Byrd v. Mullinix

• Decision Date: 04 June 1923
• Docket Number: 26
• Citation: 251 S.W. 871,159 Ark. 310
• Parties: BYRD v. MULLINIX
• Court: Arkansas Supreme Court

251 S.W. 871

159 Ark. 310

BYRD v. MULLINIX

No. 26

Supreme Court of Arkansas

June 4, 1923

Appeal from Craighead Chancery Court, Western District; Archer Wheatley, Chancellor; affirmed.

Decree affirmed.

Basil Baker and Gautney & Dudley, for appellants.

The filing of the involuntary petition in bankruptcy against appellant did not operate to impound money in his hands for the creditors, did not operate as an attachment of his property until after adjudication. 5 Cyc. 342, par. B; 98 F 582, § 704, Bankruptcy Act, 1898. Bankrupt had the right at any time to the date of adjudication to convert non- exempt assets into exempt property. 33 Am. Bankruptcy Rep 677, adopts rule in 39 Ark. 571. See also 99 Ark. 45; 109 Ark. 443. The court erroneously relied on a statement contained in 184 U.S. 1, 46 L. ed. 405, which is fully discussed in 183 F. 913; 219 F. (C. C. A.) 397; 7 C. J 158-160, par. 5. Undisputed testimony shows that the money paid to West was the property of Ada V. Byrd. Court erred in decreeing a lien in favor of the trustee in bankruptcy, upon property held by Byrd and wife as tenants by entirety. 124 Ark. 390; 66 Ark. 305; 144 Ark. 159.

Cooley & Adams, for appellee.

The $ 1,000 paid to West was the property of the bankrupt, not the property of his wife, as claimed. 14 Ark. 69; 45 Ark. 520; 73 Ark. 174; 133 Ark. 250; 134 Ark. 241; 136 Ark. 115; 132 Ark 268; 132 Ark. 123; §§ 60-a and 60-b, Bankruptcy Act 1898, as amended. The filing of the petition in bankruptcy conferred jurisdiction upon the bankruptcy court over all property of the alleged bankrupt for all purposes as of that date. Sec. 1 Bankruptcy Act 1898 as amended. 148 U.S. 1; 7 Am. B. R. 224, 46 L. ed. 405; 137 F. 881, 14 Am. B. R. 404; 172 F. (C. C. A.) 353, 22 Am. B. R. 753; 169 F. 92, 22 Am. B. R. 209; 222 U.S. 300, 56 L. ed. 208, 27 Am. B. R. 262; 228 U.S. 474, 57 L. ed. 927, 30 Am. B. R. 1; 239 U.S. 268, 60 L. ed. 275, 35 Am. B. R. 814; 236 F. (C. C. A.) 644, 38 Am. B. R. 394; Collier on Bankruptcy, §§ 18-111, pp. 458, 459, and notes. See also 88 Ark. 519; 114 Ark. 316; 242 S.W. 384. The court did not create a lien on an estate held by the entirety. 61 Ark. 388; 66 Ark. 305. Preferred creditor or gratuitous donee need not be a party to the bankruptcy proceeding to be held to account for their preference. Sec. 60-a, Bankruptcy Act 1898, as amended; 3 R. C. L. 271, sec. 96.

OPINION

SMITH, J.

On April 13, 1922, appellee, as trustee in bankruptcy, filed a complaint in the chancery court against W. W. Byrd and Ada V Byrd, his wife, and J. R. West, alleging that on February 2, 1922, the creditors of W. W. Byrd filed in the United States District Court at Jonesboro a petition to have W. W. Byrd declared an involuntary bankrupt, and that on February 24, 1922, the court made an order so adjudging. That on February 11, 1922, Byrd paid to West a thousand dollars in partial satisfaction of a note held by West, executed by Byrd and his wife, in part payment of the purchase price on the homestead occupied by Byrd, and which he had bought from West. Byrd bought the house from West on March 1, 1919, and the purchase price was $ 5,000, of which $ 1,250 was paid in cash; $ 2,500 of the purchase money was represented by a mortgage on the house in favor of the American Trust Company of Jonesboro, which Byrd assumed; and the remaining $ 1,250 was represented by a note due March 1, 1920, on which the thousand-dollar payment was made. The complaint alleged that the payment to West was fraudulent and void because Byrd was insolvent. His place of business had been levied upon under an execution, and the payment had been made after the petition in bankruptcy had been filed, and when West had knowledge thereof. The complaint prayed that the payment be declared void as against the creditors of Byrd, and that West be required to reimburse the creditors in said amount, and that he be required to rely upon and proceed under his mortgage security to obtain satisfaction of his own debt, and that a lien be declared upon the homestead for the payment of said thousand dollars.

