Andrews v. Mather , 134 Ala. 358 ( 1901 )

HARALSON, J.

1. Section 818 of the Code provides, that a creditor without a lien may file, a bill in chancery to- subject to the payment of his cl-eb-t, any property which has been fraudulently 'transferred or conveyed, or attempted to> be fraudulently transferred or conveyed, by his debtor.

The averments of the bill in this case are full and sufficient to show that the conveyance sought to be set aside was fraudulent against the creditors of the grantor. They fully advise the defendant that the bona fides of the conveyance is assailed for fraud, anld in what the fraud consists-. — Burford v. Steele, 80 Ala. 147.

2. The bankrupt law, approved July 1, 1898, vests in the trustee of the estate of the bankrupt, upon his app-oitment and qualification, and his successor or successors, if he shall have on-e or more, upon his or their appointment and qualification, among other things, “property transferred by him in fraud of his creditors.” Section 70, sub-division 4 under that section; Loveland on Proceedings in Bankruptcy, 825.

This law, as seems to he well settled in Federal and State courts, gives to the assignee or trustee the right to sue to' set aside conveyances made by the debtor in fraud of his creditors, and vesits in him the title of the property recovered,in order that it may be applied to the claims of creditors, and makes it his duty to do SO'. Such conveyances may be avoided although made more than six months before bankruptcy. — 16 Am. & Eng. Ency. Law (2d ed.), 732, 746 and authorities there collated; Brandenburg on Bankruptcy, 444-446; Loveland on Pro. in Bankruptcy, §§ 157,158, pp. 296,297; Black on Bankruptcy, 265; Collier on Bankruptcy, 420; Pratt v. Curtis, Fed. Cases, No. 11375. Although property which has been fraudulently conveyed ceases to belong to tile grantor, so far as any claim he himself can set up is concerned, yet the law regards property which has been fraudulently conveyed, as still the property of the grantor, so far as creditors are concerned. The assignee in bankruptcy is an officer created for the benefit of creditors, and he is permitted to regard property fraudulently conveyed ini the same way in which creditors are permitted to regard it. — Ashley v. Robinson, 29 Ala. 112, 125. “Whenever the creditors could have contested the validity of a conveyance, the trustee, as their representative, can and should do so. No lien or conveyance which is invalid as to creditors, has any validity as against a trustee. As the representatives of creditors, the trustee of the bankrupt may sue debtors of his bankrupt whose claims have been •preferentially and collusively released. The trustee is in no way affected by the illegal or fraudulent, acts of the bankrupt, if creditors would not be affected bv them.” — Collier on Bankruptcy, 420.

3. It is contended by the appellant, that because the act provides (section 70, subdiv. 6), that the trustee may avoid any transfer by the bankrupt of his property which any creditor of such bankrupt might have avoided, and may recover the property so transferred, or ilts value, from the person to whom it was transferred, unless he was a bona fide holder for value, prior to the date of the adjudication, — that this provision confines the trustee to a suit at law for sueh x-ecoveries, and precludes him from a suit in chancery to sat aside a conveyance for fraud, and have the property sold to pay creditors. But this contentio.ni is without foundation. Such a suit is by statute maintainable in equity in this State. — Code, § 818. Whatever may be. the rule of practice on the subject in the Federal courts, this right, under the laws of this State, is nowhere denied. This is a new, equitable right created by the State, not opposed to the Federal Constitution or laws. As to whether a. simple contract, creditor may maintain a suit of this character in the Federal courts, the Supreme Court of the United States say: “The; general proposition, as to, the enforcement in the Federal courts of new equitable rights created by the. States, is undoubtedly correct, subject, however, to this qxxalification, — that such enforcement does not impair any right conferred, or conflict xvith any inhibition imposed, by the Constitution! or laws of the United States. Neither such .right, nor such inhibition can be in any way impaired, however fully the íxew equitable right may be enjoyed or 'enforced, in the States by whose legislation it is created.. The 'Constitution, in. its Seventh Amendment; declares that “in sxxits at common law, where the valxxe in controversy shall exceed twenty dollars., the right of trial by jury shall be preserved.’ In the Federal courts, this right cannot be dispensed xvith, except by the assent of parties, entitled t.01 it, nor can it be impaired by any blexxdiixg xvith a claim, properly cognizable at law, of a demand for eqxxitable relief in aid of the legal action, or during its pendency. Such aid xxxust he sought in separate proceedings, to the exxd that the right to a.triai by a jxxry in the legal action may he preserved intact, * * Whatex^er control the State may exercise over proceedings in its own courts, sxxch a union of legal and eqxxitable relief in tlxe saxixe action, is not allowable in tlxe practice of tlxe Federal courts.” — Scott v. Neely, 140 U. S. 106; Hollis v. Briarfield C. & I. Co., 150 U. S. 371.

