Herring v. Whitford
| Decision Date | 09 May 1930 |
| Docket Number | 27045 |
| Citation | 230 N.W. 665,119 Neb. 725 |
| Parties | GEORGE A. HERRING, TRUSTEE, APPELLEE, v. E. C. WHITFORD ET AL., APPELLANTS |
| Court | Nebraska Supreme Court |
APPEAL from the district court for Buffalo county: BAYARD H. PAINE JUDGE. Affirmed as modified.
AFFIRMED AS MODIFIED.
Syllabus by the Court.
A mortgage on real estate executed and delivered by the owners thereof within four months of the filing of a petition in bankruptcy against them and recorded by the mortgagee within that period will, in a suit by the trustee in bankruptcy to cancel the mortgage and to quiet title, be held to be a preference in so far as it mortgages property not exempt.
In such circumstances, if the mortgage includes a homestead and the mortgage is valid under the evidence as between the makers of the mortgage and the mortgagee, it will not be held to be a preference as to the exempt statutory homestead.
Appeal from District Court, Buffalo County; Paine, Judge.
Action by George A. Herring, as trustee in bankruptcy of the estate of Una W. Donnell, bankrupt, against E. C. Whitford and others. Decree for plaintiff, and defendants appeal.
Modified and affirmed.
See also, 230 N.W. 668.
N. P. McDonald, for appellants.
Miller & Randall, contra.
Heard before GOSS, C. J., ROSE, DEAN, GOOD, THOMPSON EBERLY, DAY, JJ., and THOMSEN, District Judge.
This is a suit in equity brought by a trustee in bankruptcy to cancel a mortgage executed, delivered and recorded by his bankrupt (joined by her husband) within four months of the filing of the petition in bankruptcy and to quiet title to the real property involved. The mortgagee and mortgagors appeal from a final decree canceling the mortgage and quieting the title in the trustee.
The trustee here sues as trustee of the bankrupt estate of Una W. Donnell. He was also trustee of the bankrupt estate of Junius S. Donnell and as such trustee brought another suit in equity to cancel the same mortgage. The bankrupts are wife and husband. So the two suits, brought in the same court at the same time, are companion cases. They were tried together under a stipulation that the testimony in either case might be used in the other so far as applicable. As a fact, the bills of exceptions seem to be identical, one being a carbon copy of the other. The pleadings seem to vary only as required to show the status of the plaintiff as trustee for the estate of the wife in this suit and as trustee for the estate of the husband in the other.
On the trial it was stipulated, among other things, that on March 5, 1928, a petition for involuntary bankruptcy was filed in the Grand Island division of the United States district court against Una W. Donnell of Kearney, and that on April 2, 1928, she was adjudicated a bankrupt and George A. Herring was duly appointed and qualified as trustee; that then and for years prior the bankrupt and her husband were the owners, as tenants in common, of lots 1, 2, and 3, block 10, Ashland addition to the city of Kearney, in Buffalo county, Nebraska, occupy parts of these lots as a home and claim as their statutory homestead all of said lots except the east fifty feet thereof; that Una W. Donnell was also the owner of six other described lots in the city of Kearney; that on December 22, 1927, a petition against said Junius S. Donnell was filed in the same court charging bankruptcy, and on February 10, 1928, he was adjudged bankrupt and the same trustee was appointed and qualified; that on November 8, 1927, the Donnells executed and delivered their mortgage to E. C. Whitford, the father of Mrs. Donnell, covering the home lots and the other lots to which we have referred, to secure $ 22,000 evidenced by four notes, all maturing November 8, 1927; that this mortgage was recorded November 19, 1927; that the Donnells were insolvent from and after May 14, 1927, being the date of the failure of the City National Bank in Kearney and the appointment of a receiver therefor; and that Whitford knew they were insolvent on November 8, 1927. The stipulation also recites claims against each of the Donnells filed as claims, allowed and unpaid in the bankruptcy court; it shows that since this action was begun E. C. Whitford has filed claims in the bankruptcy court against each of the Donnells, based on the indebtedness secured by his mortgage, but stating therein that he does not waive his mortgage security.
