The opinion of the court was delivered by: Mercer, Chief Judge.
Petitioner, Roy O. Schiebel, Jr., a judgment creditor of the
bankrupts, filed his petition to review an order entered by the
Referee on May 19, 1960, overruling his objections to the
allowance of the claims of Joseph E. Sersig*fn1 and Ethel B.
Sersig, sometimes hereinafter referred to as claimants, against
the bankrupts' estates and an order entered on the same date
overruling his objections to the discharge of each of the
On Objections to Sersig Claim.
Joseph and Ethel Sersig are the parents of the bankrupt, Eileen
M. German. Over a period of time from 1949 through 1958, Joseph
Sersig advanced various sums of money to the bankrupts, which was
used both in the furtherance of unsuccessful business enterprises
of John German and for payment of personal bills and expenses of
the bankrupts. The aggregate sum of such advancements was
$35,734.08. On September 4, 1958, at a time, as the Referee
found, when the bankrupts were insolvent in that their
obligations exceeded their assets, the bankrupts executed a
promissory note in the principal amount of $35,734.08, payable to
Joseph E. Sersig and Ethel B. Sersig jointly. The Sersig's filed
a claim against each bankrupt's estate upon that promissory note.
The Trustee, by petitioner, filed objections to allowance of
the Sersig claim on the grounds (1) that the claims were in whole
or in part barred by the Illinois Statute of Limitations, (2)
that the consideration for the claims was fictitious in that the
sums advanced to the bankrupts by Mr. Sersig were gifts or
advancements, not loans, and (3) that the creditors received a
preference from the bankrupts by virtue of a conveyance to them
by Eileen German of a parcel of real estate in Moline, Illinois,
which the claimants had failed to surrender as a condition to the
allowance of their claims.
The issue whether the sums paid by Mr. Sersig to the bankrupts
were gifts or advancements, or loans is wholly a question of
fact. The Referee found upon uncontradicted testimony that the
transactions which were the consideration for the Sersig note
were loans. The court cannot say that that finding is clearly
erroneous, and the finding is, therefore, binding upon the court.
Chatz v. Morris, 7 Cir., 152 F.2d 178; Lines v. Falstaff Brewing
Co., 9 Cir., 233 F.2d 927; Elbert v. Johnson, 2 Cir.,
164 F.2d 421.
The Referee correctly determined that the Illinois Statute of
Limitations is not a bar to the Sersig claim. The running of the
limitations statute must be measured from the date of execution
of the note, which was well within the ten year statute. I.R.S.
1959, c. 83, § 17. Although the bankrupts might, at the time when
the note was given, have claimed the benefit of the five year
statute, I.R.S. 1959, c. 83, § 16, as a defense to a demand or
suit for a part of the sums advanced by Mr. Sersig, that defense
was waived by them when they executed the promissory note. Abdill
v. Abdill, 292 Ill. 231, 126 N.E. 543; O'Neill v. Reaman,
335 Ill. App.? 327, 81 N.E.2d 749.
The Illinois Statute of Limitations is procedural and affects
remedy, not the substantive rights. Seymour v. Union News Co., 7
Cir., 217 F.2d 168; Sun Theatre Corp. v. RKO Radio Pictures,
Inc., 7 Cir., 213 F.2d 284; Seymour v. Union News Co.,
349 Ill. App.? 197, 110 N.E.2d 475. It is an affirmative defense to a
claim, Wise v. Potomac Nat. Bank, 393 Ill. 357, 65 N.E.2d 767,
which must be timely raised or is waived. Roe v. Sears, Roebuck
& Co., 7 Cir., 132 F.2d 829; Addante v. Pompilio, 303 Ill. App. 172,
25 N.E.2d 123. The bankrupts' waiver of the defense to their
oral promise to pay a part of the money loaned by Mr. Sersig is
binding upon the Trustee.
