Gannon v. Graham

• Decision Date: 23 June 1930
• Docket Number: 39832
• Citation: 231 N.W. 675,211 Iowa 516
• Parties: JOHN GANNON, Appellant, v. ERNEST GRAHAM et al., Appellees
• Court: Iowa Supreme Court

231 N.W. 675

211 Iowa 516

JOHN GANNON, Appellant, v. ERNEST GRAHAM et al., Appellees

No. 39832

Supreme Court of Iowa, Des Moines

June 23, 1930

REHEARING DENIED DECEMBER 13, 1930.

Appeal from Polk District Court.--HERMAN F. ZEUCH, Judge.

Suit to establish and foreclose as a mortgage or pledge an assignment of an expectancy. Decree for defendants. Plaintiff appeals.

Affirmed.

Mulvaney & Mulvaney, for appellant.

Ladd & Ladd and Howe & Howe, for appellees.

MORLING C. J. EVANS, FAVILLE, DE GRAFF, ALBERT, WAGNER, and GRIMM JJ., concur. STEVENS and KINDIG, JJ., dissent.

OPINION

MORLING, C. J.

In 1918 or 1919, defendant Ernest Graham became indebted to the Valeria Savings Bank for $ 5,000 on promissory notes. On November 24, 1922, he executed to the bank an instrument entitled "assignment of expectancy in estate," which declared:

"For value received I hereby sell, assign and set over unto the Valeria Savings Bank of Valeria, Iowa, all my claim in expectancy to the estate of my father Norman A. Graham of Des Moines, Iowa, which I may acquire as heir at law or devisee or legatee of my said father * * * the amount of money or property which shall be received by the Valeria Savings Bank of Valeria, Iowa, under this assignment shall first be used to extinguish and pay up the indebtedness which I owe said bank and which I may owe said bank at the time I shall be entitled to the money or property from the estate of my father. * * * Any excess * * * shall be paid to me. And if the amount * * * which I receive from said estate shall not be sufficient to pay * * * my indebtedness to said bank in full that [then] said money and property shall be applied on my indebtedness to said bank as far as it will go."

On September 1, 1924, he executed to the bank renewal notes for this indebtedness. About October 18, 1924, plaintiff, who was president of the Valeria Savings Bank, was required by the bank examiner to pay to the bank the amount due on this paper, which he did, and took an assignment of it. On March 2, 1926, Ernest filed petition in bankruptcy, in which he listed the notes in question. Plaintiff filed no claim, and took no part in the bankruptcy proceedings. On December 9, 1926, defendant Ernest was discharged from all his provable debts.

On June 18, 1926, after the filing of the petition in bankruptcy, the father died, leaving a will dated January 18, 1926, by which there was given to Ernest for life the income from a farm. This suit, so far as we are now concerned, is to enforce the assignment by subjecting the bequest to the payment of the notes mentioned and foreclosing the interest of the defendant Ernest in the bequest.

The defenses are: (a) That defendant's signature to the assignment was procured by fraud; (b) that the assignment is void because made without the knowledge or consent of the father; (c) that the assignment or mortgage of the expectancy was, at most, an executory agreement, creating no lien during the father's lifetime; and that the discharge in bankruptcy while the father was still living discharged the assignment or mortgage, as well as the personal liability upon the notes.

Defendant also contends that there was no adequate consideration for the assignment. The assignment was made only as security for the payment of a debt admittedly just and owed to the assignee. The consideration is adequate. 41 Corpus Juris 385.

I. Defendant testifies, in substance, that he did not know or understand, at the time the paper was executed, what it was; that he was not given sufficient time to read it, and its contents were not made known to him. His testimony on this subject is not convincing, and is overcome by the opposing evidence.

II. It has been held that the assignment of an expectancy in the estate of a living ancestor is void if made without the ancestor's knowledge or consent. Stevens v. Stevens, 181 Mich. 449 (148 N.W. 229); McClure v. Raben, 125 Ind. 139 (25 N.E. 179); Flatt v. Flatt, 189 Ky. 801 (225 S.W. 1067); Elliott v. Leslie, 124 Ky. 553 (99 S.W. 619). See 5 Corpus Juris 854 et seq.; 49 Corpus Juris 1117. The rule in this jurisdiction is that an assignment of such an expectancy, though it will be carefully scrutinized, and is not favored, yet, if it is made in good faith, for an adequate consideration, and without fraud, and if it is not otherwise unconscionable or invalid, will be sustained and enforced in equity. Lee v. Lee, 207 Iowa 882, 223 N.W. 888; Berg v. Shade, 203 Iowa 1352; Richey v. Richey, 189 Iowa 1300, 179 N.W. 830; Richey v. Rowland, 130 Iowa 523, 107 N.W. 423; Klingensmith v. Klingensmith, 193 Iowa 350, 185 N.W. 75.

