Lynch v. La Fonte

• Decision Date: 10 March 1941
• Docket Number: No. 1143.,1143.
• Citation: 37 F. Supp. 499
• Court: U.S. District Court — Southern District of California
• Parties: LYNCH v. LA FONTE et al.

37 F. Supp. 499

LYNCH v. LA FONTE et al.

No. 1143.

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

March 10, 1941.

Rupert B. Turnbull and Nat Rosenstein, both of Los Angeles, Cal., for plaintiff.

Lorrin Andrews and E. Walter Guthrie, both of Los Angeles, Cal., for defendant.

O'CONNOR, District Judge.

The plaintiff, E. A. Lynch, as trustee in bankruptcy of the estate of Herbert M. Horkheimer, a bankrupt, alleges that the bankrupt purchased real property in that portion of the City of Los Angeles known as Van Nuys, approximately five acres in extent, in the County of Los Angeles, State of California, described as follows, to-wit: "Tract 1000, and East 305 ft. of Lot 394 and East 305 feet of Lot 395, Van Nuys, California containing 4.42 acres, as per book 19, pages 1-34 of Maps, Records of Los Angeles County, State of California, commonly known as No. 14115 Magnolia Boulevard, Los Angeles County, California, in Van Nuys, California."

That the purchase price paid by the bankrupt for said property, unimproved, was the sum of $5,000 and the title was made in the name of the defendant, Dorothea Louise LaFonte for the convenience of said Herbert M. Horkheimer, bankrupt; and that no part of the purchase price was contributed by Dorothea Louise LaFonte, and alleges further that the said purchaser, Herbert M. Horkheimer, caused to be erected and built upon said property a residence costing approximately $25,000, all of said sum being contributed by the bankrupt and none by the defendant, Dorothea Louise LaFonte; and further alleges that said bankrupt inherited from his mother, in 1935, ten Oriental rugs, silverware and china, and that he placed the same within said residence and that said rugs are now in and upon the floors of said property and said silverware and china are now also within said property.

Further, plaintiff alleges that certain furniture was purchased and paid for by Herbert M. Horkheimer and placed therein, and that a certain trust deed, which was place on said real property to secure certain sums of money used to complete buildings on said property, was joined in by Horkheimer and the defendant, and also that certain water-heating equipment and other fixtures were installed therein and paid for by Horkheimer.

It is further alleged that Horkheimer has creditors to the extent of approximately $25,000 without property to pay the same and the complaint refers to the matter of Horkheimer, a bankrupt, file No. 36325-C In Bankruptcy.

The uncontradicted testimony discloses that Horkheimer gave to the defendant, LaFonte, $30,000 in September, 1935, and that this sum was deposited in a safety deposit box of defendant, LaFonte; that LaFonte executed a written order authorizing Horkheimer to have access to said box; that on May 27, 1936, the sum of $5,000 was taken out of said safety deposit box and deposited in the Security First National Bank, North Hollywood Branch (plaintiff's exhibit 20), in the name of defendant, LaFonte; that, from time to time, various amounts were deposited to the account of defendant, LaFonte, in said bank and also in the LaBrea and Wilshire Branch of the Security First National Bank by Horkheimer at the request of LaFonte.

On August 20, 1935, Horkheimer received stocks and bonds and cash in the sum of about $10,000 from the estate of his mother. Articles of personal property received by Horkheimer were shipped from New Jersey to Los Angeles, (plaintiff's exhibit 14), bill of lading made to LaFonte, September 16, 1935. Real estate received by Horkheimer from said estate was deeded by him to his brother, Elwood.

The $5,000 deposited on May 27, 1936, in the account of LaFonte was used to purchase a five-acre tract described in the complaint and the balance of the $30,000 was used to construct the house, as were the funds borrowed, which were secured by a trust deed on the premises amounting to $16,000, (defendant's exhibit F). The defendant, LaFonte, received a deed direct from the record owner, May 17, 1936.

At the time this money was borrowed, Horkheimer made it clear to the Prudential Insurance Company, the loaning company, that he would become obligated with LaFonte provided that it would not be any evidence of any ownership in the real property, which he said he did not have. The proceeds of this loan were used to pay bills for labor, material and miscellaneous items which went into the house and to repay money to Chaney in the sum of $4,144 and to Lillian R. Bernstein in the sum of $6,252. No cash was paid to LaFonte or to Horkheimer. The ten Oriental rugs and the silverware and china inherited by Horkheimer were given to LaFonte. Horkheimer testifies, and there is no evidence to the contrary, that, at the time he gave the $30,000 and the items of personal property to LaFonte, he still had about $40,000 or $50,000 cash of his own. Horkheimer's father died in 1910 and left an estate of between $250,000 and $300,000 and his mother gave him various amounts of money at different times, in sums of $500 and as high as $20,000; and he made no income tax returns in 1935, 1936, 1937, 1938 or 1939 for the reason that he had no income.

