A. Klipstein & Co. v. Allen-Miles Co.

TOULMIN, District Judge. The main question presented for our consideration is whether the plaintiff was entitled to a judgment against the defendant the Alien-Miles Company, without which he could not have judgment against the garnishee and obtain judgment against the Eidelity & Deposit Company, security, on the dissolving bond in the garnishment proceeding. The condition of the bond is for the payment of the judgment that shall be rendered on said garnishment proceedings. Therefore a judgment against the garnishee is a condition precedent to a judgment on the bond to dissolve the garnishment. “The plaintiff in garnishment is not entitled to enter a judgment upon the bond given by the defendant to dissolve the garnishment until the plaintiff shall obtain the judgment of the court where said garnishment is pending against the property or funds against which garnishment was issued.” Whitehead v. Patterson, 88 Ga. 748, 16 S. E. 66. Section 4726 of the-Georgia Code (Civ. Code 1895) provides that “the plaintiff shall not. [389] have judgment against the garnishee until he has obtained judgment against the defendant.” The debt for which the plaintiff sues was a provable one in bankruptcy. The defendant Alien-Miles Company was insolvent at the time the suit was brought, and has since been insolvent. Its discharge in bankruptcy released it from all provable debts. Bankr. Act July 1, 1898, c. 541, § 63, 30 Stat. 562 [U. S. Comp. St. 1901, p. 3447]. The debt sued on having been discharged, and the remedy to enforce its payment destroyed, by the proceedings in bankruptcy, the plaintiff cannot have judgment on it against the defendant. Mutual Reserve Fund Life Ass’n v. Beatty, 2 Am. Bankr. Rep. 259, 93 Fed. 747, 35 C. C. A. 573; Collier on Bankruptcy (4th Ed.) 176; Goyer v. Jones (Miss.) 8 Am. Bankr. Rep. 437, 30 South. 651; Brandenburg on Bankruptcy, § 415. “The cases are numerous in which it has been held — and, we think, correctly — that, if one is bound as surety for another to pay any judgment that may be rendered in a specified action, if the judgment is defeated by the bankruptcy of the person for whom the obligation is assumed, the surety will be released. The obvious reason is that the event has not happened on which the liability of the surety was made to depend. Of this class of obligations are the ordinary bonds in attachment suits to dissolve an attachment, appeal bonds, and the like.” Wolf v. Stix, 99 U. S. 8, 25 L. Ed. 309. There are three judgments necessary to fix the liability of the security on the dissolving bond: (1) Judgment against the defendant; (2) judgment against the garnishee, which decides that the fund in his hands is subject to garnishment; and (3) judgment against the security. The question is not whether the discharge of the defendant released, the liability of the surety, but whether the discharge prevented the happening of the contingency upon which the liability of the surety was to arise. If no judgment can be rendered against the defendant because of the discharge in bankruptcy, then no liability exists on the part of the surety. “The discharge of the bankrupt prevents the surety from incurring liability, rather than releases him.” Odell v. Wootten, 4 N. B. R. 183, s. c., 38 Ga. 225. The contention of the plaintiff in error is that the discharge in bankruptcy of the principal debtor, the Alien-Miles Company, does not affect the liability of his surety, the Fidelity & Deposit Company, and that the lower court should have entered a special or qualified judgment against the Alien-Miles Company in order to charge the surety. To sustain this contention he invokes section 16, Bankr. Act July 1, 1898, c. 541, 30 Stat. 550 [U. S. Comp. St. 1901, p. 3428], which provides that “the liability of a person who is a oo-debtor with, a guarantor, or in any manner a surety for a bankrupt, shall not be altered by a discharge of the bankrupt.” The, liability of the surety on the dissolving garnishment bond is not altered by the discharge of the bankrupt defendant, but the discharge prevents the happening of the contingency on which that liability depends. As said by the court in the case of Odell v. Wootten, supra, “The discharge prevents the surety from incurring the liability.” Besides this, the garnishment proceedings being had within four months prior to the bankruptcy proceedings, the surety is relieved not because of the discharge of the debtor, but because his bankruptcy avoided the lien acquired by the garnishment and [390] destroyed the remedy by which a judgment could be recovered against the defendant, which is indispensable to make the lien of any avail to the plaintiff. Moreover, we think that section 16 of the bankrupt act manifestly refers to co-debtors, guarantors, or sureties for the bankrupt on the same or original debt — the debt on which the release is given by the discharge. Brandenburg on Bankruptcy, § 412; In re De Long, 1 Am. Bankr. Rep. 66; Abendroth v. Van Dolsen, 131 U. S. 66, 9 Sup. Ct. 619, 33 L. Ed. 57_ _ No statute of Georgia, or practice in that state, authorizing the entry of a special or qualified judgment, has been brought to pur attention, and