Mansell v. Carroll, 8838-8841.

• Decision Date: 23 June 1967
• Docket Number: No. 8838-8841.,8838-8841.
• Citation: 379 F.2d 682
• Parties: Bobby MANSELL and Delores K. Mansell, Appellants, v. V. H. CARROLL, Trustee in Bankruptcy of Bobby Howard Jones, d/b/a Gate 3 Furniture Company, Appellee. V. H. CARROLL, Trustee in Bankruptcy of Bobby Howard Jones, d/b/a Gate 3 Furniture Company, Cross-Appellant, v. Bobby MANSELL and Delores K. Mansell, Cross-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

379 F.2d 682 (1967)

Bobby MANSELL and Delores K. Mansell, Appellants, v. V. H. CARROLL, Trustee in Bankruptcy of Bobby Howard Jones, d/b/a Gate 3 Furniture Company, Appellee.

V. H. CARROLL, Trustee in Bankruptcy of Bobby Howard Jones, d/b/a Gate 3 Furniture Company, Cross-Appellant, v. Bobby MANSELL and Delores K. Mansell, Cross-Appellees.

Nos. 8838-8841.

United States Court of Appeals Tenth Circuit.

June 23, 1967.

Submitted on briefs by Ralph W. Newcombe of Newcombe, Redman & Doolin, Lawton, Okl., for appellants and cross-appellees.

Submitted on brief by Norman E. Reynolds of Reynolds & Ridings, Oklahoma City, Okl., for appellee and cross-appellant.

Before MURRAH, Chief Judge, and HILL and SETH, Circuit Judges.

HILL, Circuit Judge.

Appellee, as trustee in bankruptcy, brought this equitable plenary action against appellants to set aside a conveyance and mortgage of real property as fraudulent and preferential under the Bankruptcy Act and the Oklahoma Statutes. Appellants have appealed from an adverse judgment setting aside the conveyance and mortgage and appellee has cross-appealed from the trial court's refusal to permit him to recover damages for the use and possession of the property by appellants.

The case was submitted after both parties had filed a motion for summary judgment and it had been agreed that all affidavits, exhibits, depositions and interrogatories and answers thereto on file should be considered by the court in arriving at a decision. The introduction of any other evidence was waived. Apparently, the trial court disregarded the motions for summary judgment and on the basis of the agreed record proceeded to make his own findings of fact and resultant conclusions of law.

At the threshold, the most important consideration is the court's findings of fact. In summary the court found:

On February 9, 1962, the bankrupt, Jones, was the owner of three adjacent pieces of real property, located in the city of Lawton, Oklahoma, known as 1601, 1603 and 1605 Taft Street. On that date he conveyed all of this property, by quitclaim deed, to his wife, Betty Jean, without consideration. Jones was at that time insolvent. He and his wife were then living in a dwelling at 1603, one of the properties conveyed. Three days later and on February 12, Jones borrowed $7,000.00 from the defendants¹ (below) and Betty Jean gave them a warranty deed, intended as a security device to cover the loan, conveying the property at 1603. This deed was not filed of record until May 3, 1962, and was then not accompanied by any instrument explaining it to be a mortgage as required by an Oklahoma statute.² At the same time the warranty deed was delivered by Betty Jean, both husband and wife delivered to Mansells a mortgage instrument securing the loan but this instrument was, at no time, filed of record.

On April 28, 1962, bankrupt and family moved their place of residence from 1603 to 1605 Taft. Betty Jean, on May 2, filed a divorce action against Jones and on June 4, 1962, was granted a divorce decree wherein she was awarded the three properties, 1601, 1603 and 1605 Taft. On June 8, 1962, an involuntary petition in bankruptcy was filed against Jones and on June 18 he was adjudged a bankrupt.

