Bibo v. Burnett

• Decision Date: 29 May 1936
• Docket Number: No. 452.,452.
• Citation: 14 F. Supp. 948
• Parties: BIBO v. BURNETT et al.
• Court: U.S. District Court — Eastern District of Illinois

14 F. Supp. 948

BIBO v. BURNETT et al.

No. 452.

District Court, E. D. Illinois.

May 29, 1936.

T. J. Trogdon, of Paris, Ill., and W. M. Acton, of Danville, Ill., for plaintiff.

V. W. McIntire, of Danville, Ill., and B. H. Redman, of Paris, Ill., for defendants.

LINDLEY, District Judge.

Plaintiff is trustee in bankruptcy of William H. Colwell adjudged bankrupt May 3, 1932, and Adda B. Colwell adjudged March 28, 1932. Acting upon an order of the referee, plaintiff filed this suit to set aside certain alleged fraudulent conveyances and for an accounting. A supplement to the bill attacks a tax deed for the premises, alleged to be defective under the statute and to have been procured by fraud, and prays cancellation of the same. The land involved consists of 324 acres in Edgar county, Ill.

Upon August 21, 1885, one Welcome Burnett died intestate, owning the said real estate, and leaving surviving him his widow, Anna E. Burnett, and his children, James R. Burnett, Nora Burnett, afterwards Nora Levings, and Adda B. Colwell, as his only heirs at law. Thereafter James R. Burnett and his wife conveyed one-third interest in said land to Adda B. Colwell, and on December 16, 1913, Nora Levings and her husband conveyed their one-third interest to William H. Colwell. At all times thereafter William H. Colwell was the owner of one-third of said land and his wife of two-thirds.

Under the law of Illinois, the widow, Anna E. Burnett, upon her husband's death was entitled to assert her right of dower and homestead, that is, the right to have one-third of the rental during her lifetime and a homestead estate of $1,000, provided she continued to occupy the premises. Anna E. Burnett remarried. She moved from the land to Paris, Ill. Thereafter said marriage was dissolved, either by divorce or by death, and Anna E. Burnett resumed her former name. She continued to live in Paris rather than on the farm, and for some years prior to 1920 William H. Colwell, her son-in-law, employed in a bank in Paris, managed the farm for the owners. There was at no time any formal assignment of dower to Anna E. Burnett, but for some years prior to 1920 one-third of the net rentals received from the land were paid to her. At this time she had no estate of homestead, as she was residing in Paris. After 1920 no part of the rentals from the land were paid to her. During 1920 extensive improvements were made, the cost of which was deducted from the rentals received by William H. Colwell as agent and manager.

In 1922 Colwell and his wife moved on the farm. Mrs. Burnett came to live with them. Thereafter she was a member of their household, apparently supported and cared for by them. The owners of the fee made no contribution to her in the way of rental moneys, nor did they make any charge against her for her living expenses. This condition existed until the time of the giving of the mortgage hereinafter mentioned. During this period, Colwell and his wife borrowed $5,000 from Mrs. Burnett and gave her for the same their promissory note. During all of the period in question Colwell managed the farm, made collections, kept book accounts, collected the rents, and made all improvements and distributions. Mrs. Burnett gave the matter no attention. She was elderly and, according to Colwell's testimony, is now 86 years of age and afflicted with angina pectoris. She did not appear at the trial to testify, nor did she give deposition. I must assume that, had she testified, her testimony would have supported the facts already recited as well as those hereinafter found to exist.

Colwell, in his farming operations, was a borrower of moneys, and became involved. On the 6th day of November, 1930, he made a financial statement to the First National Bank & Trust Company of Paris, Ill., where he owed $21,000, showing indebtedness to another bank of $4,500, real estate mortgages upon land not involved here, $35,066.50, and other indebtedness, $10,000, totalling $70,566.50, assets of $249,852, and a net worth of $179,285.50. He scheduled the land in question as unincumbered. He showed no indebtedness due Mrs. Burnett, except that the $5,000 note aforesaid was included in the indebtedness of $10,000.

At that time the bank asked him for a mortgage upon this land. He said that he would not mortgage it to any one. Shortly thereafter rumors came to him that the banks were about to take judgment against him. He testified that he desired to protect his mother-in-law, Mrs. Burnett, on her $5,000 note; that, after receiving the information mentioned, he returned home and told her that he would like to protect her so that she would have security in case judgments were taken against him. At that time nothing was said about any accrued rental due Mrs. Burnett; neither Colwell nor she mentioned it. Subsequent to 1920, no rentals had been paid to her on account of her dower interest or otherwise, and the books kept by Colwell showed no indebtedness due her. He testified that he did not pay her anything because he was making improvements on the land; that she demurred to such investment and asked him to make payments to her; that he never complied; that she was living with him and his wife; and that he thought there was nothing due her and that no claim would thereafter be made.

