Seiden v. Southland Chenilles', Inc.

• Decision Date: 22 March 1952
• Docket Number: No. 13758.,13758.
• Citation: 195 F.2d 899
• Parties: SEIDEN et al. v. SOUTHLAND CHENILLES', Inc.
• Court: U.S. Court of Appeals — Fifth Circuit

195 F.2d 899 (1952)

SEIDEN et al. v. SOUTHLAND CHENILLES', Inc.

No. 13758.

United States Court of Appeals Fifth Circuit.

March 22, 1952.

COPYRIGHT MATERIAL OMITTED

Frank M. Gleason, Rossville, Ga., for appellants.

R. Carter Pittman, Dalton, Ga., Sam J. McAllester, Jr., Chattanooga, Tenn., Walter B. Shaw, LaFayette, Ga., for appellee.

Before HOLMES, BORAH, and RUSSELL, Circuit Judges.

HOLMES, Circuit Judge.

The appellants are interested parties, and should be permitted to intervene in this case, regardless of whether the widow's support for one year has been validly set aside to her or not. Undoubtedly the widow is entitled to a year's support under the laws of either Georgia or Tennessee, provided the deceased husband left any property out of which, or the proceeds of which, it may be set aside to her. If the intervention of a bankruptcy proceeding prevents appropriate action by the state court having jurisdiction, then the bankruptcy court, which exercises equitable jurisdiction, should act, and do that which ought to have been done.

It would be unconscionable for a court of bankruptcy, upon the death of the husband, to take possession of all his assets without setting aside his exempt property to those entitled to it, and without allowing the widow a year's support, in accordance with state law. If a decedent leaves nothing but corporate stock, and it has any value, the stock may be set aside to her, or it may be sold and a proper allowance made to her out of the proceeds. Equity never does things by halves, and neither does bankruptcy. An adjudication in bankruptcy is a caveat to all the world that the property of the bankrupt is subject to the jurisdiction of the bankruptcy court, which will hear the claims of all interested parties, including lien creditors though valid liens are not affected by bankruptcy. Muller v. Nugent, 184 U.S. 1, 22 S.Ct. 269, 46 L.Ed. 405.

Moreover, it is the duty of the bankruptcy court, of its own motion, to look into its jurisdiction whenever the question is raised and the court regards it as a serious one. If the allegations of the petition to intervene are true, the pretended election of corporate officers and directors, following the death of the decedent, was a sham and fraud, which vitiate the adjudication in bankruptcy. The petition alleges that the corporation is not insolvent; that it has assets in excess of its liabilities if the illegal claims are cancelled; and that the voluntary petition in bankruptcy was not the act of the corporation, but was supported by a purported resolution of the board of directors that was fraudulently obtained.

There are many sound legal and equitable reasons for the bankruptcy court's allowing the widow a year's support out of the estate of her deceased husband, but perhaps the best is a federal statutory one, which establishes the widow's right in bankruptcy to this humane allowance, in accordance with state exemption statutes, without any precedent state-court order. It is the state law, reinforced by federal law, not the order of a state court, that furnishes the authority for the allowance by the bankruptcy court. 11 U.S.C.A. § 24. The state statute creates the right; the federal statute authorizes and requires the bankruptcy court to allow the claim. After adjudication, a state court cannot acquire jurisdiction of the res in bankruptcy without the consent of the bankruptcy court.

Collier on Bankruptcy, 14th Edition, Vol. 3, Sec. 63.03, page 1767, says: "The broad equity powers vested in bankruptcy courts permit the admission to proof and the allowance of claims based on principles of equity and also the disallowance of claims on equitable grounds." For a summary of equity powers of courts of bankruptcy, see Pepper v. Litton, 308 U.S. 295, 304, 60 S. Ct. 238, 84 L.Ed. 281. In re Van Winkle, D.C., 49 F.Supp. 711, 713, 714, the court said: "Equitable liens are recognized in bankruptcy proceedings as well as common law liens and statutory liens." In re Wall, D.C., 60 F.2d 573, the court said: "landlord has equity claim on tenant's goods on premises where right to distrain is defeated by execution." In re Turner, D.C., 9 F. Supp. 225, an equitable claim for rent was given priority under Sec. 104, sub. b (7), Title 11 U.S.C.A.

As to the Tennessee law on setting aside a year's support for a widow, Williams' Tennessee Code provides:

Section 8231: "Upon the application of the widow of an intestate, or of a widow who dissents from her husband\'s will, the county court shall appoint three freeholders, unconnected with her either by consanguinity or affinity, who, being first duly sworn to act impartially, shall set apart so much of the crop, stock, provisions, moneys on hand or due, or other assets, as may be necessary for the support of such widow and her family until the expiration of one year after the decease of her husband."

