Opinion
No. 34075.
April 22, 1940.
1. FRAUDULENT CONVEYANCES.
Where debtor in order to place property beyond reach of creditors conveyed it to plantation company, and bank of which debtor was president made loan to company and subsequently company through direction of debtor conveyed property to third party and bank's receiver brought suit to set aside conveyance to third party as fraudulent, and surety company, which had paid an amount lost by bank through defalcations of which debtor as president of bank was guilty, filed intervening petition, and sought to have debtor's conveyance to company set aside as fraudulent, intervening petition was not subject to demurrer interposed by debtor, his wife, the company, and third party on ground that intervention would operate to detriment of bank, since such question could not be raised by parties other than bank, which was protected by prayer of intervening petition that surety's rights should be subordinate to rights of receiver.
2. EQUITY.
Allegations of intervening petition were admitted by demurrer.
3. BANKRUPTCY.
Where trustee in bankruptcy had knowledge of existence of cause of action to have conveyance made by bankrupt set aside as fraudulent, and took no effective steps to enforce rights of creditors in the property for a period of more than five years, trustee "elected" to abandon the claim, and an individual creditor could seek to have the conveyance set aside.
4. BANKRUPTCY.
A trustee in bankruptcy is not bound to pursue property the recovery of which would involve the bankrupt estate in expensive and difficult litigation, and in such situations trustee must make an election within a reasonable time, and if, within a reasonable time, trustee fails actively to assert and to continue actively to assert his claim, he will be deemed to have "elected" to abandon it to such creditors as may thereafter pursue it.
APPEAL from chancery court of Humphreys county; HON. J.L. WILLIAMS, Chancellor.
Cooper Thomas, of Indianola, for appellant.
Appellant was such a creditor as entitled to attack the fraudulent conveyances complained of and the allegations of the bill of intervention and amendments thereto present a case properly cognizable in equity.
Sec. 407, Code of 1930; McCabe v. Guido, 116 Miss. 858, 77 So. 801; Wynne v. Mason, 72 Miss. 424, 18 So. 422; Ames v. Dorrah 76 Miss. 187, 23 So. 768; Loughridge v. Bowland, 52 Miss. 546; American Surety Co. v. Marotta, 287 U.S. 513.
The bankruptcy of Karl I. Nutter did not have the effect to debar and preclude intervenor-complainant, appellant here, from maintaining properly this bill of intervention or complaint and did not operate to vest said cause of action, thus asserted by intervenor-complainant, exclusively in the trustee in bankruptcy.
The said trustee in bankruptcy so conducted himself in his unreasonable delay in presenting his claim therein that he was thereby debarred from asserting a suit in his behalf, particularly to the prejudice of intervenor-complainant, appellant here.
Warwick v. Meridian Hotel Co., 177 Miss. 611, 170 So. 820; Duschane v. Beall, 161 U.S. 513; Laughlin v. Calumet, etc., 65 Fed. 441, 13 C.C.A. 1; Greenhall v. Carnegie, etc., 180 Fed. 812; Nash v. Simpson, 73 Me. 142, 3 A. 53.
The said trustee in bankruptcy does not and could not represent the rights of appellant and exclude it from this lawsuit, for (1) either appellant's debt or claim was contingent and thus not provable and allowable in the bankruptcy estate, at the time of the alleged fraudulent conveyances complained of, or (2) if said claim or debt was not contingent but was provable and allowable in bankruptcy, appellant was not listed by the bankrupt as a creditor and received and had no notice, actual or constructive, of the bankruptcy of Nutter, until after time for filing and allowance of its claim was barred.
Goding v. Rosenthal, 180 Mass. 43, 61 N.E. 222; Goodgins v. Skillings, 118 Me. 299, 108 A. 50; 11 U.S.C.A., sec. 110 (e); McLean v. Green, 171 Miss. 183, 157 So. 251; Davis v. Vandiver, etc., (Ala.), 38 So. 850; 6 Am. Jur. 581, sec. 119; U.S.F. G. Co. v. Ryan, 124 Wn. 329, 214 P. 433.
