McMahon v. Pithan
| Decision Date | 24 June 1914 |
| Docket Number | 29328 |
| Citation | 147 N.W. 920,166 Iowa 498 |
| Parties | P. D. MCMAHON, Trustee, Appellant, v. HENRY PITHAN, Appellee |
| Court | Iowa Supreme Court |
Appeal from Crawford District Court.--HON. M. E. HUTCHISON, Judge.
ACTION in equity to have a certain chattel mortgage declared to be fraudulent and void because made to hinder and delay the creditors of the mortgagor, Brown, and to recover the value of the mortgaged property from the defendant mortgagee for the reason that he sold and converted the same to his own use and now holds the same under a pretended foreclosure of his mortgage. Defendant denied the alleged fraud and pleaded a former adjudication of the validity of the mortgage, in the federal District Court, in a voluntary bankruptcy proceeding by Brown. The right of plaintiff to sue was also challenged and other issues were tendered not necessary to be noticed at this time. The trial court dismissed the petition, and plaintiff appeals.
Affirmed.
Sims & Kuehnle, for appellant.
Geo. H Mayne, and S. M. Elwood, for appellee.
On December 17, 1907, Frank H. Brown, who was about to become a tenant upon one of defendant's farms, and who was without means, purchased from him (defendant) certain horses, cattle, and machinery amounting to approximately $ 1,307. For the purchase price thereof he gave a note to defendant, and at the same time executed another note for the sum of $ 1,893, which we find was without consideration and made to deceive, delay, and hinder creditors; and at the same time Brown executed and delivered to defendant a chattel mortgage upon practically all his personal property exempt as well as nonexempt. About a year later another mortgage was made covering the same and other after-acquired property to secure the original $ 1,307 note, together with another for the sum of $ 3,593. This latter note was also without consideration and, as we believe, was made to hinder, delay, and defraud other creditors.
On January 15, 1909, Brown, with the knowledge of, if not upon request of, defendant, filed a voluntary petition in bankruptcy in the proper federal court. One Tinker was appointed trustee, and defendant filed a claim in the proceedings for the amount of the original indebtedness of $ 1,307 only. The trustee filed a report setting aside exempt property to Brown, and on April 30, 1909, defendant filed an application for an order authorizing him to proceed against the property on which he held a mortgage. To this application no objections were raised, as to the validity of the mortgage, and, after a hearing, it was found that, as the mortgage debt was in excess of the property, the application was granted. June 15, 1909, the trustee filed a report showing no property coming into his hands. Prior thereto, however, and on March 17th of the same year, Brown filed a petition for a discharge, to which the creditors objected because Brown had theretofore, and within six years just prior to his then application, been discharged in another proceeding of like character.
On the issue thus raised, the matter was referred to a special master, who recommended that the petition for discharge be denied. The estate was closed and the trustee discharged in July of the year 1909. Pursuant to an order made by the referee in bankruptcy, defendant foreclosed his mortgage on May 15, 1909, and sold all the property covered thereby, except a team of horses and some other exempt property, which he released to Brown, for the aggregate sum of $ 1,496. Brown continued on the farm until the fall of the year 1909, when he had a settlement with defendant in which he repurchased a good share of the property sold at foreclosure from defendant, who had been the purchaser at the sale.
The nonsecured creditors were generally represented in the bankruptcy proceedings by one Metcalf; and as already observed, no question was made regarding the validity of the mortgage in those proceedings. On the 10th day of July, 1911, Brown executed a confession of judgment to plaintiff herein, as trustee for several of his unsecured creditors, amounting in the aggregate to the sum of $ 1,121, and on the same day judgment was rendered thereon against him for the amount acknowledged to be due, with interest.
This action is bottomed upon the judgment by confession rendered on July 17, 1911. Defendant appeared and answered in due course, and thereafter filed a substituted answer, and thereafter, and on April 16, 1912, plaintiff filed a supplemental pleading bringing in another or other holders of confessions of judgment from Brown in favor of all the creditors (save defendant) whose claims were allowed and proved in the bankruptcy proceedings, which were unpaid at the time of the filing of the supplemental petition. This supplemental petition also showed an application in the federal court for an order reopening the bankrupt estate and for leave to prosecute such an action as is here brought in the name of a new trustee, or otherwise, to the end that this plaintiff might have the relief prayed. Upon this application the following findings and order were made:
It appearing to the court from an inspection of said application that such action contemplated by the creditors, if brought, would be for the purpose only of recovering certain assets for distribution among the said creditors for which an action is now pending in the district court of Iowa in and for Crawford county on behalf of the same creditors, and it further appearing to the court from the records herein that said bankrupt estate has been closed and the trustee in bankruptcy discharged and the bankrupt denied his discharge in bankruptcy for more than two years, there is therefore now no occasion to reopen the said bankrupt estate for the purpose of such action. It is therefore ordered that the application herein of these petitioning creditors for an order reopening said bankrupt estate be, and the same is hereby, denied.
This order was not appealed from, and must be regarded as a finality.
Such are the issues and some of the conceded facts down to the time the cause came on for hearing in the district court. Evidence was adduced upon these issues, and the trial court found in effect that the mortgage was fraudulent to the extent of the debt secured above the original $ 1,307 in that it was to that extent without consideration and made for the purpose of hindering and delaying the creditors of Brown. It also found, however, that, by reason of the bankruptcy proceedings, plaintiff was not entitled to prosecute this suit; and also that the matter of the validity of the mortgage was determined adversely to the plaintiff, at least to the extent of the $ 1,307, and that by reason of this finding plaintiff is estopped and foreclosed by the order entered in the bankruptcy proceedings. The appeal is from this decree.
I. We are constrained to hold, under the record before us, that the chattel mortgages were actually fraudulent at the time they were made, because of the fact that, although defendant Pithan was a creditor of Brown to the extent of $ 1,307, the mortgages were made to secure apparently much greater amounts than were really due, with the specific intent and purpose on the part of both mortgagor and mortgagee, to hinder, delay and defraud...
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