621 F.2d 201 (5th Cir. 1980), 78-3351, Durrett v. Washington Nat. Ins. Co.

Docket Nº:78-3351.
Citation:621 F.2d 201
Party Name:J. W. DURRETT, Sr., Plaintiff-Appellant, v. The WASHINGTON NATIONAL INSURANCE CO. et al., Defendants-Appellees.
Case Date:July 11, 1980
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 201

621 F.2d 201 (5th Cir. 1980)

J. W. DURRETT, Sr., Plaintiff-Appellant,

v.

The WASHINGTON NATIONAL INSURANCE CO. et al., Defendants-Appellees.

No. 78-3351.

United States Court of Appeals, Fifth Circuit

July 11, 1980

Philip I. Palmer, Jr., Dallas, Tex., for plaintiff-appellant.

Larry G. Alexander, Edith DeBusk, Dallas, Tex., for Jack Mitchell.

Page 202

Appeal from the United States District Court for the Northern District of Texas.

Before RUBIN and POLITZ, Circuit Judges, and SMITH [*], District Judge.

ORMA R. SMITH, District Judge:

This appeal concerns an action instituted in the United States District Court for the Northern District of Texas, wherein plaintiff Jack W. Durrett, Sr. (herein "Durrett"), acting as debtor in possession under Chapter XI of the Bankruptcy Act, 1 11 U.S.C. §§ 701, et seq., seeks to set aside and vacate an alleged transfer of real property effectuated nine days prior to the filing of a Petition for an Arrangement under Chapter XI. Durrett charges that the transfer is voidable under section 67(d) of the Act, 11 U.S.C. § 107(d). 2 The district court held that the non-judicial sale involved in the litigation constituted a transfer within the meaning of section 67(d). However, the court determined that the amount paid by the purchaser at the sale conducted by a trustee in the foreclosure of a deed of trust executed by Durrett, the indebtedness which it secured being then in default, was a "fair" consideration and a "fair equivalent" within the meaning of section 67(d)(1), (e)(1) of the Act, 11 U.S.C. § 107(d)(1), (e)(1). The court denied the relief sought by Durrett and he appeals. We reverse.

A review of the record on appeal reflects the following facts. On April 7, 1969, Durrett executed a note in the amount of $180,000.00 in favor of Southern Trust and Mortgage Company (hereafter "Southern"). The note was secured by a deed of trust upon the subject real property. Southern, on April 7, 1969, assigned the trust deed and note to defendant, The Washington National Insurance Company (hereafter "Washington"). Defendant J. H. Fields, Jr. (hereafter "Fields"), was named as the trustee in the deed of trust. The deed of trust contained a provision for a public sale of the real property thereby conveyed, in case of default in payment of the indebtedness.

On December 13, 1976, Fields, in his capacity of trustee, posted the property for

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foreclosure sale. The sale was held on January 4, 1977. Defendant Shannon Mitchell, Sr. (hereafter "Mitchell"), appeared at the sale and bid the sum of $115,400.00 for the property. This was the only bid received by the trustee at the sale. The amount of the bid was the exact amount necessary to liquidate the indebtedness secured by the deed of trust. Upon receipt of the bid price, Fields executed and delivered to Mitchell a trustee's deed to the property. The parties agree that Mitchell did not have any actual fraudulent intent when making the purchase. He responded to the notice of sale and became the successful bidder. Mitchell and Durrett are the only parties now interested in the case.

Durrett contends that the transfer of the property, pursuant to foreclosure of the deed of trust, is voidable under the provision of section 67(d).

The district court dismissed the complaint after a non-jury trial. In its findings of fact, the court held that the fair market value of the property on January 4, 1977, the date of the foreclosure sale, was the sum of $200,000.00.

The parties do not take issue with this finding. Both agree that it is not clearly erroneous. See, Rule 52(a), Fed.R.Civ.P.; Kentucky Fried Chicken Corp. v. Diversified Packaging Corp., 549 F.2d 368, 377 (5th Cir. 1977).

Durrett asserts, on appeal, only one assignment of error, i.e., "Is $115,400.00 payment for an asset worth $200,000.00, a 'fair equivalent' ".

In consideration of the issue of "fair equivalent", we should determine by what standard we are to judge the district court's conclusion of law that the amount paid for the property, $115,400.00, is "fair" consideration and a "fair equivalent" within the meaning of section 67(d)(1), (e)(1). 3

We have held that our review of conclusions of law by the district court in non-jury cases is not restricted by the "clearly erroneous" rule and will be reversed if incorrect. See, Ealy v. Littlejohn, 569 F.2d 219, 229 n. 31 (5th Cir. 1978). See also, Buchanan v. United States Postal Service, 508 F.2d 259, 267 n. 24 (5th Cir. 1975).

The question with which we are confronted is whether the district court's conclusion of law on the "fair equivalent" issue is incorrect, when considered in light of the record made in the district court and the applicable case law.

The parties have cited a number of cases which deal with this issue. A great percentage of these, however, involve factual situations quite different from the facts which exists in this appeal. Here, there is involved only one event, i.e., one parcel of real estate sold at a foreclosure sale for a price which is approximately 57.7 percent of the fair market value of the property. Is the price paid a "fair equivalent" for the transfer of the property? We hold...

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