If it be considered, for argumentative purposes only, that appellant's rights can be no higher than, but will be controlled by subrogation to, the rights of the Martinsville Trust Company, the employer and obligee in the bond, the manner whereby Karl I. Nutter created the debt or claim owing to said Martinsville Trust Company and/or United States Fidelity Guaranty Company precludes a discharge in bankruptcy on part of said Nutter from discharging or wiping out said claim, and thus said claim was not so merged and cut off by bankruptcy as to make either said trust company or said surety, appellant, dependent upon the trustee for action of this kind.
11 U.S.C.A., sec. 35 (4th); Boyd et al. v. Applewhite, 121 Miss. 879, 84 So. 16; Harper v. Ranking, 141 Fed. 626, 72 C.C.A. 320; Shepard v. Morgan, 108 N.Y.S. 379; Tatum v. Leigh, 136 Ga. 791, 72 S.E. 236; Peter-borough, etc., v. Wood, 61 N.H. 418; In re Gulick, 186 Fed. 350.
An inclusion of intervenor-complainant, appellant here, in the pending cause, and not an exclusion of it therefrom, was eminently proper, and further was the vested and legal right of appellant, as a court of equity would have then been in a position to protect the rights of all parties, and to assign to each their respective positions and liens, on a full and complete hearing of the whole case.
C.M. Murphy and V.B. Montgomery, both of Benzoni, for appellees.
The record does not contain all the pleadings upon which appellees' demurrer was predicated, but appellant will admit that these pleadings contained the allegations set up in this brief because the demurrer searches the record and necessarily involves all pleadings preceding the demurrer and upon which same was predicated.
Tucker v. Hart, 23 Miss. 548; Miss. Centennial Exposition v. Ludenback, 86 So. 517, 123 Miss. 828.
Regardless of the bankruptcy of Karl I. Nutter, the United States Fidelity Guaranty Company was estopped to intervene in the Martinsville Trust Company suit and therein contest the contention of the obligee of the bond upon which the intervenor was surety.
Fitzgerald v. Williams, 101 So. 370, 136 Miss. 250; Furst v. Pease, 52 So. 257, 97 Miss. 468; Schneider v. Berry, 157 So. 91, 171 Miss. 89.
Benefit to the intervenor, United States Fidelity Guaranty Co., is a legal impossibility in this proceeding.
The allegations of the pleadings will be taken most strongly against the pleader.
Nester v. Davis, 56 So. 347, 100 Miss. 199; Odom v. G. S.I.R. Co., 57 So. 626, 101 Miss. 642; I.C.R. Co. v. Middleton, 68 So. 146, 109 Miss. 199; Co-operative Oil Co v. Greenwood Agency Co., 114 So. 397, 148 Miss. 336; Bradley v. City of Jackson, 119 So. 811, 153 Miss. 136; Hart v. North American Acc. Ins. Co, 122 So. 471, 154 Miss. 400; Gulfport Bldg. Loan Assn. v. City of Gulfport, 124 So. 658, 155 Miss. 498; Magnolia Bldg. Loan Assn. v. Miller, 128 So. 585, appeal dismissed, 51 S.Ct. 86, 282 U.S. 803, 75 L.Ed. 722; Westbrook v. McCarty, 134 So. 193, 160 Miss. 455; N.Y. Ins. Co. v. Myers, 138 So. 334, 161 Miss. 784; Universal Film Exchanges v. West, 141 So. 293, 163 Miss. 272; Merchants Manufacturers' Bank v. Busby, 160 So. 577, 172 Miss. 394; Sharp v. Learned, 181 So. 142, 182 Miss. 333, 182 So. 122; Wray v. McMahon, 182 So. 99, 182 Miss. 592; White v. Williams, 124 So. 64, 154 Miss. 897; J.M. Jones Lbr. Co. v. Homochitto Development Co., 141 So. 589, 163 Miss. 305; State to use of Stanton v. Junkin, 159 So. 107, 172 Miss. 225; State to use of Netterville v. Junkin, 159 So. 111, 864; Ross v. L. N.R. Co., 172 So. 752, 178 Miss. 592.
Burden is on intervenor to establish by allegations of his intervention petition his right to bring the suit as an intervenor.
Warwick v. Meridian Hotel Co., 177 Miss. 611, 170 So. 820.
Complete title of bankrupt property shall vest by operation of law in the trustee.
