Schmitt v. Dahl

• Decision Date: 13 February 1903
• Docket Number: 13,268 - (160)
• Parties: JOHN W. SCHMITT v. AMELIA DAHL
• Court: Minnesota Supreme Court

93 N.W. 665

88 Minn. 506

JOHN W. SCHMITT v. AMELIA DAHL

Nos. 13,268 - (160)

Supreme Court of Minnesota

February 13, 1903

Action in the district court for Brown county by plaintiff, as trustee in bankruptcy of the estate of Peter H. Dahl, to set aside a conveyance of real estate made by the bankrupt to defendant Amelia Dahl, on the ground that the transfer was in fraud of creditors. The case was tried before Webber, J., who found in favor of defendant. From a judgment entered pursuant to the findings, plaintiff appealed. Reversed, and judgment ordered for plaintiff.

SYLLABUS

Fraudulent Conveyance.

In an action by a judgment creditor to set aside as fraudulent a conveyance of property made prior to the entry of the judgment, held:

Proof of Claim -- Collateral Attack on Judgment.

It is necessary to prove that the claim upon which the judgment is based existed prior to the time of the conveyance, but the judgment itself does not prove such fact. It is not required to establish the fact that the claim was lawful. In such action the grantee is estopped from setting up any defenses which might have been interposed by his grantor in the original action. Such judgments cannot be impeached in collateral proceedings, except for fraud.

Action by Trustee in Bankruptcy.

A trustee in bankruptcy is entitled to maintain such action to set aside the fraudulent conveyance where the estate of the judgment debtor is in the bankrupt court, and the claim has been filed.

H. L Schmitt, Jos. A. Eckstein and J. W. Schmitt, for appellant.

Hahl's judgment against Peter H. Dahl is, in this action, conclusive against him and the whole world, as to the amount and the validity of the debt on which it was recovered, and it cannot be collaterally attacked by the defendant, Amelia Dahl except for fraud, collusion or want of jurisdiction in procuring it. State v. Prestage, 116 Iowa 466; Fuller v. Nelson, 35 Minn. 213; Scanlan v. Murphy, 51 Minn. 536. The true rule is and ought to be, that, in the absence of an allegation and proof of fraud or collusion between the debtor and creditor, a judgment procured by the latter against the former (after a fraudulent conveyance of property by the debtor) upon a pre-existing debt or claim, in a court of competent jurisdiction, is conclusive evidence against the fraudulent grantee of the validity and amount of the claim, in an action by the judgment creditor or his representative to set the conveyance aside. Sidensparker v. Sidensparker, 52 Me. 481; Mt. Desert v. Inhabitants, 72 Me. 352; Candee v. Lord, 2 N.Y. 269; McMannomy v. Chicago, 167 Ill. 497; Pickett v. Pipkin, 64 Ala. 520; Scott v. Indianapolis, 48 Ind. 75; Faber v. Matz, 86 Wis. 370; Edmunds v. Mister, 58 Miss. 765; 1 Herman, Est. 165-174; 14 Am. & Eng. Enc. (2d Ed.) 323; Ferguson v. Kumler, 11 Minn. 62 (104); Burgess v. Simonson, 45 N.Y. 225; Carpenter v. Osborn, 102 N.Y. 552; Swihart v. Shaum, 24 Oh. St. 432; Sawyer v. Moyer, 109 Ill. 461.

Creditors can attack a judgment collaterally when it is a fraud upon them, as when it has been obtained by collusion; but they cannot set it aside merely because it is a fraud upon the debtor. Thompson's Appeal, 57 Pa. St. 175; Lewis v. Rogers, 16 Pa. St. 18; Clark v. Douglass, 62 Pa. St. 408; Ludington's Petition, 5 Abb. (N.C.) 307, 323; 2 Van Fleet, Former Adjud. 917, 921, 922; 2 Black, Judg. (2d Ed.) § 605; Bump, Fraud. Conv. (4th Ed.) § 587; Bigelow, Est. (5th Ed.) 150, 151.

Hoidale & Somsen, for respondents.

A conveyance valid and operative when executed, should not be vitiated by the acts or omissions of a party no longer interested in the subject-matter conveyed. Bruggerman v. Hoerr, 7 Minn. 264 (337); Stone v. Myers, 9 Minn. 287 (303); County of Olmsted v. Barber, 31 Minn. 256; Hartman v. Weiland, 36 Minn. 223; Bloom v. Moy, 43 Minn. 397. A judgment does not, at least as against strangers to it, prove the antecedent existence of the debt for which it was rendered. Hartman v. Weiland, supra; Bloom v. Moy, supra, and cases cited; Gage v. Stimson, 26 Minn. 64; Pabst Brewing Co. v. Jensen, 68 Minn. 293; Maloney v. Finnegan, 40 Minn. 281; Nowak v. Knight, 44 Minn. 241; American B. & L. Assn. v. Stoneman, 53 Minn. 212. We have alleged and proven deceit, which entitled Dahl to have his contract rescinded or give him a right to have the notes delivered up and cancelled. All that is necessary for the respondent in this action is to show a defense which bars the right of recovery in plaintiff, and this we have done. It was not necessary for defendant to plead or prove any certain or definite amount as damages. All that was necessary was to show that Dahl had suffered some prejudice or damage as a result of the representations falsely made. 14 Am. & Eng. Enc. (2d Ed.) 140; 2 Pomeroy, Eq. Jur. § 898; MacLaren v. Cochran, 44 Minn. 255; Harlow v. La Brum, 151 N.Y. 278; Knappen v. Freeman, 47 Minn. 491; Nelson v. Carlson, 54 Minn. 90.

