Opinion
11-23-1855
TICHENOR v. ALLEN. TICHENOR v. MOSBY'S adm'r. TICHENOR v. CLOUGH'S adm'r. TICHENOR v. ELLETT.
Lyons and Patton, for the appellant, insisted: A. Johnston and Daniel, for the appellees, insisted:
1. A decree discharging a bankrupt from his debts under the act of congress of August 19th, 1841, is conclusive upon all his creditors in all suits which may be brought against him in any court, except where the discharge is impeached for some fraud or willful concealment by the bankrupt of his property or rights of property, contrary to the provisions of that act.
2. Creditors who have not proved their debts in the proceeding in bankruptcy, may institute suits to set aside fraudulent conveyances made by their debtor before he petitioned for the benefit of the bankrupt law; and may impeach his discharge in bankruptcy on the ground of fraud or the willful concealment of his property or rights of property contrary to the provisions of the act of congress; such suits being instituted more than two years after the decree of discharge in bankruptcy.
3. Such suits may be instituted in any court, state or federal, in which, independent of the bankrupt act, a suit may be properly brought against the bankrupt.[a1]
4. The limitation of two years after the decree in bankruptcy or after the cause of suit shall first have accrued, provided in § 8 of the bankrupt act, has relation to proceedings by or against the assignee in bankruptcy; and does not apply to suits by creditors who have not proved their debts to set aside fraudulent conveyances by the bankrupt. The only effect of this provision on such creditors is to prevent such a suit until the two years have expired. [a1]
5. A creditor of a discharged bankrupt who has not proved his debt in the proceeding in bankruptcy, may under the statute, Code, ch. 179, § 2, p. 677, file his bill to set aside a fraudulent conveyance made by the bankrupt and impeach his discharge on the ground of fraud or a willful concealment of his property, without having first recovered a judgment against the bankrupt. [a1]
6. In a bill by a creditor to set aside a conveyance of his debtor as fraudulent, a deed of trust having been given by the vendee to secure the purchase money, and the debtor and the trustee in the deed of trust stating in their answers that the bonds given for the purchase money had been assigned by the debtor before the institution of the suit to a person named, the plaintiff should be required to make such person a party to the suit, if upon a rule for the purpose, it appears he is an assignee of any of said bonds.
In the year 1839, and for years previous thereto, Ira Tichenor carried on the coachmaking business in the city of Richmond; and he had taken into partnership with him a certain Isaac L. Cary. On the 10th of October 1839 Tichenor executed to Benjamin W. Green two bonds, each for five thousand dollars; one of them payable on the 10th of October 1842 and the other on the 10th of October 1844; and both bearing interest from the date.
On the 19th of October 1839 the first of these bonds was assigned by Green to Joseph Allen, Tichenor having first assured Allen that it should be paid if he took it; and on the 24th of November following the second bond was assigned by Green to G. N. Clough.
On the 5th of March 1840 Tichenor and wife, in consideration, as expressed in the deed, of fifteen thousand dollars, conveyed to Isaac L. Cary one undivided moiety of a lot on Broad street in the city of Richmond, on which was situated Tichenor's coachmaking shop, with an undivided moiety of all the buildings thereon, and also one full moiety of all the vehicles of every description, and the harness complete, then in the shop aforesaid, and of all the tools and materials for carrying on the business.
By deed bearing date on the same day Cary conveyed to Gustavus A. Myers and Hamilton Crenshaw the undivided moiety of the lot and buildings aforesaid in trust to secure the payment of seven single bills, each for two thousand one hundred and forty-two dollars and eighty-one cents, and payable with interest on the 1st of January 1844, 1845, 1846, 1847, 1848, 1849 and 1850. Two of these bonds, with the deed to secure them, were assigned by Tichenor to Joseph Allen on the 1st day of July 1840.
On the 28th day of January 1841 Tichenor and wife, in consideration, as expressed in the deed, of fifteen thousand dollars, conveyed to Cary the other undivided moiety of the said lot and the buildings thereon. And on the same day Cary conveyed the same to James Beale and Robert G. Scott in trust to secure three bonds of five thousand dollars each, payable with interest on the 28th of January 1843, 1844 and 1845. All these deeds were regularly admitted to record.
On the 5th of June 1841 the Bank of Virginia recovered a judgment against Tichenor for two hundred dollars, with interest from the 21st of October 1839 until paid; and he having been taken in execution upon this judgment, on the 8th of October 1841 took the oath of an insolvent debtor, and was discharged from custody; having declared in his schedule that he had no effects, either real or personal, or debts due to him.
