State Bank of Stearns v. Stephens
| Decision Date | 16 October 1936 |
| Citation | 265 Ky. 615 |
| Parties | State Bank of Stearns v. Stephens et al. Bryant's Trustee v. Same. |
| Court | United States State Supreme Court — District of Kentucky |
1. Assignments for Benefit of Creditors. — Mortgagee's knowledge of insolvency of mortgagor at time of execution of mortgage held not to affect operation of statute providing that mortgage given by insolvent mortagor shall operate as transfer of mortgagor's property for benefit of creditors (Ky. Stats., sec. 1910).
2. Mortgages. — Where property was conveyed in specified percentages by grantor to designated grantees and after settlement of grantor's estate, grantees continued to hold what property was left after payment of debts in percentages theretofore held, mortgage executed by one grantee created valid lien against percentage which was his aliquot share of grantor's estate.
3. Pleading. — In suits to set aside mortgage as in fraud of creditors, mortgagees held not entitled to maintain cross-petition bringing in additional parties .
4. Bankruptcy. — Trustee in bankruptcy of mortgagor held not estopped to assert invalidity of mortgage as preferential by recommending approval of partition of property jointly owned by mortgagor and others within 30 days of filing of petition in bankruptcy (Ky. Stats., sec. 1910; Bankr. Act. sec. 67f, 11 U.S. C.A. sec. 107 (f).
5. Bankruptcy. — In suit by trustee in bankruptcy to set aside mortgage as preferential, answer of mortgagees denying that mortgagor was absolutely and utterly insolvent at time of execution of mortgage as alleged in petition held insufficient as against demurrer, notwithstanding that use of words "absolutely and utterly" in petition was surplusage (Ky. Stats., sec. 1910; Bankr. Act., sec. 67f, 11 U.S.C.A. sec. 107 (f).
6. Pleading. — Where fact is alleged with qualifying or modifying language and words of allegation as so qualified or modified are literally denied, qualifying circumstances alone are denied, while fact itself is admitted.
7. Acknowledgment. — Mortgage cannot be legally lodged for record until it has been acknowledged (Ky. Stats., secs. 501, 502).
8. Fraudulent Conveyances. — Attack on preferential mortgage may be commenced at any time if mortgage was not properly acknowledged (Ky. Stats., secs. 501, 502, 1911; Bankr. Act, sec. 67 (f), 11 U.S.C.A. sec. 107 (f).
9. Fraudulent Conveyances. — Suits by banks and mortgagor's trustee in bankruptcy to set aside mortgage as in fraud of creditors and as preferential held commenced within time where petition was filed by bank on October 5, 1932, and by trustee in bankruptcy on January 18, 1933, and mortgage was filed for record on July 23, 1932, and on October 3, 1932 after attempted acknowledgements by mortgagor (Ky. Stats., secs. 501, 502, 1911; Bankr. Act, sec. 67 (f), 11 U.S.C.A. sec. 107 (f).
10. Bankruptcy. — Trustee in bankruptcy on qualification, held to have succeeded not only to all rights of bankrupt, but also to rights and remedies of bankrupt's creditors to have mortgage adjudged to be preferential, and to operate as assignment and transfer of property and effects of bankrupt for benefit of creditors (Ky. Stats., sec. 1910; Bankr. Act, sec. 67 (f), 11 U.S.C. A. sec. 107 (f).
11. Bankruptcy. — Petition by creditor in suit to set aside mortgage as in fraud of creditors which was commenced within four months of bankruptcy of mortgagor held properly dismissed, since trustee had succeeded to creditor's right to attack mortgage (Ky. Stats., sec. 1910; Bankr. Act. sec. 67 (f), 11 U.S.C.A. sec. 107 (f).
12. Assignments for Benefit of Creditors. — Mortgage executed by insolvent mortgagor held preferential and to inure to benefit of all mortgagor's creditors, notwithstanding good faith of mortgagor and mortgagee in transaction (Ky. Stats., sec. 1910).
13. Bankruptcy. — In determining whether execution of mortgage by bankrupt was preferential, decisive questions are whether preference was created and whether attack was commenced within time, and not intent of parties (Bankr. Act, sec. 60b, as amended, 11 U.S.C.A. sec. 96 (b).
14. Appeal and Error. — In suit by trustee in bankruptcy to set aside mortgage as preferential, cross-appeal of defendant against trustee and mortgagees would be dismissed where no issue existed between trustee and such defendant and no relief was sought or obtained by either against the other (Civil Code of Practice, sec. 755; Ky. Stats., sec. 1910; Bankr. Act, sec. 67 (f), 11 U.S. C.A. sec. 107 (f).
15. Appeal and Error. — Cross-appeal cannot be granted against appellee (Civil Code of Practice, sec. 755).
Appeals from McCreary and Whitley Circuit Courts.
