82 So. 172 | Ala. | 1919
The question presented by this appeal is whether a trustee in bankruptcy may sell and convey the right of action, under the state statute, to set aside a fraudulent conveyance not executed within the four months' period.
In Barrett v. Kaigler,
"The trustee is vested, not only with the title of the property, but also with the creditors' right of action with respect to the property of the bankrupt theretofore conveyed by him in fraud of such creditors; and the trustee may assail such transfers or conveyances to the same extent as the creditor, as though the debtor had not been declared a bankrupt. In re Rodgers, 125 Fed. 169, 60 C.C.A. 567; In re Butterwick (D.C.) 131 Fed. 371; Thomas v. Roddy et al.,
In Watson v. Motley,
Pertinent provisions of the Bankruptcy Act are sections 70a, 70e; U.S. Comp. St. 1916, § 9654. Collier on Bankruptcy (11th Ed.) p. 1106 et seq. Speaking generally of the title that vests in the trustee, under the former bankruptcy acts there was doubt as to when such official took title. Under the present act, the insertion of the words "The trustee of the estate of a bankrupt, upon his appointment and qualification, * * * shall * * * be vested by operation of law with the title of the bankrupt, as of the date he was adjudged a bankrupt," met the former difficulties. Matter of Zotti, 26 Am. Bankr. Rep. 234, 186 Fed. 84, 108 C.C.A. 196, Ann. Cas. 1914A, 240; In re Mertens et al., 142 Fed. 445, 73 C.C.A. 561. While the trustee's title is only that which exists at the date of adjudication, of necessity such title relates back to the time of filing the petition. Everett v. Judson,
By subdivision 4 of section 70a of the act in question, property transferred in fraud of the bankrupt's creditors passes to the trustee, which is the converse of the doctrine that the trustee takes the title of the bankrupt subject to equities; that is to say, the trustee takes title to property transferred by the bankrupt to defraud his creditors. In re Yukon Woolen Co. (D.C.) 2 Am. Bankr. Rep. 805, 96 Fed. 326; Cowan v. Burchfield (D.C.) 180 Fed. 614; Lovell v. Latham Co. *144
(D.C.) 211 Fed. 374. This is the effect of the act as to all property transferred by the bankrupt at any time in fraud of his creditors. In re Kohler, 159 Fed. 871, 87 C.C.A. 51; Barrett v. Kaigler, supra; Sparks v. Weatherly,
We may say further of transfers that are fraudulent under state statutes that such transfers may be avoided by the trustee, by authority of subdivision e, § 70, of the Bankruptcy Act, when a creditor could have avoided the same under the statute. Barrett v. Kaigler, supra; McMahon v. Pithan, 33 Am. Bankr. Rep. 125,
The trustee alone has the power to exercise this right to sue. This is the rule for the recovery of property transferred fraudulently by the bankrupt and belonging to the trustee; and, on the failure of the trustee to sue, it has been held that the right may not be transferred by him to a creditor. Ruhl-Koblegard Co. v. Gillespie, 22 Am. Bankr. Rep. 643,
In the case at bar, more than four months before his bankruptcy, the bankrupt conveyed his homestead to his wife, reciting a consideration of $5,000. If it was a fraudulent conveyance, it was the duty of the trustee to subject such property to the claim of the creditors, or rather subject the difference between the exemption allowed by the Alabama statute and the real value of the property at the time of the conveyance. This the trustee in bankruptcy did not undertake to do, but attempted to sell such right of action and to invest the purchaser with the right. If he may not sell the right of action to one of the creditors of the class having a right, claim, or lien in, to, or upon said excess valuation over the exemption, it would follow that the warrant of the statute does not exist in the trustee to sell the right of action for a pittance, or, as for that, for its true value, to a third party purchasing either at public or private sale. Loveland on Bankruptcy, § 149, p. 283. The wife acquired by the conveyance an absolute title to the property, if the conveyance was not fraudulent; and, if so, to the amount of the husband's exemption therein, for no wrong was done any creditor by his conveyance to his wife of such exempt property.
The construction of the bankruptcy statute by our court in Barrett v. Kaigler, supra, in which the expression is used, "the policy of the act is the equal distribution of all the property of the bankrupt among all his creditors entitled thereto. For this purpose the trustee represents all such creditors, and may maintain a bill to set aside a fraudulent transfer, just as any one of such creditors could have done, or just as any creditor could do thereafter in virtue of a right acquired by any process that may be taken by him" — will not permit the avoidance of duty on the part of the trustee to reduce the property to possession and to put it in proper form for distribution among his creditors, nor does this construction authorize a sale by a trustee of such "right of action" to a third party purchasing at a trustee's sale of the bankrupt's property and effects. The right of action in question, as we have observed, is a mere statutory power or right that the trustee alone can exercise. In Cartwright v. West, supra,
"He may, as a general rule, maintain all actions, both at law and in equity, for the recovery and preservation of the assets, both real and personal, of the bankrupt's estate that the bankrupt himself, but for the bankruptcy, could have maintained. Even more, he may maintain an action the bankrupt could not, where, as in the present case, he seeks to avoid conveyances made by the bankrupt in fraud of his creditors. In this latter instance it cannot be said that the trustee is a representative of the bankrupt, for he (the bankrupt) could not maintain such a bill, nor in any legal or equitable *145 proceeding become a beneficiary of his own fraudulent act."
Thus our cases tend to support the statement of the text by Mr. Collier in his recent edition on Bankruptcy (1917, p. 722), rather than the construction appellant seeks to impress upon the statute.
A case in point, from the Supreme Court of Maine, is Annis v. Butterfield,
"The defendants further contend that by the sale and assignment, even though it be in the form of a deed, no right passed to the grantee which he can now enforce. They urge that it was the assignment of a mere naked right to bring an action to set aside the conveyance to Mrs. Gates on the ground of fraud, and that such a right of action is not assignable, and the assignment cannot be enforced, either at law or in equity. This proposition of law is not controverted by the plaintiff. It is conceded that, if all that passed to the plaintiff was a mere right of action, the bill cannot be maintained. And such is the law. 2 Story's Equity (15th Ed.) 359; Prosser v. Edmunds, 1 Younge Coll. 481; De Hogton v. Money, L. R. 2 Chan. App. 164; Brush v. Sweet,
"Either the plaintiff obtained title to the premises from the trustee, or he did not. If he did not, then all that the deed conveyed was the naked right to attack the prior conveyance on the ground of fraud, and that, as we have already said, is neither assignable nor enforceable by the assignee. If he did obtain title as he claims, he is now the owner, and the fraudulent conveyance to Mrs. Gates constitutes only a cloud upon his title; but he is not in possession, and, as we have many times held, cannot, for this reason, maintain the bill. Robinson v. Robinson,
There is no warrant for a sale of such right of action, found in either of our recent decisions construing the Bankruptcy Act. Sparks v. Weatherly, supra; Cowan, Trustee, v. Staggs, supra; Leith v. Galloway Coal Co.,
It follows from the foregoing that the decree of the circuit court must be affirmed.
Affirmed.
ANDERSON, C. J., and MAYFIELD and SOMERVILLE, JJ., concur.