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In re Decker
US District Court, Western District of Virginia, 1969
295 F.Supp. 501
Fact :
Decker(hereinafter "plaintiff") and Hurt purchased acres to develop and sell the land as residential lots which is called "Berkeley." Hurt conveyed interest in the property to Gilmers and Woods. Decker would manage the Berkeley project by the agreement of 1957. The agreement was sufficient to convince the Supreme Court of Appeals of Virginia that a partnership existed between Decker, the Gilmers and the Woods. But Decker began to neglect the project. Decker had been diverting funds borrowed through Gilmer's credit to his other business ventures. Several of Decker's creditors began pressing him for payment. Adams and Gilmer controled Decker’s financial affairs.
Decker and his wife executed a deed of trust. The notes on which Decker and his wife were the makers amounted to $247,275.00. All these notes were paid by Gilmer, to whom they were then assigned by the bank. Decker has been adjudicated for bankruptcy. On four occasions subsequent to March 27,1961, Decker and his wife executed supplemental deeds of trust conveying the one-half interest in Berkeley lots which Decker had acquired from the Gilmers and the Woods after March 27, 1961. These supplemental deeds of trust were given solely as additional security for the $260,000 demand bearer bond. The first two of these supplemental deeds of trust, dated June 3, 1961, and July 26, 1961 are the subject of the referee's order of August 23, 1968. The last two deeds of trust were voidable preferences under section 60(a) (1) of the Bankruptcy Act, 11 U.S.C. § 96(a) (1), having been given within four months of bankruptcy as additional security for an antecedent debt. This ruling has no relevance to the question of the two deeds of trust herein considered.
Issues :
Whether the deeds of trust are vaild.
Rules :
<March 27, 1961>
- Gilmer v. Woodson, supra, 332 F.2d at 546. :
Where a referee's findings are based on conflicting evidence, the reviewing court should not disturb them unless there is "most cogent evidence of mistake and miscarriage of justice.
- Va.Code § 55-80 (1950). :
* Section 67(d) (2) (d) requires proof of 'actual intent as distinguished from intent presumed in law."
- Hutcheson v. Savings Bank, 129 Va. 281, 289, 105 S.E. 677, 680 (1921); Redwood v. Rogers, 508*508 105 Va. 155, 53 S.E. 6 (1906) :
Circumstantial evidence of fraud is "clear and convincing, and such as to satisfy the conscience of the chancellor, who should be cautious not to lend too ready an ear to the charge."
- The Uniform Partnership Act, Va.Code § 50-25(2) (b) (1950) :
Section 25(2) (b) forbids the assignment of a partner's interest in specific partnership property except in connection with the assignment of the rights of all partners in the same property.
- the Bankruptcy Act :
* Section 70(e) requires that the transfer be "fraudulent as against or voidable for any other reason by any creditor of the debtor."
- Thomas v. Turner's Adm'r, 87 Va. at 13, 12 S.E. at 153.(1890) :
He must show, in other words, (1) that the transaction was perfectly fair; (2) that it was entered into by the client freely; and (3) that it was entered into with such a full understanding of the nature and extent of his rights as to enable the client to thoroughly comprehend the scope and effect of it.
<August 23, 1968>
- The Bankruptcy Act :
* § 67(d) (1) (e) (2) : "fair consideration" means that when such property or obligation is received in good faith to secure a present advance or antecedent debt in an amount not disproportionately small as compared with the value of the property or obligation obtained.
Analysis :
(1) <March 27, 1961>
First, the trustee contends that this deed of trust is void, because the blanket deed of trust was not given in good faith and for fair consideration, and that it was given with actual intent to hinder, delay and defraud creditors within the meaning of section 67(d) of the Bankruptcy Act. However, the Court and the referee hold that the March 27, 1961, blanket deed of trust was given for fair consideration and without actual intent to hinder, delay or defraud creditors.
Second, the trustee relies on section 70(e) (1) of the Bankruptcy Act in asserting that the deed of trust is fraudulent as to creditors under the Va.Code §55-80 (1950). Section 67(d) (2) (d) of Va.Code requires an intent on the part of the debtor to delay, hinder or defraud creditors. And according to Hutcheson v. Savings Bank, the evidence of fraud has to be clear, but the evidence on the part of Decker was insufficient.
Third, the trustee contends that the deed of trust is inadequate. However, although there is no provision in the agreement expressly, there can be no doubt that the parties understood what property it was intended to convey. Thus, Deeds containing no descriptions have been held valid as between the parties to the conveyance.
Fourth, because the deed of trust is an attempted conveyance by a partner of his interest in specific partnership property, the fourth paragraph of the deed of trust is void by reason of section 25(2) (b) of the Uniform Partnership Act. In this case, Decker's partners did not join in the deed of trust, therefore, the deed of trust, insofar as it attempts to assign partnership property, is void. And it is clear that the fourth paragraph of the deed of trust purports to convey an undivided one-half interest in this land, which at the time of the conveyance was in part partnership property and in part the individual property of Decker. The Uniform Partnership Act was intended to prevent partners from transferring partnership property among themselves, assuming all the partners consent to such conveyances. To the extent that the land was Decker's individual property, the deed of trust cannot be assailed by the trustee as an ineffective conveyance.
Fifth, the deed of trust is voidable under § 70(e) of the Bankruptcy Act in that it was obtained by Gilmer through abuse of the attorney-client relationship then existing between Gilmer and Decker. However, the Court held that the trustee's reliance on the section 70(e) is misplaced. According to Thomas v. Turner's Adm'r, an attoney must show three conditions. In this case, Decker clearly understood the import of the March 27, 1961, deed of trust and cooperated willingly with Gilmer in its execution. Therefore, The deed of trust was given for fair consideration. And the financial plan arranged by Gilmer, Adams, and Decker did not materially curtail Decker's business activities. It can be entered into by the parties freely. Also While Gilmer's influence was a factor in Decker's agreeing to the deed of trust, it cannot be concluded from the evidence that Gilmer's influence was undue. Hence, the trustee's contention in this regard is unfounded.
(2) <August 23, 1968>
The trustee contends that two supplemental deeds of trust are void. The value of the property conveyed as security by the March 27, 1961, deed of trust was, roughly, $344,000. The amount of the primary debts of the bankrupts on that date was approximately $249,000. The court does not consider this disparity, under the facts of this case, to be disproportionate within the meaning of § 67(d) (1) (e) (2). And also, the Court finds no evidence that Gilmer lacked good faith in valuing the property. Hence the element of fair consideration for the two subsequent deeds of trust was not lacking.
Conclusion :
The March 27, 1961 of deed of trust is not void. And also, the two supplemental deeds of trust are not void.
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