Rowe v. Bonneau-Jeter Hardware Co.

• Decision Date: 16 December 1943
• Docket Number: 4 Div. 306.
• Citation: 16 So.2d 689,245 Ala. 326
• Parties: ROWE et al. v. BONNEAU-JETER HARDWARE CO.
• Court: Alabama Supreme Court

16 So.2d 689

245 Ala. 326

ROWE et al. v. BONNEAU-JETER HARDWARE CO.

4 Div. 306.

Supreme Court of Alabama

December 16, 1943

Rehearing Denied Jan. 13, 1944.

Further Rehearing Denied March 2, 1944.

By the cross-bill it is alleged that on March 9, 1929, Mercer Rowe and S. E. Rowe executed a promissory note to Bonneau-Jeter Hardware Company, due and payable December 29, 1929. Said note not having been paid, suit thereon was commenced August 29, 1930, and judgment for plaintiff was rendered September 21, 1931. Certified copy of said judgment was filed by plaintiff on February 27, 1932, for registration in the probate office. It is alleged that on July 25, 1931, at which time S. E. Rowe was the owner of a one-seventh interest in the land involved, and was indebted to cross-complainant said S. E. Rowe and his wife executed and delivered to cross-respondent A. L. Rowe a warranty deed conveying his said interest in said land; that said deed was made to hinder, delay and defraud the creditors of said S. E. Rowe which intent was known to and participated in by A. L. Rowe and that the consideration recited in said deed was simulated. It is further alleged that on July 27, 1931, Mercer Rowe and his wife executed to said A. L. Rowe a warranty deed conveying a one-eighth interest in said land, and on April 16, 1935, executed to said A. L. Rowe another warranty deed conveying the entire interest of said Mercer Rowe in said land and purporting to be a correction of the former deed. It is alleged that said deeds by Mercer Rowe and wife were void as having been made with intent to defraud creditors; and that on January 2, 1940, said A. L. Rowe executed to Mercer Rowe a deed conveying a one-seventh interest in said land, by virtue of which Mercer Rowe now claims an interest in the land.

The cross-bill seeks a cancellation of said deeds from S. E. Rowe and Mercer Rowe to A. L. Rowe and to subject the interests so attempted to be conveyed to cross-complainant's lien.

From the pleas filed to the cross-bill it appears that Mercer Rowe filed his petition in bankruptcy (in which cross-complainant's debt was scheduled) on May 21, 1935, and on January 25, 1936, was granted a discharge.

Plea 2, filed by cross-respondent A. L. Rowe alone (and which plea was sustained), applies only to the interest of S. E. Rowe in the land which was conveyed to this cross-respondent, and sets up the statute of limitations.

Other pleas jointly filed, and which were overruled, relate to the interest of Mercer Rowe in said land.

J. M. Rowe, of Elba, for appellants.

P. B. Traweek, of Elba, and J. H. Wilkerson, of Troy, for appellee.

FOSTER Justice.

The questions argued in this case arose on the sufficiency of certain pleas in equity to a cross-bill by an intervening creditor of some of the tenants in common, in a suit in equity by some of the other tenants seeking a sale of land for division.

The cross-bill is by an intervening judgment creditor claiming a statutory lien, and it seeks to enforce that lien, and in doing so and in aid of that relief to declare fraudulent and void certain conveyances executed prior to the rendition of the judgment, but after the debt was created, and dated more than ten years prior to the filing of the cross-bill.

The pleas raise questions which we will discuss in the order now to be stated:

(1) That one of the judgment debtors and a tenant in common, Mercer Rowe, a grantor in one of those conveyances, had been discharged in bankruptcy after the judgment lien was created, and before the cross-bill was filed, and in that proceeding the cross-complainant was listed as a creditor, and his debt discharged.

(2) That because the alleged fraudulent conveyances were executed prior to the rendition of the judgment and the filing of a certificate of it under the statute the judgment debtor did not own such interest in the property as to be subject to levy and sale under execution, and that on it a lien did not thereby attach.

(3) The effect of the expiration pending the litigation of the period of ten years during which the lien existed under the statute.

(4) The effect of the statute of limitations of ten years on the equitable remedies sought to be enforced.

The principle is well sustained that in general a creditor of a bankrupt cannot after bankruptcy maintain an action to set aside a fraudulent conveyance made by the bankrupt; and that after the appointment of a trustee, he alone may do so, though the conveyance was executed more than four months before the bankruptcy. 6 Amer.Jur. 657, section 243; Ruhl-Koblegard v. Gillespie, 61 W.Va. 584, 56 S.E. 898, 10 L.R.A.,N.S., 305, 11 Ann.Cas. 929, 22 A.B.R. 643; Trimble v. Woodhead, 102 U.S. 647, 26 L.Ed. 290; Neuberger v. Felis, 203 Ala. 142, 82 So. 172; see Maynor v. Schaefer, Ala.Sup., 11 So.2d 846; Barrett v. Kaigler, 200 Ala. 404, 76 So. 320.

