Matney v. Combs

• Decision Date: 09 September 1938
• Citation: 171 Va. 244
• Court: Virginia Supreme Court
• Parties: ALEX E. MATNEY, NEARVY MATNEY AND T. R. DAVIS v. F. H. COMBS, RECEIVER OF THE BANK OF GRUNDY.

Page 244

171 Va. 244

ALEX E. MATNEY, NEARVY MATNEY AND T. R. DAVIS v.F. H. COMBS, RECEIVER OF THE BANK OF GRUNDY.

Supreme Court of Virginia, Staunton.

September 9, 1938.

Present, Campbell, C.J., and Holt, Hudgins, Gregory, Eggleston and Spratley, JJ.

1.BANKRUPTCY AND INSOLVENCY — Fraudulent Conveyances — Right of Unsecured Creditor to Set Aside.— A creditor of a bankrupt without a lien is not entitled, where the trustee is not made a party to the suit, to maintain proceedings to set aside a fraudulent transfer of property made prior to the adjudication in bankruptcy.

2.JUDGMENTS AND DECREES — Lien — Real Estate Conveyed in Fraud of Creditor after Debt Contracted.— If a judgment has been duly rendered and docketed, it is a lien both upon the real estate then held by the judgment debtor and also upon any real estate which he may have conveyed in fraud of such judgment creditor, after the debt was contracted and before judgment was rendered.

3.BANKRUPTCY AND INSOLVENCY — Discharge — As Release of Provable Debts.— A discharge in bankruptcy operates to release the bankrupt and his after-acquired property from all of his provable debts, demands and claims, except those expressly exempted by section seventeen of the Bankruptcy Act.

4.BANKRUPTCY AND INSOLVENCY — Discharge — Enforcement of Liens Not Affected.— A discharge in bankruptcy bars debts, but does not bar the enforcement of liens against property.The ownership of property, the condition of its title, the liens thereon, and the extent of the interest therein, are not affected thereby.

5.BANKRUPTCY AND INSOLVENCY — Discharge — Enforcement of Debts against Property Not Barred.— A discharge in bankruptcy is purely personal to the bankrupt debtor and it neither pays nor extinguishes debts.It is a bar to enforcement against the bankrupt, but not a bar to enforcement against his property.

6.BANKRUPTCY AND INSOLVENCY — Fraudulent Conveyances — Right of Trustee to Set Aside.— A trustee in bankruptcy may bring an action, or join in an action brought by a lien creditor, to void a fraudulent transfer of the bankrupt's property.

7.BANKRUPTCY AND INSOLVENCY — Trustee — Title to Bankrupt's Property.— A trustee in bankruptcy takes title to all the property which belongs to the bankrupt in his own right, subject to all valid liens against the same, and has the same right to bring an action to recover property belonging to the bankrupt as either the bankrupt or a judgment lien creditor would have.

8.BANKRUPTCY AND INSOLVENCY — Trustee — Representative of General Creditors as against Secured Creditors.— In general, a trustee in bankruptcy represents not the bankrupt, but the general creditors of the estate as against the secured creditors.While, in a sense, it may be said that he represents all of the creditors, his peculiar interest is to recover and distribute the bankrupt's property to the best advantage of those who have no security for their claims, and, in a certain sense, he is not a trustee for a fully secured lien creditor.

9.BANKRUPTCY AND INSOLVENCY — Trustee — Not Required to Accept Onerous and Unprofitable Property.— A trustee in bankruptcy is not required to accept and administer property which is onerous and unprofitable, or which may be burdened with a valid lien equal to or greater than its value.

10.BANKRUPTCY AND INSOLVENCY — Trustee — Not Required to Enter into Doubtful and Costly Litigation.— A trustee in bankruptcy is not required to enter into doubtful and costly litigation, where the ultimate benefit to the estate might be very small, or none at all.

11.BANKRUPTCY AND INSOLVENCY — Trustee — Election to Accept or Reject Property — Failure to Take Action to Recover Property.— If a trustee in bankruptcy fails or refuses to take action to recover burdensome property, which may be abandoned because there is no substantial equity or surplus therein for the general creditors, such election constitutes a rejection of the property.

12.BANKRUPTCY AND INSOLVENCY — Trustee — Liens Not Affected by Trustee's Failure to Take Action to Recover Property.— If a trustee in bankruptcy fails or refuses to take action to recover the property of the bankrupt, and the ownership and possession remain in the bankrupt, it is still subject to the existing liens thereon.There exist against the property the same liens as are attached thereon if the property be taken over by the trustee, and the lien creditor loses none of his rights as to the enforcement of his lien in either event.

13.BANKRUPTCY AND INSOLVENCY — Fraudulent Conveyances — Right of Lien Creditor to Set Aside.— If a creditor has an execution or judgment lien upon the property of a bankrupt, which is valid under the bankruptcy law, he may maintain proceedings to set aside a fraudulent transfer of the property upon which he has such lien.

