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Donnell v. Bucks County Farms Inc.

July 16, 1964

C.E.H. MC DONNELL, SUCCESSOR TRUSTEE TO MURRAY FERGUSON, TRUSTEE UNDER CHAPTER X REORGANIZATION PROCEEDING FOR EQUITABLE PLAN COMPANY, DEBTOR,
v.
BUCKS COUNTY FARMS, INC. (UNITED STATES OF AMERICA, INTERVENOR IN D.C.) MERRIE V. BIRRELL, CLAIMANT, APPELLANT.



Author: Biggs

Before BIGGS, Chief Judge, and HASTIE and SMITH, Circuit Judges.

BIGGS, Chief Judge.

The case at bar is complicated in its facts. It appears that in 1946, Lowell Birrell purchased, with his own money, eleven pieces of real estate in Bucks County, Pennsylvania, title to which was taken by him and by his wife Merrie Birrell, the claimant-appellant, as tenants by the entireties. It does not appear that Mrs. Birrell contributed any of her own assets to the purchase of any of these lands. Two portions of the lands so acquired and so taken, one consisting of 100.27 acres, the other of 39.938 acres, with the buildings thereon, were known as "Echo Falls Farms" and will be so designated in this opinion. The main house and the guest house were furnished by purchases made by Lowell Birrell using his money. Again, it appears that Mrs. Birrell made no monetary contribution. On a date not certain from the record, but not critical here, a $55,000 first mortgage was placed on Echo Falls Farms by the Birrells with the Doylestown National Bank and Trust Company and after various decreases and increases remained at $55,000. Thereafter on December 26, 1956, the Birrells transferred Echo Falls Farms and all the personal property on the premises to Bucks County Farms, Inc. (Bucks), a Delaware corporation registered to do business in Pennsylvania. Bucks agreed at about this time to assume the obligation of the $55,000 first mortgage given by the Birrells to the Doylestown Bank.

Previously to the event last mentioned and on October 31, 1956, Bucks had executed a promissory note in the sum of $150,000 with interest at ten per cent per annum, payable on April 30, 1958, to the order of Equitable Plan Corporation (Equitable), a California industrial loan corporation. On May 29, 1958, Murray Ferguson was appointed a Trustee for Equitable in a Chapter X reorganization proceeding in the United States District Court for the Southern District of California.On September 17, 1959, Ferguson filed a complaint, in the suit at bar, at our number 14,671 supra, seeking the amount of $189,489.30 in order to obtain payment of the note with interest. Foreign attachments were issued and were duly served on September 24, 1959, against the real estate of Bucks including Echo Falls Farm. The present claimant-appellee, McDonnell, is Ferguson's successor Trustee.

Bucks is alleged to have given a second mortgage in the amount of $88,500 on Echo Falls Farms to Quipo, S.A. (also know as Cuipo), described in the mortgage as a Panamanian corporation. The mortgage is dated December 26, 1956, but was not recorded until March 19, 1958, approximately sixteen months after it is said that it was given. Apparently, at about the same time, Bucks entered into a lease with Lowell Birrell for Echo Falls Farms at a monthly rental of $750. No rental was ever paid to Quipo and no interest or principal was ever paid on the mortgage. A letter written by the Panamanian Minister of Agriculture, Commerce and Industries, under date of December 9, 1959, appears in evidence, in which it is stated that "in the Department of Commerce of this Ministry there is no concern registered with the name of Quipo, S.A." No one representing Quipo has appeared in the instant proceedings, nor, insofar as the record shows, has anyone received any communications from it.

Bucks recorded the purchase of Echo Falls Farms and the personalty thereon by journal entries on its account books, dated December 31, 1956. The consideration for the purchase was shown as consisting of the first mortgage, in the sum of $55,000 assumed by Bucks, and of the second mortgage to Quipo, in the amount of $88,500 created when and how we have stated. The total of these two sums is $143,500. Of this amount $69,000 was shown as allocated to buildings, $34,000 to land, and $40,000 to household furniture and furnishings. A notation to this stated that the second mortgage was given on a letter of instruction from Lowell Birrell to Quipo in full payment for all equities acquired from Lowell Birrell and for a collateral deed held by Mrs. Birrell which was to be surrendered and cancelled.