III. The assignment was executed merely by way of security. If operative at all, it was as a mortgage, incidental to the debt. The main point of contention is whether or not the mortgage of the expectancy survived the discharge in bankruptcy, granted on adjudication of bankruptcy after the execution of the mortgage, but before the death of the father. Section 67 of the Bankruptcy Act (9 United States Comp. Stat. [1916], Section 9651) prescribes what are and what are not liens within the purview of the act, and among other provisions declares:

"(d) Liens given or accepted in good faith and not in contemplation of or in fraud upon this Act, and for a present consideration, which have been recorded according to law, if record thereof was necessary in order to impart notice, shall, to the extent of such present consideration only, not be affected by this Act."

This section applies only to liens on the estate of the bankrupt at the date of the adjudication in bankruptcy. At the date of the adjudication, defendant's father was living, and defendant had no then present interest or right of property in his father's estate which would pass to the trustee. Mitchell v. Winslow, 2 Story 630; In re Baker, 13 F.2d 707; Dioguardi v. Curran, 35 F.2d 431; In re Lage, 19 F.2d 153; Bank of Elberton v. Swift, 268 F. 305. If, however, the plaintiff, by the mortgage of the expectancy, acquired a lien upon defendant's interest in his father's estate when it should come into defendant's possession, such lien, not being one that was dissolved by the terms of the Bankruptcy Act or repugnant to it, remained, notwithstanding the discharge of the debt which it secured. 7 Corpus Juris 410. The discharge released defendant from his legal liability to pay his provable debts. The moral obligation and such liens as were not dissolved by the terms of the Bankruptcy Act or as were not repugnant to that act remained. Zavelo v. Reeves, 227 U.S. 625, 629 (57 L.Ed. 676, 678, 33 S.Ct. 365); Fierce v. Fleming, 205 Iowa 1281, 217 N.W. 806; Shively v. Globe Mfg. Co., 205 Iowa 1233, 219 N.W. 266, and cases cited; United States Code Annotated, Title 11, Section 32, page 110 et seq., Section 107, page 152 et seq.

The precise question here involved came before the English Court of Chancery in In re Lind, 1 Ch. Div. (1915) 744, and before the Court of Appeal, 2 Ch. Div. (1915) 345 (84 Law J. Ch. 884). In that case Lind, in 1905, mortgaged his then expectant share in the estate of his mother, who was then living, though insane. In 1908, he was adjudicated a bankrupt, and in 1910, obtained his discharge. The mortgagee did not prove in bankruptcy. In 1914, the mother died, and Lind's share in her estate, as such, thereupon came into existence. The plaintiffs in that case, to whom Lind, after his discharge in bankruptcy, had assigned his expectant share in the estate, contended that the mortgages made prior to the date of the discharge "were in law nothing but contracts to assign, creating debts provable in bankruptcy, and that the effect of the bankruptcy and the order of discharge therein has been to release Lind from all liability under such contracts, and accordingly to render the assignments wholly ineffectual." The authorities were extensively reviewed by the participating justices of the two courts, whose reasoning and conclusion are sufficiently indicated by the language of one of them, as follows:

"It appears to me to be manifest from these statements of the law that equity regarded an assignment for value of future-acquired property as containing an enforceable security as against the property assigned, quite independent of the personal obligation of the assignor arising out of his imported covenant to assign. It is true that the security was not enforceable until the property came into existence, but nevertheless the security was there, and the assignor was the bare trustee of the assignee, to receive and hold the property for him when it came into existence. Warrington, J., in the court below, put his view into these words (1): 'In the present case I am of opinion that the mortgagees were, at the time of the bankruptcy, entitled, not merely to the benefit of a personal obligation on the part of the mortgagor, resulting in a claim for damages, but to a prospective interest in the distributive share in question, taking effect automatically on the death of Florence Lind.' For the reasons stated above, I think that there is a question whether the personal obligation on the part of the mortgagor in a case like the present results in a claim for damages, if by that is meant only in a claim for damages, but I quite agree in the latter part of the learned judge's statement of the position of the mortgagees."

The identical question was presented and ruled in the same way in Bridge v. Kedon, 163 Cal. 493 (126 P. 149, 43 L. R. A. [N. S.] 404), in which the conclusion reached was:

"The assignment is treated in equity as a present contract to convey the future interest, a contract which creates a trust as soon as the interest becomes absolute; and this is a present existing right by contract, which...