In February 1842 Tichenor applied by petition to the judge of the District court of the United States for the eastern district of Virginia for the benefit of the bankrupt law. In the schedule of his debts accompanying his petition are debts acknowledged by him to be justly due to the Bank of Virginia and James D. Ellett. Then follows a list of debts which he says are claimed of him, but their justice is denied. Of these are the debts due to Allen and Clough of five thousand dollars each, aud another due to John Mosby of one thousand two hundred dollars. In the schedule of his assets he states that having been constrained to take the oath of an insolvent debtor under the laws of Virginia during the fall of 1841, he had no property of any kind and no debts due to him.
Upon his petition Tichenor was declared a bankrupt, and a commissioner was directed to report an account of his debts. This report was made in July 1842, from which it appears that notice was given to all the creditors, but that none of them appeared before the commissioner to prove their debts. On the 13th of July the decree was made discharging the said Tichenor from all his debts.
In March 1852 Joseph Allen instituted a suit in the Circuit court of Richmond against Tichenor, Cary, Beale and Scott, the trustees in the second deed of trust, and the Bank of Virginia. In his bill he stated the execution of the bond for five thousand dollars by Tichenor to Green, and its assignment by Green to himself; and charged that Tichenor, with a knowledge of that assignment, with intent to defraud him, in fraudulent concert with Cary executed the deed of the 28th of January 1841 to Cary for the pretended consideration of fifteen thousand dollars; and that for the pretended purpose of securing the purchase money in three installments of five thousand dollars each, Cary had executed the deed of trust to Beale and Scott. He charged that the consideration for which the deed purports to be made was false and fictitious; that it never was intended that Cary should pay that money or any money for the property, for that he was without the means to pay for it. That the object of Tichenor and Cary in making the deeds, was to hold Cary out to the world as the owner of the property, whilst it would remain as it did remain, the property of Tichenor. That when taken under the execution sued out by the Bank of Virginia Tichenor had given in a schedule stating that he had no property or debts due him, which statement was charged to be false, and was made in continuation of the same fraudulent intent; and that he then was and continued still to be the owner of the property. That the trustees had never been called upon to execute the trust, though it could not be pretended that Cary had paid the money. And that Tichenor had continued ever since the execution of the deeds in the occupation of the property and to hold and enjoy it as his own.
The bill stated the application by Tichenor for the benefit of the bankrupt law of the United States, and his discharge by the decree of the District court of the United States; and insisted that it afforded no bar to the plaintiff's suit, because of the fraud and willful concealment by Tichenor of his property, contrary to the provisions of said act. And it proceeded to specify the fraud and concealment, as consisting in concealing his property in said lot and buildings; or if there was a sale to Cary, in concealing his property in the bonds given for the purchase money: And also that he fraudulently omitted to embrace in the schedule accompanying his petition in bankruptcy a large amount of personal property belonging to him, consisting of carriages, harness, tools and stocks of raw materials used in the coachmaking business.
The bill further stated that the proceedings in bankruptcy in the case of said Tichenor had long since terminated. That no step had been taken by Edmund Christian, the assignee in bankruptcy, in said proceedings, or by any creditor therein, or at his instance, to assert any claim against the property herein before mentioned, or to recover the same, or against Cary or Tichenor or any one else in respect thereof or of the bonds aforesaid. Nor was any objection made in the course of said proceedings, that Tichenor had not surrendered the said property or bonds in his schedule; and that much more than two years had elapsed since Tichenor was declared a bankrupt, and since his discharge and the final termination of all proceedings in the case; and that all such proceedings were then barred by the eighth section of the act of congress before referred to. That the plaintiff was no party to the said proceedings, and in no wise bound thereby. That Christian was dead, and that there was then no assignee in his place.
The bill prayed that if Tichenor relied on his certificate of discharge as a bankrupt, it might be declared null and void. That the two deeds of January 28th, 1841, might be set aside as null and void; and that after satisfying the debt of the Bank of Virginia, the property embraced in said deeds might be subjected to the plaintiff's debt; and for general relief.
Tichenor answered the bill. He stated the first sale and conveyance of one moiety of the lot, & c., the execution of seven bonds, the payment of two of them by Cary, and the assignment of the other five bonds to David Hayes of the state of New Jersey, who had assigned them to David A. Hayes. That he (Tichenor) assigned the bonds to David Hayes in part satisfaction of a large indebtedness to the said David Hayes, then bona fide and really existing. That in 1841, finding himself involved in pecuniary difficulties, he sold the other moiety of said lot and buildings to Cary at the price of fifteen thousand dollars, for which Cary executed his three bonds each for five thousand dollars; and that the deeds of January 28th, 1841, were executed. That these bonds were also assigned to David Hayes, who had assigned them to David A. Hayes, who was then the bona fide holder of them. That David Hayes had since died. That these assignments were made on account of a debt which respondent owed to David Hayes. And he denies all fraud in the said deeds and assignments.
