McCarty v. Light

Kruse, J.: The order from which the appeal is taken permits an execution to be issued upon the judgment recovered by the plaintiff against the defendant, and the question is whether in view of the defendant’s discharge in bankruptcy and the proving in the bankruptcy proceedings of the debt upon which the judgment was recovered, the lien of the judgment survived, notwithstanding it was recovered within four months before the filing of the petition in bankruptcy by the defendant and the adjudication of the defendant as a bankrupt in the Eedéral court. The Special Term held that the lien of the judgment survived and granted leave to issue an execution, and from the order entered thereon the defendant appeals. It appears that the judgment was recovered on the 23d day of September, 1902, on a promissory note made by the defendant to the plaintiff, and that the judgment was docketed in the Monroe county clerk’s office on that day; that an execution was issued to the sheriff of Monroe county November 13, 1902, and returned wholly unsatisfied; that at the time of the entering of said judgment the defendant was the owner of an undivided interest in certain real estate situate in that county, upon which the judgment became a lien. The plaintiff in the judgment having died, Edward A. McCarty was appointed the executor of the will by the Probate Court of Saginaw county, State of Michigan, and thereafter ancillary letters testamentary were issued to him by the surrogate of Monroe county. The executor makes the application for leave to issue the execution. On the 4th day of December, 1902, the judgment debtor filed a petition in bankruptcy, and on that day was adjudicated a bankrupt by the District Court of the United States for the Western District of New York, and thereafter and on the 29th day of December, 1902, filed a supplementary petition stating that at the time he filed the original petition he was the owner of an undivided one-fifth interest in said real estate. The plaintiff’s claim was included in the schedule of the defendant in the bankruptcy proceeding. The defendant states in his [38] affidavit that it was a debt provable in the bankruptcy court; that the plaintiff had due notice of the bankruptcy proceedings and that his claim was duly proven as a debt against the bankrupt in the bankruptcy proceedings; that a trustee was appointed of the defendant’s property; that the trustee qualified, entered upon the discharge of his duties, and thereafter he was discharged, and that on December 1, 1904, the defendant was duly discharged from all debts and claims provable in bankruptcy. A copy of the order granting the discharge in bankruptcy is contained in the record, and is the only paper in the bankruptcy proceedings of which a copy appears to have been presented upon this application. The other facts referred to are made to appear by affidavit. The order of discharge provides that a discharge be and the same is granted to the bankrupt, discharging and releasing him from all his debts provable in bankruptcy, except only such as are exempt by the provisions of the Bankruptcy Act of 1898, and directs that a formal discharge be signed, issued and delivered to the bankrupt. It appears by the affidavit of the attorney who makes the application for leave to issue the execution (who was also the trustee in bankruptcy and the attorney who obtained the judgment) that the interest of the bankrupt in the real estate was not sold in the bankruptcy proceedings, and it is further stated in the affidavit that the judgment debtor, the bankrupt, was discharged in bankruptcy proceedings while still the owner of the interest. There is no explanation why the interest of the bankrupt was not sold, nor does it appear in any way what was the amount of his indebtedness, the value of his estate, the amount realized or the amount paid upon the indebtedness, except what may be inferred from the statement in the affidavit of the attorney that no part of the judgment has been paid and that the same still remains unsatisfied. It is also stated in the affidavit that the judgment is still a lien on the real property and interests owned by the debtor in accordance with section 150 of the Debtor and Creditor Law and section 1268 of the Code of Civil Procedure, which provides that where the judgment was a lien on real property owned by [39] the bankrupt prior to the time he was adjudgéd a bankrupt, the lien thereof upon said real estate shall not be affected by said order and may be' enforced. It is further stated that while the judgment was still a lien upon the interest in said real estate, the defendant conveyed the same to his wife by quitclaim deed February 15,1910, which is recorded in the Monroe county clerk’s office, and that the wife still retains the record title to the property, subject to the lien of the judgment. The defendant states in