Phillips v. Krakower

• Decision Date: 13 January 1931
• Docket Number: No. 3047.,3047.
• Citation: 46 F.2d 764
• Parties: PHILLIPS v. KRAKOWER.
• Court: U.S. Court of Appeals — Fourth Circuit

46 F.2d 764 (1931)

PHILLIPS v. KRAKOWER.

No. 3047.

Circuit Court of Appeals, Fourth Circuit.

January 13, 1931.

Sidney A. Needle, of Baltimore, Md. (William T. Tippett, Jr., of Baltimore, Md., on the brief), for appellant.

Raphael Walter, of Baltimore, Md. (Sykes, Nyburg, Goldman & Walter, of Baltimore, Md., on the brief), for appellee.

Before PARKER and NORTHCOTT, Circuit Judges, and McCLINTIC, District Judge.

PARKER, Circuit Judge.

This is an appeal from an order suspending the discharge in bankruptcy of one Samuel Phillips until one of his creditors, Mrs. Sarah Krakower, shall have had opportunity to obtain judgment on a note executed by Phillips and wife and enforce same against property held by them as tenants by the entireties.

Phillips was adjudged bankrupt on January 9, 1930. At the time of the adjudication he and his wife owned, as tenants by the entireties, certain property in the city of Baltimore. Mrs. Krakower held a note against them for the sum of $5,500, which had not been reduced to judgment; and, on February 21st, she filed with the court of bankruptcy a petition praying that the discharge of Phillips be deferred to enable her to secure judgment on the note and subject to its satisfaction the property held by the entireties. An order to this effect was duly entered, and from this order Phillips has appealed.

The estate by entireties in Maryland has all of its common-law incidents. It belongs to husband and wife, not as joint tenants, or as tenants in common, but by the entirety, per tout et non per my. Marburg v. Cole, 49 Md. 402, 33 Am. Rep. 266. Neither spouse can dispose of any part of it without the consent of the other; and neither has such an interest in it as can be subjected to the lien of a judgment for his debts or as can be levied upon and sold under legal process against him. Jordan v. Reynolds, 105 Md. 288, 66 A. 37, 9 L. R. A. (N. S.) 1026, 121 Am. St. Rep. 578, 12 Ann. Cas. 51; Frey v. McGaw, 127 Md. 23, 95 A. 960, L. R. A. 1916D, 113; Ades v. Caplin, 132 Md. 66, 103 A. 94, L. R. A. 1918D, 276; U. S. v. Tyler (C. C. A. 4th) 33 F.(2d) 724. And, in case of bankruptcy, the interest of the bankrupt in such an estate does not pass to his trustee for the benefit of creditors. Dioguardi v. Curran (C. C. A. 4th) 35 F.(2d) 431; Cullom v. Kearns (C. C. A. 4th) 8 F.(2d) 437, 47 A. L. R. 432. Where, however, husband and wife execute a joint note, the estate by entireties can be subjected to judgment thereon obtained against both of them. Frey v. McGaw, supra. But if the liability on the note of one of the spouses be discharged in bankruptcy, a judgment on the note against the other cannot be collected out of the property during the lifetime of the first. Ades v. Caplin, supra.

The note held by Mrs. Krakower, therefore, is one upon which she is entitled to judgment which she can enforce against the property held by entireties. The discharge of Phillips in bankruptcy not only will prevent judgment being obtained against him on the note, but will prevent also, during his lifetime, the property held by entireties being subjected to the satisfaction of any judgment which may be obtained against his wife. And so, although the bankruptcy proceeding has brought no interest in the estate by entireties into court for the benefit of the creditors of Phillips, his discharge in bankruptcy will remove that entire property beyond the reach of creditors entitled to subject it to their claims. The question presented is whether, without giving these creditors an opportunity to proceed, the court should grant the discharge knowing that it will result in a legal fraud, i. e. the effectual withdrawing of the property from the reach of those entitled to subject it to their claims, for the beneficial ownership and possession of those who created the claims against it. We cannot conceive that any court would lend its aid to the accomplishment of a result so shocking to the conscience.

The purpose of the bankruptcy act was to equitably distribute the assets of distressed debtors among their creditors and to discharge them from further liability after this had been done. It was never contemplated that it should be used to perpetrate fraud or to shield assets from creditors. It is elementary that a bankrupt is not entitled to a discharge unless and until he has honestly...