Brown, Webb Co. v. Edward Rose Co. , 210 Ala. 488 ( 1923 )

Edward Rose Co., a corporation, recovered judgment against Brown, Webb Co., a partnership, and its constituent members, before a justice of the peace at Phil Campbell. Defendants appealed to the circuit court, giving bond with sureties as provided by section 4714 of the Code of 1907. Pending the trial on appeal, defendants Brown, Webb Co. were adjudicated bankrupts, but had not been discharged. In the circuit court judgment was rendered against defendants and their sureties, execution being ordered against the sureties, but stayed as to the defendants until the bankruptcy court should pass on their application for final discharge. The sureties on the appeal bond assign the judgment for error.

Plaintiffs had leave of the federal bankruptcy court to prosecute their suit against defendants and the sureties on their appeal bond in the circuit court notwithstanding the pendency of the bankruptcy proceeding, provided any judgment obtained should contain a stay of execution against the bankrupts pending their discharge, such stay to become permanent upon their discharge, and it was ordered that no discharge should be rendered in favor of the bankrupts until the termination of plaintiffs' action in the circuit court; but the question still remained whether plaintiffs might proceed to a judgment qualified in this manner. 3 Remington on Bankruptcy, § 2712. This depended, not upon any provision of the Bankruptcy Act (U.S. Comp. St. §§ 9585-9656), but upon the authority of the circuit court under the law of this state. Hill v. Harding,130 U.S. 699, 9 Sup. Ct. 725, 32 L.Ed. 1083.

The Bankruptcy Act (section 16), wherein it provides that "the liability of a person who is a codebtor with, or guarantor or in any manner a surety for, a bankrupt shall not be altered by the discharge of such bankrupt," refers to codebtors, guarantors, or sureties for the bankrupt on the original debt from which release is given by the discharge, and not to the liability of a surety for the bankrupt on a bond as in this case. Klipstein Co. v. Allen-Miles Co., 136 Fed. 385, 69 C. C. A. 229; Id., 201 U.S. 647, 26 Sup. Ct. 761, 50 L.Ed. 904. The liability of the sureties here was limited by the condition of the bond which was (to quote the statute, section 4714 of the Code) "to pay such judgment as may be rendered against him [them] by the court to which the cause is [was] sought to be removed." But the judgment of the circuit court proceeded differently and to greater effect against these appellant sureties than it did against the defendant bankrupts; it ordered execution to be presently issued against the sureties, whereas, in effect, execution was to issue against the bankrupts, if at all, in the event only a discharge was denied. This was error. Klipstein v. Allen-Miles Co., supra; Crook-Horner Co. v. Gilpin, 112 Md. 1,75 A. 1049, 28 L.R.A. (N.S.) 233, 136 Am. St. Rep. 376; 23 Am. Bankr. Rep. 350. The practice in the courts of this state, as we understand, agreeable with principles of substantive law, and the comity due to be observed between the courts has been in such cases to postpone the prosecution of the action to await the result of the bankruptcy proceeding. 2 Remington on Bankruptcy, §§ 2697, 2699. If the bankrupt is discharged, no judgment can be rendered against him or the sureties on his appeal bond.

In Hill v. Harding, supra, and other cases in which it has been held, for example, that the discharge of the bankrupt does not prevent judgment from being rendered against his sureties on a bond to dissolve an attachment, such bond standing in lieu of the lien of the attachment, the courts proceeded on the theory that the lien, acquired more than four months before the commencement of proceedings in bankruptcy, should be preserved and enforced, as was pointed out in Young v. Howe, 150 Ala. 157,43 So. 488. See, also, James v. Kitzenger, 13 Ala. App. 448,68 So. 582. It was upon this ground that Kendrick v. Warren Bros., 110 Md. 47, 72 A. 461, was distinguished from Crook-Horner Co. v. Gilpin, supra.

Kohn, Weil Co. v. Weinberg, 110 Miss. 275, 70 So. 353, supposed to have influenced the judgment of the circuit court, may be discriminated from the case in hand on more than one ground. It does not at all meet the point on which we have proceeded.

It results that the judgment must be reversed.

Reversed and remanded.

ANDERSON, C. J., and GARDNER and MILLER, JJ., concur.