Sims v. Wright , 195 Ga. 562 ( 1943 )

Where a judgment creditor, whose judgment was more than four months old, filed a suit in equity to cancel deeds executed by the judgment debtor, alleging that they were executed to hinder, delay, and defraud creditors, and while said suit was pending the debtor was adjudged a bankrupt, and was subsequently discharged in bankruptcy, the trustee in bankruptcy was a necessary party plaintiff to such a suit; and in the absence of any allegation that the proper move had been made to require the trustee to proceed as a plaintiff in such proceeding, the suit was properly dismissed.

Nos. 14419, 14420. FEBRUARY 9, 1943. REHEARING DENIED MARCH 11, 1943. On January 31, 1936, Mrs. Christine Sims filed a suit against W. T. Wright, for damages growing out of an automobile accident wherein her husband was killed. After prolonged litigation in which there were three jury trials, new trials being granted on two occasions, the plaintiff at the third trial, on February 15, 1939, obtained a verdict and judgment of $2500. On October 24, 1939, the plaintiff filed a suit in equity against W. T. Wright, the Roswell Bank, W. G. McCleskey, and the deacons of Boiling Springs Church, setting up that after the filing of her damage suit Wright had executed to the Roswell Bank deeds conveying land, and a bill of sale of personalty, for the purpose of hindering, delaying, and defrauding his creditors. The deeds and the bill of sale were executed after the filing of the damage suit against Wright, and each appeared to be as security for debt. Deeds to secure debt, given to McCleskey and to the deacons of Boiling Springs Church, were executed before filing the suit for damages. There was no prayer for cancellation of these deeds, but the plaintiff prayed that the grantees be made parties, in order to perfect her alleged equitable rights. She prayed also: (a) that her judgment lien be established against all equities in real and personal property; (b) that the deeds to the Roswell bank be canceled; (c) that a receiver be appointed, with order to sell a sufficient amount of Wright's property to pay her judgment, and such liens of other creditors as may be established; (d) that the Roswell Bank be enjoined from transferring deeds executed by defendant Wright.

Demurrers general and special were filed. The defendants answered, stating the amount due them on security deeds executed by Wright. The Roswell bank and Wright answered, denying the allegations that the deeds and bill of sale from Wright to the bank were given to hinder, delay, and defraud the creditors. The bank alleged that at the time it took the deeds from Wright it had no knowledge of the pending suit of Mrs. Sims. The court granted no extraordinary relief.

While this suit was pending, Wright filed a petition in bankruptcy, asking that certain personalty and the equity of redemption in the land conveyed by the above-mentioned deeds be set apart to him as a homestead. Mrs. Sims appeared in the bankruptcy court, and over her objections the court set apart a homestead consisting of personalty and an equity of redemption in the lands conveyed by the security deeds, "not to exceed the sum of $700." Mrs. Sims' objections to Wright's discharge in bankruptcy were overruled, and a discharge in bankruptcy was granted.

At the time of the filing of the petition in bankruptcy the defendants moved to stay the proceedings in this case; and after the discharge in bankruptcy the defendants filed an amendment setting up this fact, and moving to dismiss the plaintiff's suit.

During the time the case was pending there were rulings on pleading, and exceptions pendente lite were preserved by both the plaintiff and the defendants. The court sustained a demurrer to the petition of the plaintiff, striking all allegations that the transactions between Wright and the Roswell Bank were made to hinder, delay, and defraud creditors.

The trustee in bankruptcy was never made a party plaintiff.

On motion by the defendants the court passed an order dismissing the case. The order of the court assigned no specific reason for the dismissal, but necessarily it must have been granted on the basis that the trustee in bankruptcy was a necessary party plaintiff, and that there was no equity in the bill. The plaintiff's judgment was more than four months old. It was a lien on all the property owned by Wright at the time of filing his petition in bankruptcy. The discharge in bankruptcy terminated all personal liability, but did not affect the lien which had attached to the property before filing the petition in bankruptcy. There being no waiver of homestead involved in the suit upon which the judgment is based, the homestead set apart to W. T. Wright in the bankruptcy court was superior to the judgment; but other property he owned at the time of filing his petition in bankruptcy, not covered by superior liens, was subject to the lien of this judgment. McBride v. Gibbs,148 Ga. 380 (96 S.E. 1004).

At the time Wright went into bankruptcy he had equity of redemption in certain lands, subject to loan deeds. His homestead set apart in the bankruptcy court included certain personal property, and an interest in his equity of redemption "not to exceed the sum of $700." Any equity in these lands over and above $700 was subject to the judgment held by Mrs. Sims. If the loan deeds held by the Roswell Bank were fraudulent, and could be set aside and canceled, it would enure to the benefit of the judgment creditor, as this would correspondingly increase the value of the property to which the judgment lien would attach.