Byrd and his wife answered and denied all the allegations of the complaint, and alleged that the payment was made by Mrs. Byrd with her individual funds.

West answered and admitted the receipt of the thousand dollars, but denied knowing that the money belonged to the trustee in bankruptcy, but he admitted that he knew the creditors had filed the petition at the time the payment was made to him. He prayed that, in the event he was required to refund the money, his lien be declared superior to that of the other creditors, and that his lien on the homestead be foreclosed for the full amount of said indebtedness.

The question of fact in the case is whether the thousand-dollar payment was made with funds belonging to Mr. Byrd or with the funds of his wife; and the court expressly found the fact to be that the money belonged to him. We concur in this finding, and announce that conclusion, without attempting to review the testimony leading thereto.

Having made this finding, the court below directed West to repay to the trustee in bankruptcy, the plaintiff in the action, the thousand-dollar payment, and then granted West the relief prayed by him in his cross- complaint.

Counsel for Byrd insists the decree should be reversed, even though that finding is made from the testimony, on the following grounds:

1. That the filing of an involuntary petition in bankruptcy does not operate as an attachment of the property of the bankrupt until adjudication.

2. That the bankrupt had the right at any time, up to the date of adjudication, to convert non-exempt assets into exempt property.

3. The indebtedness to West, secured by a vendor's lien on the homestead, was past due, and West had the right to receive payment and Byrd had the right to make the payment up to the date of adjudication.

4. The court erred in undertaking to give to the trustee in bankruptcy a lien upon the joint homestead property of Byrd and his wife, or in attempting to subrogate the creditors to the rights of West, since Mrs. Byrd was not a party to the bankruptcy proceeding.

We think the finding that the payment was made with Byrd's money is decisive of the question stated, because the payment was made after the petition had been filed, and West had notice thereof when he accepted the payment.

We think it immaterial that Byrd was adjudged a bankrupt upon an involuntary petition, rather than upon his own voluntary petition, for the fact adjudged was that he was a bankrupt, and this adjudication was made upon a petition filed before the payment was made.

An involuntary petition was filed in the case of Acme Harvester Co. v. Beekman Lumber Co., 222 U.S 300, 56 L.Ed. 208, 32 S.Ct. 96, and what was there decided is conclusive of the questions raised here. Mr. Justice DAY, for the court, said: "Whatever may be the limitations of the doctrine declared by this court, speaking by the late Chief Justice FULLER in Mueller v. Nugent, 184 U.S. 1, 14, 46 L.Ed. 405, 411, 22 S.Ct. 269, where it is said: 'It is as true of the present law (1898) (30 Stat. at L. 544, chap. 541, U.S. Comp. Stat. 1901, p. 3418) as it was that of 1867 (14 Stat. at L. 517, ch. 176), that the filing of the petition is a caveat to all the world, and, in effect, an attachment and injunction. International Bank v. Sherman, 101 U.S. 403, 25 L.Ed. 866. And, on adjudication, title to the bankrupt's property became vested in the trustee (§§ 70, 21e) with actual or constructive possession, and placed in the custody of the bankruptcy court,' it is none the less certain that an attachment of the bankrupt's property, after the filing of the petition and before adjudication, cannot operate to remove the bankrupt's estate from the jurisdiction of the bankruptcy court...