defendant under the second agreement had been transferred the title to these brick as with all other material, with the right to sell to pay Smith's indebtedness to him. If this was a bona fide transfer why did defendant have to obtain Smith's agreement to do what he was entitled to do under the agreement?

The court could have inferred that there was great haste in the making of the second agreement, for defendant testified that the time elapsing from when he talked to the city attorney on how to protect himself (the city attorney suggesting that some kind of arrangement be made with Smith leaving the contract as it was) until the second agreement was drawn up and signed was ‘[p]robably two hours.’ The court also could have inferred that this haste coupled with Smith's continued possession of the materials and presence on the job indicated a desire to conceal the fact of the transfer, all bearing on the question of actual fraud. One does not conceal an honest transaction.

Although defendant denied any intent to defraud, and claimed, in effect, that the transfer was only to protect Smith's indebtedness to him and to ensure the payment of persons working on the job, the circumstances hereinbefore related were sufficient to justify the finding that the purpose of the transfer was not only to protect defendant but Smith against Smith's creditors, particularly plaintiff, and that the intent of the parties was to defraud Smith's creditors.

Another indicia of actual fraud is the transfer without immediate delivery proscribed in section 3440, Civil Code. ‘Every transfer of personal property * * * made by a person having at the time the possession or control of the property, and not accompanied by an immediate delivery followed by an actual and continued change of possession of the things transferred, is conclusively presumed fraudulent and void as against the transferor's creditors while he remains in possession * * *.’

In Woods v. Bugbey (1866) 29 Cal. 466, and Sequeira v. Collins (1908) 153 Cal. 426, 95 P. 876, the person making bricks sold his interest (in the kiln in Woods and in the bricks in Sequeira) but remained in possession and in charge of the operation. The transfer was declared fraudulent as to attaching creditors. Defendant attempts to distinguish these cases because there was no attachment here. This is not a valid distinction. It does not matter what the creditor does; the question is what sort of situation the transfer presents to the creditors. Plaintiff could have attached the property, but that is only one form of remedy open to the creditor. There is no requirement that an attachment be levied in order to establish a fraudulent conveyance. Even assuming that the ancillary remedy of attachment would have to precede trial of an action based upon section 3440 alone, nevertheless a violation of the section raises a presumption of fraud which can be considered in an action involving the question of intentional fraud.

Subdivision (e) of section 3440 provides that the section does not apply to transfers for the benefit of creditors generally. This exception does not help defendant, for he does not claim that the transfer was for the benefit of Smith's creditors generally. The transfer was to ensure the completion of the contract and the only creditors to be paid were defendant and the creditors on the job. The nonpayment of the latter would have caused defendant loss on his bond.


The court found that the transfer was made while Smith was insolvent and without fair consideration.

Section 3439.04 states: ‘Every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration.’ (Emphasis added.) A violation of this section constitutes constructive fraud.

As we have hereinbefore shown, the finding that Smith was insolvent and that the transfer was made without fair consideration is amply supported.

Therefore, the transaction was constructively fraudulent.

The court found that the transfer was not accompanied by an immediate change of possession and control of the property transferred. As we have hereinbefore shown, the evidence clearly shows that there was no change of possession and hence under section 3440 the transfer ‘is conclusively presumed fraudulent and void * * *.’


The court gave plaintiff judgment personally against defendant for the amount of its claim against Smith. Defendant contends that at the most, defendant could be required to account for the money and property received by him; that he did account and showed that most of it went for payment of the cost of carrying on the job, and therefore only a slight, if any, personal judgment should have been rendered against him.

Pedro v. Soares (1937) 18 Cal.App.2d 600, 604, 64 P.2d 776, 778, states: ‘Contrary to the general rule declared in other jurisdictions [citation], a creditor may maintain an action in this state for the satisfaction of his claim against the fraudulent grantee of property which is conveyed to defeat creditors or against the trust fund created by the subsequent sale of that property when there is no adequate remedy at law and the transfer is void under the provisions of section 3442 of the Civil Code. [Citations.] When the grantee with knowledge of such fraudulent conveyance sells the property and converts the proceeds to his own use, he will be held liable to the creditor for the amount received therefrom to the extent of the creditor's claim. [Citations.]’ The court quoted from 12 California Jurisprudence, page 1043, section 84: “Where the property alleged to have been fraudulently conveyed to the defendant is shown to have been sold by the grantee or converted to his own use the court will direct the defendant to account for the value thereof to the creditors and will enter a personal judgment against the grantee for the amount.”

Section 3442, Civil Code, there referred to and since repealed, provided that any transfer made without a valuable consideration by a party while insolvent was fraudulent and void as to existing creditors. Its substance is now contained in section 3439.04. See also Hy-Lo Unit & Metal Products Co. v. Ryon (1937) 21 Cal.App.2d 38, 43, 68 P.2d 393, which recognizes the rule that where the property fraudulently transferred is not available to subject it to the defrauded creditor's claim, a personal judgment will be against the transferee. (See also 23 Cal.Jur.2d § 99, pp. 544–545.)

The early case of Goodwin v. Hammond (1859) 13 Cal. 168, answers defendant's contention that he is entitled to set off the moneys paid out by him from the sale of the property transferred: ‘Where the fraud is actual and characterizes the transaction ab initio, we think the better rule is, that the deed is void for any purpose of protection to the fraudulent actor.’ (P. 170.) 24 American Jurisprudence, page 271, refers to Goodwin in support of the statement, ‘Where the transferee had knowledge or notice of the transferrer's fraudulent design, his rights are inferior to those of the transferrer's creditors. In such case, he has no claim to be protected to the extent that he has paid value for the property.’ (See Swinford v. Rogers (1863) 23 Cal. 233; Burke v. Koch (1888) 75 Cal. 356, 17 P. 228; Butler v. San Francisco Gas, etc. Co. (1914) 168 Cal. 32, 39, 141 P. 818; Rossen v. Villanueva (1917) 175 Cal. 632, 635, 166 P. 1004; Henderson v. D. S. Denehy Mercantile Co. (1920) 48 Cal.App. 41, 191 P. 558.)


Defendant objected to the findings as made on the ground of insufficiency of the evidence to support them. As we have pointed out the evidence was amply sufficient to support the findings on actual and on constructive fraud. They fully support the judgment rendered. In view of our decision we deem it unnecessary to consider whether or not the findings concerning violation of the Bulk Sales Law (§ 3440.1) are supported. Likewise we deem it unnecessary to consider the contention of defendant raised for the first time on appeal that the first agreement of the parties was usurious.

Plaintiff requested certain specific findings. These related to matters either necessarily included in the findings made or on immaterial matters. ‘If findings are made upon issues which determine a cause, other issues become immaterial, and a failure to find thereon does not constitute prejudicial error. [Citations.]’ (Leonard v. Fallas (1959) 51 Cal.2d 649, 653, 335 P.2d 665, 669.)

The judgment is affirmed.


1.  The record concerning the receipts and payments by defendant is rather confused. The figures here set out are as nearly correct as we can make out from the record.

BRAY, Presiding Justice.


Copied to clipboard