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Freund v. Johnson

January 15, 1931


Appeal from the District Court of the United States for the Eastern Division of the Northern District of Illinois; James H. Wilkerson, Judge.

Author: Alschuler

Before ALSCHULER, SPARKS, and PAGE, Circuit Judges.

ALSCHULER, Circuit Judge.

The appeal involves a decree finding title of certain real estate in Chicago to be in appellee, as trustee in the bankruptcy of appellant Peter B. Freund. Involuntary petition was filed February 4, 1925, against Freund and his son, and was followed by their voluntary petition. Bankruptcy was adjudicated March 30, 1925, and on December 7, 1925, the bankrupts were discharged. Claims of about $6,000 were allowed, and up to September, 1926, when the estate was closed, practically no assets were disclosed.

Upon petition filed June 6, 1928, alleging that Peter had an unincumbered half interest in the real estate, which had not been scheduled in the bankruptcy, but was fraudulently concealed from the trustee, the estate was reopened, the trustee reappointed, and bill filed in the District Court to set aside a deed of conveyance of the property by Peter, and one by his grantee to his sister, appellant Gertrude Davis, and certain incumbrances placed thereon by Davis, and to have the title decreed to be in the trustee. The District Court found for trustee.

Peter and his wife, Ada, took title to the property as tenants in common in 1920, and have since continuously resided thereon. By a deed dated November 1, and recorded November 21, 1923, Peter and Ada conveyed the property to Ada's sister, Jane Woodcock, in whom the record title rested until January 21, 1926, when there were recorded two deeds, each dated October 7, 1925, one conveying to Perkins (a daughter of Ada) an undivided half of the property and the other to Davis (sister of Freund) an undivided half.

If, by the transaction of November 1, 1923, Woodcock acquired for her use Peter's interest, it could not be reached in this proceeding, since that conveyance does not appear to have been made in fraud of any of the creditors involved in the bankruptcy. All the claims here involved arose in the conduct of a business by Peter and his son which was not started until considerable time after the deed to Woodcock. If, on the other hand, the conveyance of Peter's interest to Woodcock was purely colorable, and she held the title solely for Peter, and subject to his direction, and this situation continued until after the bankruptcy began, the trustee is entitled to prevail.

As primarily indicating that the title never actually left the Freunds, there is in evidence an unrecorded deed duly executed by Woodcock, and bearing the same date as the deed to her, conveying the property to the Freunds. Peter denied all knowledge of the deed, saying he never saw it until it was produced in court in a partition controversy between his wife and Davis and in a divorce proceeding between him and his wife, wherein his wife undertook to establish that Peter was all the time the real owner of the undivided half.

The master to whom this cause was referred impliedly found that this deed was not made at the same time of the deed to Woodcock, but long thereafter, to serve Ada's purposes in her litigation. The decree found that Woodcock's deed to Peter and Ada was concurrent with that to Woodcock.

Woodcock, Ada, and the lawyer who drew both deeds testified that the deed from Woodcock was made at the same time as the deed to her. Appellants maintain that Ada was incompetent to testify against her husband's interests. It is answered that Peter was not a necessary party in that the title of the property was in Davis, and whatever interest Peter really had had passed to the trustee, and that Ada was competent to testify. While this contention is plausible, in our view of the case Ada's competency need not be determined. The lawyer's testimony is also claimed to be incompetent as privileged. We cannot see that what he testified concerning the deed grew out of his relation as attorney for Peter. In drafting the deeds he acted not as an attorney but as a scrivener, in which capacity he may testify to what was done, even if in other respects he was acting as attorney for Peter, which is extremely doubtful. Champion v. McCarthy, 228 Ill. 87, 81 N.E. 808, 11 L.R.A. (N.S.) 1052, 10 Ann. Cas. 517.

The evidence leaves us very dubious as to the time of execution of this deed; but, wholly disregarding the deed, it is abundantly apparent (and indeed there is no evidence to the contrary) that by the deed to Woodcock it was never intended that Peter convey, or that Woodcock receive, any actual interest in the property; but that, as between them, the property was considered to be, and remained, Peter's to the same extent as if the deed to Woodcock had not been made. He continued to occupy and have the benefit of it in same way as before, to exercise the same dominion over it, free from the slightest interference of Woodcock; and, in manifestation of his ownership and control, when he requested Woodcock to convey it to Mrs. Davis, she promptly complied.*fn1

But both appellants contend that Davis's rights date from May, 1924 -- nine months before the bankruptcy proceedings -- at which time, she says, Peter arranged with her husband and her to turn over his interest in the property in consideration of the surrender of $7,000 of notes which Peter had given to her husband, or to pay the notes. Peter testified to a similar state of facts, detailing how, beginning in 1921 and ending in March, 1923, his brother-in-law, Davis, had loaned him on several occasions an aggregate of $7,000, for which judgment notes were given. He said that in May, 1924, he gave the Davises an assignment or direction for the transfer of the title to him or to her in consideration of the notes, and that shortly after she got the deed from Woodcock Mrs. Davis gave him the notes (Mr. Davis having died).

To this alleged transaction neither the master nor the court gave credit, both disbelieving it; and we cannot say that the conclusion was unjustified. Neither the notes nor the alleged assignment were produced, but Peter gave some unsatisfactory testimony to the effect that his wife had robbed him of his papers.

But if this transaction occurred as stated, it amounted only to an alternative proposition by Peter to exchange his property for the notes or to pay the notes. It was without consideration and not binding, and was not carried out till after the bankruptcy intervened, and when Mrs. Davis admittedly knew that the property of which she received the deed was Peter's, and not ...

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