Peacock v. Fairbairn
| Decision Date | 27 February 1928 |
| Docket Number | 4965 |
| Citation | 264 P. 231,45 Idaho 628 |
| Parties | CHARLES F. PEACOCK, Trustee in Bankruptcy for the Estate of R. U. BRADSHAW, Bankrupt, Respondent, v. DELLA FAIRBAIRN and ARCHIE FAIRBAIRN, Wife and Husband, Appellants. CHARLES F. PEACOCK, Trustee in Bankruptcy for the Estate of R. U. BRADSHAW, Bankrupt, Respondent, v. MAY SHIRLEY and CHARLES B. SHIRLEY, Appellants. CHARLES F. PEACOCK, Trustee in Bankruptcy for the Estate of R. U. BRADSHAW, Bankrupt, Respondent, v. J. R. BRADSHAW, Appellant |
| Court | Idaho Supreme Court |
APPEAL from the District Court of the Seventh Judicial District, for Washington County. Hon. B. S. Varian, Judge.
Action to set aside conveyances. Judgment for respondent. Affirmed.
Judgment affirmed, costs awarded to respondent. Petition for rehearing denied.
Wm. M Morgan, E. B. Smith and George Donart, for Appellants.
A trustee in bankruptcy is entitled to maintain an action to set aside as fraudulent conveyances made by a bankrupt only under the following conditions: (a) In instances where conveyances were executed within four months next preceding the institution of the bankruptcy proceeding; (b) In instances where the creditors themselves could have maintained actions to set aside the conveyances. (U. S Bankruptcy Act, 67e, 1 F. Stat. Ann. 70e, p. 1212; 2d ed., p 1122; Dean v. Plane, 195 Ill. 495, 63 N.E. 274; Knapp v. Milwaukee Trust Co., 216 U.S. 545, 30 S.Ct. 412, 54 L.Ed. 610; Carey v. Donohue, 240 U.S. 430, 36 S.Ct. 386, 60 L.Ed. 726, L. R. A. 1917A, 295.)
A creditor who has not reduced his claim to judgment in the absence of a lien upon the property alleged to have been fraudulently conveyed cannot maintain an action to set aside his debtors' conveyances as fraudulent. (Perkins v. Bundy, 42 Idaho 560, 247 P. 751.)
Section 70e of the Federal Bankruptcy Act authorizes the trustee to set aside only such conveyances as some creditor or creditors of the bankrupt might have set aside. This section creates no new right in the trustee in bankruptcy but merely gives him the right to avoid the transfers which any creditor might have avoided. (Holbrook v. International Trust Co., 220 Mass. 150, 107 N.E. 665; Scales v. Holje, 41 Cal.App. 733, 183 P. 308.)
Rice & Bicknell and Ed. R. Coulter, for Respondent.
The trustee in bankruptcy had the legal right to bring this action. (Sec. 70e, Federal Bankruptcy Act; Martin v. Commercial Nat. Bank, 245 U.S. 513, 38 S.Ct. 176, 62 L.Ed. 441; Stellwagen v. Clum, 245 U.S. 605, 38 S.Ct. 215, 62 L.Ed. 507; Security Warehousing Co. v. Hand, 206 U.S. 415, 11 Ann. Cas. 789, 27 S.Ct. 720, 51 L.Ed. 1117; Knapp v. Milwaukee Trust Co., 216 U.S. 545, 30 S.Ct. 412, 54 L.Ed. 610; In re Downing, 201 F. 93; Casey v. Baker, 212 F. 247; National Bank v. Moore, 247 F. 913; sec. 47 of the Bankruptcy Act, as amended by act of 1910; Baldwind v. Kingston, 247 F. 163; Crary v. Kurtz, 132 Iowa 105, 119 Am. St. 549, 105 N.W. 590, 109 N.W. 452; Ryan v. Rogers, 14 Idaho 309, 94 P. 427; Remington on Bankruptcy, secs. 1402, 1513, 1547; Grand Rapids Trust Co. v. Nichols, 199 Mich. 126, 165 N.W. 667; In re Pittsburgh-Big Muddy Coal Co., 215 F. 705, 132 C. C. A. 81.)
There is no question here but that there were creditors of Bradshaw who might have avoided those conveyances but for the intervention of the bankruptcy proceedings which prevented them from putting their claims into judgments. Under such circumstances it was not incumbent upon plaintiff to allege or show that those creditors filed their claims against the estate of the bankrupt. (Remington on Bankruptcy, sec. 2247.)
