Opinion
No. 41116.
September 28, 1959.
1. Courts — jurisdiction — bankruptcy — Blue Sky Laws — State court had jurisdiction of fraud action against trustee in bankruptcy of corporation and surety on bond filed pursuant to securities law notwithstanding fact that corporation was in bankruptcy and bankrupt had not been discharged.
In view of allegations of bill of complaint against surety on bond of bankrupt corporation, for damages sustained by plaintiffs as a result of their purchase of worthless stock in bankrupt corporation, that fraudulent representation were made to plaintiffs by stock salesmen of such corporation, and that a surety bond which was filed as a condition precedent to right of corporation to issue and sell its stock was filed for the protection of plaintiffs and others, against such fraud, Court had jurisdiction over the bill of complaint notwithstanding fact that corporation was in bankruptcy and bankrupt had not been discharged. Sec. 16, Bankruptcy Act; 11 U.S.C.A., Sec. 34; Sec. 5368, Code 1942.
Headnote as approved by McGehee, C.J.
APPEAL from the Chancery Court of Hinds County; S.V. ROBERTSON, JR., Chancellor.
Morse Morse, Jackson, for appellants.
I. The court below erred in dismissing appellants' cause of action on the ground that it had no jurisdiction of the suit. Armstrong v. Alliance Trust Co., 126 F.2d 164; Blankenhorn-Hunter Duling Co. v. Thayer, 199 Cal. 90, 247 P. 1088, 48 A.L.R. 797; Chicago Bank of Commerce v. Carter, 61 Fed. 986; Hanna v. Brictson Mfg. Co., 62 F.2d 139; Local Loan Co. v. Hunt, 292 U.S. 234, 78 L.Ed. 1230, 54 S.Ct. 695, 93 A.L.R. 195; Meed v. Centry County Baking Co., 268 U.S. 426, 69 L.Ed. 1028; Moore v. Hoffman, 327 Mo. 855, 59 S.W.2d 339, 75 A.L.R. 135; Muffler v. Petticrew Realty Co., 132 F.2d 479, Cert. Den. 319 U.S. 766, 87 L.Ed. 1715, 63 S.Ct. 1329; Nixon v. Michael, 38 F.2d 420; Schusmacher v. Beeligants, 293 U.S. 367, 79 L.Ed. 433, 55 S.Ct. 230; Smith v. Charles National Bank, 84 F.2d 608; Sylvan Beach v. Koch, 140 F.2d 852; Wood v. Wilbur Son, 226 U.S. 384, 57 L.Ed. 264; Ann. Cas. 1912d 1022; 11 U.S.C.A., Bankruptcy, Secs. 11, 29(a); 6 Am. Jur., Sec. 70 p. 608.
II. The court below erred in holding that bankruptcy of the Nu-Pine Corporation would relieve the surety on a Blue Sky Law of its obligation to pay. Bass v. Geiger, 73 Fla. 312, 78 So. 796; Byers v. Alcorn, 6 Ill. App. 39; Ex Rel Weems v. United States Fidelity Guaranty Co., 157 Miss. 740, 128 So. 503; Magruder v. Hattiesburg Trust Banking Co., 108 Miss. 857, 67 So. 485; Mississippi Power Co. v. May, 173 Miss. 580; New Amsterdam Casualty Co. v. Wood, 213 Miss. 499, 57 So.2d 141; Rosenthal v. Nove, 175 Mass. 559, 56 N.E. 884, 78 Am. St. Rep. 512; Smith v. Hudson, 50 Wis. 379, 6 N.W. 812; Winter v. Tempte, 234 Wis. 193, 290 N.W. 599; Sec. 34, Title 11, Bankruptcy Act; 3 F.C.A., Title 11, Secs. 34, 35 (a) 2; 11 U.S.C.A., Secs. 16, 35 (a); Secs. 255, 256, 5360-5390, Code 1942; Annos. 68 A.L.R. 1326, 133 A.L.R. 446, 17 A.L.R. 2d 1210 et seq.; 14 L.R.A. (N.S.) 508, 28 L.R.A. (N.S.) 234; Griffith's Mississippi Chancey Practice (2d ed.), Secs. 102, 110, 141.
III. The court below erred in holding that the state court was deprived of all jurisdiction under Chapter 4, Title 1, Section 5368 of the Mississippi Code of 1942 and all statutes pertaining thereto, and in holding that the Bankrupt Court would draw to it the relief under the Blue Sky Laws of the State of Mississippi. Mississippi Power Co. v. May, supra; New Amsterdam Casualty Co. v. Wood, supra; Warwick v. Meridian Hotel Co., 177 Miss. 611, 170 So. 820; Sec. 16 Bankruptcy Act; F.C.A., Title 11, Sec. 34; 11 U.S.C.A., Sec. 34; Sec. 5368, Code 1942.
No attorney listed for appellees.
This appeal is from an order of the Chancery Court of Hinds County dismissing the bill of complaint of the appellants Joe G. Rice and wife Adelle U. Rice against the Trustee in Bankruptcy of the Nu-Pine Corporation and the United States Fidelity Guaranty Company, surety on the bond of the said corporation under the provisions of Section 5368, Mississippi Code of 1942, and amendments thereof. The suit was dismissed on the ground that the Nu-Pine Corporation was in bankruptcy and that the said bankrupt had not been discharged, and that the federal district court therefore had jurisdiction in the matter.
The bill of complaint charged that the appellants were induced to purchase worthless stock in the Nu-Pine Corporation by reason of false and fraudulent misrepresentations made to them by the stock salesman of the said corporation, and that the appellee United States Fidelity Guaranty Company had executed a bond in the sum of $10,000 for the protection of the appellants and others against said alleged fraud, and that therefore the bankruptcy of the said corporation did not relieve its surety on its said obligation.
We do not have the benefit of any brief on behalf of either the surety or the trustee in Bankruptcy on this appeal, but we are of the opinion from the authorities cited by the appellants that the trial court erred in finally dismissing the suit for alleged lack of jurisdiction.
Title 11 of U.S.C.A., Section 34, provides: "The liability of a person who is a co-debtor with, or guarantor or in any manner a surety for, a bankrupt shall not be altered by the discharge of such bankrupt."
(Hn 1) We think that in view of the allegations of the bill of complaint as to fraud, against which the surety bond of the appellee United States Fidelity Guaranty Company was filed with the Secretary of State, as a condition precedent to the right of the corporation to issue and sell its stock, and for other reasons, the trial court was in error in dismissing the bill of complaint for alleged lack of jurisdiction, and that the case must therefore be reversed and remanded for further proceedings not inconsistent with the views heretofore expressed.
Reversed and remanded.
Lee, Kyle, Holmes and Arrington, JJ., concur.