14.BANKRUPTCY AND INSOLVENCY — Bankruptcy Proceedings — Right of Creditor to Sue in State Court to Enforce Security — Duty of Trustee to Intervene.— The exclusive jurisdiction of the bankruptcy court over the allowance and rejection of claims does not preclude a creditor from bringing liquidation proceedings in a State court to enforce his security, or from suing in a Federal equity court to enforce his lien; and the trustee in bankruptcy is not bound to intervene in such a proceeding unless he has reasonable ground for believing that a surplus will be realized.

15.BANKRUPTCY AND INSOLVENCY — Bankruptcy Proceedings — Failure to Disclose Property Should Not Enable Bankrupt to Retain It.— The wrong of a bankrupt in failing to disclose his property in bankruptcy proceedings should not enable him to retain possession thereof and be released from the liens thereon.

16.BANKRUPTCY AND INSOLVENCY — Object of Bankruptcy Law — Equal Distribution of Property without Disturbing Liens.— The object of the provisions of the bankruptcy law is to secure an equal distribution of the property of the bankrupt, of every kind, among his creditors, without disturbing liens duly and properly acquired.

17.BANKRUPTCY AND INSOLVENCY — Fraudulent Conveyances — Bankruptcy Proceeding Not Res Adjudicata of Suit in State Court to Set Aside Conveyance — Case at Bar.— In the instant case, appellee, receiver of a bank which was a judgment lien creditor of a bankrupt, sued to set aside a conveyance executed by the bankrupt while indebted to the bank but before judgment was recovered.The land was subsequently reconveyed to the bankrupt's wife but was not listed among the assets of the bankrupt in the bankruptcy proceedings.The bank filed no proof of claim in the bankruptcy proceedings, and in the instant case the bankrupt pleaded his discharge in bankruptcy.This plea was struck out and the cause continued, to allow a petition to reopen the bankruptcy proceedings to be filed.The referee refused to reopen the bankruptcy case, or to appoint a new trustee, or authorize the former trustee to intervene in the case in the State court.The bankrupt contended that the suit should have been dismissed, on the ground that only through the trustee can creditors recover, and subject to their lien claims, property which a bankrupt may have fraudulently transferred prior to bankruptcy.

Held: That appellee was not estopped to proceed in the State court by virtue of the final discharge in bankruptcy.The questions in issue in the instant case were not in issue in the bankruptcy proceedings, nor were all of the parties to the instant caseparties to that proceeding, making the doctrine of res adjudicata inapplicable.

18.BANKRUPTCY AND INSOLVENCY — Fraudulent Conveyances — Suit in State Court by Lien Creditor to Set Aside Conveyance — Case at Bar.— In the instant case, appellee, receiver of a bank which was a judgment lien creditor of a bankrupt, sued to set aside a conveyance executed by the bankrupt while indebted to the bank, but before judgment was recovered.The land was subsequently reconveyed to the bankrupt's wife, but was not listed among the assets of the bankrupt in the bankruptcy proceedings.The bank filed no proof of claim in the bankruptcy proceedings, and in the instant case the bankrupt pleaded his discharge in bankruptcy.The plea was struck out and the cause continued, to allow a petition to reopen the bankruptcy proceedings to be filed.The referee refused to reopen the bankruptcy case, or to appoint a new trustee, or authorize the former trustee to intervene in the cause in the State court.The bankrupt contended that the suit should have been dismissed, on the ground that only through the trustee can creditors recover, and subject to their lien claims, property which a bankrupt may have fraudulently transferred prior to bankruptcy.

Held: No error.

Appeal from a decree of the Circuit Court of Buchanan county.Hon. Alfred A. Skeen, judge presiding.

The opinion states the case.

Roland E. Chase, for the appellants.

H. Claude Pobst, for the appellee.

SPRATLEY, J., delivered the opinion of the court.

The Bank of Grundy, Incorporated, on November 18, 1930, recovered in the Circuit Court of Buchanan county, Virginia, a judgment against A. L. Rife, A. G. Matney, Arlin Matney, Alex E. Matney and W. M. Matney, for the sum of $3,000, with interest from December 21, 1929, together with costs and a ten per cent attorney's fee for collection.This judgment was duly docketed on December 12, 1930.

On May 18, 1931, a receiver was duly appointed for the said bank.

Alex E. Matney filed a petition in bankruptcy in June, 1933.The schedules filed with his petition listed the above judgment debt.The Bank of Grundy was his principal creditor, the total sum to other creditors amounting to a few hundred dollars only.The assets of the bankrupt, as scheduled, were negligible.The 164 acres of land hereinafter referred to were not listed as the property of the bankrupt.The bank did not file any proof of its claim in the proceedings.A discharge in bankruptcy was...