But a different rule obtains when the creditor has a lien on the grantor's property created more than four months before bankruptcy (11 U.S.C.A. § 107, sub. f), and his right to set aside the fraudulent conveyance is in furtherance of his enforcement of that lien. When so, the bankrupt proceedings do not cut off that right and a discharge in bankruptcy is not effective to that extent, but the trustee may intervene in such suit, if desirable, to protect the interest of the estate. And that effect has been given to a judgment lien. Collier on Bankruptcy (14th ed.) 82, notes 14, 15 and 16; Straton v. New, 283 U.S. 318, 51 S.Ct. 465, 75 L.Ed. 1060; see Heffron v. Western L. & B. Ass'n, 9 Cir., 84 F.2d 301, 112 A.L.R. 501; Metcalf v. Barker, 187 U.S. 165, 23 S.Ct. 67, 47 L.Ed. 122; 8 Corpus Juris Secundum, Bankruptcy, § 266, p. 959, note 20; Hillyer v. LeRoy, 179 N.Y. 369, 72 N.E. 237, 103 Am. St.Rep. 919; Tucker v. Foster, 154 Va. 182, 152 S.E. 376, 69 A.L.R. 220; Carothers v. Weaver, 220 Ala. 584, 127 So. 151.

Likewise, when the property has been sold under execution and the purchaser seeks to set aside the sale as a cloud on his title. Pasquale v. Francis, 210 Ala. 590, 98 So. 568.

So that the effect of the bankruptcy proceedings depends upon whether under Alabama law there is a lien in favor of the creditor on the land involved created more than four months before the filing of the bankruptcy petition, since such a lien is not affected by the discharge in bankruptcy. The provisions of the Alabama law, Title 7, section 585, Code of 1940, to the extent that the lien shall not be affected by bankruptcy filed more than four months after filing the certificate of the judgment, is apparently an interpretation by the Legislature of the federal law. It merely enacts provisions which declare a status resulting from the federal act.

The law of each state determines when, how and on what property a judgment creates a lien. Straton v. New, supra; 4 Collier on Bankruptcy (14th Ed.) p. 81, note 9.

Referring to section 7875, Code of 1923, under which the certificate of judgment was filed, providing that the lien only extends to the property of the defendant that was subject to levy and sale under execution, as is also provided in section 585, Title 7, Code of 1940, and referring to the fact that defendant in the judgment had previously sold and conveyed the property in question, appellant contends that it was not subject to levy and sale under execution then or thereafter. Section 7806, Code of 1923 (section 519, Title 7, Code of 1940), declares that certain sorts of property and property rights may be levied on under execution.

The principle in this State has been constantly maintained that when a judgment debtor has sold his property in fraud of creditors, it is still subject to levy and sale under execution in favor of the creditor so defrauded after he obtains a judgment, and when such sale is made, the purchaser upon proof of the fraud and invalidity of the deed on that account, may maintain ejectment, if the fraudulent grantee is in possession. Howard v. Corey, 126 Ala. 283(4), 28 So. 682; High v. Nelms, 14 Ala. 350, 48 Am.Dec. 103; Smith's Ex'r v. Cockrell, 66 Ala. 64; Gilliland v. Fenn, 90 Ala. 230, 8 So. 15, 9 L.R.A. 413; Reed v. Smith, 14 Ala. 380; Grigg v. Swindal, 67 Ala. 187; Pettus v. Glover, 68 Ala. 417; Brown v. Hunter, 121 Ala. 210, 25 So. 924; Gunn v. Hardy, 130 Ala. 642, 31 So. 443.

And under those circumstances, being out of possession and no other equity existing, there is no remedy in equity available to the execution purchaser to vacate the conveyance and recover the land. Smith's Ex'r v. Cockrell, supra; Grigg v. Swindal, supra; Pettus v. Glover, supra; Brown v. Hunter, supra; Gunn v. Hardy, supra; Altman v. Barrett, 234 Ala. 234(3), 174 So. 293.

Such property is in law still that of the debtor for the purpose of preserving the right of the creditor to subject it to the payment of his debt, under section 7806, Code of 1923 (Title 7, section 519, Code of 1940). It is therefore subject to levy and sale under execution, and a lien on it was created for a ten-year period under section 7875, Code of 1923 (Title 7, section 585, Code of 1940).

But it is contended that the lien of the statute has spent its force, because the ten-year period expired since this suit was begun. First National Bank v. Powell, 229 Ala. 178, 155 So. 624; Trager Co. v. Mixon, 229 Ala. 371, 157 So. 80.

Evidently to meet the effect of these cases the Code of 1940 amended the statute creating the lien so as to extend it for the purposes of a suit begun within the ten-year period, but not completed in that time, on the conditions there provided. The Code went into effect May 31, 1941. The judgment was rendered on September 21, 1931, and a certificate was filed creating the lien on February 27, 1932. The cross-bill to enforce the lien was...