In her suit seeking to have these deeds set aside Mrs. Sims did not make the trustee in bankruptcy a party plaintiff; nor is there any allegation in the pleadings showing that a motion was made to require the trustee in bankruptcy to become a party plaintiff. "The trustee of the estate of a bankrupt . . shall be vested by operation of law with the title of the bankrupt as of the date of the filing of the petition in bankruptcy." Bankruptcy act of 1938, § 70 a, 11 U.S.C.A. § 110 a. "The trustee's right to maintain an action to set aside a fraudulent conveyance made by the bankrupt is exclusive; a creditor of the bankrupt can not maintain such a suit, at least unless he makes the trustee a party thereto." 6 Am. Jur. 657, § 243. "All property of the debtor affected by any such transfer shall be and remain a part of his assets and estate, discharged and released from such transfer and shall pass to, and every such transfer or obligation shall be avoided by, the trustee for the benefit of the estate. The trustee shall reclaim and recover such property or collect its value from and avoid such transfer or obligation against whomever may hold or have received it." Bankruptcy act of 1938, § 70, e 2. 11 U.S.C.A. § 110, e 2.

"Where one conveys his property to another under circumstances which render the conveyance void, and shortly thereafter is adjudicated a bankrupt, the right to have the property referred to brought to sale as a part of the assets of the bankrupt's estate is in the trustee in bankruptcy; and individual creditors can not maintain a suit to have the void conveyance canceled and the property brought to sale to satisfy their demands, without showing that they have moved in the bankruptcy court to have the trustee proceed against the property or that he has refused to take steps to subject the property and administer the same as a part of the bankrupt's estate." Wright v. Ehrlich, 146 Ga. 400 (91 S.E. 412). See Hall Hardware Co. v. Ladson Brick Tile Co.,160 Ga. 341, 346 (127 S.E. 754); Beasley v. Smith,144 Ga. 377 (4) (87 S.E. 293); Gilbert's Collier on Bankruptcy, 1115, § 1395; Ruhl-Koblegard Co. v. Gillespie, 61 W. Va. 584 (56 S.E. 898, 10 L.R.A. (N.S.) 305, 11 Ann. Cas. 929). The plaintiff insists that this rule does not apply to a judgment creditor, and in support of this contention cites numerous decisions, none of which are sufficiently applicable to control the present case. The decision in Connell v. Walker, 291 U.S. 1 (54 Sup. Ct. 257, 78 L. ed. 613), in effect holds that the bankrupt alone could not have a suit dismissed, "since such dismissal would cut off the trustee's right to have the lien preserved." In the present case the lien of the judgment creditor can not be affected by the dismissal of this suit. The cases of Straton v. New, 283 U.S. 318 (51 Sup. Ct. 465,75 L. ed. 1060); Metcalf v. Barker, 187 U.S. 165 (23 Sup. Ct. 67,47 L.ed. 122); Pickens v. Roy, 187 U.S. 177 (23 Sup. Ct. 78,47 L.ed. 128), are not in point. They dealt with the question of jurisdiction, as between the State courts and the bankruptcy courts.

There are cases where the creditor can, notwithstanding bankruptcy of the debtor, continue the proceedings in his own name; but they are instances that embrace enforcement of liens not invalidated or avoided by the bankruptcy act, for enforcement or foreclosure of which proceedings in a State court have been instituted before commencement of proceedings in bankruptcy, and where the custody of the res is in the State court. Many cases cited by the plaintiff as authority for her contention that she can maintain this suit in her own name, and that the trustee is not a necessary party, are instances within the foregoing exception to the general rule. The rule denying creditors the right to maintain suits in their names (Wright v. Ehrlich, supra) covers also judgment creditors. In support of this see Re Gray, 47 App. Div. 554 (62 N.Y. Supp. 618, 3 Am. Bankr. R. 647); In re Charles D. Adams, 1 Am. Bk. R. 94; In re Leo L. Heyn, 50 Am. Bk. R. 632.

There is no allegation in the petition as to the value of the equity of redemption in this land. If the deeds to the Roswell Bank should be canceled and the value of the equity in all the lands should exceed the amount of the judgment of Mrs. Sims, plus $700 of the equity set apart as a homestead to the bankrupt, then the balance would have to be distributed in the bankruptcy court to the other creditors in accordance with their priorities. The title to this equity being vested in the trustee, it would be his duty to administer the funds, if any, which were in excess of the judgment and the homestead. The trustee is a necessary party for another reason. If this suit should proceed to judgment without the trustee in bankruptcy being made a party plaintiff, and subsequently the trustee should institute a similar suit, it is doubtful if the Roswell Bank could sustain a plea of res judicata, as the suits would not be between the same parties or their privies. Yet, if the trustee is made a party plaintiff, the defendants could not prevail in a plea of res judicata, as the interest of all the creditors would be represented by the trustee. Rules of procedure should, so far as possible, be framed with a view of terminating litigation.

In view of the foregoing it is not necessary to pass upon the other questions raised.

Judgment affirmed on the main bill of exceptions; cross-billdismissed. All the Justices concur.