LaBour v. Bergin

Butzel, J. Plaintiff, as trustee of the estate of John Raymond Bergin, bankrupt, sought to establish a lien on the joint property of defendants Bergin and his wife, Frances, in the amount of $2,300, representing payments of $500 and $1,800 made by Bergin from his individual earnings on 2 mortgages respectively $500 and $2,000 theretofore placed on the joint property by Bergin and wife. At the timé of the payments there was outstanding against Bergin a 1935 judgment, duly renewed in 1945, which with interest exceeded the amounts paid on the mortgages. An unsuccessful effort had been made to collect the judgment. Bergin was insolvent at the time of his payments on the mortgages. The value of the Bergin interest in the joint property at the times the mortgages were executed was thereby decreased, and when payments were made by Bergin on the mortgages from his individual earnings the value was correspondingly increased. It was equivalent to Bergin talcing his money and instead of paying his outstanding debts, placing it into jointly held property, and thus attempting to place it beyond the reach of his creditors. The value of the jointly held prop.erty exceeds the aggregate amount of defendants’ exemptions, the balance due on the mortgage and the *439 amount of the lien claimed. The proceeds from the $2,000 mortgage had been used by Bergin and wife to purchase an automobile which was held in their joint names, and which Bergin also claims as exempt on the ground that he uses it in the furtherance of his business. The trial judge held that the plaintiff was entitled only to a lien on the automobile, subject to whatever exemptions Bergin might be entitled. The court in its opinion cited the cases of McCaslin v. Schouten, 294 Mich 180, and Dunn v. Minnema, 323 Mich 687 (7 ALR2d 1099), to the effect that when an insolvent debtor uses assets or makes payment on what constitutes an investment in property in joint names so that it becomes beyond the reach of creditors, he has worked a constructive fraud against which relief should be granted. In the McCaslin Case, defendant used his individual funds to reduce the mortgage debt on his home, which was entireties property, thereby increasing the equity in entireties property and preventing his creditors from reaching his individual funds. In the Dunn Case, the defendant bankrupt used his funds to continue payments on a jointly-held land contract upon which he had begun payments before he became insolvent. We allowed a lien to be imposed on that part of the value of the property, over and above the value of the homestead exemption, which had been augmented by payments made subsequent to insolvency. We believe that these 2 cited cases firmly establish plaintiff’s right to impose a lien on the home of the parties. As frequently happens, there may be some slight difference in facts, but there is but little in the rule established which entitles plaintiff to a lien in the instant ease. Also, see Newlove v. Callaghan, 86 Mich 297, and Caswell v. Pilkinton, 138 Mich 138. *440 The defendants, while conceding the correctness of the principle of the 2 cases cited by the trial judge, contend they should not apply here because the mortgage liabilities were incurred after the date the bankrupt became insolvent. The uniform fraudulent conveyance act (CL 1948, § 566.11 et seq. [Stat Ann § 26.881 et seq.]) covers conveyances made during insolvency with the effect of diminishing the debtor’s assets to the damage of his creditors. The creditor here was just as much damaged as he would have been had the encumbrance existed at the time the bankrupt became insolvent. We find no merit in defendants’ claim that the rule of the 2 cases was limited to the creation and building up of a tenancy by the entireties during insolvency, not the mortgaging of an existing entireties estate subsequent to the date of insolvency. The decree of the lower court is reversed and one will be entered as prayed, giving plaintiff a lien on the jointly-owned realty in the amount of defendant Bergin’s payments from his undivided funds on the mortgage debts, plus costs of both courts, but subject to the small balance, if any, due on the mortgage and defendants’ exemption under the law. The decree shall provide for the payment' of the lien within 4 months and remanding the case to the trial court for the enforcement of the lien and for foreclosure in case of nonpayment. Dethmers, Carr, Btjshnell, Sharpe, Boyles, and Reid, JJ., concurred. The late Chief Justice North did not sit.