So it was lield in the first case cited1, — -and that xvas as far as the principle annoxxnced extends,' — 'that the circuit, court of the United States in Mississippi conld not, under the operation of the statutes in that State, take jurisdiction of a hill in equity to subject, the property of a defendant to the payment of a simple contract debt, in advance of any proceedings at law, either to establish the validity and amount of the debt, or to enforce its, collection, in which proceeding- the defendant, under the Constitution of the United States is entitled in a Federal court, to a, trial by jury. But it is not there, 01* elsewhere decided, so far as we are aware, that such State, statutes, in their enforcement in the State courts, offend the Federal Constitution or laws.

4. It, is again contended, that the chancery court of the State, has no jurisdiction of the bill in this case, and that complainant’s remedy, whatever it may be, must be sought in a. Federal bankrupt court. Section 24 of the Bankrupt Act is headed “Jurisdiction of the United States and State Courts ” and 'provides, (a), “The United State's circuit courts shall have jurisdiction of all controversies at law and in equity, as distinguished from proceedings in bankruptcy, between! trustees and adverse claimants concerning the property acquired or claimed by the trustees, in the same manner and to the same, extent only, as though bankruptcy proceedings had not been instituted and such controversies had between the bankrupts, and such adverse claimants.” (b.) “Suits hi/ trustees, irhere brought. Suits by trustees shall only be brought or prosecuted in the courts where the bankrupt, whose estate is being administered by such trastee, might have brought or prosecuted them if proceedings in bankruptcy had not been instituted, unless by consent of the proposed defendant.”

Mr. Loveland in discussing these provisions, in the light of other bankrupt acts, and the adjudications on them, says: “The title of section 23 in the act is, ‘Jurisdiction, of United States and State Courts/ There was no express, recognition of jurisdiction in State courts in the act of 1867. The courts, however, construed that act as not taking away any jurisdiction of the State courts at law or in equity. The title and section 23 undoubtedly recognize a similar jurisdiction in the State courts. Section 23 does mot purport to- take away an}7 jurisdiction in law or equity which would otherwise exist in the United States circuit or State courts. It is in the nature of a recognition of it,” etc., etc. (citing Eyster v. Gaff, 91 U. S. 521; Lathrop v. Drake, 91 U. S. 516). — Loveland on the Law of Bankruptcy, 72.

Again, the sanie author observes (490, 491), as to proceedings to set aside fraudulent conveyances: “Such proceedings are mot, ordinarily speaking, strictly proceedings in bankruptcy. Such cases are in the nature of actions at law of ejectment, trover, etc., or suits in equity to set aside a fraudulent conveyance, * * * Suits of this character may be brought in the State courts.”

Upon the same subject, Brandenburg states the rule to be: “Where the property in controversy at .the time the debtor is adjudged banltrupt is in the actual possession of a third person claiming absolute title to the same, the question of ownership, if the same i's claimed by the assignee, must be determined by a suit in equity, or by an action at law. * * A State court passing upon claims of an assignee is not a proceeding under the Bankrupt Act, but simply recognizes that act as the source of the assignee’s title, in like manner as it would if such title were derived from a contract or deed.” — Bradenburg on Bankruptcy, 445; Black on Bankruptcy, 124,125.

5. The trustee in this case is proceeding’: in the) State court to set aside the alleged fraudulent conveyance, on an order granted by the district court! of the United States for the eastern district of Louisiana, for the trustee to institute this suit for the recovery of the property in question. There is, amd can arise, therefore, no conflict of jurisdiction between the Federal and State court in the proceeding. — Turrentine v. Blackwood, 125 Ala. 436.

The demurrer to the bill was properly overruled.

Affirmed.