For 11 years Mrs. Burnett instituted no suit and made known to the world no claim of anything on account of accruing rentals; nor, when Colwell talked with her concerning security for the $5,000, did she make any mention of any sum due for rentals. The next day, however, Colwell went to Marshall, Ill., where his brother-in-law, James Burnett, was employed in a bank, and repeated to him that he desired to protect Mrs. Burnett as to the $5,000 as against threatened judgments. Thereupon the brother-in-law suggested that the bank's attorney be consulted. The latter talked with Burnett and Colwell, advising them that, under the law of Illinois, it is legal to prefer one creditor over others, so long as the transaction is in good faith. In the course of this conversation Burnett inquired of Colwell whether he was paying any rent to Mrs. Burnett. Colwell recited the facts above mentioned, and said that he did not consider that he owed any rental or that any claim would be made for rental, in view of the circumstances aforesaid. Colwell was then advised, he says, that improvements cannot be set off as against the amount due one entitled to dower, and thereupon, upon his return to his home, he advised Mrs. Burnett that he would give her a mortgage, not only to secure the $5,000 aforementioned, but also to secure a sum which, reflected by his books, would be equivalent to one-third of the rental from 1920 to 1931. This latter amount he figured at $13,273.66, calculated from the book entries of rental received, plus compound interest upon the same. He gave to Mrs. Burnett then a check for $273.66, and he and his wife executed a note and mortgage for $18,000, representing the note for $5,000, plus the alleged accrued rentals of $13,000, with interest at 6 per cent. per annum, payable semiannually. The mortgage, dated November 18, 1931, was recorded on November 19, 1931.

Mr. and Mrs. Colwell continued to reside on the farm, and shortly more than 4 months later, when the mortgage could no longer be attacked as a preference, they filed their voluntary petitions in bankruptcy. Adjudications followed immediately. Mr. and Mrs. Colwell then remained in possession of the property and still occupy the same. No rent has been paid to the trustee.

Thereafter the bankrupts paid no taxes upon the land, and Mrs. Burnett, the mortgagee, permitted the property to sell at tax sale, purchasing the same in her own name. She received certificates of purchase, and she or Colwell paid the subsequent taxes for 1932 and 1933, except for the second installment of 1933, which was paid by Vera K. Colwell, daughter-in-law of William H. Colwell, who lives in a suburb of Chicago. On June 5, 1934, Mrs. Burnett, for a purported consideration of $838.29, assigned to Vera K. Colwell such certificates of purchase; and thereafter, on December 28, 1934, said Vera K. Colwell received a purported tax deed from the county clerk. Colwell testified that he had no money with which to pay the taxes; that Mrs. Burnett's money was tied up in a building association; and that, instead of advancing the taxes to protect her mortgage, she permitted the property to sell and purchased the certificates so that she might borrow on the same. On January 15, 1935, Vera K. Colwell voluntarily signed an instrument whereby she agreed to pay, in addition to the sum previously paid Mrs. Burnett for the tax certificates, the mortgage of $18,000, with accrued interest and one-third of the net rental, so long as Mrs. Burnett should live.

For the year 1932 Colwell occupied the premises and claims to have paid rent to Mrs. Burnett. In 1933 Vera K. Colwell leased the land from Mrs. Burnett, and paid her rental in the amount of $1,092.64 and again in 1934, $1,502.57. In 1935 Vera K. Colwell, as owner, leased the land, apparently to William H. Colwell. The rental value for that year is presumably $6 per acre. Though the trustee has been entitled to custody and possession of the property ever since his qualification as trustee, subject to such rights, if any, as existed by virtue of the outstanding tax deed, no possession has been surrendered to the trustee; no rentals have been paid the trustee; nor any accounting made to him.

The trustee contends that there was a conspiracy upon the part of the defendants to defraud the creditors of William H. Colwell and his wife; that this was engineered by Colwell, who represented his wife, Mrs. Burnett, and his daughter-in-law, Mrs. Vera K. Colwell, as well as himself; that the inclusion of $13,000, in the mortgage to Mrs. Burnett, representing unpaid rental, was a mere afterthought, after 11 years' delay; that such rental has been waived, is...