Jaffe v. Ackerman

• Decision Date: 09 April 1937
• Docket Number: No. 16.,16.
• Citation: 279 Mich. 304,272 N.W. 685
• Parties: JAFFE v. ACKERMAN et al.
• Court: Michigan Supreme Court

279 Mich. 304

272 N.W. 685

JAFFE

v.ACKERMAN et al.

No. 16.

Supreme Court of Michigan.

April 9, 1937.

Suit by Benjamin Jaffe, trustee in bankruptcy of Marshall C. Ackerman, against Lillian L. Ackerman and others. From a decree of dismissal, plaintiff appeals.

Reversed and rendered. Appeal from Circuit Court, Wayne County, in Chancery; Harry J. Dingeman, Judge.

Argued before the Entire Bench.

Wynn, Zinn & Freimuth, of Detroit, for appellant.

Leo Gottfurcht, of Detroit, for appellees.

CHANDLER, Justice.

The defendant Marshall C. Ackerman was adjudicated a bankrupt on July 27, 1934. The bill of complaint herein was filed by the trustee on December 14, 1934, seeking to set aside certain transfers of real and personal property, alleged to have been made in fraud of the bankrupt's creditors.

For several years, the exact number not appearing, the bankrupt had been engaged in the garage business at 8120 Grand River avenue in the city of Detroit. On January 16, 1923, he deeded a portion of the Grand River avenue property to the defendant Lillian L. Ackerman, his wife. On March 24, 1920, certain real estate was purchased under land contract in the name of the bankrupt and his wife, it being alleged, but not proven, that large payments were made thereon from the funds of the bankrupt after claims of creditors had arisen. By assignment dated January 18, 1926, the bankrupt acquired the vendee's interest in a land contract covering additional property on Grand River avenue. The deed in pursuance thereof was taken in the name of the bankrupt and his wife under date of May 1, 1930. On April 25, 1932, he deeded the balance of the property at 8120 Grand River avenue to his wife. By land contract dated May 23, 1928, he purchased in his own name a tract of land in Oakland county. This contract was substituted by a second contract dated July 10, 1933, describing the same property, but naming the bankrupt and his wife as vendees. The bill of complaint also alleges fraud in the purchase of a lot in the city of Detroit, but no proof was offered in support of the allegation.

Lillian L. Ackerman conveyed by deed dated July 29, 1932, the property acquired by her under the instrument of January 16, 1923, and April 25, 1932, supra, to the defendant Henry Behrendt, sheriff of Wayne county, as security for a jail limits bond.

A corporation, known as M. C. Ackerman, Inc., was organized on or about February 20, 1930; the corporate name being later changed to Ackerman Motor Sales, Inc. At the time of organization, the bankrupt transferred all his stock, equipment, and tools used by him in the garage business to the corporation in exchange for shares of capital stock, which he transferred to his wife in 1932. Under date of August 4, 1933, Ackerman Motor Sales, Inc., executed a chattel mortgage to Lillian L. Ackerman, covering a portion of the stock, tools, and equipment of the corporation. The trustee alleged the formation of the corporation, the transfer of the bankrupt's equipment thereto in exchange for capital stock, to be in violation of Act No. 223 of Public Acts 1905, and a mere subterfuge for the purpose of defrauding creditors.

The claims of the creditors represented by the trustee arose December 12, 1929, January 29, 1932, April 28, 1932, and January 26, 1933, respectively.

From a decree dismissing the bill for failure to sustain the burden of proof, the trustee appeals.

It is contended by the appellant that by virtue of 3 Comp.Laws 1929, § 14617, he established a prima facie case and that the burden was then upon defendants to show the bona fide character of the transactions in question. We have uniformly held that before one could seek to invoke the presumption created by the statute, they must show the obligation of the debtor with judgment rendered thereon, execution returned unsatisfied with levy upon the property in question, together with proof of the conveyance of which complaint is made. Corbett v. Williams, 248 Mich. 541, 227 N.W. 545;Ashbaugh v. Sauer, 268 Mich. 467, 256 N.W. 486;Citizens' Industrial Bank v. Brummeler, 274 Mich. 616, 265 N.W. 481. We have also held that the authority for a trustee in bankruptcy to maintain a suit to set aside a conveyance in fraud of creditors must be found in the bankruptcy act itself, and is not dependent upon state statutes providing for bills in aid of execution and judgment creditors bills. Allen v. Hillman, 215 Mich. 312, 183 N.W. 936. The provisions of the Bankruptcy Act which are pertinent are 30 U.S.Stat. 565 as amended in 1910, 36 U.S.Stat. 838, 840.

The rights, powers, and remedies of a trustee in bankruptcy were materially enlarged by the amendment of 1910, supra. This amendment provides: ‘* * * and such trustees, as to all property in the custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings thereon; and also, as to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied.’ (11 U.S.C.A. § 75.)

And so the trustee is thereby granted the authority of a creditor ‘armed with process,’ a creditor who has exhausted his remedy at law, entitling him to maintain a judgment creditors bill. Grand Rapids Trust Co. v. Nichols, 199 Mich. 126, 165 N.W. 667;Courtney v. Youngs, 202 Mich. 384, 168 N.W. 441. But the amendment does not also give the trustee the rights, remedies, and powers of a creditor who has made a levy upon the land alleged to have been fraudulently conveyed. The levy is essential to the maintenance of a bill in aid of execution. We cannot, by judicial interpretation, extend the rights and remedies of the trustee beyond those expressly conferred upon him by the amendment, supra. We are, therefore, constrained to hold that the bill herein is not a bill in aid of execution, entitling the trustee to the presumption created by 3 Comp.Laws, 1929, § 14617.

Although transactions between husband and wife should be closely scrutinized when the rights of creditors are involved, Magilavy v. Fekete, 251 Mich. 518,232 S.W. 205, the burden is upon him who seeks to set aside a transaction as fraudulent as to creditors, to adduce evidence in support of his claim, even though the transaction assailed is one between husband and wife. Darling v. Hurst, 39 Mich. 765;Peaslee v. Collier, 83 Mich. 549, 47 N.W. 353.

Did the trustee sustain the burden thus imposed upon him? The trustee contends that the conveyance of January 16, 1923, should be declared fraudulent and submits in support thereof that the bankrupt exercised dominion and ownership over the property subsequent to the conveyance to his wife. The property was assessed in the name of...