Under the bankruptcy act, a trustee, as plaintiff, stands in no better position than the creditor whom he represents in an action to set aside an alleged fraudulent transfer. Brandenburg, Bank. (2d Ed.) p. 724, § 55. Plaintiff cannot recover in any event, even if a new trial were granted, because Hahl's claim, if he in fact had one, was never proven in the bankruptcy proceedings. This law requires that the proof shall state the consideration of the claim, and that whenever a claim is founded upon an instrument in writing, such instrument, unless lost or destroyed, shall be filed with the proof of claim, or reasons shall be given why it is not so filed. The statement of the consideration in the pretended proof of claim is this: "Money due on three promissory notes now reduced to judgment which judgment has been docketed in Brown county, Minnesota." This is no statement of the consideration. In re Elder, 1 Saw. 73, Fed. Cas. No. 4,326; Bump, Bankr. (10th Ed.) 632; Black, Bankr. 175; Brandenburg, Bankr. (2d Ed.) p. 501, § 2.

OPINION

LEWIS, J.

In 1895 Peter H. Dahl, a resident of Brown county, Minnesota, purchased certain real estate in Texas, made a cash payment thereon, and executed and delivered his certain promissory notes, maturing from one to four years, for the remainder of the purchase price. In 1900 an action was commenced in Brown county, Minnesota, against him, to recover the amount due upon these notes, by C. W. Hahl, who was then the owner of the same. Dahl appeared and answered, admitted the execution of the notes, alleged that they were given in payment of certain Texas real estate, and that subsequent thereto the plaintiff in that action had taken back the real estate in full payment and settlement of the notes. The action came on for trial, and plaintiff made motion for judgment upon the pleadings, and it was stipulated by the parties that judgment might be entered for plaintiff against defendant for $2,411.03. Judgment was entered accordingly on January 8, 1901. On July 17, 1900, Dahl, his wife joining, conveyed to their daughter Amelia Dahl eighty acres of land located in Brown county, which conveyance was recorded on December 19, 1900. On January 3, 1901, Dahl filed his petition in bankruptcy, and was duly adjudged bankrupt, and plaintiff was thereafter appointed trustee of his estate in bankruptcy. On January 26, 1901, Hahl, the judgment creditor, filed his claim in bankruptcy, which was duly allowed on the same day. This action was commenced by the trustee for the purpose of subjecting the eighty acres of land conveyed to Amelia Dahl to the claim filed in the bankruptcy court.

The complaint alleged that Amelia Dahl was a fraudulent grantee, having received the property without any consideration, and having full notice of the existence of the indebtedness and judgment against Peter H. Dahl. Amelia Dahl interposed a separate answer, admitting the execution of the notes, and, as a defense, alleged that the notes were without consideration, having been obtained by false representations as to the character and value of the land, all of which facts were known to the judgment creditor, Hahl. The court found that the notes had been obtained by fraudulent representation, and that Hahl had notice thereof; that the conveyance by Peter H. Dahl to Amelia Dahl was made without consideration, for the purpose of defrauding the creditors of Peter H. Dahl; and that Amelia Dahl had knowledge of the fact. Judgment was entered in favor of Amelia Dahl and against the plaintiff, to the effect that he was not entitled to the relief demanded, and from this judgment the plaintiff appealed.

The most important question presented on this hearing is whether the fraudulent grantee may, in a collateral proceeding, defend upon the same ground that was open to the judgment debtor in the previous action, in the absence of proof that such judgment was procured by fraud, collusion, through mistake, or that the court did not possess jurisdiction. It is assumed by respondent that the question was settled by this court in the case of Bruggerman v. Hoerr, 7 Minn. 264 (337), and subsequent cases, and it will be necessary to examine the decisions with some particularity.

In Bruggerman v. Hoerr the plaintiff had entered into a contract with one Keck, by which he advanced certain moneys to him for the purchase of a pre-emption claim, and judgment was recovered against Keck for the amount so advanced; Keck having failed to make the defense that the contract to advance money for such purposes was void, and that there was actually no indebtedness. Prior to the entry of judgment, Keck had transferred property to Hoerr, and the action was brought to reach the property upon the ground that the transfer was fraudulent and without consideration. After stating that it was necessary for the plaintiff to show ...