At the time of the gift of the $30,000 by Horkheimer to LaFonte, Horkheimer had no creditors. He was not engaged in business; he did not contemplate entering into any speculative venture which might jeopardize his capital. The five acres was purchased by LaFonte and the whole world had notice of the claims of ownership both of record and by possession. Horkheimer did not live in the house until about April or May, 1940. The involuntary petition in bankruptcy against Horkheimer was filed on May 9, 1940. LaFonte testifies that Horkheimer had no money, and for that reason came to her house where, at various times, her mother and sister lived with her. Horkheimer divorced his wife in 1914 and made a settlement with her by making a payment to her of $100,000 and a payment to his daughter of $50,000.

The court's attention was called to the bankruptcy file, Herbert M. Horkheimer, 36325-C. The trustee contends that in the trial the jury found that the placing of this property in the name of LaFonte was concealment. "They cannot and do not tell the same story in this court as they told to the bankruptcy referee or to the jury in the Horkheimer bankruptcy case, where said jury found that it was in fact a concealment." (See plaintiff's brief, page 13.)

The court has carefuly examined the file in the bankruptcy trial and finds that four acts of bankruptcy were alleged. Act of bankruptcy No. 1: a preference payment of $100 to the Ambassador Hotel Operating Company. Act of bankruptcy No. 2: concealment of the real property in issue in this case in the name of LaFonte. Act of bankruptcy No. 3: the concealment of furnishings, furniture and equipment at 14115 Magnolia Boulevard, Van Nuys, being the premises in question in this action. Act of bankruptcy No. 4: concealment of certain oil royalty interests in the name of LaFonte. The petitioning creditors requested instruction to the jury setting forth in detail the alleged four acts of bankruptcy and requested the court to instruct as follows: "The court instructs you that it is not necessary in order for you to find a verdict in favor of petitioning creditors, for you to find that each and all of said alleged acts of bankruptcy were committed by Horkheimer and have been proven. If you find that any of said acts has been proven and, in addition, you find that Horkheimer, at the time of filing the creditor's petition therein owed provable unsecured debts in excess of $1,000. * * *"

Only that part of the instruction pertinent to the inquiry is quoted. The court gave this instruction together with many other instructions requested by the plaintiff. The verdict of the jury was as follows: "We, the jury, in the above entitled bankruptcy matter, find the issues in favor of the petitioning creditors." (Dated Los Angeles, California, August 8, 1940. Charles S. Kendall, Foreman of the Jury.)

Under the court's instructions, the jury could return such a verdict by finding that any one or more of the acts of bankruptcy has been committed and the verdict does not specify which of the acts of bankruptcy were proven.

It could not be contended that at the time the $30,000 was given to LaFonte by Horkheimer anyone was injured. Horkheimer had no creditors at that time. In fact, the plaintiff strenuously contends that Horkheimer had no business for some years prior to 1935 and since 1935, except a few casual transactions.

The subsequent creditors represented by plaintiff Lynch as trustee did not extend credit or make advances to Horkheimer relying upon the property in question. The first creditors became such approximately two years after the gift. The court was not furnished with the dates when each of the obligations was incurred by Horkheimer, and the allegations in several of the complaints filed against him in state courts, stated that the indebtedness was incurred within two years of the filing of the complaint. However, the dates on which some of the larger items were incurred by Horkheimer were established. The Josephine Corbett (now bankrupt) obligation of $10,000 was for money advanced during the latter part of 1938 and 1939. The money advanced by Mrs. Maud Gilmore amounting to $8,732 was advanced between October 20, 1938, and December 8, 1939. The indebtedness to W. D. Gilmore of $1,680 was incurred on December 8, 1939. The indebtedness to Ben Bard of $1,117.36 was incurred in 1937.

In Beaumont v. Beaumont, 3 Cir., 152 F. 55, 58, Lucius S. Beaumont took his two brothers, John and Charles, to the Lincoln Safe Deposit Company in New York and had them sign the card containing contract of renting safety deposit box which he had signed the previous day, handed each of the two brothers twenty-five bonds of $1,000 each and stated that he gave them to each of his brothers but desired to reserve the coupons for himself...