Maynor v. Schaefer

• Decision Date: 14 January 1943
• Docket Number: 6 Div. 101.
• Citation: 244 Ala. 111,11 So.2d 846
• Court: Alabama Supreme Court
• Parties: MAYNOR et al. v. SCHAEFER.

11 So.2d 846

244 Ala. 111

MAYNOR et al. v. SCHAEFER.

6 Div. 101.

Supreme Court of Alabama

January 14, 1943

Rehearing Denied Feb. 25, 1943.

Chas W. Greer, of Birmingham, for appellants.

Solomon & Berkowitz and Sirote & Permutt all of Birmingham, for appellee.

FOSTER, Justice.

The question on this appeal is whether a receiver appointed by a court of bankruptcy after an adjudication in bankruptcy under section 2, sub. a(3), as amended by the Chandler Act of June 22, 1938, 11 U.S.C.A. § 11, sub. a(3), may by authority of the court appointing him, commence and prosecute a suit in equity in a state court to set aside a conveyance made by the bankrupt to a third person not a party to the bankrupt proceeding within one year before the petition in bankruptcy was filed, on the asserted ground that the conveyance was made without consideration and to defraud creditors existing at the time of the conveyance who were such also at the time the bill was filed.

The answer to this question depends upon an interpretation of amended section 2, sub. a(3), supra. To do so, it is necessary to compare it with section 2(3) of the Act before the amendment in 1938, and the interpretation which had been put on it by the courts then outstanding, and refer to other related features of the acts respectively.

Section 2(3) prior to the amendment was as follows:

"Courts of bankruptcy [may] * * * (3) appoint receivers * * * upon application of parties in interest, in case the courts shall find it absolutely necessary, for the preservation of estates, to take charge of the property of bankrupts after the filing of the petition and until it is dismissed or the trustee is qualified."

Section 67, sub. d(2) of the Chandler Act, 11 U.S.C.A. § 107, sub d(2), declares that every transfer made by a debtor within one year prior to the filing of the petition in bankruptcy is fraudulent as to existing creditors if without fair consideration, and on certain other conditions as to future creditors, Title 11 U.S.C.A. § 107, sub. d(2); and sub. d(3), if executed within four months prior to filing the petition, it is fraudulent as to existing and future creditors if made with the intent to use the consideration to effect a preference to a third person, etc.

And in, sub. d(6), that a fraudulent transfer under section 67, sub. d, against creditors shall be null and void against the trustee. Likewise is section 70, sub. e(1), 11 U.S.C.A. § 110, sub. e(1), of the new act.

The old act section 67, sub. e, Title 11 U.S.C.A. § 107, sub. e, provided that transfers made in four months before the petition, with the intent to hinder, delay or defraud his creditors, are null and void against the creditors, and such property shall pass to the trustee, and be by him reclaimed and recovered for the benefit of the creditors.

The Chandler Act, section 70, sub. a(4), Title 11 U.S.C.A. § 110, sub. a(4), provides that property assigned in fraud of his creditors vests in the trustee by operation of law as of the date of filing the petition in bankruptcy (the old act said as of the date he was adjudged a bankrupt); and

Section 2, sub. a(3) as amended:

"(a) * * * (3) Appoint, upon the application of parties in interest, receivers * * * to take charge of the property of bankrupts and to protect the interests of creditors after the filing of the petition and until it is dismissed or the trustee is qualified; and to authorize such receiver, upon his application, to prosecute or defend any pending suit or proceeding by or against a bankrupt or to commence and prosecute any suit or proceeding in behalf of the estate, before any judicial, legislative, or administrative tribunal in any jurisdiction, until the petition is dismissed or the trustee is qualified: Provided, however, That the court shall be satisfied that such appointment or authorization is necessary to preserve the estate or to prevent loss thereto."

in the Chandler Act, section 70, sub. e(2), 11 U.S.C.A. § 110, sub. e(2), it is provided that property fraudulently conveyed shall be and remain a part of his assets and estate, and may be avoided by the trustee for the benefit of the estate. This provision was not in the prior act, except that the trustee could avoid the transfer and recover the property.

The trustee when appointed can sue in equity to reach such property. After his appointment no one else is authorized by the bankrupt law to proceed in that respect. In re Southern Metal Products Corp., D.C., 26 F.Supp. 666; Neuberger v. Felis, 203 Ala. 142, 82 So. 172.

Prior to the amendment, the courts were substantially agreed that such a suit as this was not authorized by the Bankruptcy Act. The reason assigned was that under the Act then outstanding his appointment was authorized only when it was found to be absolutely necessary for the preservation of the estate to take charge of the property of the bankrupt, and that after the bankrupt had made a fraudulent conveyance of property, that property was not his, and was not a part of his estate, notwithstanding the fraudulent character of his conveyance: that only creditors (or the trustee when appointed) could have it vacated; that it was not therefore within the terms of the authority of a receiver of the bankrupt's property. Boonville Nat. Bank v. Blakey, 7 Cir., 1901, 107 F. 891; Frost v. Latham & Co., 5 Cir., 181 F. 866; Guaranty Title & Trust Co. v. Pearlman, D.C., 144 F. 550; Berry v. Watkins, 158 Ga. 304, 123 S.E. 102; In re Cox Baking Co., Inc., 2 Cir., 77 F.2d 294; In re Kolin, 7 Cir., 134 F. 557. But compare McGlue v. Loudon, 251 Mass. 173, 146 N.E. 255, declaring that a receiver should take possession of all the property of the bankrupt which the trustee could reach, and could act "solely in the interest of the bankrupt's creditors, who before bankruptcy could have attached, seized and held the property." The court was dealing with an unrecorded mortgage valid as to the mortgagor bankrupt, but void as to certain creditors. A bill in equity by the receiver was sustained. This does not seem to be in accord with a majority of the cases. And In re Rosen, D.C., 15 F.Supp. 516, 517, it is said that "the cause of action to recover property fraudulently transferred is an asset of the estate" of the bankrupt (by District Judge Patterson of New York), and so it is under the Chandler Act.

Some few courts had held that a receiver so appointed was but a passive custodian of such property as was in possession or control of the bankrupt or in the custody of the court and had no power to recover property by suit against one in the adverse possession of it. In re Kolin, 7 Cir., 134 F. 557; In re Hill Co., 7 Cir., 159 F. 73; In re Marcuse & Co., 7 Cir., 11 F.2d 513, 515.

But a majority of the courts held that to take charge of the property of the bankrupt in order to preserve it, the receiver could sue for it by authority of the court especially after adjudication. This is upon the theory that the duty to take charge of it carries with it the power and duty to take active steps in court when necessary to obtain its possession. In re Barrett, D.C., 132 F. 362; In re Dempster, 8 Cir., 172 F. 353; In re Fixen & Co., D.C., 96 F. 748. Compare Rivoli Drug Co. v. Lynch, 9 Cir., 50 F.2d 536, criticised in Re Cox Baking Co., 2 Cir., 77 F.2d 294. That a receiver after adjudication is more than a mere custodian of the property in the course of administration. Clark v. Huckaby, 10 Cir., 28 F.2d 154, 67 A.L.R. 1456, note 1462.

Such being briefly the status of the cases which dealt with the subject when the amendment of 1938, supra, was enacted, and there being no decision of the United States Supreme Court on the subject either before or since the amendment, and apparently no decision of any court on it since then, nor textbook interpretation, we are now treading on untouched ground with no precedent directly in point to help.

The ruling of the trial court sustained this power of a receiver when the court of bankruptcy had given its authority by an order manifesting a finding that it was satisfied that such authorization of the receiver is necessary to preserve the estate or to prevent loss...