Matter of Titus

Decision Date13 June 1985
Docket Number84-0360-SJ.,84-01747-S,Bankruptcy No. 84-02244-S,Adv. No. 84-0362-SJ
Citation75 BR 256
PartiesIn the Matter of John Norman TITUS and Helen Lucille Titus, Debtors. In the Matter of Doris Jean HOY and Max Hoy, Jr., Debtors. FARMERS AND MERCHANTS BANK, Plaintiff v. John Norman TITUS and Helen Lucille Titus, Defendants. FARMERS AND MERCHANTS BANK, Plaintiff v. Doris Jean HOY and Max Hoy, Jr., Defendants.
CourtU.S. Bankruptcy Court — Western District of Missouri

Donald Reynolds, Rock Port, Mo., for Farmers and Merchants Bank.

Jefferson Broady, Rock Port, Mo., for Titus.

Maureen A. Powers, St. Joseph, Mo., for Hoy.

FINDINGS OF FACT, CONCLUSIONS OF LAW, AND FINAL DECREE AND JUDGMENT DENYING THE DISCHARGES IN BANKRUPTCY OF THE DEFENDANTS TITUS AND HOY

DENNIS J. STEWART, Bankruptcy Judge.

In Farmers and Merchants Bank v. John N. Titus and Helen L. Titus, Adversary Action No. 84-0362-SJ, the complaint for denial of discharge was filed on August 16, 1984, and contained the following material allegations:

". . . within one year before the date of filing of the petition herein, Defendants executed and delivered to Merle Keith, and thereby transferred to him the following described real property, to wit:
The SW¼ of the SW¼ of section 19, township 66, Range 35, Nodaway County, Missouri.
"Defendants made the transfer of that property with the intent to hinder, delay and defraud the creditors of the estate herein. . . . The discharge of the Defendants should be denied under Section 727(a)(2) (of the Bankruptcy Code)."

The defendants stated in their answer that "they did not have interest to the said land; rather, the title to the said land was in default (and) lienholder executed his or their rights therein and they had no interest in the said property."

In Farmers and Merchants Bank v. Doris Jean Hoy and Max Hoy, Jr., Adversary Action No. 84-0360-SJ, the complaint for denial of discharge was filed on August 15, 1984, and materially alleged that:

"within one year of the date of the filing of a petition herein, Defendants executed and delivered to Lester M. Keith and Violet M. Keith, and thereby transferred to them the following described property, to wit:
The NE¼ of the SW¼ and the W½ of the SW¼ of Section 6, Township 66, Range 35, and the N½ of the SE¼ of Section 1, Township 66, Range 36, containing 187.5 acres, more or less, all in Nodaway County, Missouri.
"Defendants made the transfer of the aforesaid property with the intent to hinder, delay and defraud their creditors . . . The discharge of Defendants should be denied under Section 727(a)(2)."

The defendants contended in their answer to the complaint that the "conveyance complained of (was) to avoid legal action by the holder of the deed of trust or foreclosure proceedings to be filed against the debtors."

On the issues thus joined by the pleadings, the actions came on before the bankruptcy court for hearing of their merits in St. Joseph, Missouri, on March 12, 1985. The plaintiff appeared by counsel, Donald Reynolds, Esquire, and the defendants also appeared by counsel, Jefferson G. Broady, Esquire. The evidence which was then adduced clearly demonstrated the existence of the following relevant and material facts.

The defendants Titus were debtors of the plaintiff, having received advances of some $43,900 on a $44,500 line of credit. According to a financial statement which they rendered to the plaintiff bank on or about December 16, 1982, the Tituses owned some 40 acres of land which was then valued at $24,000. The legal description of that 40 acres is the same as that above quoted from the complaint. According to the same financial statement of December 16, 1982, Merle Keith then had a first mortgage on this land, with a balance due of $4,000. A second mortgage was held by the defendants Hoy in the sum of $6,000. On October 13, 1983, the plaintiff commenced a civil action in the Circuit Court of Nodaway County, Case No. CV-783-187CC, for the sum of $47,225.99, alleged to be due on the notes issued by the defendants. Thereafter, on October 26, 1983, the defendants Titus executed a "quit claim deed" purporting to transfer their interest in the 40 acres identified above to Merle Keith and Violet M. Keith. The deed was recorded in the office of the Recorder of Deeds for Nodaway County, Missouri, in Book 374 at page 208. The uncontradicted evidence is to the effect that, at the time of the transfer, the defendants Titus knew of the filing of the state court action1; that the value of the transferred property was still in the vicinity of $24,0002; that the defendants were then insolvent3; that no consideration other than the release of the $4,000 lien was granted; and that the transfer was made within the year next preceding the date of bankruptcy, July 16, 1984. Additionally, according to admissions made by the Tituses in the meeting of creditors held in their bankruptcy case, their grandson, Johnny Max Titus, who is under the age of 18 years, farmed the land in 1984 and they stated that they helped him do so.

Similarly, the defendants Hoy were also debtors of the plaintiff bank throughout the year next preceding their bankruptcy and antecedent thereto. According to a financial statement rendered to the plaintiff by the Hoys on February 5, 1981, they owned the 168 acres more particularly described in the above quotation from the complaint and a second tract of 348 acres. They valued the former tract at $45,500 and stated that Lester Keith had a mortgage on the property on which the sum of $2500 was due to be paid over the next 12 months. The available documentary evidence shows that, with respect to this property, the defendants Hoy had entered into a "real estate contract" on March 8, 1976, with Lester M. Keith and Violet M. Keith, under which the defendants agreed to pay a total purchase price of $75,000 — $13,000 down and the balance by periodic payments between March 1, 1977, and March 1, 1986, in the sum of $2500 annually and a balance of $54,000 on the latter date. In the meantime, on May 25, 1982, the Hoys gave a deed of trust on the property to the plaintiff bank to secure a promissory note in the sum of $81,500.00. This followed their rendering a financial statement to the plaintiff on January 29, 1982, in which the 168 acres, then valued at $43,000, was listed as an asset mortgaged to the Keiths on which "$2500 plus interest" was the "amount due in 12 months." On October 17, 1983, the plaintiff filed a civil action in the Circuit Court of Nodaway County, Missouri, Farmers and Merchants Bank v. Hoy, Case No. CV-783-188CC, for the sum of $88,716.59 which was alleged to be due on the aforementioned note. On October 26, 1983, by means of an "acknowledgment of default," the Hoys purported to return the 168 acres to the Keiths. As of the date of bankruptcy, the property in question was in the hands of the same Johnny Max Titus who was said to be farming the property which the Tituses, as observed above, had transferred to the Keiths. The defendants contend that they were in default on their 1980 and 1983 principal payments and interest thereon at the time they retransferred the property to the Keiths.4 They adduced expert opinion evidence during the trial of this action to the effect that, as of August 28, 1984, the value of the transferred property was $59,000.5 It was recognized that the property would have been worth 12-14% more as of October 1983.6 On cross-examination of the plaintiff's principal witness, the defendants' able counsel brought out the fact that other property had been foreclosed by the bank and the proceeds of the sale thereof had been applied against the Hoys' outstanding indebtedness, but that the amount applied was insufficient to extinguish the indebtedness.7 Uncontradicted evidence establishes that the Hoys were insolvent as of the date of the transfer of the property back to the Keiths.8

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