First Nat. Bank of Goodland v. Pothuisje
| Decision Date | 28 February 1940 |
| Docket Number | 27344. |
| Citation | 25 N.E.2d 436,217 Ind. 1 |
| Parties | FIRST NAT. BANK OF GOODLAND v. POTHUISJE et al. |
| Court | Indiana Supreme Court |
Appeal from Benton Circuit Court; Moses Leopold Special Judge.
Harry R. Hopkins, of Goodland, and Charles M. Snyder, of Fowler for appellant.
Edward Barce and Fraser & Isham, of Fowler, for appellees.
Appellant a national bank acting through its liquidating agent, sued appellees, who were husband and wife, upon a promissory note. The complaint alleged that appellees owned a 240-acre farm as tenants by the entireties and had no other property subject to execution; that on the faith and credit of said land the bank loaned appellees $4,800, taking their joint note as evidence of the indebtedness; that interest and small payments were made on said debt until May 23, 1931, when it was renewed by a like note for $4,600; that on October 25, 1932, appellee John Pothuisje filed a petition in bankruptcy in the federal court for his district and was discharged from all his provable debts before the commencement of this action, and that said farm land was not scheduled by him in his bankruptcy proceeding; that appellee Hattie Pothuisje likewise filed a petition in bankruptcy, but that she had not been discharged. It was also averred that said land was and is security for said joint debt of the appellees, and that John Pothuisje's discharge in bankruptcy did not exempt it from that liability. There was a prayer for judgment against appellees jointly and that said estate be subjected to sale to satisfy the judgment. The court below sustained the separate demurrer of the appellee John Pothuisje and overruled the demurrer of Hattie Pothuisje. Appellant refused to plead further as to John Pothuisje and suffered judgment to be entered in his favor. Issues where closed as to Hattie Pothuisje and there was a trial as to her, resulting in a judgment against her. The appellant has appealed, assigning that the separate demurrer of John Pothuisje was erroneously sustained.
In Sharpe v. Baker, 1911, 51 Ind.App. 547, 558, 559, 96 N.E. 627, 631, 99 N.E. 44, the Appellate Court of this state, speaking through Lairy, J., said:
On rehearing it was further observed, 51 Ind.App. at pages 567, 568, 96 N.E. at page 627, 99 N.E. at page 44, that an action to enforce the obligation on a joint note must be brought against all the obligors jointly and can not be maintained against one without joining the others; but a joint maker sued alone can only object to the non-joinder of the others by plea in abatement, unless the defect appears from the face of the complaint, in which case it may be raised by demurrer for defect of parties defendant. That opinion was approved by this court by the denial of a petition to transfer, and was followed in Union Nat. Bank v. Finley, 1913, 180 Ind. 470, 103 N.E. 110.
In Echelbarger v. First Natl. Bank of Swayzee, 1937, 211 Ind. 199, 5 N.E.2d 966, this court reaffirmed the rule laid down in the above-mentioned cases and expanded it by holding that where tenants by the entireties were separately adjudged bankrupt during the pendency of an action against them on their joint note, and a judgment was subsequently rendered thereon against them, a court of equity will not enjoin the judgment creditor from enforcing its lien against real estate held by the debtors by the entireties at the time of the bankruptcy adjudications. It was conceded that the subsequent discharge of the debtors in bankruptcy wiped out any personal liability against either of them arising out of the joint obligation, but it was pointed out that the interest of a bankrupt in real estate held by the entireties does not pass to his trustee for the benefit of his creditors.
The appellees say that the present case is distinguishable from the Echelbarger case, supra, because there was no showing that Echelbarger and his wife, or either of them, tested the sufficiency of the complaint in the action against them on their joint obligation, that case having arisen in a subsequent effort on their part to enjoin the enforcement of the judgment; while in the present case the sufficiency of the complaint to state a cause of action against John Pothuisje was directly challenged by his spearate demurrer. We do not deem the distinction very important. The Echelbarger case was not considered from any procedural point of view. The case was decided upon the broad proposition that real estate held by the entireties may be sold to satisfy a judgment based on a joint obligation rendered in an action which was pending at the time the judgment debtors were separately adjudged bankrupt. No sound reason is seen why the separate adjudications of bankruptcy as to the husband and wife before the commencement of the action to subject property held by them by the entireties to the payment of their joint debt could have any different or other effect than like adjudications of bankruptcy made during the pendency of such an action.
