In re Clark

• Citation: 176 F. 955
• Parties: In re CLARK et al.
• Decision Date: 25 February 1910
• Court: U.S. District Court — Northern District of New York

176 F. 955

In re CLARK et al.

United States District Court, N.D. New York.

February 25, 1910

Turner & Kerr, for trustee.

Irving Bacon, for claimants.

RAY District Judge.

July 10, 1907, an involuntary petition in bankruptcy was filed against Orlando S. Clark and Herbert R. Clark, individually and as copartners under the firm name of the 'h. R. Clark Plaster Works.' September 3, 1907, an amended petition was filed, and September 21, 1907, an adjudication was duly made pursuant to the prayer of the petition, and the matter was referred to John M. Brainard, referee.

November 26, 1906, Orlando S. Clark executed and delivered to Frank S Smith and Alice J. C. Smith a bond in the sum of $4,662.40 condition to pay said sum with interest as follows: The sum of $200 of said principal and interest on the sum owing every year for five years when the whole of said principal and interest shall be due and payable. This bond recited that:

'said sum above specified being the amount due and owing said parties of the second part by the party of the first part to this date on account of loans of money made to him at different times for which he has given his certain promissory notes.'

On the same day, and to secure the payment of the said bond or the sum of money therein agreed to be paid, the said Orlando S Clark and S. Augusta Clark, his wife, executed, acknowledged, and delivered to said Frank S. Smith and Alice J. C. smith, who was the wife of said Frank S. Smith, a mortgage upon their real estate therein described, conditions to pay the sum of money mentioned in said bond as therein and thereby agreed to be paid. This mortgage was recorded in the office of the clerk of the county of Cayuga, N.Y., on the 4th day of May, 1907, and not before; that is, about two months prior to the filing of the petition in bankruptcy.

On or about the 6th day of June, 1908, Nelson L. Drummond duly qualified as trustee of the estates of the bankrupts by executing and filing his bond as such which was approved June 8, 1908. Thereafter, on the 28th day of October, 1908, the said trustee, Nelson L. Drummond, commenced an action in the Supreme Court of the state of New York against said Frank S. Smith, Alice J. C. Smith, Orlando S. Clark, and S. Augusta Clark for a judgment adjudging said mortgage to be fraudulent, null, and void as against the creditors of said Orlando S. Clark and said copartnership and as to the plaintiff, the said trustee, and canceling and setting same aside.

The complaint in that action alleged that the mortgage and bond were given with the fraudulent intent, purpose, and design of both and all of the parties thereto to hinder, delay, and defraud the creditors of the said Orlando S. Clark and of the said copartnership in the collection of their just dues and claims out of the property of the said Orlando S. Clark, and that there was no just or full consideration for said mortgage and bond, and that the consideration therefor expressed therein was and is largely fictitious, and that the true consideration was less than one-half of the amount expressed in the mortgage and bond, and that a note for $3,000, given to make up the amount, was without any consideration whatever. The complaint also alleged that the mortgage was executed and delivered and received by the mortgagees when the mortgagor was insolvent to the knowledge of the mortgagees, and that same was received by them with such knowledge, and that same constituted a voidable preference under the bankruptcy law, and was executed, delivered, and received with knowledge of the insolvency of the mortgagor, etc.

The action in the Supreme Court of the state of New York was duly tried before the Honorable A. E. Sutherland, Justice of the Supreme Court, on issues framed by the answer of the defendants Smith, and resulted in a judgment in favor of the plaintiff, Nelson L. Drummond, as trustee, against the defendants, entered in Cayuga county clerk's office, October 7, 1909, adjudging that the said mortgage be 'and the same hereby is adjudged void as against plaintiff, and as to him the same is set aside; and it is further adjudged that the defendants Smith be, and they hereby are, estopped from claiming or receiving any portion of said surplus moneys derived from said premises on account of the mortgage set up in their answer or otherwise, and that the plaintiff as trustee in bankruptcy is entitled to the whole of said surplus moneys; and further adjudged that the county treasurer be, and he hereby is, directed to pay over to the plaintiff all of said surplus moneys upon the presentation to him of a certified copy of this judgment less his legal fees.' This judgment was entered on a stipulation made by the attorneys for the respective parties, and which stipulation, so far as material, reads as follows:

