135 Ky. 163 | Ky. Ct. App. | 1909
Opinion op the court by
Reversing.
J. "W. Lanman was a merchant doing business at Cornisbville, in Mercer county. The petition alleges: That the plaintiffs were wholesale merchants, and had sold him bills of merchandise from April to June,
We have concluded that the judgment is erroneous, when considered upon either of several grounds. The allegations of the petition in this case are not denied. They are confessed as true. It follows that J. W. Lanman was insolvent when he gave the mortgage, and inferentially, when he bought the goods for which he is sued in this case; that he designed by the mortgage to prefer the bank and De Baun to the exclusion in whole of his other creditors. What were the rights of-the plamtiffs when they filed this suit? Depending upon the whereabouts of the goods, they had a choice of four courses open to them: (1) To avoid the sales to Lanman, on the ground of his actual fraud in buying the goods without intention or means of paying -for them, but Mtending that they should the moment they came into his possession pass to his preferred creditor, the bank, or his favored surety at the bank, D'e Baun. This was such fraud as in law, at the election of the sellers, would have avoided the sale, and they could have regained their goods by detinue, or, what is- the same practice under . our Code, an action of claim and delivery; but perhaps the goods had been disposed of to innocent purchasers before the plaintiffs learned of the fraud. At any rate, it was at the election of the plaintiffs whether they pursued that
But there is still another branch of this case, of more importance than the one just discussed. That is the
It does not declare that the transaction shall be void. It operates independently of motives of fraud by the parties. It is voidable only for a specific purpose, at the instance only of creditors of the debtor making the mortgage or conveyance, and then only if they take action to that end in a court of equity within six months from the execution or recordation of the instrument. The effect of such mortgage or conveyr anee, if so attacked, is made by the statute to operate as voluntary assignment of all the debtor’s property for the benefit of all his creditors. It is precisely as if he had executed voluntarily a deed of trust in- behalf of all his creditors, conveying the title to all his property (except exemptions) to a trustee upon the express trust that the latter would sell it and pay the proceeds pro rata to his creditors. Linthicum v. Fenley, 11 Bush, 131.
It is true the act of Congress of. 1898 makes both a preference by an insolvent debtor of some one or more creditors to the exclusion of others, the execution of a voluntary deed of assignment, acts of bankruptcy, but, unless they are proceeded on as such
It was held in Linthicum v. Fenley that the filing of the petition in the state court gave that court possession of the res, and entitled it to proceed with the case. However, there can scarcely be apprehended any conflict of jurisdiction in this matter, for, while the state court had jurisdiction of the subject-matter and parties when the suit was begun down there, the federal court did not have when the bankrupt filed his petition in that court Janury 25, 1909, more than ■four months after the mortgage had been recorded in the proper office .of registry. While then the debtor may have been adjudged a bankrupt, and the United States District Court had jurisdiction of his estate, it would have had to administer it,
"While this transaction was such that the bankrupt court might have acquired jurisdiction of it, and have administered the estate embraced as if the mortgage did not exist, yet it did not within the time when it might, consequently the trust created by our statute survives unaffected by the provisions of the act of Congress. The state court. can and should proceed to execute the trust, by requiring the property to be sold and the proceeds applied to the payment ratably of all the debts of Lanman then in existence. Property since acquired by him and before his application in bankruptcy will be subject alone to the bankrupt proceedings. And, in addition, the state court may adjudge a recovery by the plaintiff against the defendant Lanman in personam, staying the execution till his application for discharge in bankruptcy has been acted on by the United States District Court.
. Wherefore the judgment is reversed, and cause remanded for proceedings consistent herewith.