T. H. & J. M. Allen & Co. v. Montgomery

SlMRALL, J. t The appellants, creditors of F. A. Montgomery, seek to set aside a sale and conveyance, made by Trimble and Lightfoot, of a tract of land mentioned in the pleadings, to Mrs. Montgomery, on the averment that the property is subject to their debt, and that the means by which it passed from her husband to the trustees, and especially from the latter to her, were fraudulent contrivances and arrangements to defeat the complainants of their debt. F. A. Montgomery was indebted to the complainants, cotton factors and commission merchants, a balance before the war in 1860 and 1861. After the war, in 1866, the business connection was renewed ; the complainants advancing to Montgomery money and supplies in aid of his planting operations. At the close of the year’s business, Montgomery was left in debt between $3,000 and $4,000. The object of .the suit was to hold the property which had been sold and conveyed by the trustees to Mrs. Montgomery, responsible for F. A. Montgomery’s debts. The complainants aver, that by the execution of the deed of trust for the benefit of Jones, and the sale under it to Mrs. Montgomery, F. A. Montgomery attempted to give an unfair preference to a creditor over others. The bill also alleged that Mr. Montgomery had been declared a bankrupt, or had already been discharged as such. A demurrer by Mrs. Montgomery was overruled. The case went to final hearing on her answer, a plea by Montgomery of his bankruptcy, and the.proofs. The bill was dismissed. ' Does the bill state a case, entitling the complainants to the relief sought, or to any relief ? It is quite well settled that a creditor at large cannot reach in a court of equity, equitable assets of his — 107 — debtor, nor can he assail a conveyance of his property, fraudently made as to him. In either case, the court administers relief in aid of the court of law or its judgment. In the former case, it is only after legal remedy has been exhausted, as by a return of nulla bona, that the equity court takes hold of equitable assets, and applies them to pay the judgment. In the latter, it displaces the fraudulent conveyance, so to make bare and plain and sure satisfaction out of the property. 12 S. & M. 547; 10 ib. 556; 13 ib. 65; Fowler v. McCartney, 27 Miss. 509; Vasser v. Henderson, 40 ib. 519. The complainants had not recovered judgment against F. A. Montgomery, and had, therefore, no standing in court to controvert the acquisition of the title to the property as fraudulent and void against them, unless they had some equity against it, by reason whereof they were entitled to satisfaction of their debt out of it. The appellants urge an equity more specious than real. It is, that they made advances' to enable F. A. Montgomery to make the crop of 1866, on the contract or assurance that the cottqn should be consigned to them on sale, and out of the proceeds they should be re-imbursed; that twenty-seven bales were diverted from them and turned over to Mrs. Montgomery, which she used in procuring an assignment to herself of the trust debt to Jones, and by means of which she bought in the property at the trustees’ sale. Thus, it is urged, the property or fund pledged to the appellants for their debt by F. A. Montgomery ip traced into the land, and their right to subject that is as’ clear as if no such conversion had been made. We, however, are able to see nothing more in the transactions between T. II. & J. M. Allen & Co., and F. A. Montgomery, than the ordinary business between the commission merchant and planter; the former supplying to the latter money or other means — 108 — to aid in the production of the crop, on the understanding, express or implied, that it shall be sent to him for sale, to re-imburse his outlays, commissions and interest. The inducement to the factor to make the advances are the commissions and interest. It is not claimed that a lien arises on account of the advances, but if we understand the argument for appellants, it is because of the pledge to ship the crop- to them for sale and re-imbursement. Such advances in this state have never been considered as creating a lien until specially provided for in the statute of 1867. It is not pretended that complainants have complied with that statute. In this view of the appellants’ demand they were creditors at large without any equity, lien or charge upon the cotton crop of 1866, or the land into which a portion of the cotton was converted. This sweeps away their right to proceed in chancery against the property. But we think the bankruptcy of the debtor, F. A. Montgomery, presented an insurmountable obstacle in the complainants’ path. The bill was filed the 11th March A. D. 1868. The averment is, that F. A. Montgomery is hopelessly involved and fraudulently purposes and intends taking, or has 'already taken, the benefit of the bankrupt law, without surrendering the land sold to his wife, etc. On the 29th February A. D. 1868, Montgomery filed his petition in the bankrupt court, was declared a bankrupt on the 23d March, 1868, and was discharged as such on the 7th day of July, 1869. The intent and purposes of the bankrupt law is, that the property of the debtor (except as exempted thereby), at the time of filing the petition in bankruptcy, shall vest in the assignee. The fourteenth section, after using