272 Mass. 8 | Mass. | 1930
This is a bill in equity by the plaintiff as executrix of the will of Isaac Harris, a creditor of Milton F. Flynn, Lillie G. Torrey and Mary E. Flynn, to set aside an alleged fraudulent conveyance of real estate, and to apply the property toward the payment of the plaintiff’s debt in priority to certain mortgages held by some of the defendants. The bill, in substance, alleges that the defendants Torrey, Mary E. Flynn and Milton F. Flynn were indebted to the plaintiff’s testator, hereinafter referred to as the plaintiff; that Torrey and Mary E. Flynn by their agent, Milton F. Flynn, promised,
The case was heard by a judge of the Superior Court who made certain findings and ordered the bill dismissed as to the Levins and Smith, and found that there was due to the plaintiff from Torrey and the estate of Mary E. Flynn the sum of $15,000 with interest, and from Milton F. Flynn the sum of $2,000 with interest. The decree also gave leave to the plaintiff to apply to have the interests of Torrey and the Flynns in the property sold and the proceeds applied to the payment of the indebtedness owed to the plaintiff. The case is before this court on the plaintiff’s appeal from the final decree. The evidence is not reported.
The trial judge found that the real estate in question before May 4, 1926, was owned by Lillie G. Torrey and Mary E. Flynn, the latter’s interest being a life estate with the remainder over to Milton F. Flynn. In consideration of loans made by the plaintiff’s testator to the owners to finance the cost of erecting a theater on the land, the plaintiff was given an unsecured note for $15,000 dated October 15, 1916. Although there was some discussion between the plaintiff and Milton F. Flynn with respect to securing this note by a mortgage, no written agreement to
To obtain necessary funds for alterations and additions to the property, the first mortgage, held by a savings bank, was increased from $15,000 to $95,000, and successive loans by the Levins increased their mortgage to $40,000. During this period the income from the property was insufficient to meet operating expenses and fixed charges and the deficit had to be met by the proceeds of the mortgage loans. The time for payment of the Levin’s mortgage of $40,000 expired, and further capital was required by the owners. To provide funds a plan was devised and carried out by all the defendants by means of which the money needed was made available. In pursuance of this plan, on May 4, 1926, Torrey and Mary E. Flynn conveyed the property, without consideration, to Milton F. Flynn, who in August, 1926, executed mortgages to Smith and the Levins, all the instruments being recorded on August 31, 1926. As previously arranged, Smith took over the management and control of the property. The proceeds of the mortgages were used to discharge all outstanding mortgages, except that held by the savings bank, all liens and encumbrances, and certain notes of Torrey and Smith.
Respecting the conveyance to Milton F. Flynn, the trial judge found “that this conveyance was made without consideration; that the grantors had no substantial assets other than the property in question; that the grantee took the property upon an oral trust to hold it for the beneficial use of the grantors; that the conveyance was made at the instance of the Levins and without conscious intent or motive to defraud the plaintiff [’s testator]; but that the natural results of this conveyance were such as to import an intent in law, on the part of the grantors and the grantee, to delay, hinder and defraud the plaintiff [’s testator] in the enforcement of his claim against the grantors.” At the time of this conveyance “all the defendants knew that the
As to the knowledge of the mortgagees the judge found as follows: “Upon all the facts, I find that, when the property was conveyed by Torrey and . . . [Flynn], neither of the defendants Levin nor the defendant Smith had either actual or constructive knowledge of the plaintiff’s [testator’s] claim against the grantors. No issue arises with respect to their knowledge of other indebtedness of the grantors since, so far as appears from the evidence, provision was made, as a part of the arrangement under which the property was conveyed, for the payment of all debts of the grantors except their obligation on the plaintiff’s note of $15,000.” It is the contention of the plaintiff that the defendant mortgagees had constructive knowledge of the claim of the plaintiff’s testator and, having participated in a transaction involving a fraudulent conveyance, their rights under their mortgages should be postponed until the discharge of the debts owing to the plaintiff’s testator. The finding that Smith and the Levins had neither actual nor constructive knowledge of the claim of the plaintiff’s testator must stand unless plainly wrong. Thayer v. Atwood, 259 Mass. 523. R. E. McDonald Co. v. Finkovitch, 270 Mass. 362, 366.
The conveyance to Milton F. Flynn of substantially all the property of Torrey and Mary E. Flynn, without consideration, and on an oral trust for the benefit of the grantors was plainly a fraudulent conveyance as against creditors. Matthews v. Thompson, 186 Mass. 14. Lyon v. Wallace, 221 Mass. 351. Rolfe v. Clarke, 224 Mass. 407. Smith v. Clark, 242 Mass. 1. St. 1924, c. 147. It is not of importance in determining the legal effect of this conveyance that it was made without conscious intent or motive to defraud the' plaintiff. Matthews v. Thompson, supra. Illinois Watch Case Co. v. Cowan-Myers Co. 250 Mass. 347. St. 1924, c. 147, § 1. (G. L. c. 109A, § 4.) But the conveyance was voidable and not void. Boyd v. Brown, 17 Pick. 453, 460. Oriental Bank v. Haskins, 3 Met. 332.
It was within the power of the grantee to convey an interest in the property valid against creditors to third persons who gave valuable consideration' and did not participate in the fraudulent purpose of the grantors. Hubbell v. Currier, 10 Allen, 333. Green v. Tanner, 8 Met. 411. Morse v. Aldrich, 130 Mass. 578. Mansfield v. Dyer, 131 Mass. 200. The title of the defendants Smith and the Levins cannot be defeated unless they participated in a fraudulent intent of the grantors. Morse v. Aldrich, supra. “A mortgage to secure a genuine liability is invalid only if the mortgagee knew of and participated in a fraudulent purpose of the mortgagor.” Samuels v. Charles E. Fogg Co. 258 Mass. 402, 406-407. Upon consideration of all the facts in the case at bar, it is apparent that the defendant mortgagees were not connected in such a way with the fraudulent conveyance to Milton F. Flynn as to
The case of Hutchins v. Nickerson, 212 Mass. 118, relied on by the plaintiff, is distinguishable in its facts. The issue in that case was as to the sufficiency of the allegations of the bill. There were averments of a specific intent to defraud, hinder and delay creditors, guilty knowledge of the facts, and participation in a design with the purpose of profiting out of property which ought in equity and good conscience to have gone toward the payment
The final decree is to be modified by inserting after the figures “$2,881.37” the following: “The several sums declared to be due from the defendants respectively as above decreed shall be paid by them.” As so modified the decree is affirmed.
Ordered accordingly.