TYE. SILER, GILLIS & SILER for State Bank of Stearns and Bryant's Trustee.
E.C. NEWLIN, JR., for D.E. Bryant.
STEPHENS & STEELY and EMMETT, PURYEAR for appellees.
OPINION OF THE COURT BY DRURY, COMMISSIONER.Dismissing in part and reversing in part.
The State Bank of Stearns, Ky., has appealed from a judgment dismissing an action begun by it against L. E. Bryant and Virginia L. Bryant, his wife, Dudley E. Bryant and Mrs. Dudley E. Bryant, his wife, Hester Bryant Glore and W. Scott Glore, her husband, E.L. Stephens, Nelle C. Steely, Boyle O. Rodes, George E. Fee, Genevieve H. Durell, Louis J. Dolle, A.T. Siler trustee for bondholders, the First National Bank of Somerset, Ky., the Kentucky and Tennessee Property Company, and the Goodman Manufacturing Company, defendants.
This appellant had attacked a mortgage given by L.E. Bryant to Stephens and Steely as made with the intent to delay, hinder, and defraud it and other creditors of L.E. Bryant, as made without consideration and as preferential and void.
H.M. Barnett, as trustee in bankruptcy of L.E. Bryant, has appealed from a judgment dismissing an action begun by said trustee on January 18, 1933, in the Whitley circuit court against E.L. Stephens and Nelle C. Steely, in which the trustee attacked as preferential a mortgage given to them by the bankrupt. On May 5, 1936, the two appeals were ordered to be heard together.
The bankrupt's full name is Louis Edward Bryant, and at some places in this record he is referred to as "Louis" and sometimes as "Louis E.," but we shall refer to him as L.E. Bryant, that being the way his name most frequently appears, and all being one and the same man.
The Debt and Mortgage.
On July 23, 1932, L.E. Bryant owed E.L. Stephens and Nelle C. Steely 10 notes which with their interest then aggregated about $12,000. One of these notes is signed "L.E. Bryant, agent Bryant heirs, L.E. Bryant." The other notes and also the mortgage are signed
Stephens & Steely were for years the attorneys for the Bryant estate. They rendered to it many and valuable services, as is well known to us from the evidence and from matters that have reached this court, and these notes were given for such services. Stephens & Steely, allege L.E. Bryant did this under a power of attorney to him, but that is denied, and there is no proof on the subject. Where a contract, required to be in writing and recorded, is made under a power of attorney as to third parties, the power of attorney must also be recorded. Section 499, Ky. Stats.
There is no suggestion anywhere that there was any lack of pre-existing consideration for these notes, or that they are not just and binding obligations.
Whether L.E. Bryant had or had not the power to bind the Bryant estate, by executing these notes and this mortgage as he did, is a question that is not before us. He certainly could and did bind himself by these notes, and by this mortgage he created a lien to secure them upon his share of the lands described in the mortgage which he gave. There was no contemporaneous but ample pre-existing consideration for the mortgage; it is a welldrawn instrument, and the only trouble about it, is that L.E. Bryant was then insolvent, owed divers other people and did not expressly include them in this mortgage, but at this point section 1910, Ky. Stats., intervenes and declares that a mortgage so given "shall operate as an assignment and transfer of all the property and effects of such debtor, and shall inure to the benefit of all his creditors," etc.
Stephens & Steely were possibly unaware of the insolvency of L.E. Bryant, but that does not alter the situation. Nock's Ex'r v. Goodloe, 5 Ky. Law Rep. 247, 12 Ky. Op. 278.
The Mortgaged Property.
In 1921, Roberta S. Bryant was the owner of many many thousands of acres of land, coal, timber, minerals, and mining rights in Pulaski, Wayne, Laurel, Whitley, and McCreary counties in Kentucky, and Scott and Campbell counties in Tennessee, and on September 6th of that year she conveyed these to the following parties and in the following proportions: Louis E. Bryant 43 1/3 per cent., Dudley E. Bryant 23 1/3 per cent., Hester Bryant Glore and W.S. Glore 33 1/3 per cent., respectively.
Some of these properties were sold on January 23, 1923, and all the debts of the Bryant estate were paid, except these Stephens & Steely notes, which appear to have been given for subsequent services, but these parties continued to hold what property was left in these proportions and thus held them when this mortgage was executed, hence, without expressing any opinion as to the remaining 56 2/3 per cent., we can certainly say the lien created by it rested upon the 43 1/3 per cent. of this property which was the aliquot share of L.E. Bryant therein.
Suit by the Bank.
On October 5, 1932, the State Bank of Stearns filed its suit in the McCreary circuit court in which it set out a note due it amounting with interest to $7,050.32, for which it prayed judgment against L.E. Bryant, and asked that the mortgage to Stephens & Steely be declared void and preferential, that it be canceled and the bank be adjudged to have a lien on the land described in the mortgage, and that it have all proper relief. It...
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