In re Chappel

• Decision Date: 21 July 1965
• Docket Number: No. 173825-EC.,173825-EC.
• Citation: 243 F. Supp. 417
• Court: U.S. District Court — Southern District of California
• Parties: In the Matter of Irving Reginald CHAPPEL, Jr., Bankrupt.

243 F. Supp. 417

In the Matter of Irving Reginald CHAPPEL, Jr., Bankrupt.

No. 173825-EC.

United States District Court S. D. California, Central Division.

July 21, 1965.

Crowley & Goffin, by Ron Swearinger, Los Angeles, Cal., for petitioner on review.

Stodd & Barnett, by John P. Stodd, Santa Ana, Cal., for trustee.

CRARY, District Judge.

Petitioner, Loraine H. Chappel, wife of the bankrupt, Irving R. Chappel, seeks review of the Referee's order dated April 6, 1965, requiring petitioner to turn over to the trustee in bankruptcy "all of the property heretofore transferred to her under the Interlocutory Decree of Divorce and Property Settlement Agreement," or the proceeds derived therefrom. The Referee's Certificate on Petition for Review was filed on May 6, 1965.

A property settlement agreement, executed by the bankrupt and petitioner on February 11, 1964, was incorporated into an interlocutory decree of divorce entered on March 5, 1964. Pursuant to said agreement, petitioner received more than one-half of the community property, the bankrupt agreed to pay family debts and obligations totaling $22,756.01, petitioner agreed to pay $2,000.00 to Irving Chappel's parents upon the sale of the residence in Newport Beach, and petitioner "For and in consideration of this Agreement * * * hereby expressly waives any and all claims which she has to alimony and support for all time."

The parties were married on January 24, 1959. Final judgment of divorce was entered on March 5, 1965.

The within proceedings in bankruptcy were instituted June 24, 1964.

During oral argument, July 12, 1965, counsel for the petitioner and Referee stipulated that the only issue to be determined is whether the transfer to petitioner of the community property in excess of the wife's one-half vested interest therein was without fair consideration and therefore fraudulent within the meaning of Section 67, sub. d(2) (a) of the Bankruptcy Act, 11 U.S.C. § 107, sub. d(2) (a) and § 3439.04 of the California Civil Code; that is, whether the foregoing of any right to alimony by the petitioner, Mrs. Chappel, was fair consideration for the community property she received in excess of one-half thereof.

Section 67, sub. d(2) (a) provides:

"Every transfer made and every obligation incurred by a debtor within one year prior to the filing of a petition initiating a proceeding under this title by or against him is fraudulent (a) as to creditors existing at the time of such transfer or obligation, if made or incurred without fair consideration by a debtor who is or will be thereby rendered insolvent, without regard to his actual intent; * * *."

and, Section 3439.04, California Civil Code, states:

"Every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration."

Counsel for petitioner and Referee also agreed that there was no bad faith claimed on the part of petitioner and that the only fraud urged is statutory fraud as referred to in the state and federal statutes quoted hereinabove.

The Court of Appeals for the 9th Circuit, in Britt v. Damson, 334 F.2d 896 (1964), makes very clear that the transfer to the petitioner of one-half of the community property was supported by "fair consideration" as a matter of law. At page 903, the court states:

"To the extent that the value of the community property awarded to Mrs. Damson was offset by the value of the community property awarded to Mr. Damson, the `transfer' to Mrs. Damson was, as a matter of law, supported by `fair consideration,' as that term is defined in section 67, subd. d(1) (e). To this extent the award to each amounted to no more than an equal partition of property in which, as indicated above, they each at all times had a vested, equal undivided interest."

As to the transfer of property to Mrs. Chappel in excess of one-half of the community property, the court, in the Britt case, observes:

"To the extent that the award of community property to Mrs. Damson may have exceeded half of the total value of the community property, there is a question whether, under all of the circumstances, Mr. Damson received fair consideration as a matter of law.13 As the parties have not presented argument on this question we leave it undecided at this time."

It appears to this court that footnote 13, as indicated in the portion of the opinion last quoted above, is of particular import in the instant matter. Said footnote 13 reads in pertinent part as follows:

"13. It could be argued that obtaining one's release from a marriage, pursuant to a decree of divorce, and in connection therewith, obtaining a limitation upon the obligation, not terminated by divorce, to provide future support, such limitation being effectuated by a provision for alimony, give rise to a conclusive presumption of `fair consideration' for any transfer of community property made under that decree, unless made in bad faith or fraudulently."

The court concludes in the case at bar that if the husband did not receive fair consideration as a matter of law for the excess of one-half of the total community property transferred to his wife, then there will be a question of fact to be resolved as to this point.

The Referee, by his Finding No. 6, found

"That the bankrupt herein was insolvent on February 11, 1964, when the Property Settlement Agreement was completely executed by the parties, and was also insolvent on March 2, 1964, the date the Interlocutory Decree was entered."

Under the stipulation of counsel at the time of oral argument, we now know that this finding of "insolvency" is dependent on the question of whether the transfer of community property in excess of 50% thereof to the wife was without fair consideration.

The Referee, in Conclusion of Law No. 1, states that the property settlement was without adequate consideration and therefore presumed fraudulent as to the trustee in bankruptcy. In Conclusion of Law No. 2 he states that since no final decree of divorce had been entered prior to the time Mr. Chappel was adjudicated a bankrupt "* * * the interlocutory decree of divorce and hence the incorporated property settlement agreement were ineffectual to change the character of the community property of the parties." In reaching this conclusion, the Referee relied on In re Cummings, 84 F.Supp. 65, 70 (D.C.Cal.1949), in which the Court said:

"In sum, the interlocutory decree is merely a determination that after the lapse of a year, the parties would — if no

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