11 U.S.C.A., pages 180, 181, sec. 75 and pages 441, 442, sec. 110; Allen Co. v. Montgomery, 48 Miss. 101; Warwick v. Meridian Hotel Co., 177 Miss. 611, 170 So. 820; Frazier v. Zachariah, 164 So. 893, 174 Miss. 378; Dean v. Shingle, 246 P. 1049, 198 Cal. 562, 46 A.L.R. 1156, 8 Am. Bankr. Rep. (N.S.) 647; Glenny v. Langdon, 98 U.S. 20, 25 L.Ed. 43; Trimble v. Woodhead, 102 U.S. 647, 26 L.Ed. 290; Moyer v. Dewey, 103 U.S. 301, 26 L.Ed. 394; 6 Am. Jur. 741, 742, sec. 351; 8 C.J.S. 837, 838, sec. 236.
One Karl I. Nutter was president of the Martinsville Trust Company, of Martinsville, Ind., and was under bond as such with appellant as surety. While this bond was in force Nutter was guilty of divers defalcations, as a result of which the bank closed its doors on June 27, 1932, and a receiver was appointed for it on July 15, 1932. The receiver, on September 10, 1932, filed his proof of loss on the Nutter bond, and appellant subsequently paid the amount thereof in full. Nutter was adjudged a bankrupt on September 17, 1932, and a trustee in bankruptcy was immediately appointed.
While the aforesaid defalcations were in progress, Nutter conveyed a large and valuable property, located in Humphreys County in this State, to appellee, Mound Lake Plantation Company, for the purpose of placing the same beyond the reach of his creditors, the conveyance being without actual consideration. While the property stood nominally in the name of the Mound Lake Plantation Company, the bank made a large loan to the Plantation Company through the machinations of Nutter, who was the president and manager of the Plantation Company. Later the Plantation Company, through the direction of Nutter, conveyed the property fraudulently to one Elgin; and it was the Plantation Company and Nutter and his wife and Elgin who interposed the demurrer to the intervention petition hereinafter mentioned.
After the conveyance by the Plantation Company to Elgin, the bank, through its receiver, filed its bill in the Chancery Court of Humphreys County to set aside the conveyance to Elgin as fraudulent, and to subject the property to the bank's debt; and, on June 20, 1938, appellant, having first obtained permission from the court so to do, filed its petition of intervention in the original receiver's suit. In its petition appellant prayed that it be permitted to join in the prosecution to set aside the conveyance from the Plantation Company to Elgin, but prayed also that, so far as petitioner is concerned, the conveyance from Nutter to the Plantation Company be set aside as fraudulent.
The parties above mentioned demurred to the intervention petition, and the first ground which they argue is that appellant should not be permitted to intervene in this suit originally by the receiver of the bank because, they say, the bond given by appellant was in aid of and for the benefit of the bank, and that this intervention, if maintained, would operate to the detriment of the bank. There are at least two answers to this contention, and the first is, that the bank only could raise this point and it has not done so; and the second is, that the bank itself would be in no position to raise it, for the reason that the prayer of the intervention petition is that appellant's rights shall be "second and subordinate to the rights, if any, of complainant, the receiver of the Martinsville Trust Co., as may be decreed by this court."
The second ground of demurrer which is argued is that the sole right of action is vested in the trustee in bankruptcy. Under the allegations of the intervention petition, admitted by the demurrer, the trustee in bankruptcy, although knowing at all times of the existence of the right of action in regard to the property hereinabove mentioned, took no effective steps to enforce the rights of creditors therein and by the course of his conduct disclosed that he had no intention to prosecute to an effective conclusion any claim or demand against said property, and that this course had been pursued by him for more than five years before the filing of the petition of intervention.
A trustee in bankruptcy is not bound to pursue property the recovery of which would involve the estate in expensive and difficult litigation; and, in such situations, he must make an election within a reasonable time. If, within a reasonable time, he fails to actively assert and to continue actively to assert his claim, he will be deemed to have elected to abandon it to such creditors as may thereafter pursue it. This subject is sufficiently dealt with in 8 C.J.S., pp. 671, 672, Bankruptcy, sec. 201. More than a reasonable time had elapsed here before the filing of the intervention petition in this case.
Reversed and remanded.