Section 8232: "The moneys and effects so set apart shall be the absolute property of the widow for said uses, and shall not be taken into the account of the administration of the estate of said intestate, nor seized upon any precept or execution."

The following decisions are under the above statutes: Hyder v. Hyder, 16 Tenn. App. 64, 66 S.W.2d 235, 243: "Property set apart for the year's support is in no wise subject to the debts of the deceased." Redmon v. Fuller, 23 Tenn.App. 623, 136 S.W.2d 724, 725, 726: The statutory allowance of year's support for decedent's widow is made irrespective of condition of his estate as to solvency or insolvency. Crenshaw v. Moore, 124 Tenn. 528, 137 S. W. 924, 34 L.R.A.,N.S., 1161: The statutes setting aside a year's support to the widow are to be construed as exemption statutes.

As to the Georgia law, see Title 113, Ga. Code Ann. Sec. 1002, which provides for one year's support of the widow or minor children upon the death of any person testate or intestate, leaving an estate solvent or insolvent. McDaniel v. Kelley, 61 Ga. App. 105, 5 S.E.2d 672: The right to a year's support vests in a widow and minor children, if any, immediately upon the death of the husband. Mashburn v. Mashburn, 64 Ga.App. 388, 13 S.E.2d 190: Right of widow of decedent to a year's support is a "vested" right, and the courts are jealous of any attempt to encroach upon it. House v. House, 191 Ga. 678, 13 S.E.2d 817: Under express statutory provision, the claim for support of decedent's family ranks first against his estate, and is superior to all claims against decedent's real estate except the lien of a purchase-money mortgage. In re Dicks, D.C., 198 F. 293 (a case arising in Georgia), the district court held that, since the title of the bankrupt cast on the trustee by bankruptcy law is not an absolute one, but for distribution to pay debts, the rank and priority of which is generally determined by the law of the state, where a bankrupt died shortly after adjudication, his bankruptcy did not deprive the widow and minor children of their right to a year's support. This decision was affirmed in Hull v. Dicks, 235 U.S. 584, 35 S.Ct. 152, 59 L.Ed. 372.

True, it is the corporation that is in bankruptcy, not the deceased husband of petitioner; but at the time of his death the husband owned stock in the corporation, which is the alleged bankrupt; and the husband's estate now owns that stock of which he died seized and possessed. It is also true that the stockholders of a corporation are the equitable owners of the property of a corporation, subject to the rights of creditors. Therefore, unless the corporation is insolvent, the husband at the time of his death was the equitable owner of corporate assets upon which his widow has a preferred claim for a year's support under the substantive law of Tennessee or Georgia, dependent upon the particular facts of this case. Yet it is said that she should not even be heard in a court of bankruptcy, which is also a court of equity, to prove that the corporation is not insolvent but has been fraudulently caused to be adjudged a bankrupt. This is tantamount to saying that a legal claim, which is entitled to priority under state law, may not be asserted against equitable assets in a court of bankruptcy, which exercises equitable jurisdiction.

Since the husband at the time of his death was a resident of Tennessee, there is no disagreement among the members of this court as to the invalidity for present purposes of the probate proceedings in a state court of Georgia. We also concur in the opinion that the substantive rights of the widow for a year's support are governed by the laws of Tennessee. What we disagree about is the power of the bankruptcy court to make the allowance upon the basis of state law without a prior state-court order on the subject. So far as the record shows, there have been no probate proceedings in Tennessee, and the husband left no estate except one-half of all the stock in this corporation. If the husband were the bankrupt, this stock could be set aside to the widow for her year's support; but since the corporation is in bankruptcy (fraudulently there, if you please, and solvent unless the merits are to be decided against the widow without a hearing), it is claimed that the widow is not an interested party, and should not be allowed to intervene and disclose the fraud. This is contended although the stockholders of a solvent corporation are the equitable owners of all its property, subject only to the rights of creditors.

Therefore, although the husband is not in bankruptcy, all of his assets are, and no state court can acquire jurisdiction of them. The law never requires the doing of an idle thing, and what a hard proceeding it would be for a bankruptcy court to distribute the physical assets of a corporation, without hearing interested parties, because some probate court had not set aside to them a stock certificate that was speedily being rendered worthless by the omniverous jurisdiction of bankruptcy: a jurisdiction which, upon...