Thus far we have considered the adjudication in bankruptcy as distinguished from a discharge therefrom. The one substantial question presented by this appeal therefore appears to be the effect of John Pothuisje's separate discharge from bankruptcy prior to the commencement of this action. Upon that subject there is a lack of harmony in the decisions. It does not appear to have been directly considered in this state. There is one line of cases that holds that the discharge of either husband or wife or both can preclude levy on their entireties property on a subsequent judgment. Edwards & C. Hardware Co. v. Pethick, 1930, 250 Mich. 315, 230 N.W. 186, 82 A.L.R. 1232; Kolakowski v. Cyman, 1938, 285 Mich. 585, 281 N.W. 332. Other authorities hold that the discharge of one of the cotenants will preclude the enforcement of a subsequent joint judgment based on a joint debt against the entireties property, but that the bankruptcy court should, on application of the creditor, stay the discharge until a judgment lien is established. Wharton v. Citizens' Bank, 1929, 223 Mo.App. 236, 15 S.W.2d 860, 14 Am.Bankr.Rep.,N.S., 526; Phillips v. Krakower, 1931, 4 Cir., 46 F.2d 764. See also: Lockwood v. Exchange Bank, 1903, 190 U.S. 294, 23 S.Ct. 751, 47 L.Ed. 1061.
It is important, as an approach to the subject, to note the effect of a discharge in bankruptcy and the distinction between an adjudication and a discharge. An adjudication in bankruptcy is a judgment in rem as to the assets brought into the court and establishes the status of the debtor. It absolves the bankrupt from no agreement, terminates no contract, and discharges no liability. 6 Am.Jur., Bankruptcy, § 75. No portion of an estate by entireties passes to the trustee in bankruptcy of either of the spouses as an asset of the estate of the bankrupt. Cullom v. Kearns, 1925, 4 Cir., 8 F.2d 437, 47 A.L.R. 432, 6 Am.Bankr.Rep.,N.S., 614, writ of certiorari denied in 269 U.S. 587, 46 S.Ct. 203, 70 L.Ed. 426. These are the basic characteristics of an adjudication, in consideration of which the courts, including this court, have said that the mere adjudication in bankruptcy of a husband or wife prior to or during the pendency of an action against them on their joint obligation, will not preclude a joint judgment therefor or prevent the enforcement of such a judgment against their entireties property. A discharge in bankruptcy releases the bankrupt from the obligation of his provable debts, not in the sense that the debts are paid or satisfied, but only that there is afforded the debtor a complete legal defense to actions on such debts if he chooses to avail himself of it. The remedy upon the debts and the legal, but not the moral, obligation to pay are at an end, but the debts themselves are not extinguished or canceled. 6 Am.Jur., Bankruptcy, § 484. So, after discharge, a proved debt will constitute sufficient consideration for a new promise to pay it. Post, Administrator v. Losey et al., 1887, 111 Ind. 74, 12 N.E. 121, 60 Am.Rep. 677. And such a proved debt will support a subsequent judgment thereon where the bankrupt does not plead or prove his discharge. Hays v. Ford et al., 1876, 55 Ind. 52; Bowen et al. v. Eichel, 1883, 91 Ind. 22, 46 Am.Rep. 574. It will thus be seen that a discharge from bankruptcy does not destroy the debtor's proved debts, or necessarily bar their future enforcement under some circumstances.
The Lockwood case, supra, presented a situation where a debtor was adjudged bankrupt and all his scheduled property was set over to him as exempt. A creditor proved an unsecured debt and thereafter filed a petition with the bankruptcy court asserting that it held a contract with the bankrupt specially waiving and renouncing all right to the exemption allowed by the laws of the state. Said petition further recited that under the laws of the state the debtor's exemption could only be subjected to the payment of a debt by putting the debt in judgment. The creditor asked such equitable relief as would protect its rights Mr. Justice White, speaking for the United States Supreme Court, said that the creditor 'having a remedy under the state law against the exempt property, may be protected by the court of bankruptcy, since, certainly, there would exist in favor of a creditor holding a waiver...
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