In re Collins , 235 F. 937 ( 1914 )

FOSTER, District Judge

(after stating the facts as above). There is little or no dispute as to the material facts in this case, though it has been somewhat difficult to extract them from the voluminous transcript owing to the acrimony of the trial before the referee, the many objections repeatedly'dictated into the record by counsel for all parties, and the failure of the stenographer to index the testimony as required by rule 20 of this court.

[1, 2] The referee in passing on the oppositions held that all questions as to the validity of the mortgage were closed by his former ruling oh the petition of Yochim, and that no creditor had petitioned to have Miss Danziger’s claim expunged. In both of these assumptions he is in error. If the judgment on the Yochim petition is res judicata as to anybody, it is not as to the lien creditors now opposing the account, as they were not parties to the proceeding; in fact, were expressly excluded by the referee. A claim which has been allowed may be reconsidered and rejected on the petition of a creditor. Bankr. Act, § 57k, General Order 21 (89 Fed. ix, 32 C. C. A. xxii).

The procedure adopted in the instant case is usual in the settlement of estates in Louisiana in succession, receivership, and bankruptcy matters, and has all the elements necessary to comply with the law. The pleadings are filed in full, and the creditor whose claim was attacked evidently had ample notice and his day in court.

[3-5] The fight centered on what is known as the Belmont Place property. The facts regarding it are as follows: Collins bought the real estate from Elias Pallet on February 9, 1912, by act before Felix J. Dreyfous, notary, for $3,100, paying $400 cash and giving his note secured by vendor’s lien and mortgage for $2,700. lie immediately proceeded to build several houses on the lots, and, when they were practically completed, he applied to Dreyfous for a loan to pay his debts growing out of their erection. Dreyfous visited the property, observed their state of completion, and agreed to lend Collins—how much is not definitely shown. He exacted that Collins have a surety company execute a builder’s bond provided for by the Louisiana statute for the full value of the buildings, $6,600.

The agent of the surety company, Mr. Ross, was called in and agreed to write the bond if Collins would transfer the property to some one else, as he did not think he could write a bond for a man who was both owner and builder. Ross testifies that he was not told and did not know that the buildings had been started at that time.

An act of sale was executed before Dreyfous from Collins to Singer purporting to be a sale for $7,500; $900 cash and the balance represented by three notes each for $2,200 secured by mortgage and vendor’s lien.

This act was purely a simulation. No cash was paid, and it was not intended to transfer the title. Ross testifies he did not know it was a simulation. The bond transaction is not material, except that there is testimony to the effect that the only reason for the sale was to secure the bond. Dreyfous took the three notes. He testifies he retained one and sold two to a client, a Mrs. Tujaque, and credited Collins’ account with the proceeds. He liquidated, and in his notarial capacity canceled, the $2,700 vendor’s lien note which he held for his own account and paid out $625 in cash, including the premium on the builder’s bond. The balance of the proceeds he still has in his possession, and it is credited on the proof of claim filed by Miss Danziger.

It is evident that the transaction was entirely for Dreyfous’ personal account, and Miss Danziger, who was his clerk, is absolutely without interest in the notes. Her proof of debt is not in the form required as agent, and in making it her agency is not disclosed.

Technically, it is false and should be expunged and disallowed. On the merits, her principal is in no better position. The sale was a simulation. As there was no sale, there was no vendor’s lien, and the mortgage was not granted by the owner of the property. It is true there are Louisiana cases holding that, under similar conditions, the notes in the hands of innocent third persons are to be considered as mortgage notes issued by the owner and enforceable as such against the property; but Dreyfous is not an innocent third person. He had full knowledge of the viciousness of the purported sale, and in fact counseled and executed the transaction for his own benefit. He was the holder of a vendor’s lien on the ground. However, as to the buildings subsequently erected, the liens of the materialmen were superior without being recorded and might have been enforced coequally with the vendor’s lien by having the property separately appraised and sold. C. C. 3267, 3268; Johnson v. Weinstock, 31 La. Ann. 698; City of Baltimore v. Parlange, 23 La.. Ann. 365. By executing the subsequent simulated sale and mortgage he practically prevented this being done. Conceding that knowledge is not equivalent to registry in Louisiana and that prima facie the purported sale and mortgage would prime the material liens, then unrecorded, still Dreyfous knew the liens existed, and as against the materialmen he would be ^estopped to claim a preference for his. pre-existing debt of $2,700.

[6] But the principle to be considered is more important and goes further. Notaries in Louisiana are high officials and granted extraordinary powers and authority. Their records import verity, and it is against public policy that a notary should profit to the injury of others by his willful falsification.

[7, 8] Though there are no such claims on file, I am not unmindful of the suggestion in the record that Dreyfous held a valid vendor’s lien note of $2,700, and that two of the notes in controversy are now held by an innocent third person. If this is so, as to the first proposition, registration was necessary to the validity of the lien. C. C. 3271. Dreyfous canceled this registration before bankruptcy, and the title of the trustee has now intervened. It was clearly the intention of Congress in adopting the amendment of 1910 to paragraph 47, cl. A, of the ^Bankruptcy Act, that thereafter the trustee should not stand in the shoes of the bankrupt with regard to unrecorded liens depending for their validity upon registration, and that, as to the general creditors, such liens should be void.

