Smith v. Folsom

• Decision Date: 12 June 1940
• Docket Number: 13304
• Citation: 9 S.E.2d 824,190 Ga. 460
• Parties: SMITH v. FOLSOM et al.
• Court: Georgia Supreme Court

9 S.E.2d 824

190 Ga. 460

SMITH v. FOLSOM et al.

13304

Supreme Court of Georgia

June 12, 1940

Syllabus by the Court.

1. Where the owner of property has in his possession funds due under a contract for the erection of a house, which are claimed by the materialmen under an asserted equitable assignment from the contractor and by the trustee of the contractor, who has since been adjudicated a bankrupt, the owner may bring the funds into court and maintain a petition for interpleader to compel the conflicting claimants to litigate between themselves their respective rights thereto.

2. A Federal bankruptcy court has exclusive jurisdiction of all property of the bankrupt in its possession, but under the circumstances stated above the Federal bankruptcy court did not obtain possession of the funds in the hands of the owner either actually or constructively, and the State court had jurisdiction to entertain a suit with respect thereto.

3. Having jurisdiction to entertain the suit, the State court had authority to enter such orders with respect thereto as were necessary to effectuate the purposes of the suit.

4. Leave to interplead a trustee need not be secured from the court of bankruptcy which appointed him, since an interpleader suit is not an interference with, and cannot mature into a charge on, the assets of the bankrupt.

5. A trustee of a bankrupt represents all of the creditors in the collection of the assets of the bankrupt; and in a suit against a trustee to determine whether a fund is a part of the assets of the estate the creditors are not proper parties.

6. Since the evidence in the instant case showed that the materialmen were entitled to the fund in question by reason of an equitable assignment from the contractor made before the institution of bankruptcy proceedings, the court properly directed a verdict in their favor.

7. An assignment to materialmen of a fund subject to a statutory lien in their favor, though made within four months of bankruptcy and while the contractor is insorvent, is not a preference within the meaning of the Federal bankruptcy act.

8. After a decree has been entered, ordering the petitioner to pay the fund in question into court and ordering the claimants to interplead and set up their claims to the fund a suit in interpleader becomes, in effect, a proceeding between the claimants alone as adversaries to determine who is entitled to the fund. Upon the trial in this case the verdict was properly limited to the determination of this issue.

On July 5, 1938, W. H. Wood contracted to build a house for Will Ed Smith in Eastman, Georgia, for the sum of $4,500. The contract provided that the contractor should present an itemized statement of the labor charges incurred each week, that the owner should advance on the contract price a sum sufficient to pay these weekly labor charges, and that the balance of the contract price should be paid upon the completion and acceptance of the house, and 'upon the contractor making the affidavit required by law.' After the house had been under construction for several months and the owner had paid about $1,300 in labor charges, it became apparent to the materialmen who were furnishing the contractor with supplies and materials for building the house that the balance of the contract price would be insufficient to pay for completing the house and for the materials which they had already furnished. They knew that the contractor was insolvent and would be unable to pay them anything above the amount which he was to receive from the owner upon the completion of the contract, which would be much less than the amount he already owed them (about $4,000), and that they would therefore have to take a large loss. At that time some of the materials had not been attached to the building. In this situation the materialmen, the owner, and the contractor met on October 17, 1938, and reached an agreement for the completion of the house. It was agreed that the owner should complete the building by paying the entire cost of the balance of the materials and labor necessary for such completion, and that the contractor should supervise the work without charge. The exact nature of the agreement, if any, reached at that time with reference to the disposition of the balance of the contract price is one of the issues in this case, and the contentions of the parties with respect thereto will hereafter be more fully stated. When the house was completed, the owner had expended all except approximately $1,700 of the contract price for labor and materials. On December 13, 1938, the contractor filed his petition in bankruptcy, and was adjudicated a bankrupt. In his petition he listed the balance of the contract price as one of his assets, and scheduled the claims of the materialmen among his debts. He claimed a homestead of $1,600 in cash, to be paid largely from the $1,700 remaining in the hands of the owner; and he and W. B. Smith, the trustee of the bankrupt estate, sought to collect the $1,700, claiming that it was due them under the terms of the original contract. The materialmen also sought to collect the $1,700, claiming that under the agreement of October 17, 1938, the owner was obligated to prorate this money among the materialmen in accordance with the amount of their respective claims. Upon the refusal of their demand, they filed their liens against the property of the owner, on December 16, 1938. The contractor denied that he agreed that the owner should prorate the balance of the contract price upon the claims of the materialmen.

In this situation Will Ed Smith filed in the superior court a petition for interpleader against the materialmen, the contractor, and the trustee in bankruptcy, alleging substantially the above-stated facts, and that he was a mere stakeholder and was not in collusion with any of the defendants, and praying that the defendants be temporarily and permanently enjoined from filing suit for recovery of their claims, that he be allowed to pay the balance due on the contract price into the registry of the court, that the defendants be required to interplead and set up their respective claims to the fund, that the materialmen be required to cancel of record their claims of liens against his property; and for general relief. The answer of the materialmen admitted substantially all of the allegations of the petition, and stated in detail the circumstances and alleged terms of the agreement of October 17, 1938, on which they based their claim to the fund in controversy. They alleged, that about October 17, they discovered that the contractor was drawing advances on his contract which they regarded as being out of proportion to the payments being made for material and labor, and decided that if the contractor were allowed to proceed with the construction of the house as theretofore he would not only be unable to pay for the materials already furnished, but the materialmen would suffer an even greater loss; that in this situation they determined to recover such materials and supplies furnished by them as had not been incorporated in the house; that for this purpose they had a conference with the owner and the contractor, and made their position known; that after discussing the matter at length it was agreed by all the parties that the contractor should be allowed to supervise the completion of the house, that the owner should pay for all labor and materials necessary for its completion (the necessary supplies to be bought from the materialmen involved), and that the balance of the contract price, after deducting the cost of completing the house and the amount previously advanced to the contractor, should be paid by the owner directly to the materialmen in proportion to the amounts due to them; and that in pursuance of this agreement they allowed the use of the materials which were on the ground, furnished the additional materials required, abandoned any claim they had against the contractor, and looked only to the owner for payment in accordance with the agreement. They prayed that the prayers of petitioner be granted, that their liens against his property be transferred to the fund to be paid into court by him, and that 'it be adjudged and determined that the plaintiff Smith, by reason of said agreement and understanding, became indebted to these defendants, * * * and that said fund be applied to the payment of said indebtedness in accordance therewith.' The bankrupt contractor filed an answer denying that it was agreed that the owner should pay the balance of the contract price directly to the materialmen, and claiming that this sum should be paid to his trustee in bankruptcy.

W B. Smith, the trustee in bankruptcy, filed a motion to dismiss the petition, on the grounds that the balance of the contract price was an asset of the estate of the bankrupt of which the Federal bankruptcy court had exclusive jurisdiction, that the petitioner had not obtained the consent of the bankruptcy court of the trustee to bring the suit, that the State court had no authority to enjoin the trustee from bringing suit against the petitioner, etc. He filed a plea in bar, on the ground that the contractor had been adjudicated a bankrupt, and therefore he and his estate were exempt from suit until the question of his discharge was determined. The trustee also demurred generally and specially, and filed an answer. After a hearing, the court overruled the trustee's motion to dismiss, the plea in bar, and the demurrers, and ordered the defendants to interplead and set up their respective claims to the fund which the petitioner was allowed to pay into the registry of the court. The order recited that the petitioner and his property were thereby discharged from any liability to the...