Sparks v. Weatherly

SAYRE, J. The bill in this case was filed by appellee as trustee in bankruptcy of the estate of D. M. Sparks, a bankrupt, and sought to condemn to the satisfaction of the provable debts of the bankrupt a certain parcel of land which had been conveyed by the bankrupt to appellant more than two years, as the bill shows, before the adjudication of bankruptcy. No charge of fraud is brought against the conveyance. Complainant, has proceeded against the property as property not in the custody of the bankruptcy court — that is, as property adversely held — and seeks relief upon the theory that by the conjoint operation of section 3383 of the Code of Alabama and the Bankruptcy Act of Congress [327] as amended June 25, 1910, the property has become liable to the satisfaction of the debts of the bankrupt. If the briefs filed here may be taken as fairly reproducing the arguments advanced in the chancery court, it may be matter of some doubt whether the specific question raised by complainant’s theory was urged upon the chancellor’s attention. But it is necessarily involved and controls the equity of the bill. It ought therefore to be considered. Section 3383 of the Code provides as follows: “All conveyances of real property, deeds, mortgages, deeds of trust, or instruments in the nature of mortgages, to secure any debts, are inoperative and void, as to purchasers for a valuable consideration, mortgagees, and judgment creditors, without notice, unless the same have been recorded before the accrual of the right of such purchasers, mortgagees, or judgment creditors.” The act of Congress provides that trustees in bankruptcy, “as to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied.”- — 36 U. S. St. at Large, p. 840. Whatever may be the purpose of this amendment of the Bankruptcy Law, and wherever it may have operation and effect, we think it conferred no rights upon the trustee under the facts stated in the bill. Jurisdiction of the bill is exercised by the courts of this state under the Constitution and laws of this state. The trustee is proceeding under the state law, and under that law must show that he is, or represents, a judgment creditor with a lien and without notice before he can be heard to complain that defendant’s failure to record his deed has rendered it inoperative and void. A mere judgment does not operate as a lien. —Decatur Company v. Moses, 89 Ala. 538, 7 South. 637. [328] An execution operates as a lien from the time only that the writ is received by the sheriff (Code, § 4093) ; and by a return of it unsatisfied without more, the writ becomes functus officio. — Chaney v. Burford Lumber Co., 132 Ala. 318, 31 South. 369. S'o then,' under the law of this state, the trustee neither has, nor represents creditors who have, a lien. Did the amendment which we have quoted have effect to make an adjudication of bankruptcy equivalent to a specific lien? Does the amendment undertake to' declare that an adjudication is the equivalent of a judgment rendered and execution thereon issued in favor of all creditors? The fact is that there has been no judgment rendered, and the competency of Congress to declare that a proceeding in bankruptcy, which has none of the characteristics of a judicial proceeding for the recovery of a judgment, shall under these circumstances have the force and effect of a judgment rendered, and an execution issued and kept alive against the property of persons holding and claiming adversely is doubted. At any rate, such is not the language of that part of the amendment supposed to have application in this case, nor does it hold any equivalent language. Persuasive to the conclusion that such was not the intention of Congress is the language of the immediately preceding clause of the amendment which, discriminating between the two classes of property rights, provides that as to property in the custody of the bankruptcy court the bankruptcy trustee shall be considered to have the same title that a creditor holding an execution or other lien by legal or equitable proceedings levied upon that property would have under the law of the state. In that case, differing in this respect from the language of the clause in question, we observe the definitely expressed purpose of making the custody of [329] the court the equivalent of the lien which might have been acquired by a levy upon the property under the state law. But even as to this clause the federal courts, in those cases which have come to our attention, have been unable to agree as to its meaning and effect.— In re Lausman (D. C.) 25 Am. Bankr. Rep. 186, 183 Fed. 647; s. c. (D. C.) 183 Fed. 647; In re Bazemore (D. C.) 26 Am. Bankr. Rep. 494, 189 Fed. 236. Such sources of information and inference are by no means conclusive of the intention of Congress in the enactment of laws, hut the report of the House Committee on the Judiciary is persuasive in some degree that the intention of the two clauses of the amendment under consideration was twofold: As to property which has come into the custody of the court, to provide against the evil of secret liens — to obviate the advantages theretofore accorded by the courts (York Manufacturing Co. v. Cassell, 201 U. S. 344, 26 Sup. Ct. 481, 50 L. Ed. 782) to the holders of unrecorded liens; as to property adversely held, to enable the trustee to proceed precisely as an individual creditor might have done to subject assets. “In this way, in effect, proceedings in bankruptcy will give to creditors all the rights that creditors under the state law might have had had there been no bankruptcy and from which they are debarred by the bankruptcy — certainly a very desirable and eminently fair position to be granted to the trustee.”- — -Com. Rep. No. 511, 61st Cong. There is nothing in this exposition of the meaning of the statute, nor is there' anything in the strict language of the act itself, to indicate a purpose to extend the operation of the registration laws of the states beyond the effect given to them in the states. On the contrary, we are of opinion that the clause of the amendment in question was intended to provide that as to property' adversely held the trustee should [330] be entitled to proceed in such cases and in such manner as an individual creditor might have proceeded in subjecting the assets of the bankrupt, had the bankruptcy not intervened to prevent; that no enlargement of the rights of the trustee representing creditors was intended oyer and above the rights conferred upon creditors themselves by the statutes of the state; that as to substantive rights the trustee is in no better position than the bankrupt or his creditors would have been, except that he may come into equity without being required to first exhaust his remedy at law, a matter of advantage to the trustee in some jurisdictions, though not in this, for in this state a creditor at large may proceed against the assets of his debtor adversely held by third persons in fraud of his rights. The defendant in this case is not the holder of a mere lien recorded or unrecorded. He is the legal and equitable owner of the property. There is no shadow upon the integrity of his ownership, nor is the validity of his title under the law of this state questioned. As against this ownership his creditors could not acquire any right under the law of this state unless by proceeding to a judgment in a court of law and having an execution issued and levied or kept alive, by reissuance at each term, beyond the recordation of defendant’s deed which he may have had or may have at any time. Our conclusion is that the bill contains no equity — a fact the court should notice ex mero — and should be dismissed unless amended to cure its defect within such time as the court below may prescribe. The decree is therefore reversed, and the cause remanded. Reversed and remanded. Dowdell, C. J., and Simpson and Somerville-, JJ., concur. Anderson, McClellan, and Mayfield, JJ., dissent.