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Flynn v. O'Dell

August 3, 1960


Author: Knoch

Before HASTINGS, Chief Judge, and KNOCH and CASTLE, Circuit Judges.

KNOCH, Circuit Judge.

Plaintiff, Trustee of the Estate of Lillian M. Snodderly, Bankrupt, brought suit to set aside a conveyance by the bankrupt to her daughter, Nancy Franklin O'Dell, Appellant herein, of one-half interest in real estate, made by Mrs. Snodderly on October 11, 1957, within one year of the filing of her petition in bankruptcy, on or about February 24, 1958, and allegedly without consideration. Although the Trustee brought this action in the District Court, rather than in the State Court, by virtue of his being an officer duly appointed by the United States District Court, he asserts that the action is of an equitable nature based on the substantive law of the State of Illinois governing conveyances of interest in real estate by insolvents, and not on the federal bankruptcy laws.*fn*

The evidence showed that on October 11, 1957, the date of the conveyance, Mrs. Snodderly was indebted to several creditors, listed in the Record of Claims of the bankruptcy proceedings, whom she was allegedly unable to pay, including a debt of $17,000 to the City National Bank of Rockford, Illinois, which, subsequent to the conveyance, obtained a deficiency judgment of $8,123.76.

The District Judge, after hearing the evidence, found that the premises in question were originally purchased from funds belonging to Mrs. Snodderly and to Mrs. O'Dell, (then respectively Mrs. Lillian F. Nystrom and Miss Nancy Franklin) the latter having been a minor until October 11, 1957, the date of the conveyance sought to be set aside. The District Judge found that one Ruth E. Rinehart, who took title with Mrs. Snodderly, did so only as an accommodation for the real owners, and had no interest in the premises. He held that Mrs. Snodderly should have scheduled her joint interest in the premises as an asset in the bankruptcy proceedings; that her joint interest was fraudulently concealed from her creditors; that the conveyance without consideration to her daughter was null and void. The conveyance was set aside, and the Trustee was ordered to reduce the joint tenancy to possession for the benefit of Mrs. Snodderly's creditors. This appeal followed.

The action in the Court below was instituted against both Mrs. Snodderly and Mrs. O'Dell, but only Mrs. O'Dell appealed the decision.

Mrs. O'Dell contends that the Trustee failed to prove facts entitling him to the relief sought; that his complaint stated no cause of action; that the District Judge erred in admission of evidence and that his findings did not support the relief granted. Mrs. O'Dell contends that the realty belonged to her, and that Mrs. Snodderly merely held it in trust for Mrs. O'Dell during Mrs. O'Dell's minority.

Mrs. Ruth Rinehart Dagnar testified that she acquired title in her own name (then Ruth Rinehart) on May 17, 1948. She testified that the funds for the purchase price ($10,500) were partially her own and partially those of Mrs. O'Dell (then Nancy Franklin) and other funds secured through loans. Mrs. Dagnar testified further that she had executed a Declaration of Trust stating that she had been entrusted with funds belonging to Nancy Franklin for purchase of the realty, and that said Nancy Franklin was the owner of an undivided half of the property, which was not to be sold without the consent of Nancy Franklin's legal guardian, and that, on attaining her majority, Nancy Franklin was to receive her undivided half interest by deed of conveyance. This Declaration of Trust was recorded November 24, 1958, more than a year after the conveyance by Mrs. Snodderly to Mrs. O'Dell. When asked about the delay in recording, Mrs. Dagnar said she had supposed the Declaration of Trust to have been filed earlier, that it was executed on the date it bore (June 1, 1948).

This Trust would have been ineffective as to creditors without notice, under Illinois law:

"Effect of recording as to creditors, etc. All deeds, mortgages and other instruments of writing which are authorized to be recorded, shall take effect and be in force from and after the time of filing the same for record, and not before, as to all creditors and subsequent purchasers, without notice; and all such deeds and title papers shall be adjudged void as to all such creditors and subsequent purchasers, without notice, until the same shall be filed for record." Ill.Rev.Stat.1959, ch. 30, Sec. 29.

Mrs. Dagnar testified further that she contributed half the purchase price; that Nancy Franklin provided $800; that Mrs. Dagnar lived in half the house on the premises, renting the other half and using the rents (half of which were Nancy Franklin's) plus other contributions of Mrs. Dagnar's, to pay the mortgage.

On March 1, 1952, Ruth Rinehart conveyed to Nancy and Mrs. Snodderly as joint tenants. Mrs. Snodderly and Mrs. Dagnar testified that the consideration for this conveyance was about $1700 to compensate Mrs. Dagnar for her interest, her management of the property and the payments she had made on the mortgage. When asked why the revenue stamps on the deed were consistent with a consideration of about $4500, Mrs. Dagnar said that she did not know why, that she had paid for some of the stamps but not for all of them, and that she had not received $4500. Mrs. Snodderly and Mrs. Dagnar testified that the $1700 was secured by sale of bonds given Mrs. O'Dell by her step-father. Mrs. O'Dell$who married July 21, 1956, while still a minor, moved into part of the premises, renting one apartment, and continued to make payments on the mortgage.

Mrs. Snodderly testified that her name was included in the conveyance of March 1, 1952, only because her daughter was a minor and that it was always intended that conveyance would be made to Mrs. O'Dell when she attained her majority.

James Hornbeck of the American National Bank in Rockford, Illinois, testified to savings accounts in the name of Mrs. Lillian Nystrom (now Mrs. Snodderly) as "trustee for Nancy Jane Nystrom" which had been opened in 1946 and closed in 1949. Mrs. Snodderly testified that on April 3, 1948, she drew out $500 from this account and added it to $300 belonging to her daughter, which had been kept in a safe in a store, to make up the initial down payment. The bonds which produced the $1700 had been purchased by Mrs. Snodderly's then husband, Gus Nystrom, in his own name, but for Nancy's education, and had then been cashed by Mr. Nystrom, to provide the funds to pay Ruth Rinehart.

Mrs. O'Dell testified to her own earnings, after she began to work at the age of fifteen years, out of which she testified she made payments on the mortgage. She said that her mother sometimes made the payments for her, but that such payments were always made out of Mrs. O'Dell's funds. There were some inconsistencies in Mrs. O'Dell's statements about her earnings. For example, she spoke at one point of earning $5,000 of earning $5,000 in 1958, but later stated her earnings to have been about $47 per week.

Ishmael Harold Franklin, Mrs. O'Dell's father, testified that while he was in the army, for a little more than a year, about 1945-1946, he had sent allotment checks totaling about $400 to his divorced wife, Mrs. Snodderly, for Nancy.

Mrs. Snodderly also testified to family gifts of money for Nancy which had been deposited in the bank account or ...

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