Gordon v. . Calhoun Motors, Inc.

Denny, J. Tbe first exception and assignment of error is to the ruling of tbe court below that plaintiff is entitled to proceed to trial notwithstanding tbe fact that tbe defendant has been adjudicated' a bankrupt. 11 U. S. C. A., sec. 103 (a), authorizes proof and allowance of claims against a bankrupt estate wbicb are “founded upon (5) provable debts reduced to judgments after tbe filing of tbe petition and before tbe consideration of tbe bankrupt’s application for. a discharge, less costs incurred and interest accrued after the filing of tbe petition and up to tbe time of tbe entry of such judgment.” 11 U. S. C. A., sec. 29 (a), reads, in part, as follows: “A suit wbicb is founded upon a claim from wbicb a discharge would be a release, and wbicb is pending against a person at'the time of tbe filing of a petition by or against him, shall be stayed until an adjudication or tbe dismissal of tbe petition; if such person is adjudged a bankrupt, such action may be further stayed until tbe question of bis discharge is determined . . .” Tbe authority of tbe courts to stay actions pending in nonbankruptcy courts against a party at tbe time tbe party is adjudicated a bankrupt is not questioned, neither is tbe right of a trustee in bankruptcy to be made a party in any pending action. However, bankruptcy proceedings do not terminate an action already pending in a state court, to wbicb tbe bankrupt is a party. Tbe Supreme Court of tbe United States, in passing upon tbis question and in interpreting tbe provision in section 29, set forth above, in Connell v. Walker, 291 U. S., 1, 78 Law Ed., 613, *400 stated: “Tbe question remains whether, the trustee having failed to assert any rights with respect to the pending action, the state court was required to stay it by any provision or necessary implication of the Bankruptcy Act. We find it necessary to decide whether sec. 11 (a), U. S. C., title 11, sec. 29 (a), authorizing a stay of certain suits pending against a bankrupt, lays down a rule for nonbankruptcy as well as bankruptcy courts, or whether it is applicable to suits like the present one or whether the bankrupt may invoke its provisions. For, if applicable here, the' authority given by that section to stay pending suits after adjudication, which has taken place here, is not mandatory, but permissive, to be exercised in the sound discretion of the court.” Where liens are acquired by contract or judicial proceedings, more than four months prior to the adjudication in bankruptcy, as in this case, as a rule the courts will not stay a proceeding to enforce said lien, which is pending at the time of the adjudication in bankruptcy. Metcalf Bros. v. Barker, 187 U. S., 165, 47 Law Ed., 122, and other citations too numerous to cite, in accord with this view, are to be found in a note in 283 U. S., 319, 75 Law Ed., 1077. We hold that the adjudication of the defendant as a bankrupt does not stay this action and the plaintiff may proceed to trial and judgment. The 'court below found as a fact that the plaintiff had a lien on the property in the hands of the receiver, which lien attached 22 May, 1942, and that the property so attached, and which was in the custody of the court, was released and turned back to the defendant upon giving a bond as provided in C. S., 861. While the defendant’s second exception is to the order entered in the court below, the argument in the defendant’s brief is addressed only to the following portion of the order: “That a perpetual stay of execution would be issued as to the bankrupt on any judgment rendered against it and that any judgment rendered in this action in favor of the plaintiff would be collectible only from the bond filed in this cause by the sureties, D. C. Lewis and C. W. Fulton.” We think the defendant is entitled to a modification of the order so that it will read as follows: “Any judgment rendered in this action in favor of plaintiff would be collectible by execution only from the bond filed in this cause by the sureties, D. C. Lewis and C. W. Fulton.” We do not think the court below intended to prevent the plaintiff or the sureties from proving whatever judgment may be obtained as a claim against the defendant in bankruptcy. While the decisions are conflicting, we think the order of the court below, as modified, is in accord with the greater weight of authority and that plaintiff is entitled to proceed to judgment, with a perpetual stay of execution against the defendant, bankrupt. As stated in the case of *401 Manufacturers’ Finance Corp. v. Vye-Neill Co., et al., 62 F. (2d) 625, in which the factual situation was almost identical with this case, except the defendant was adjudicated a bankrupt within four months from the institution of the action. A bond was executed and the property released, defendant appealed from an order granting the plaintiff’s motion for a trial while the bankruptcy proceedings were still pending and before the discharge of the defendant from bankruptcy. The Court said : “We think the ruling by Judge Brewster was right, viz., that a bond given to discharge an attachment, the condition of which is to pay the amount which the plaintiff shall recover on his writ or any special judgment which may be entered in said action, is in the nature of an independent contract, the effect of which is to discharge the lien on the goods resulting from the attachment. In this respect it differs from a ‘forthcoming bond,’ the condition of which is to restore the property in case of judgment. In the former case both the Massachusetts court and federal courts hold that a discharge in bankruptcy does not discharge a surety, while in the latter case it does. While there is some difference of opinion, the rule in Massachusetts seems to be sustained by the greater weight of authority (citing Guaranty Security Corporation v. Oppenheimer, et al., 243 Mass., 324, 137 N. E., 644, and other authorities). Where no property of the bankrupt is pledged to indemnify the surety against loss, the giving of such a bond is in the interest of the creditors of the bankrupt. If a surety assumes the obligation to pay the judgment without any security, we think the cases holding the surety liable, in case judgment is obtained against the bankrupt, are'based on sound reasoning. The procedure followed by Judge Brewster of permitting the case to go forward to judgment, prior to a discharge being granted, in order to fix the liability of the surety in such cases, is also well supported by authority. In no other way can the bond be enforced except by a special judgment with perpetual stay of execution upon the filing of a discharge in bankruptcy. Such procedure may also be necessary to reduce to judgment unliquidated claims, in order that the plaintiff, or an indemnifying surety, may prove the claim in bankruptcy. It makes no difference whether a bond to pay a judgment was given prior to or within four months of the filing of the petition in bankruptcy, since no injury results to the bankrupt’s creditors. The release of an attachment on a bankrupt’s property within four months of the filing of a petition in bankruptcy by giving a bond does not deprive the other creditors of any share in the bankrupts estate; and, unless collusion or fraud is shown, or the bankrupt turns over property to the surety Jo protect it in case it is called on to satisfy a judgment obtained by the attaching creditor, of which there is no proof in this case, creditors of a bankrupt have no ground of complaint,” citing authorities. United States Su *402 preme Court denied petition for writ of certiorari in the above case, 289 U. S., 738, 77 Law Ed., 1486. See also Hill v. Harding, 130 U. S., 699, 32 Law Ed., 1083. Except to the extent indicated herein, this exception cannot be sustained. Appellee moves the Court to dismiss the appeal of C. W. Fulton and D. C. Lewis. It appears from the record that C. W. Fulton and D. C. Lewis, sureties on defendant’s bond, entered exceptions to the order in the court below and gave notice of appeal to this Court. It does not appear from the record that the sureties are parties to this action. No appeal was perfected in their behalf and no brief was filed, as required by Rule 28 of this Court — Rules of Practice in the Supreme Court of North Carolina, 221 N. C., 562. The order of the court below is Modified and affirmed.