Oshry v. Haddad

Sanderson, J. This is a suit in equity by the trustee in bankruptcy of the estate of Tofa S. Haddad and Thomas S. Nicholas, copartners doing business under the name of Bay State Overall Manufacturing Company, against the defendant, who is the mother of Tofa S. Haddad and mother-in-law of Nicholas. The bill alleges that while the copartners were insolvent they executed a chattel mortgage to the defendant, who knew of their insolvency; that there was no consideration for the mortgage, that it was given to hinder, delay and defraud creditors, and was subsequently foreclosed and the proceeds converted by the defendant to her own use. The prayers ask that the mortgage and note be declared null and void, that the defendant be ordered to account for the proceeds of the foreclosure sale, and for other relief. The master found that the partners were insolvent on March 29, 1926, the date when the mortgage was executed, which conveyed to the defendant all stock in trade and merchandise in the place of business of the partnership, together with the machines and fixtures named in a schedule, and all other property which might be thereafter acquired. It purported to be given in consideration of $6,000 and to secure a note for that sum. The consideration for the mortgage was found to be a prior indebtedness of the partnership to the defendant of $2,367.61 for money loaned to the partnership. The master found that the partners were insolvent when the mortgage was given but was unable to find that either the partners or the defendant knew that fact. He made no specific finding as to the value of the property mortgaged, but found that on the date of the mortgage the book value of the assets of the partnership, after a deduction [201] was made because of an error in the books, was over $9,000. The finding does not disclose whether the partnership had any assets except the property mortgaged. The mortgage was foreclosed by the defendant and the property purchased by her at the foreclosure sale for $2,000, and later she resold it for between $700 and $800. The defendant testified before the master that she loaned the partnership $6,000, but the master found that this was not the fact. A final decree was entered declaring the mortgage and the note which it secured to be null and void, and of no force and effect, as a conveyance in fraud of creditors and ordered the defendant to pay the plaintiff the sum of $2,000 received by her under the foreclosure sale, with interest and costs. No exceptions having been taken to the report, the only question is whether the final decree was warranted by the pleadings and findings of the master. Manufacturers National Bank v. Simon Manuf. Co. 233 Mass. 85, 87. The judge had a right to draw inferences of fact from the facts found by the master. Wallin v. Fredin, 241 Mass. 233. The allegations in the bill to the effect that the mortgage and note were given when the partners were insolvent, and for the purpose of hindering, delaying and defrauding creditors, followed by a prayer that the mortgage and note be declared null and void as a conveyance in fraud of creditors, were sufficient to warrant a decree based either upon an actual intent to hinder, delay or defraud creditors, or upon proof that the conveyance was fraudulent because made in violation of St. 1924, c. 147, entitled “An act concerning fraudulent conveyances and to make uniform the law relating thereto.” This statute added to the General Laws a new chapter, 109A, which provides in § 4 that “Every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration.” In § 3 (b) the act provides that fair consideration is given for property or obligation “When such property or obligation is received in good faith to secure a [202] present advance or antecedent debt in amount not disproportionately small as compared with the value of the property or obligation obtained.” On the question whether the obligation for $6,000, with the mortgage securing it, was received by the defendant in good faith, the finding as to the knowledge of the insolvency by the parties to the mortgage is not conclusive. The judge had a right to consider the fact that the note was for a sum much in excess of the actual debt and that the defendant at the trial attempted to make it appear that the actual indebtedness was the amount of the note, by giving false testimony to that effect. In Lynde v. McGregor, 13 Allen, 172, 179, a mortgage had been given for $6,500 when the indebtedness was $2,000, and the court, speaking through Hoar, J., said: “The jury might well infer from making the mortgage in a form which would admit a fraudulent claim, no honest reason being shown for making it in that form, and the fraudulent claim being afterwards made, that it was originally intended for that purpose.” The judge could have reached a similar conclusion in the case at bar upon the facts found by the master. The amount of the debt for which the obligation was received was disproportionately small as compared with that obligation. The decree declaring the note and mortgage null and void was therefore justified because they could be found to have been given in violation of the statute. We need not consider whether it might also be justified upon the other ground open on the pleadings. Decree affirmed with costs.