He further alleged that the plaintiff had no legal or just demand against him. That though it was true he executed the bond to Green, he in fact executed it for the accommodation of Green, who was to pay the bond when it became due: And he states that he has been informed that the bond was assigned by Green to the plaintiff as a collateral security for certain claims which have been discharged; and that Allen therefore had no right to the bond. He further pleaded his discharge as a bankrupt, and filed the decree of discharge; and he also relied upon the lapse of time. He denied that he had concealed his property or effects from his just creditors, or that he had resorted to any fraudulent means to defeat their claims. He said that the claim on Cary was no longer his; but belonged to David A. Hayes of New Jersey.
Beside the papers referred to in the bill and answer in this case, several depositions were filed in May 1852, which showed that Cary had no means with which to purchase the property mentioned in the deeds to him; and that he had paid no part of the purchase money. That from 1840 to 1846 he was frequently sued for small sums, and though in the early part of that period he paid when sued, towards the latter period he failed to pay, and finally took the benefit of the act for the relief of insolvent debtors, upon an execution issued by a justice for a sum less than twenty dollars. Wellington Goddin, who was plaintiff as administrator in another suit which will be mentioned presently, stated that Cary informed him that the object of the sale was to avoid the payment of some debt to Joseph Allen; and his impression from that conversation was that the purchase money was not intended to be paid, but that the sale was only intended to avoid the payment of Tichenor's debts. To this evidence Tichenor excepted. It also appeared that for a time after 1840 the property seemed to be in the joint possession of Tichenor and Cary, but that for some years prior to 1852 it had been in the possession of Tichenor. The trustees had never been required to execute the trust before the suit was brought, except by Allen, and they had never heard of any other owner of the bonds but Tichenor, except the two secured by the first deed which had been assigned by Tichenor to Allen.
In January 1853 Scott, one of the trustees in the second deed of trust, answered the bill. He said that he knew of no fraud or fraudulent design in making the said deed. That he had been informed that Tichenor had assigned Cary's bonds to David Hayes, who had assigned them to David A. Hayes. That Tichenor by his answer had disclosed the facts of said assignments; and although respondent and his co-trustee were on several occasions in the last year required by David A. Hayes to execute the trust, as he was no party to the suit, yet feeling anxious only to act in such manner as to do justice to all parties, and under the hope and expectation that the plaintiff would make said Hayes a party to the suit, no action was taken under said requisitions until lately. That the trustees delayed proceeding, until finding no action taken to make said Hayes a party, and he having forwarded to them the bonds of Cary with the assignments thereon, with a peremptory requisition to proceed and execute the trust, they did, in December 1852, advertise the property for sale, and shortly after the appearance of said advertisement, the plaintiff and others inserted a notice of the pendency of their suits for setting aside said deed as fraudulent. That this induced the trustees to postpone the sale, stating the fact of the assignment, and renewing the notice that the property would be sold unless they were restrained by the order of some court of competent jurisdiction. That nothing having been done by the plaintiff and the other creditors of Tichenor, the sale was made on the 3d of January 1853, under the said deed of trust, at public auction, when the property was purchased by the agent of David A. Hayes, at the price of five thousand eight hundred dollars, and the trustees would proceed that day to execute to him a conveyance for the same. That the bonds of Cary, with the assignments made by Tichenor to David Hayes, and by David Hayes to David A. Hayes, were enclosed to the trustees in a letter from David A. Hayes, some months before, and were then in respondent's possession, and would be exhibited to the court whenever desired. The advertisements referred to in the answer were filed with it.
After the commencement of the suit of Allen, Wellington Goddin, as administrator with the will annexed of John Mosby deceased, instituted a suit in the same court against all the parties to Allen's suit, including Allen himself. In his bill he stated that his testator, John Mosby, recovered a judgment against Tichenor for one thousand two hundred and fifty-seven dollars and sixty-seven cents, with interest, which remained unpaid. He then set out both the deeds of Tichenor and wife to Cary, and the deeds of trust and all the other facts stated in Allen's bill; and he charged that all the deeds were fraudulent, and intended to delay and hinder the creditors of Tichenor in the recovery of their debts. He charged that Tichenor's discharge in bankruptcy was obtained by a fraudulent concealment of his property; and the other allegations were substantially the same as in Allen's bill.