About 1957, the stock of Bucks' was acquired by "L.L. Constantin & Company", a New Jersey corporation engaged in the manufacture and sale of electronic components. It appears that when receivers were appointed by the court below for Bucks on October 30, 1959, Quipo, if it existed, owned all of the stock of Constantin. Lowell Birrell was the president, or the chairman of the board, or at least in control of Constantin, which paid him a salary of $44,000 a year and gave him an expense account.

After various legal steps had been taken which need not be related here, some of which are referred to in our opinion in Ferguson v. Bucks County Farms, Inc., 280 F.2d 739 (1960), the receivers appointed by the court below proceeded with the administration of the estate. Eventually, on April 21, 1961, the successor Trustee, McDonnell, received a judgment against Bucks on the note in the amount of $206,824.07. The receivers, acting pursuant to an order of the court below, sold the real estate and certain personal property. The receivers filed a first account and a second and final account, both of which were approved by the court below.

Mrs. Birrell objected to the confirmations of these sales but her objections were overruled by a decree of the lower court dated July 5, 1961. From this decision, Mrs. Birrell appealed to this court. We wrote no opinion but dismissed the appeal on October 3, 1961, by a decree which provided that Mrs. Birrell might assert her claim against the funds procured by the receivers of Bucks from the sale of the property*fn1

On April 3, 1963, the court below entered an order fixing a time for the filing of all claims of creditors and lien holders or others asserting rights to priority payments from these funds and fixed June 7, 1963, as the time of the hearing. Notice was duly given. On May 1, 1963, Mrs. Birrell filed her claim asserting in substance that she was the owner of Echo Falls Farms by virtue of certain deeds referred to hereinafter and was entitled to the property. Mrs. Birrell's claim was objected to by the United States which asserted a tax claim, by certain other claimants, and by the receiver of Equitable. The court below by its order of August 5, 1963, dismissed and denied the objections and claims of the other claimants, disallowed Mrs. Birrell's priority claim, and accorded priority in payment to the judgment obtained by Equitable. The appeal at bar followed.

The court below treated the order of this court set out below as having the effect of rendering the present issue res judicata. The court below stated in its opinion, in part: "[The] matter may be considered as res adjudicata in view of the quoted order of the Court of Appeals. It provided, as did the order of this Court from which appeal was taken, that 'the claim of appellant against the real estate * * * may be asserted by her against the fund to be realized by that sale.' The reference is doubtless to the claim under the second mortgage. Had title in Mrs. Birrell been recognized by the Court of Appeals, it is unlikely that it would have permitted the sale to proceed."

We cannot agree with this interpretation of our order. We decided nothing in respect to the merits of Mrs. Birrell's claims. We held merely that she should assert them against the fund and not against the real estate, which was about to be and which was sold. The principle of res judicata is not applicable here.

We return now as a starting point to the objections of Mrs. Birrell, made on June 12, 1961, to the confirmation of the sale of the Echo Falls Farms real estate which were overruled by the court below, and on which Mrs. Birrell's present position is based. She asserts that she received no consideration for the transfer of her interest as tenant by the entireties to Bucks by the deeds dated December 26, 1956, and that she was not aware of what she was doing when she signed the deeds. She did, however, execute separate acknowledgments in the usual form before a notary public. Furthermore, she asserts that she has in her possession deeds dated January 2, 1957, from Bucks conveying to her as tenant by the entireties the same real estate, constituting Echo Falls Farms, which she joined with her husband in conveying to Bucks on December 26, 1956. Mrs. Birrell admits that the two deeds of Bucks dated January 2, 1957, were not recorded because, so she says, she was unaware of the importance of recording them. She also refers to the second mortgage given by Bucks to Quipo in the amount of $88,500 on Echo Falls Farms which mortgage was recorded. Mrs. Birrell states that she possesses an assignment executed in blank by the president of Quipo, the assignment being dated, according to her statement, January 14, 1959. She concedes that this assignment was never recorded*fn2

We come now to the merits of the controversy insofar as we can adjudge them on the present record in the light of the findings and of the opinion of the court below. The effective date of the foreign attachments upon which Equitable's judgment in the sum of $206,824.07 was based was September 24, 1959. 21 P.S. ยง 351 provides that unrecorded deeds shall be "adjudged fraudulent and void as to any subsequent bona fide purchaser or mortgagee or holder of any judgment, duly entered in the prothonotary's office of the county in which the lands, tenements, or hereditaments are situate, without actual or constructive notice * * *." It appears that the other claimants did not have notice of the unrecorded deeds until June ...


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