Carter v. Hobbs

• Decision Date: 10 March 1899
• Docket Number: 5,945.
• Citation: 92 F. 594
• Parties: CARTER v. HOBBS et al.
• Court: U.S. District Court — District of Indiana

92 F. 594

CARTER v. HOBBS et al.

No. 5,945.

United States District Court, D. Indiana.

March 10, 1899

Gifford & Coleman, for plaintiff.

Gavin &amp Davis, for defendants.

BAKERDistrict Judge.

On November 19, 1898, Beecher Goodykoontz filed his voluntary petition in bankruptcy, and on the same day he was duly adjudged a bankrupt.On December 6, 1898, Walter Carter was duly appointed a trustee of the bankrupt's estate, and on December 10, 1898, he filed his bond, and duly qualified, and assumed the duties of his trust.On March 2, 1899, he filed in this court his amended petition or bill against the bankrupt and Zachariah T. Hobbs, in which he alleges, in substance, that the bankrupt, in his schedule filed herein transferred as a part of his assets two certain parcels of real estate specifically described, situated in Hamilton county, Ind., and also certain specifically described horses harnesses, and hogs; that on August 22, 1898, the bankrupt executed to Hobbs a mortgage on this real estate to secure a note of even date, due in 30 days, for $2,150, and that this was done within 4 months prior to the filing of his voluntary petition to be adjudged a bankrupt; that the indebtedness evidenced by the note and attempted to be secured by the mortgage was in existence more than 4 months before the petition in bankruptcy was filed, and the mortgage was executed by the bankrupt and accepted by Hobbs with the fraudulent intent to give him a preference over the other creditors of the bankrupt, and with the intent to hinder, delay, and defraud them; that the bankrupt and Hobbs, at the time said mortgage was executed, knew that the bankrupt was insolvent, and that his property, at a fair valuation, was not sufficient to pay his bona fide indebtedness in full, and that the purpose of both parties in executing and accepting the mortgage was to give Hobbs a preference over the other creditors of the bankrupt.The petition also seeks to set aside as fraudulent a chattel mortgage on the personal property of the bankrupt, executed November 14, 1898.The allegations of the petition assailing the chattel mortgage are the same, in substance, as those relating to the real-estate mortgage hereinbefore set out, and therefore need not be further mentioned.The petition also assails as fraudulent a certain lease of real and personal property, executed August 17, 1898, by the bankrupt to Hobbs, and seeks to compel him to account for the fair rental value of the property.The grounds upon which the lease is assailed are the same as those set out above.

No question is made but that the petition states facts sufficient, if established by the evidence, to justify and require the court to grant the relief prayed for.The bankrupt has neither answered nor demurred.Hobbs has filed a demurrer, in which it is alleged (1) that the petition is multifarious, (2) that the court is without jurisdiction.

The grantor and grantee are proper parties to a suit brought by creditors to set aside a fraudulent conveyance.The objection that the petition is multifarious is untenable.Although the defendants are charged with different acts of fraud affecting different parts of the estate of the bankrupt, still their acts are charged to have been done with a common fraudulent purpose; and the object of the petition is simply to clear the estate of the bankrupt, which has passed into the possession of the trustee, from apparent incumbrances and leasehold interests placed upon it by the mortgages and leases sought to be avoided.That the petition is not multifarious is shown by the cases of Boyd v. Hoyt, 5 Paige, 65;Fellows v. Fellows, 4 Cow. 682;andPlatt v. Preston, Fed. Cas. No. 11,219.The trustee stands in the place of the creditors of the bankrupt, and has the same rights and may pursue the same remedies in their behalf, as they had or would have been entitled to if there had been no adjudication of bankruptcy.He may, therefore, embrace in his petition all such matters and causes of action as might have been included by the creditors in a creditors' bill against these defendants.The fraud charged against the defendants is that by a fraudulent combination between them certain real and personal property of the bankrupt has been leased and mortgaged to Hobbs with the intent to prefer him in fraud of the rights of the general creditors.The object of the petition is single, and seeks to accomplish but a single purpose, namely, to clear the bankrupt's estate from the fraudulent claims placed upon it by the defendants.The frauds alleged are the same.The one matter charged is fraud in the incumbrance and disposition of the property of the bankrupt.Each defendant has a common interest centering in every point in issue.In the case of Fellows v. Fellows, ubisupra, it was held that the joinder in a creditors' bill of three persons, to whom separate deeds of conveyance for separate parcels of real estate had been executed at the same time by a debtor, with the intent to defraud his creditors, did not make such bill multifarious.

It is next insisted that this court is without jurisdiction, and that the bankrupt's estate, which has passed into the custody of the court, and is now in the possession of its trustee, can only be cleared of the fraudulent incumbrances placed thereon by a suit brought in a court of the state.The trustee is vested by operation of law with the title of the bankrupt as of the date of the adjudication, among other things, to all property transferred by him in fraud of his creditors, as well as to all property which, prior to the filing of the petition, he could, by any means, have transferred, or which might have been levied upon and sold by judicial process against him.Bankruptcy Act, Sec. 70.The word 'transfer' includes the sale and every other different mode of disposing of or parting with property, or the possession of property, absolutely or conditionally, as by payment, pledge, mortgage, gift, or security.Id.Sec. 1, cl. 25.Therefore the title to the bankrupt's property, incumbered by the mortgages and lease, was transferred by operation of law to, and vested in, the trustee, an officer of this court.The decree operates in rem, and from the moment of the adjudication of bankruptcy the bankrupt's estate is in custodia legis, and under the jurisdiction of this court.It is fundamental that no court or individual can interfere with such custody and possession.The assertion of any right against, or to participate in, the res so in custodia legis, must be sought in the court in whose custody it is.An attempt to assert such right elsewhere would be regarded as a contempt.The adjudication proceeds in rem, and all persons interested in the res are regarded as parties to the bankruptcy proceedings.These parties include, not only the bankrupt and trustee, but also all the creditors of the bankrupt.The present act, in addition to having provisions analogous to those found in the act of 1841, also discloses (section 57e) that claims of secured creditors and those who have priority may be allowed to enable such creditors to participate in the proceedings at creditors' meetings held prior to the determination of the value of their securities or priorities, but shall be allowed for such sums only as to the courts seem to be owing over and above the value of their securities and priorities.The last clause clearly implies an authority in the bankruptcy court to ascertain and determine whether or not the security or priority exists; as well as to determine the value of it, and the amount of the debt so secured.Section 56b contains a similar provision.Section 63 makes debts whether due and payable or not, provable in bankruptcy.Section 57h provides that the value of securities held by secured creditors shall be determined by converting the same into money according to the terms of the agreement pursuant to which the securities are held by the creditors, or by such creditors and the trustee by agreement, arbitration, compromise, or litigation as the court may direct; and the amount of such value shall be credited...