Tichenor's answer and the grounds of defense were the same as in the previous case; and he stated the assignments to David and David A. Hayes, as in that case.
Allen, in his answer, stated that he was the assignee of two of the notes given on the first purchase by Cary, which notes he held as collateral security for the note of five thousand dollars, which had been executed by Tichenor to B. W. Green, and by Green assigned to him for value, with the knowledge and concurrence of Tichenor; and he insisted that he became the assignee of the said two notes, with full knowledge of the assignment on the part of Cary, and without any knowledge at the time he took said assignments of the alleged fraudulent transaction between the said Tichenor and Cary, in which the said notes are said to have originated. And he insisted that he was entitled to the protection extended to a purchaser for value without notice. The evidence in this cause was substantially the same as that in the previous case of Allen.
There were two other cases, one by John D. G. Brown, as administrator of George N. Clough deceased, claiming as a creditor of Tichenor by one of the bonds for five thousand dollars before mentioned, executed on the 10th of October 1839 to B. W. Green, and by Green assigned to Clough; and the other by James D. Ellett, claiming a debt of two hundred and fifty dollars, with interest, for which he had recovered a judgment against B. W. Green and Tichenor. The charges in these cases and the defenses are similar to those in the case of Mosby's administrator; and need not be set out. The evidence was likewise substantially the same.
On the 5th of February 1853 the Bank of Virginia filed its answer in all the cases, stating that Tichenor had taken the oath of an insolvent debtor at the suit of the bank, and that the debt was still unpaid: And the trustees, Beale and Scott, also filed a plea in each case: That the court had no jurisdiction of the causes:
1st. Because, that after the making and recording the several conveyances in the bill mentioned, Tichenor became a bankrupt, and was, on the 19th of August 1842, so declared and discharged from all his debts, and duly certificated.
2d. Because, by the act of congress of the United States establishing a system of bankruptcy, it is provided that no suit touching the rights and property of a bankrupt shall be instituted after the lapse of two years from the decree of bankruptcy; and that more than two years did elapse after the decree declaring the said Tichenor a bankrupt was rendered before the institution of this suit.
The answer of Scott was taken as the answer of both the trustees in all the causes.
On the same day the four causes came on together to be heard, when the court held that both the deeds from Tichenor and wife to Cary, and the two deeds of trust executed by Cary were fraudulent and void as to the creditors of Tichenor. That Allen, as assignee of Tichenor, of the two notes secured by the deed of trust of the 5th of March 1840, was not entitled to the benefit of that security. That the trustees in the deeds being before the court, it was not necessary, under the circumstances, that David A. Hayes, as assignee of the bonds secured by the deeds of trust, should be a party. That it was competent for the plaintiffs, as creditors of Tichenor, who had not proved their debts before the commissioner in bankruptcy, to impeach his discharge as fraudulent. That the limitation of two years in the bankrupt act did not apply to these cases. And that the court had jurisdiction to grant relief in the cases. There was thereupon a decree in favor of each of the plaintiffs and the Bank of Virginia against Tichenor for the amount of their respective debts. And it was further decreed, that if Tichenor did not pay the sums so decreed against him within six months, a commissioner named should proceed to sell the real estate embraced in the deeds aforesaid, in the manner and upon the terms specified in the decree, and deposit the proceeds in one of the banks in Richmond, and make report to the court.
After the foregoing decree had been made, David A. Hayes applied to the court by petition, stating that he was the owner of the real estate mentioned in the deeds aforesaid, by purchase and conveyance to him; and asking that no decree affecting his rights in the said property might be rendered, until he had been made a party in said causes, and allowed the privilege of defense. This petition the court disallowed. And thereupon Tichenor applied to this court for an appeal, which was allowed.
Lyons and Patton, for the appellant, insisted:
1st. That David A. Hayes was a necessary party. That he was the assignee of the bonds to secure which the deeds of trust were executed, and the decree took from him the property upon which he claimed a lien without giving him an opportunity of defending his interest. They referred to Calvert on Parties, p. 1, 2, 17, 17 Law Libr.; Story's Equ. Plead. § 137, 153, 201; Milf. Plead. p. 73; Chowning v. Cox, 1 Rand. 306; Clark v. Long, 4 Rand. 451.
2d. That by § 8 of the bankrupt act, suits are barred after two years; and here these suits were not brought for ten years after Tichenor's discharge as a bankrupt.