From the stipulated facts it is conclusively deduced that, when the Whitford mortgage was executed on November 8, 1927, it was within less than four months before the filing of the petition in bankruptcy of Una W. Donnell on March 5, 1928, as well as within less than four months before the filing of the petition in bankruptcy against Junius S. Donnell on December 22, 1927. Its record on November 19, 1927, was still further within the period. So the executing, delivering and recording of the mortgage all came within the four months' period. Under the evidence the effect, if the Whitford mortgage be held good in whole or in part, will be to lessen to that extent the estate of the bankrupt and the payments to other creditors. So on the face of the transaction itself it would appear to be a preference of Whitford over other creditors and violative of section 60 of the bankruptcy act (11 U.S.C. A. sec. 96).
But the defendants answer this by asserting that Whitford had an agreement for a mortgage which constituted an equitable mortgage. Whitford pleaded that, at the time the money was loaned as evidenced by the notes, the Donnells agreed to execute the mortgage, and that it was pursuant to the agreement that the mortgage was made. The evidence shows that the money was borrowed and used to purchase 200 shares of stock in a new bank called the City National Bank, in Kearney, which began business December 8, 1926. It was a consolidation or reorganization of two banks in Kearney, in one of which the Donnells were stockholders and he was an officer. It was desirable that he be an officer in the proposed new bank. He lacked the money. On November 6, 1926, Junius S. Donnell went with another son-in-law of Mr. Whitford to Nebraska City, where they met Mr. Whitford. Donnell asked Whitford for a loan of $ 22,000 to buy 200 shares of stock in the proposed bank. Whitford asked what he could give as security. Donnell said he would give a mortgage on the home, owned by himself and wife, and on her other lots in Kearney. Mr. Whitford said: "That wouldn't secure the $ 22,000." Thereupon, it may be fairly concluded from the evidence, it was understood that all but 10 shares of the stock should be put up as collateral, and that they would make out the mortgage when the organization was completed. Whitford prepared the notes, which were signed and delivered by the Donnells. He sent the $ 22,000 to a bank in Omaha, where payments by stockholders were received. When the required amount was paid in, the organization was perfected and the stock issued. No mortgage was made until long after the bank failed nor until within four months before the petition in bankruptcy. We have carefully read and considered the evidence and have come to the conclusion that, at most, as against the creditors represented here by the trustee, and as to the real estate not exempt as the homestead, there was merely an agreement to execute a written mortgage in the future. Moreover, we are of the opinion that, if there had been an agreement creating an equitable mortgage, Whitford could not prevail as against the creditors and as to real estate not exempt.
In In re Great Western Mfg. Co., 152 F. 123, Sanborn, J., it was said: "A mortgage or transfer of his property by an insolvent debtor within four months of the filing of a petition in bankruptcy against him, which otherwise constitutes a voidable preference, is not deprived of that character or validated by the fact that it was executed in the performance of a contract to do so made more than four months before the filing of the petition."
In In re Traut's Estate, 297 F. 458, an oral agreement was made to execute a mortgage on a farm as security for a debt. The mortgage was not finally delivered or recorded until within four months of the filing of the petition in bankruptcy. The circuit court of appeals of this circuit held that, although it be assumed for the sake of argument that the land was subject to an equitable lien created by an agreement made prior to four months, yet such title would pass unincumbered for the benefit of creditors and the mortgage executed pursuant to such agreement was voidable by the trustee. The same rule was announced by the circuit court of appeals for the third circuit in Hayes v. Gibson, 279 F. 812.
In Corney v. Saltzman, 22 F.2d 268, $ 5,500 was borrowed and the debtor executed notes therefor and adopted a resolution pledging all of the corporation land for the payment of the notes, all on May 27, 1925. On October 6, 1925, a written mortgage was executed. A petition in bankruptcy was filed November 19, 1925. The circuit court of appeals of the second circuit said that an agreement to make a mortgage may not be regarded as a mortgage, and while such an agreement may give rise to an equitable lien between the original parties, respect must be had for the rights of creditors, and under section 60 (a) (11 U.S.C. A. sec. 96a) a mortgage within four months of the filing of a petition in bankruptcy constitutes a voidable preference which is not made valid by being executed pursuant to a contract to make it, although the contract was made before the commencement of the four months.
So we are of the opinion that the mortgage, to the extent that it attempted to give a lien on that portion of the property of the Donnells that was not exempt, must be...
To continue reading
Request your trial