Pope v. Title Guar. & Sur. Co.

• Decision Date: 11 March 1913
• Citation: 140 N.W. 348,152 Wis. 611
• Court: Wisconsin Supreme Court
• Parties: POPE v. TITLE GUARANTY & SURETY CO.

152 Wis. 611

140 N.W. 348

POPE

v.TITLE GUARANTY & SURETY CO.

Supreme Court of Wisconsin.

March 11, 1913.

Appeal from Circuit Court, Fond du Lac County; Chester A. Fowler, Judge.

Action by P. E. Pope against the Title Guaranty & Surety Company.Judgment for plaintiff, and defendant appeals.Affirmed.E. P. Worthing, of Fond du Lac, for appellant.

Morse & Chadborne, of Fond du Lac, for respondent.

BARNES, J.

On July 8, 1911, the plaintiff commenced an action against the National Boat & Engine Company and attached its property.On July 14th the attachment was released on a bond conditioned to pay on demand the amount of any judgment which the plaintiff might recover.This bond was signed as surety by the Title Guaranty & Surety Company, the defendant in the present action.Judgment by default was taken in the original action on August 3, 1911.On September 5, 1911, the defendant therein was adjudged a bankrupt.This action is brought against the surety to recover the amount of the judgment secured by plaintiff against the bankrupt.

[1] The substantial question in the case is whether the adjudication in bankruptcy destroyed the judgment and released the surety from liability.The answer to this question depends upon the construction that should be placed on section 67, subd. “f,” of the bankruptcy act (ActJuly 1, 1898, c. 541, 30 Stat. 564, 565 [U. S. Comp. St. 1901, p. 3449];1 Fed. Stat. Ann. 693).This section reads as follows: “That all levies, judgments, attachments, or other liens, obtained through legal proceedings against a person who is insolvent, at any time within four months prior to the filing of a petition in bankruptcy against him, shall be deemed null and void in case he is adjudged a bankrupt, and the property affected by the levy, judgment, attachment, or other lien shall be deemed wholly discharged and released from the same, and shall pass to the trustee as a part of the estate of the bankrupt, unless the court shall, on due notice, order that the right under such levy, judgment, attachment, or other lien shall be preserved for the benefit of the estate; and thereupon the same may pass to and shall be preserved by the trustee for the benefit of the estate as aforesaid.”

If this statute is to be read literally, and it is held that the judgment has been wiped out of existence by the proceedings in bankruptcy, then we think it would have to be conceded that the bondsman is absolved from liability.Its undertaking is to pay a valid judgment, not one that is void and does not in fact exist.If the statute only destroys any lien created by the judgment, and simply aims to prevent the judgment creditor from obtaining any preference or advantage over the general creditors of the bankrupt by virtue of his judgment, then the adjudication in bankruptcy did not discharge the surety.

There are a number of decisions wherein the courts, following the language of the statute, have said that the effect of an adjudication in bankruptcy, within four months after the recovery of a judgment against the bankrupt, is to render the judgment void.In re Richards (D. C.)95 Fed. 258, andIn re Beals (D. C.)116 Fed. 530, are typical of the class of cases referred to.In nearly all of them the same result would have been reached had the courts held that it was the liens created by the judgments that had been destroyed, and not the judgments themselves.The point presently under discussion was neither involved nor considered in the great majority of these cases, which are relied upon by the appellant, and therefore they cannot be accorded any great weight in deciding the question before us.

[2]Congress gets its power to legislate on the subject of bankruptcy from section 8 of article 1 of the Constitution, which empowers it to pass “uniform laws on the subject of bankruptcies throughout the United States.”It has been held, correctly, we think, that the “subject of bankruptcies” includes the distribution of the property of the fraudulent or insolvent debtor among his creditors, and the discharge of the debtor from his contracts and legal liabilities, as well as all the intermediate and incidental matters tending to the accomplishment or promotion of these two principal ends.”Silverman's Case, 2 Abb. U. S. 243, 245, Fed. Cas. No. 12,855.

The present bankruptcy act aims to secure an equal and equitable distribution of the debtor's property among his creditors, and to promote that end has in effect provided that no preference or advantage may be obtained by one creditor over another by virtue of any attachment, garnishment, or levy made within four months of the adjudication in bankruptcy.This is as far as it was necessary for Congress to go to attain the ends aimed at.It may well be doubted whether Congress could go to the extent claimed.A creditor has a right to sue his debtor.State courts have jurisdiction of the persons of the parties, if they live therein, and of the subject-matter of an action on contract brought to collect a debt.A judgment in such an action is valid when rendered.Congress can say to the creditor, “You may not obtain any special advantage by virtue of the judgment over other creditors in the distribution of the bankrupt's estate,” and further that the creditor may be discharged from his debts, and that the judgment cannot be enforced against him.But can it say, for instance, that the judgment is not evidence of the amount of the indebtedness due from the bankrupt to the judgment creditor?Or that the judgment is unenforceable if the bankrupt is not entitled to a discharge under the law?Or that the judgment creditor may not proceed against a surety whose liability depends on the validity of the judgment, where such action in no way affects the other creditors of the bankrupt?Whatever may be the correct answers to these questions, they pointedly suggest the improbability of congressional intent to legislate to the extent claimed, and to the extent to which a literal reading of the statute would lead.It was wholly unnecessary to do so.The judgment of the Wisconsin court was valid when it was rendered, and the liability of the surety became fixed at such time.If the creditor had any real estate to which the lien of the judgment attached, such lien was destroyed by the adjudication in bankruptcy, because such destruction was necessary to preserve the property for all of the creditors.The same would be true of the attachment lien if that had continued.If the bankrupt was discharged, the judgment could not be enforced against him, because Congress had the right to absolve the bankrupt from his debts after his property or the proceeds of it were distributed among the creditors.It was wholly unnecessary to discharge the surety from...