The trial court properly took judicial notice of another civil suit concluded in that court, wherein this same trustee in bankruptcy sought to recover for creditors the property at 1605 Taft. Therein a consent judgment was entered and that property was found to be the last homestead occupied by Jones and his wife and the same was set apart as the exempt property of Mrs. Jones and beyond the reach of the creditors.

From these basic facts and all of the other evidence in the agreed record, the trial court found: That all of the transactions were a part of "a plan and scheme involving all of said parties to place properties of the bankrupt who was then insolvent beyond the reach of and to the detriment of the bankrupt's creditors * * *"; "that the wife * * * was merely a conduit or a sham or straw woman, in effect the alter ego of the bankrupt; that the transaction was actually between the bankrupt and the defendants, and while a fair consideration may have passed * * *, the transfers were made in bad faith and with actual intent on the part of all concerned to hinder, delay and defraud existing and future creditors of the bankrupt"; that the transactions "constituted a preferential transfer under Sections 60a(1) and (7) of the Bankruptcy Act"; and, that the transactions "were both fraudulent under Sections 67d(2) (d) and 70a(4) of the Bankruptcy Act."

Appellants' heavy reliance upon Rutledge v. Johansen, 10 Cir., 270 F.2d 881, should be first considered. There this court approved a conveyance of real property for an antecedent debt within four months prior to the grantor being adjudicated a bankrupt. All of the requirements of a voidable preference under Section 60a and b of the Bankruptcy Act were present but the court held that it was a nonvoidable preference because the property transferred was exempt property. We clearly distinguish that case from our present situation in several respects. That transfer was free of fraud, no other claim of a homestead exemption was made in the bankruptcy proceeding, the transfer was completed while the property remained the homestead of the grantor, and most important, the bankrupt was permitted to do prior to bankruptcy only what he could have done afterward. We find no comfort for appellants in the Rutledge decision.

On the other hand, Rutledge enunciated several generally recognized legal principles applicable here, although the ultimate holding in that case may be said to be an exception, which is not applicable here. Exemption rights are determinable as of the time of the bankruptcy filing. It is the duty of the trustee to set apart the bankrupt's legal exemptions, if claimed. The bankrupt must claim those exemptions and quoting Gardner v. Johnson, 9 Cir., 195 F.2d 717, 720, Rutledge says "affirmative steps must be taken, both by the bankrupt and by those administering the bankruptcy estate, before exempt property can be allowed to the bankrupt."

In a bankruptcy proceeding the determination of what property is exempt is made as of the date of filing and there can be only one homestead insofar as the bankrupt is concerned. As pointed out by the trial judge, if appellants' argument is accepted, a bankrupt could in effect claim any number of previously transferred properties as exempt. This is not within any reasonable contemplation of the Bankruptcy Act. In this bankruptcy proceeding a homestead exemption as to 1605 property has been allowed as the result of another plenary suit, we are bound by that adjudication and appellants have no capacity to collaterally attack it here. Thus, the February 9 transfer of the 1603 property from Jones to his wife may clearly be set aside pursuant to Sections 60(1) and (7), 67(2) (d) and 70a (4) of the Bankruptcy Act. By explicit findings of fact the trial judge determined that the conveyance should be set aside and we agree. The findings are amply supported by the evidence.

Appellants' argument is premised upon the claimed validity of the conveyance by the quitclaim deed from bankrupt to his wife. They say that conveyance involved the family homestead, divested the bankrupt of any interest in the property, and because it was the homestead, appellee trustee cannot now claim such property for the estate. They further argue that the subsequent conveyance of this homestead property by Betty Jean to them is beyond the reach of the trustee because the bankrupt had no interest in the property at the time of that conveyance. It is an ingenious argument but when pierced by the long arm of equity and the law, it is lacking in merit.

We are mindful of the Oklahoma cases holding, in effect, that a creditor of the owner of a homestead generally cannot question a homestead conveyance.³ That is, wisely, the general rule of law, but facts, as found here, present much more than the mere conveyance of a homestead. They reveal a plan and a scheme on the part of Jones,...