November, 1924, R. U. Bradshaw was adjudged bankrupt. December 20, 1924, respondent became trustee in bankruptcy of the estate. August, 1923, being indebted to various and sundry creditors, in a large sum, R. U. Bradshaw and his wife conveyed to appellant Fairbairn certain real estate and assigned a certain mortgage. Other conveyances were made on the same date to the other appellants. Respondent brought three separate actions (all consolidated and to be heard on one transcript) as trustee in bankruptcy against appellants to set aside the conveyances executed and delivered by R. U. Bradshaw to appellants prior to the bankruptcy adjudication. The court found, and there was sufficient evidence to show, that R. U. Bradshaw was insolvent, had made the conveyances, and was adjudged bankrupt, and that the conveyances were made without consideration and with intent to hinder and delay creditors, and decreed that the deed and assignment from Bradshaw to Fairbairn were fraudulent, null and void, that appellant convey the property therein described to respondent and upon failure to execute proper conveyance that the judgment should have the effect of a conveyance in fee simple. Like judgments were entered in Peacock v. Bradshaw and Peacock v. Shirley, from which judgments these appeals are taken.
The evidence shows that in August, 1923, at the date of the conveyances, R. U. Bradshaw's total indebtedness amounted to $ 125,880. The valuation placed upon Bradshaw's assets by Mr. Lloyd, which was the valuation most favorable to Bradshaw, amounted to $ 84,828. The introduction, over appellant's objection, of certain ledger sheets of the Weiser National Bank and the testimony of one Horner, an employee of the bank, relative to the contents of the ledger sheets, to show the liability of Bradshaw as an indorser on paper in the bank, is assigned as error, for the reason that the notes themselves were the best evidence and no reason was shown for their nonproduction. The total amount of the liability developed by the testimony objected to was $ 28,000. Without considering the amount so proven, that is, deducting from Bradshaw's total liability $ 28,000, he was still insolvent to the extent of some $ 13,000. While of course the notes were the best evidence of their contents and should have been introduced, their nonproduction, as to the above objection, was not prejudicial.
Appellants also urge that this evidence was prejudicial as being the only connecting link to show that the trustee represented creditors existing at the time the bankruptcy proceedings were instituted who were also creditors at the time of the alleged fraudulent transfers. This evidence was clearly admissible to show the transactions in and through the bank.
Plaintiff's Exhibit "K," the schedules in bankruptcy, signed by the bankrupt, was admitted in evidence without objection. In fact, it was expressly stated with the acquiescence of appellant that it was admitted for any (every) purpose except as to values placed by the bankrupt on certain pieces of property listed. These schedules were referred to by the bankrupt in his testimony, and listed his debts, some of which he admitted in his examination were in existence at the time the transfers were made, and his listing them as debts due at the time the bankruptcy proceedings were instituted, coupled with the bank records above referred to, was sufficient, to show continuity of liability on the one hand and creditors on the other, and to support the findings and conclusions of the court.
Appellants urge that the complaint was deficient as to stating a cause of action in the above particular. In the absence of a demurrer or a motion to make more specific, the complaint did sufficiently allege that the bankrupt at the time of the transfers was indebted in large amounts to various and sundry persons and that said indebtedness still continued at the time of the bankruptcy proceedings.
Only one further point need be decided; namely, whether the trustee in bankruptcy was in a position to maintain the action, the conveyances having been made more than four months prior to the filing of the petition in bankruptcy, and the creditors not having reduced their claims to judgment and having no liens on the property.
Section 67e of the Federal Bankruptcy Act (1 F. Stat. Ann., 2d ed., p. 1122), authorizes the trustee to institute legal proceedings to set aside all conveyances, transfers or assignments made within four months prior to the filing of the petition in bankruptcy with the intent and purpose to hinder, delay and defraud creditors.
The petition in bankruptcy was filed in November, 1924, and the conveyances were made August 11, 1923, more than four months prior thereto, in fact, some sixteen months. Two of the conveyances were recorded prior to the four months priority period and two were recorded within that period. By C. S., sec. 5427, an unrecorded conveyance is valid between the parties thereto. The conveyance became effective upon delivery in August, 1923 (Hiddleson v. Cahoon, 37 Idaho 142, 214 P. 1042), and the date of recording is immaterial in this case as no such situation as is provided for in C. S., sec. 5424, arises. It necessarily follows that these conveyances having been made more than four months prior to the filing of the petition in bankruptcy, the trustee could maintain no action to set them aside under section 67e of the Bankruptcy Act.
Section 70e (30 Stat. L. 556, 1 F. Stat. Ann., 2d ed., p. 1212), provides:
A right of action under this section is not subject to the four months' limitation of the Bankruptcy Act under secs. 60b and 67e. (Stellwagen v. Clum,...
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