KEENE et al. v. HALE-HALSELL CO. et al., 118 F.2d 332

SIBLEY, Circuit Judge. The petition was filed in the District Court against B. A. Keene, a son of J. T. Keene, and against the widow and other members of'the family of J. T. Keene, to establish a large debt claimed against J. T. Keene and to cancel as in fraud of creditors deeds of J. T. Keene to B. A. Keene and other defendants, and to administer the lands to all creditors entitled to participate. J. T.

Keene’s estate was alleged to be insolvent, but the fraud alleged was not that the deeds were the voluntary conveyances of an insolvent, but that they were executed with intent to hinder, delay and defraud the creditors. Another creditor, Acme Flour Mills Company, joined the suit by intervention. The widow, who was an original defendant, became pending the suit the permanent administrator of J. T. Keene’s estate, but was not made formally a party as such. The findings of fact made by the district judge are not controverted.

They established as bona fide certain of the deeds; and found that certain other deeds made to B. A. Keene “were executed by J. T. Keene and his wife for the purpose of hindering and delaying the creditors of said J. T. Keene and placing said property beyond the reach of creditors, and did hinder and delay plaintiff and intervenor in collecting the indebtedness owing to them respectively.” It was also found that the latter deeds were executed “without consideration deemed valuable in law and for the purpose of partitioning and dividing said land among the. children and grandchildren of said J. T.

Keene.” There were a number of deeds thus held void as to creditors, all made to B. A. Keene in fee simple but each reserving a vendor’s lien to secure a substantial sum of purchase money represented by promissory notes payable three years later to J. T. Keene. B. A. Keene afterwards made conveyances to the other members of the family in which each taker of land assumed his proportionate part of the purchase money notes. These notes, aggregating over $20,000, were in the hands of the administrator, and were inventoried as assets .of J. T. Keene’s estate.

The decree entered, besides establishing the debts of petitioner and intervenor and declaring the deeds above referred to void as to creditors, and appointing a master to sell the lands, cancelled and set aside both the deeds and the purchase money notes, adjudged that any excess in the sale price over the debts should be paid to the grantees in the deeds, after plaintiff and intervenor should be compensated for attorney’s fees and expenses for the institution and prosecution of this suit as determined by future orders of the court.

The appeal is from that part of the decree which cancels the deeds and notes and provides for the sale of the lands and distribution of the proceeds. The contention that there is not diversity of citizenship to support federal jurisdiction is without merit. The petitioner is a corporation of Oklahoma and the intervenor a corporation of Kansas. Ail the defendants are citizens of Texas save one, and he is a citizen of California. No defendant has the same citizenship as any plaintiff. A more substantial contention is that the deeds and vendor’s lien notes could not be cancelled without the estate of J. T.

Keene being impleaded through its administrator. The deeds were not simple conveyances divesting J. T. Keeneof all interest in the lands. He retained the superior title securing $20,000 of notes. These notes have been charged to the administrator and her surety as assets of the estate. The estate cannot be deprived of them without a hearing. Those who owe the notes and who objected to the defect of parties cannot be safe against suit unless the estate is bound by this decree of cancellation. It was error to cancel the notes and vendor’s lien without making the estate a party. See Dial v.

Martin, Tex.Civ.App., 37 S.W.2d 166, 185, citing 21 C. J., p. 258; 9 C.J., pp. 1225, 1227; 12 C.J.S., Cancellation of Instruments, §§ 52, 53, 54; 47 C.J., p. 91; 4 R.C.L., p. 517. It is suggested that without amendment Mrs. Keene should be considered a party in her representative capacity. We do not think so. She had a personal connection with the transaction which she was called on to defend. That would not call upon her to defend the estate also. She was not administrator when the bill was filed.

The statute of Texas makes void a deed or other contract made to hinder, delay or defraud creditors, but only as to-creditors. It stands good as between the parties. Vernon’s Civil Stats, of Texas, Art. 3996. The creditors may disregard it entirely and proceed by execution and' levy or garnishment. 27 C.J., p. 702 ; Quarles v. Hardin, Tex.Civ.App., 197 S.W. 1112. They do not need to cancel anything. If they do not undertake to cancel, they need *not make their debtor a party.

Ah though where there are purchase money notes out, as here, to sell the land may cause a failure of the consideration of the notes and give rise to complications, that is no concern of the creditors who are entitled to disregard the deed which is void as to them. The decree therefore may stand in so far as it establishes the debts as against the grantees and directs sale of the lands, but that portion which annuls and cancels the deeds and notes must be and is eliminated.

We may add that if the land brings no more than the debts established and expenses of sale, the court might award to the petitioner attorney’s fees and other-expenses out of the creditors’ fund; but if there is an excess, it is not subject to be thus reduced, any more than if the debts had been collected by ordinary proceedings. The award of attorney’s fees and expenses to a petitioner who sues for and benefits others is in order to distribute-this burden among them, and is to be made out of what belongs to them.

The decree is modified as above indicated and as modified is affirmed, but with costs, to the appellants. On Motion for Rehearing.