the- general words “ personal and real estate,” includes in the specific enumeration of which shall pass to the assignee “ all -property con — 109 — veyed by the bankrupt in fraud of his creditors.” The assignment relates back to the date of the application, and as of that day denudes the bankrupt of all his estate, real and personal, choses in action, except exemptions and property held in trust, or beneficially belonging to others. • Whatever right there may have been in the creditors of Montgomery to subject the lands alleged , to have been fraudulently conveyed to the wife, that right inured to the assignee for their benefit. The policy of the law is to administer the assets, upon the principle of equality, for creditors, except that those who have acquired privileges and liens, anterior to bankruptcy, shall have the full benefit of them. These complainants, when they filed their bill, had no advantage of that sort. They had no preference as to the lands over other creditors. It would overturn the leading idea and principle of the bankrupt law to allow them in the state court, pending the administration of the insolvent’s estate in bankrupt court, to appropriate this property exclusively to their debt. In reality, Montgomery, in this suit, is a mere nominal party; the assignee has absorbed all of his rights, property and claims, and yet the effort was as against the real party, in his absence from the suit, to obtain a decree which would conclude his right. If Mrs. Montgomery has acquired the property in fraud of the creditors, if not within the letter, surely within the spirit and equity of the fourteenth section of the bankrupt law, the property vested in the assignee for the benefit of creditors, and he has the same remedies that they would have had (had there been no bankrupt proceedings) to reach and subject it. The “fraudulent conveyances” meant by the act, as it has been frequently held, are those which are void at common law, or such as are denounced by the state statutes, — 110 — as distinguished from conveyances in fraud of the bankrupt law. The effect of bankruptcy, on suits pending in the state courts, is to stay or suspend them. They may, with the leave of the bankrupt court, be prosecuted.- to judgments for the single purpose, however, of determining the amount due. Final process to procure satisfaction cannot be issued and executed. To permit it, would involve the collection and conversion of the assets into money by the assignee and their distribution in inextricable confusion. If the suit of the creditor proceed to judgment on the suggestion of bankruptcy, the debtor must retire and the assignee be brought in as defendant in his place. If there has been the recovery of judgment before bankruptcy, and a seizure of property under it, it has been held that the sheriff may go on and sell. This, upon the idea that the creditor has a prior right over other creditors, and the levy makes an inceptive transfer to the sheriff, which the sale completes. But in such case, the bankrupt court, in virtue of its general cognizance over all the parties and the subjects, if it became convenient and necessary, in order to adjust the rights and equities of creditor’s, could cause the sale to be made under its supervision and control. Sharman v. Howell, 40 Ga. 258. In this suit there was no dispute as to the amount due the complainant. Nor was there a right in their favor against the property, superior and exclusive of other creditors. Nor is the complainants’ case improved by the attachment. A relief by attachment in chancery has grown up under the statute. Article 60, p. 549, Code of 1857. Its conditions are : “ The absence of the debtor from this state, or his absconding; the presence here of effects belonging to or a debt due to him ; or that he owns lands and tenements in this state.” Trotter v. White, 10 S. & M. 612; Truman v. Gwin, ib. 60; — 111 — Scruggs v. Blair, 44 Miss. 406; Statham v. N. Y. L. Insurance Co., 45 ib. 593. Montgomery is neither a non-resiclent nor absconding debtor, but resident in this state and was served with process. The views which we entertain and have expressed of this case relieve us of the duty of considering the quality of the conveyance by the trustees to Mrs. Montgomery, and of the trust deed for J. Jones’ benefit, whether fraudulent or not against the complainants. Nor are we inclined to remand the cause as asked by counsel for appellees, if we should be of opinion that the assignee is a necessary party, in order that he might be made such in the chancery court. The district court of the United States sitting in bankruptcy has full and complete jurisdiction to administer the estate of the bankrupt, if the property pursued by the complainants in this suit may be subjected for the creditors, that court, which draws to it all the funds and has before it all the creditors, can mete out full redress, whatever doubt there may be as to the jurisdiction of the state court, at the suit of the assignee alone or with the creditors, to set aside a fraudulent disposition of property by the bankrupt debtor (and many cases deny the jurisdiction). Bump, on Bankruptcy, p. 342, cases cited. There is no doubt of the cognizance of the federal tribunal over the subject- . . We are of opinion that there was no error in dismissing the bill, wherefore the decree is affirmed.