his affidavit that at the time the judgment was obtained he was insolvent, and contends that the judgment having been obtained within four months prior to the filing of his petition in bankruptcy, is void not only as to the trustee in bankruptcy, but also as to him, the bankrupt judgment debtor. While subdivision f of section 67 of the Federal Bankruptcy Act (30 U. S. Stat. at Large, 565) provides generally that such a judgment is void and that the property affected thereby shall pass to the trustee as a part of the estate unless the court shall order the lien preserved for the benefit of the estate, such a judgment is good and the lien thereof remains effective except as against the trustee in bankruptcy, or person or persons claiming under or through him. (Frazee v. Nelson, 179 Mass. 456, decided in 1901; McKenney v. Cheney, 118 Ga. 387, decided in 1903; Rochester Lumber Co. v. Loche, 72 N. H. 22, decided in 1903; 1 Loveland Bankruptcy [4th ed.], § 438.) The discharge in bankruptcy affects only the defendant’s personal liability upon the debt, not the lien of the judgment recovered upon the debt. (2 Loveland Bankruptcy [4th ed.], §§ 742, 747.) While the title to the land would pass to the trustee in bankruptcy by the proceedings in bankruptcy, if he elected to take the land, he was not required to accept it if in his opinion it was worthless or would be unprofitable for him to take the same. Indeed, in such a case it was his duty not to accept it. (Matter of Cogley, 107 Fed. Rep. 73.) Whether the trustee concluded that the bankrupt was solvent at the time the judgment was entered and the lien valid, or, if invalid, that the land was so heavily incumbered as to make it unprofitable for him to take it, we do not know; there is nothing disclosed by the record which throws any light upon [40] that question. " And perhaps that is not important here. It is a sufficient answer to the appellant’s contention that the trustee in bankruptcy elected not to take the property and has not challenged the validity of the judgment or taken any proceedings to avoid the lien thereof. But it is now said that the plaintiff, by proving his claim in bankruptcy, elected to abandon his security. No such claim was made at Special Term or upon the argument before us, and I think the facts stated in the record are insufficient to present that question. While it appears that the adjudication in bankruptcy against the defendant was made in December, 1902, the proceedings in bankruptcy were not terminated until December, 1904, and it does not appear when the claim was proven, nor the form in which it was presented or allowed. Under the provisions of subdivision e of section 57 of the Bankruptcy Act (30 U. S. Stat. at Large, 560), as it existed in 1902, the plaintiff, although his claim was secured, had the right to participate in the proceedings at creditors’ meetings held prior to the determination of the value of his security, but his claim could only be allowed for such sum owing over and above the value of his security; and under subdivision h of section 57 (30 U. S. Stat. at Large, 560) provision is made for determining the value of the security, crediting such value upon the claim and directing a dividend to be paid upon the unpaid balance. In 1903 the Bankruptcy Act was amended, but the amendments, I think, made the right of the secured creditor to file and prove a claim like this, without losing his security, more definite and certain than under the original act. (30 U. S. Stat. at Large, 560, § 57, subd. g, as amd. by 32 id. 799, § 12.) If the defendant desired to present that question he should have made the facts appear which had the effect to discharge the plaintiff’s lien or would make it inequitable for him now to enforce the same. (Cook v. Farrington, 104 Mass. 212.) The proposition as contended for by the defendant amounts to this: That he may include in his schedule of assets property subject to the lien of the judgment which the trustee in bankruptcy refuses to take, and upon the determination of the bankruptcy proceedings and his discharge the property comes back to him with not only his personal liability extinguished, but [41] the property fieed from the lien of the judgment without the payment of anything thereon to the judgment creditor. I am of the opinion, however, that since the property was never subjected by the trustee to the jurisdiction of the Bankruptcy Court the lien thereon was not affected thereby, and that the plaintiff may enforce the same against the property in question under the State law. (Debtor & Creditor Law [Consol. Laws, chap. 12; Laws of 1909, chap. 17], § 150, re-enacting Code Civ. Proc. § 12G8.) I think the order should be affirmed, with ten dollars costs and disbursements. All concurred; Foote, J., in a separate memorandum, except McLennan, P. J., and Lambert, J., who dissented in an opinion by Lambert, J.