The basic facts giving rise to petitioner's claim of a
fraudulent conveyance and/or a preference to claimants is based
upon evidentiary facts which are not disputed. In 1947 claimants
acquired title as joint tenants to a parcel of real estate
commonly known as 2115 13th Street, Moline, Illinois.*fn2 The
bankrupts, husband and wife, have resided upon the 13th Street
real estate since the premises were acquired by claimants. On
October 1, 1958, claimants conveyed the property to Eileen German
by a warranty deed which was recorded in the Land Records of Rock
Island County on February 9, 1959. Thereafter, on March 26, 1959,
the bankrupts reconveyed the real estate to the claimants. On May
14, 1959, upon their voluntary petitions, Mr. and Mrs. German
were adjudicated bankrupts.
The Referee found that the conveyance to Mrs. German was
motivated by plans shared by the claimants and the bankrupts to
construct a new house in Moline in which both claimants and the
bankrupts would reside; that the property was conveyed to Mrs.
German to enable the bankrupts to handle the arrangements and
negotiations for construction and financing of the new home; that
Mr. Sersig was unwilling to undertake to make those arrangements
himself because he was then suffering from serious illness; that
the conveyance to Mrs. German was made upon the express agreement
that the 13th Street property would be mortgaged, and,
ultimately, sold to finance construction of the new home; that
the whole scheme, of which the conveyance to Mrs. German was a
part, was made pursuant to an agreement between claimants and the
bankrupts that title to the property constituting the new home
would be in Mr. Sersig; and that the bankrupts had no beneficial
interest in the 13th Street property. Finally, the Referee found
and concluded that Mrs. German took legal title to the 13th
Street property as Trustee for the use and benefit of claimants,
and that therefore her reconveyance of the premises to claimants
prior to the filing of her petition in bankruptcy constituted
neither a fraudulent conveyance nor a preference to claimants.
To the extent that the fraudulent conveyance or preference
issue is factual, the court cannot interfere with the Referee's
decision unless his findings are clearly erroneous. The evidence,
which consisted largely of the testimony of the bankrupts and Mr.
Sersig, was uncontradicted. Each testified that the conveyance of
the 13th Street property to Mrs. German was one step of a plan to
construct a new home in which both the claimants and the
bankrupts would reside. In furtherance of that plan, as the
evidence reveals, the bankrupts entered into a contract with
McGill Homes for the construction of a residence house on
premises in Moline, which are for convenience, hereinafter
referred to as lot 18.*fn3 On January 28, 1959, Thomas McGill,
proprietor of McGill Homes, conveyed lot 18 to the bankrupts in
joint tenancy. Thereafter on February 2, 1959, the bankrupts
obtained a construction loan from the First National Bank of
Moline secured by a mortgage on lot 18. The deed to the bankrupts
from McGill and the bank's construction mortgage were recorded in
the Land Records of Rock Island County on
February 9, 1959, the same date of the recordation of the deed
from the claimants to Mrs. German.
Prior to the consummation of any of the above transactions, the
bankrupts were indebted to petitioner upon a promissory note
executed as part of the consideration for the purchase by John
German of a garage and automobile dealership. On February 24,
1959 petitioner placed that note in judgment in the Circuit Court
of Rock Island County in the amount of $16,305, plus costs of
suit. After that judgment was taken, as the witnesses testified,
plans for the construction of a new home were abandoned. On March
26, 1959, the bankrupts reconveyed lot 18 upon which the new home
was to be constructed to Thomas McGill and the 13th Street
property to claimants. Thereafter, on April 23, 1959, the Bank
released its mortgage on the McGill lot.
No consideration passed between the parties to either of the
conveyances hereinabove mentioned. Mrs. German paid no
consideration to claimants for the conveyance of the 13th Street
property; the bankrupts paid no consideration to McGill for the
conveyance to them of lot 18; and the bankrupts received no
consideration from the claimants or McGill upon their
reconveyance of the 13th Street property and lot 18,
At all times material to this petition, both bankrupts were
insolvent in that their liabilities exceeded the fair value of
their assets, but the Referee found that no creditor had extended
credit to the bankrupts as a result of the 13th Street property
being placed in the name of Mrs. German.
The Referee's material findings of fact follow the testimony of
the witnesses as hereinabove summarized. Ultimately, he found
that an oral trust was created in the 13th Street premises,
contemporaneously with the conveyance thereof to Mrs. German. The
court cannot say that those ...