Booth v. Bates , 215 Ala. 632 ( 1927 )

This is a bill in equity by a trustee in bankruptcy to declare void a sale of the real estate of the bankrupt under execution and to cancel the sheriff's deed as a cloud on the title of the trustee. The respondents are the execution creditors of the bankrupt and purchasers at the sale under their own execution. The bankrupt is also made party respondent, and filed a cross-bill seeking similar relief as to that portion of the lands set apart to him as a homestead exemption in the bankruptcy proceedings.

The registration of the judgment under Code, § 7874, was insufficient to create a judgment lien for failure to show the names of all the parties to the judgment. Ladd v. Smith,209 Ala. 114, 95 So. 280.

The lien of the execution could not antedate the issuance and delivery of the execution to the officer. Code, § 7808.

The execution debtor being adjudicated a bankrupt within four months thereafter, and before a sale under execution, the lien of the execution was vacated and annulled by the adjudication. The title of the property subject to administration for the payment of debts passed to the trustee, which related back to the adjudication. The judgment listed in the schedule of liabilities lost all preference, and the judgment creditor took his place among unsecured creditors, his claim to be proven in bankruptcy and paid in due course as other such creditors. The sale under execution was wholly abortive and the deed a nullity.

As to that portion of the tract of lands listed and claimed as exempt in the bankruptcy petition, the lien was also vacated by the bankruptcy proceedings. While the trustee does not take title to exempt property, it comes under the jurisdiction of the bankruptcy court, the trustee being charged with active duties in the appraisement, segregation and causing it to be set apart as exempt. Chicago, Burlington Quincy R. Co. v. Hall, 229 U.S. 511, 33 S.Ct. 885, 57 L.Ed. 1306; Hull v. Dicks,235 U.S. 584, 35 S.Ct. 152, 59 L.Ed. 372; Schrepel v. Davis (C. C. A.) 283 F. 29; In re Forbes (C.C.A.) 186 F. 79; In re Tune (D.C.) 115 F. 910.

When bankruptcy intervenes, the exemptions, while determinable under state law, are ascertained and set apart by the bankruptcy court; it has sole jurisdiction to that end. After adjudication and claim of exemptions in that court, there is no occasion to file the claim of exemptions with the levying officer under the state law. The levy is vacated as for all further proceedings under the execution. The right of a creditor holding a waiver of exemptions to proceed against the exempt property after it is set apart and surrendered to the bankrupt, under Lockwood v. Exchange Bank, 190 U.S. 294,23 S.Ct. 751, 47 L.Ed. 1061, is not here involved.

The right of the trustee in bankruptcy to maintain the bill is challenged for failure to aver in the bill that there are unsecured creditors of the bankrupt to be paid, or that claims have been proven against the estate — this under the general doctrine that the trustee in bankruptcy is the representative of creditors to whom he owes a duty in the administration of his trust.

In this state the rule prevails that the adjudication in bankruptcy is sufficient evidence of the existence of indebtedness to support a bill in equity by the trustee to avoid fraudulent conveyances subject to attack in the interest of creditors both prior and subsequent to such conveyance. Differently stated, it is evidence of debts provable in bankruptcy, the occasion for appointment of a trustee and the vesting of title in him. Cartwright v. West, 185 Ala. 41,64 So. 293; Riggs v. Price, 277 Mo. 333, 210 S.W. 420; Evans v. Wood, 41 Idaho, 679, 241 P. 609.

We may note that here there is no want of averment of the existence of indebtedness at the time of adjudication. The judgment involved was such demand as before shown. Whether debts have been proven or may be proven after the filing of the bill, we think not essential to the maintenance of a bill in this case.

A cloud cast upon the title to property in disregard of the jurisdiction of the bankrupt court, the title being and remaining in the trustee for the purpose of administration, we think the jurisdiction of equity to protect trust estates should be open to the trustee. He is not without duties to the bankrupt. In case, for failure to prove claims or their satisfaction, there remains assets in his hands, he holds in trust for the bankrupt.

Proceedings in bankruptcy aim to free the bankrupt of former obligations and to give him opportunity for a new start in life. If an equity or residue is coming to him, it is in keeping with the powers and obligations of the trustee, as well as the principles of equity, that the door be open to him to keep his title unclouded for purposes of administration, and passing it in the end free of clouds cast upon it pending bankruptcy and in disregard of the jurisdiction of the bankruptcy court. This applies to that portion of the tract of land to which the trustee still holds title.

As to the portion set apart and surrendered to the bankrupt as exempt, the trustee has no title nor further concern. The prayer, however, to remove the cloud as to this does deprive the bill of equity. A bill is not demurrable because it prays too much. The right in equity to have the cloud on the homestead removed is in the owner, and is properly presented by the cross-bill.

Affirmed.

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