[9] With regard to the second proposition, Dreyfous still has in his possession a part of the proceeds of the notes. If the two notes are held by innocent third persons, their claims should first be enforced against this fund to its extent and against the proceeds of the property as mortgage creditors for the balance.

With regard to the real estate known as the Louisiana avenue property against which Miss Danziger claims a vendor’s lien and mortgage of $2,600 by virtue of the simulated sale of February 9, 1912, but which is also the property of Dreyfous, it is not shown that any consideration whatever was paid, and the same principle applies to it as to the nullity of the act.

The judgment of the referee will be reversed, and the claims of Miss Isabel Danziger expunged and rejected, reserving to Felix J. Dreyfous the right to prove his claim against the estate' as an ordinary creditor within 10 days.

The rights of the trustee to recover of Felix J. Dreyfous the balance of the proceeds of said notes to satisfy the claims of innocent third holders of same is also reserved.

Reversed and remanded for such further proceedings as may be necessary, and in conformity to this opinion.

On Application for New Trial.

An application for a new trial has been filed in this case by Mr. Dreyfous and Mrs. Miller, née Danziger, and all questions extensively re-argued.

[10] On their behalf it is contended that Miss Danziger, as the holder of the notes, was entitled to file the claim in her own name, and, if the proof filed is not in correct form, she should be allowed to amend and file proof as agent of Dreyfous and Mrs. Tujaque. The “holder” of a promissory note is one who has a legal interest in it. A mere dummy cannot be considered the holder of a note for the purpose of proving it in bankruptcy. Besides, the proof sets up ownership. For obvious reasons, well illustrated by this case, it is essential that a proof of debt in bankruptcy show on its face the true interest of the person presenting it. The Supreme Court has prescribed the form to be used by an agent, and it provides for a disclosure of the principal. The opinion heretofore rendered recognizes the rights of Dreyfous and Mrs. Tujaque to prove up their claims. However, it is not contemplated by the rules that debts be proved by an agent when the principal is present and able to file his own proof.

It is also contended that, while the transaction between Dreyfous and Collins was not a sale, it was intended to secure Dreyfous and should be considered a mortgage, good as ,to third persons. In support of this, the following cases are cited: Parmer v. Mangham, 31 La. Ann. 348; Wang & Cottam v. Finnerty, 32 La. Ann. 94; Nuss v. Nuss, 112 La. 265, 36 South. 345. These cases are not in point. The first-named case tends to support my previous ruling. A debtor was fraudulently trying to deprive his creditor of the security he had given him, and the court condemned the attempt in strong language. See page 354 of 31 La. Ann. In the second case, there was a sale with a counter letter. The debtor was in possession of the property under the recorded deed. The judgment sought to be enforced against the property was rendered long after the transaction between the parties. The last case was a transaction between husband and wife and other relatives. No rights of prior creditors were involved.

[11] Since the rendition of the decree herein, the Supreme Court of Louisiana, in the case of Brown v. Staples, 138 La. 602, 70 South. 529, has decided that where the contract is for more than $1,000 and, together with the bond, is recorded within the time fixed by Act 134 of 1906—say seven days—the lien of the materialmen is not governed by article 3274, C. C., and their liens will prime a pre-existing mortgage if attested accounts are served on the owner and recorded within 45 days after the work is finished. The claims of the materialmen herein were so served and recorded. As to this, it is contended the'materials were furnished to the owner, and not the contractor, and that the said decision has no application. This argument overlooks the fact that Dreyfous and the bankrupt created the situation for their own benefit, and they are estopped to deny it to tire prejudice of the materialmen.

[12-14] While the objections are not formally presented by the pleadings, it is urged there should be no decree in favor of the material-men, as some of the" claims are not proven; that some have been paid by the surety, company; and that one creditor has agreed not to oppose Dreyfous’ priority. The claims were all allowed by the referee both’on-filing and in his ruling denying them priority. No exceptions have been taken and no attempt has been made to expunge any of them. If the surety company has paid any of the lienholders, it is subrogated to their rights. It is suggested that the surety company would be "estopped by the knowledge of its agent regarding the simulated sale. Mr. Ross, the agent, testifies that he did not know the sale was simulated or that construction of the houses had been started. He is not impeached or discredited, and it is so improbable that he would have written the bond had he known the true conditions, his evidence is entitled to great weight. But, in any event, he was not the agent of the surety company for the purpose of perpetrating a fraud upon it, and the company would not be estopped as against Collins and Dreyfous by any action of Ross without the scope of his authority. Miss Danziger also claimed to be the agent of tire surety company. If so, it is unnecessary to discuss her power to bind it in this transaction. In this proceeding the court is not concerned with agreements between the creditors postponing the one debt to the other.

There seems to be some doubt as to the correctness of the judgment denying Miss Danziger a lien on what is called the Louisiana avenue property. This transaction was clearly a simulation, but it is contended the matter has been settled and no one is objecting. Proof of settlement does not appear in the record; but, if the facts are as stated in the argument, the decree may be amended.

On the whole, I see no reason to change my views heretofore expressed. The application for a new trial will be denied. The parties may submit an amended decree in conformity with this and the original opinion.