we understand the counsel for the plaintiff in error to concede there is none. He, however, calls special attention to the case of Hill v. Harding, 130 U. S. 699, 9 Sup. Ct. 125, 32 L. Ed. 1083, as authority to the proposition that special judgments are, under some circumstances, rendered against a bankrupt defendant in order to charge his sureties. There are cases which, under certain circumstances, authorize such judgments, but our opinion is they have no application to the case at bar. In Re Marshall Paper Co., 4 Am. Bankr. Rep. 468, 102 Fed. 872, 43 C. C. A. 38; Id. (D. C.) 95 Fed. 419 — it was held that the fact that a bankrupt corporation is granted a discharge does not free the directors or stockholders from their individual statutory liability for its debts and contracts. Indeed, the express provision of the bankrupt act forbids that the secondary liability of the officers, stockholders, or directors of a corporation under a state statute should be affected by a corporation’s discharge in bankruptcy. Bankr. Act July 1, 1898, c. 541, § 4b, 30 Stat. 547 [U. S. Comp. St. 1901, p. 3423] ; In re Marshall Paper Co., supra. In Hill v. Harding, 130 U. S. 699, 9 Sup. Ct. 725, 32 L. Ed. 1083, the court held: “If an attachment of property in an action in a state court is dissolved by the defendant’s entering into a recognizance, with sureties, to pay, within 90 days after any final judgment against him, the amount of that judgment, and the defendant, after verdict against him, obtains his discharge in bankruptcy upon proceedings commenced more than four months after the attachment, the bankrupt act does not prevent the state court from rendering judgment against him on the verdict,' with a perpetual stay of execution, so as to leave the plaintiff at liberty to proceed against the sureties.” “Such attachment being recognized as valid by the bankrupt act [Rev. St. § 5044], a discharge in bankruptcy does not prevent the attaching creditors from taking judgment against the debtor in such limited form as may enable them to reap the benefit of their attachment. When the attachment remains in force, the creditors, notwithstanding the discharge, may have judgment against the bankrupt, to be levied only upon the property attached, peck v. Jenness, 7 How. 612, 623, 12 L. Ed. 841; Doe v. Childress, 21 Wall. 642, 22 L. Ed. 549. When the attachment has been dissolved, in accordance with the statutes of the state, by the defendant’s entering into a bond or recognizance, with sureties, conditioned to pay to the plaintiffs, within a certain number of days after any judgment rendered against him on a final trial, the amount of that judgment, the question of whether the state court is powerless to render even a formal judgment against him for the single purpose Qf charging such sureties * * * depends upon the extent of the authority of the state court under the local law.” It will be observed that in the last case cited the attachment was levied and a verdict rendered against the defendant more than four [391] months before the bankruptcy proceedings were commenced, and, the attachment being recognized as valid by the bankrupt law, it was held that a discharge in bankruptcy of the defendant did not prevent a limited judgment being subsequently had against him in favor of the plaintiff, to enable him to reap the benefit of his attachment if the local law of- the state in which the action was brought authorized such formal judgment. The facts in the case at bar clearly distinguish it from the cases cited. Section 4719 of the Georgia Code (Civ. Code 1895) provides that, in the event the court shall decide that the fund in the hands of the garnishee was subject to garnishment had the garnishment not been dissolved, then the court shall render judgment against the defendant and his securities. The counsel for plaintiff in error, in his brief, concedes that if the phrase “subject to garnishment,” used in the statute, means “in subjection to garnishment,” then the court below was right in deciding against the plaintiff. Our opinion is that the phrase “subject to garnishment” means or. refers to the class of fund or property which can be reached by garnishment; that the fund “subject to garnishment” means such fund as may be brought under the operation of or “in subjection” to garnishment. Only such demands as lie in contract, and which the defendant can enforce in an action at law, can be reached by garnishment. Jones’ Adm’r v. Crews, 64 Ala. 368; Craft v. Summersell, 93 Ala. 430, 9 South. 593. The condition of the bond dissolving the garnishment is for the payment of the judgment that shall be rendered on the garnishment proceedings. This must be taken to mean for the payment of such a judgment as could have been rendered against the garnishee-if the bond had not been given. Guilford v. Reeves, 103 Ala. 301, 15 South. 661; Collins v. Baldwin, 109 Ala. 402, 19 South. 862. No-judgment could have been rendered against the garnishee on the-garnishment proceedings if the bond had not been given, because such proceedings were invalidated by the adjudication in bankruptcy. In re McCartney (D. C.) 109 Fed. 621. . The judgment of the Circuit Court is affirmed.