'and the court having handed down a decision directing findings and judgment in favor of plaintiff for the whole of said surplus moneys without any deduction therefrom in favor of said defendants Smith, and the parties having agreed upon a settlement of this action, and that to facilitate such settlement a formal judgment shall be entered, it is now hereby stipulated that judgment may be entered upon this stipulation adjudging said mortgage mentioned in the complaint void, and that the defendants Smith are estopped in equity from asserting as against plaintiff the mortgage mentioned in their answer, and that plaintiff is entitled to, and that the treasurer of Cayuga county pay over to him, all of said surplus moneys, and that upon such payment this action be discontinued, and that thereupon a stipulation of discontinuance without costs shall be given by the attorneys for the parties respectively upon which an order in the usual form may be entered, and providing also for a cancellation of the lis pendens on file as aforesaid.'

The judgment is somewhat broader than the stipulation. The judgment must be deemed to have been entered on the stipulation and cannot be broader than the stipulation itself. It is therefore evident that nothing was adjudicated between the parties except that the mortgage was void, and that the defendants Smith were estopped in equity from asserting as against the plaintiff, said trustee, the mortgage mentioned, and that the said plaintiff was entitled to the whole of such surplus moneys.

The premises described in the mortgage had in the meantime been sold upon a prior mortgage and the surplus moneys paid into court.

This judgment recites, after stating the object of the action, and referring to the mortgage and describing the premises, as follows:

'and the issues in said action having been tried at an equity term of this court held in and for the county of Cayuga in April, 1909, and the court having decided the issues raised by the answer of the defendants Smith in favor of plaintiff and directed findings and a judgment in plaintiff's favor, * * *adjudged,""' etc.

Thereafter and on the 2d day of October, 1909, the said Frank S. Smith and Alice J. C. Smith filed their claim for $4,662.40, and interest, basing the same on and attaching thereto the said bond and the notes referred to therein. December 15, 1909, an amended claim was filed under an order of the referee.

The claim is for the same debt or debts mentioned in the said bond the payment of which was secured by the said mortgage which was set aside by the Supreme Court as above stated. The judgment in the Supreme Court does not establish, or purport to establish, the amount actually due and owing the Smiths on the notes and bond referred to. It was not pretended that no sum was due and owing the Smiths; but it was claimed that the consideration mentioned was in part fictitious, and this fact seems to have been established by the judgment were it not for the stipulation.

The application of the trustee to have the claim disallowed and expunged was based in the main on the claim that neither the proof of claim nor the amended proof of claim were filed within one year from the date of the adjudication in bankruptcy, to wit, September 21, 1907, and that no action or proceeding was taken or commenced either by or against said claimants within one year after said adjudication to liquidate said claim by litigation or the validity of said mortgage; also, that the claim is based upon promissory notes and a personal bond, and same was provable at any time after said adjudication as a secured claim, and that it was not liquidated by litigation, and the litigation referred to in said amended proof was confined to the collateral security; also, that the proof of said claim filed October 2, 1909, was made and filed prior to the rendering of judgment in said action to set aside the mortgage, and the amended proof was filed December 15, 1909, and was made and filed more than 60 days after the rendition of said judgment.

As appears, the judgment was actually entered October 7, 1909, and the original claim shows on its face that it was filed October 2, 1909, 5 days before the judgment was actually entered; and the amended claim shows on its face that it was filed December 15, 1909, more than 60 days after the judgment was actually entered.

Default had been made in one or more of the payments according to the terms of the bond and mortgage before the expiration of the year following the adjudication. The Smiths commenced no action to foreclose and brought no suit upon the bond or notes, nor did they file any claim within the year. Evidently they elected to stand upon their security, the mortgage, and did so. The mortgage, if valid, was adequate security for the full amount of the claim. If no attack was made upon the mortgage, then the Smiths were fully secured and in due time could have...