Mulhern v. Albin

• Decision Date: 15 August 1947
• Docket Number: No. 13421.,13421.
• Citation: 163 F.2d 41
• Parties: MULHERN et al. v. ALBIN.
• Court: U.S. Court of Appeals — Eighth Circuit

163 F.2d 41 (1947)

MULHERN et al. v. ALBIN.

No. 13421.

Circuit Court of Appeals, Eighth Circuit.

July 7, 1947.

Rehearing Denied August 15, 1947.

J. R. McManus, of Des Moines, Iowa (Walter F. Maley, of Des Moines, Iowa, on the brief), for appellants.

Robert C. Lappen, of Des Moines, Iowa (Guy H. Hall, of Dallas Center, Iowa, and Lappen & Carlson, of Des Moines, Iowa, on the brief), for appellee.

Before GARDNER, WOODROUGH, and THOMAS, Circuit Judges.

WOODROUGH, Circuit Judge.

This appeal is taken by Eleanor Mulhern and husband, farmer-debtor bankrupts, to reverse an order of the district court which approved and confirmed an order of the Conciliation Commissioner. The order determined that the appellee Eugene Kelly Albin is a secured creditor and entitled to a lien in the amount of $5,000.00 upon certain eighty acres of land in Adel Township, Dallas County, Iowa, in the possession of appellants, to which the appellant Eleanor Mulhern has the legal title. She acquired that title by conveyance to her from the former owner in 1942, the purchase price paid therefor being $10,000.00 which was made up of $5,000.00 paid by the appellee, who is her uncle, out of his resources, and $5,000.00 raised upon a first mortgage of the land the paramount lien of which was allowed and is unquestioned. The uncle asserted his right in equity to a lien on the land for the part of the purchase price thereof paid by him superior to any interest therein of the niece in a suit which he brought against the niece (et ux.) in the state court in October, 1943, and after trial of the case on January 26, 1945, a decree was entered in the suit finding the equities to be in his favor and awarding him a judgment in rem in the sum of $5,000.00 and costs against the land and execution through sale thereof to satisfy the amounts. In respect to the rights of the niece under the legal title held by her, the decree accorded her only the right to redeem from the lien of the uncle by payment of the $5,000.00 and costs within one year from the judgment date.

Upon this appeal the niece and husband contend that the uncle's lien on the land should be found to be void under section 67 of the Bankruptcy Act as amended, 11 U.S. C.A. § 107, because less than four months intervened between the rendition of the decree in the state court on January 26, 1945, and the date of appellants' adjudication in bankruptcy on May 5, 1945, under Section 75, sub. s, 11 U.S.C.A. § 203, sub. s, the appellants having been, as they claim, insolvent at the decree date.¹

The proof of the uncle's claim as a claim secured by lien on the land in the possession of the niece is the record of the litigation between the uncle and the niece in the state court where the disputes between them were tried out and adjudicated. It is shown by that record that in 1942 the uncle entered into a written contract with the then owner of the land in question by which the owner agreed to sell and convey, and the uncle agreed to buy it for $10,000.00. The uncle paid $1,000.00 down and was to pay the balance of $9,000.00 within about eight months. Within that time the sale contract was assigned to the niece enabling her to obtain a $5,000.00 first mortgage loan on the land, and on receiving the amount of the loan and $4,000.00 paid by the uncle the then owner conveyed the lands to her. The niece claimed in the lawsuit that consideration for the conveyance to her moved from her to her uncle in that (i.a.) there was agreement between them that she was to provide a home for him on the farm, but the court found that "fraudulent conduct (pressure and design against an aged party) induced the contracts in question and is sufficiently established to warrant equity in granting relief. Even though there be an insufficient showing of fraud to warrant relief, the record does show a failure of consideration, made so by the defendants themselves, such as to warrant relief." The judgment establishing the respective rights of the uncle and niece in and to the land and the improvements made thereon was in accord with the court's conclusions as to the equities between them in respect to the land. No part of the purchase price having been contributed by the niece, the uncle's interest in the land to the extent of the money he had put into it was found to be superior in equity to any right accruing to the niece by reason of the legal title that became vested in her.

His interest in the specific property for which he had paid all of the purchase price except the part secured by prior lien constituted an equitable lien thereon which a court of equity was required to recognize as a charge upon any interest of the niece. The bankruptcy court was empowered to distribute to creditors of the bankrupt only such interest in property as the bankrupt had. Where, as in this case, she had only a legal title to lands accruing to her through fraudulent conduct and without consideration moving from her the bankruptcy court may not refuse to recognize the equitable lien which accrued to the uncle by reason of his purchase and payment for the land conveyed in the name of the niece. The decree which was entered in the state court suit between the uncle and the niece did not create the equitable lien of the uncle but recognized and established it as existing in equity by reason of the transactions through which the niece became vested with the legal title subject...