3d. That the discharge of Tichenor was conclusive on all his creditors, whether or not they proved their debts before the commissioner in bankruptcy; unless it could be shown in the proper proceeding that it was procured by fraud. Dusar v. Murgatroyd, 1 Wash. C. C. R. 13; Peck v. Jenness, 7 How. U. S. R. 612; Colby v. Ledden, Id. 626; Eden on Bankr. 413. That Mosby having obtained his judgment pending the proceedings in bankruptcy, stood on no better footing than those creditors who had no liens. Clark v. Rowling, 3 Coms. R. 216; Fox v. Woodruff, 9 Barb. Sup. C't R. 498. That the fraud which will avoid the discharge must be a fraud in procuring it; and not a fraud perpetrated long before and without any view to such discharge in bankruptcy. Powell v. Knox, 16 Alab. R. 364; Ragly v. Robinson, 19 Alab. R. 404; Shawhan v. Wherritt, 7 How. U. S. R. 627.
4. That by the decree declaring Tichenor a bankrupt, all his property was vested in the assignee in bankruptcy, and only the assignee in bankruptcy, in whom the property was vested, could sue for it. If indeed he refused to sue, the creditors might do so; but the creditors who could thus sue are the creditors who had proved their debts, as they alone were entitled to have the property subjected to the payment of their debts. Richards & als. v. Maryland Ins. Co. 8 Cranch's R. 84.
5th. That there was no fraud in the sales to Cary. The property was sold for its full value, and bonds taken for the purchase money, with deeds of trust to secure them. It was difficult to understand how such a transaction could be fraudulent. As to the statements of Cary to Goddin, they were incompetent evidence as against Tichenor; and Goddin being plaintiff in one of the cases, was an incompetent witness.
6th. That even if there was fraud between Tichenor and Cary, there was no proof that the assignee Hayes was a participant in it, or had any knowledge of it. And without bringing home the fraud to him as an assignee for value, he was entitled in equity to the benefit of the deeds of trust as securities for the debts due to him. Moore v. Holcombe, 3 Leigh 597.
7th. That the Circuit court had no jurisdiction to determine the questions involved in these causes, but that the subject was only cognizable in the courts of the United States. They referred to § 3, 4, 5 of the bankrupt act; Sturges v. Crowningshield, 4 Wheat. R. 122; Ogden v. Saunders, 12 Id. 213; Golden v. Prince, 3 Wash. C. C. R. 313; Eames, ex parte, 2 Story's C. C. R. 322; Newhall, ex parte, Id. 360; Christy, ex parte, 3 How. U. S. R. 292; Norton v. Boyd, Id. 426; Houston v. City Bank of New Orleans, 6 Id. 486; Shawhan v. Wherritt, 7 Id. 627.
A. Johnston and Daniel, for the appellees, insisted:
1st. That the deeds from Tichenor to Cary were fraudulent and void as to creditors; and they reviewed the facts bearing upon that question. As to the admissions of Cary, they referred to Babb v. Clemson, 10 Serg. & Rawle 419; Platt Card v. Walbridge, 18 Ohio R. 411; Claytor v. Anthony, 6 Rand. 285.
2d. That the deeds being fraudulent, Tichenor was guilty of a fraudulent concealment of his property in his application for the benefit of the bankrupt law, and by the terms of the statute his discharge did not protect him. And that this fraudulent concealment of his property might be set up in any court where the discharge was relied on as a defense. They referred to Chapman v. Forsyth, 2 How. U. S. R. 202; McLouth v. Rathbone, 19 Ohio R. 21; Alcott v. Avery, 1 Barb. Ch. R. 347; Suidam, Read & Co. v. Walker & als. 16 Ohio R. 122; Mabry, Giller & Walker v. Herndon, 8 Alab. R. 848; The State v. Bethune, 8 Ired. Law R. 139; Bond & Bennett v. Baldwin, 9 Georgia R. 9; Tuway v. Bourn, 2 Burr. R. 716.
3d. That the state court had jurisdiction to impeach the deeds for fraud at the suit of the creditors of Tichenor, especially those creditors who had not proved their debts before the commissioner in bankruptcy. Christy, ex parte, 3 How. U. S. R. 292; Norton v. Boyd, Id. 426; Mace v. Wells, 7 Id. 272; Peck v. Jenness, Id. 612; Strader v. Baldwin, 9 Id. 261; Linton v. Stanton, 12 Id. 423; Hubbell v. Cramp, 11 Paige's R. 310; Lowry v. Morrison, Id. 327; Platt Card v. Walbridge, 18 Ohio R. 411; Davenport v. Bartlett, 9 Alab. R. 179.
4th. That the limitation of two years, prescribed in the 8th section of the statute, only relates to suits by the assignee; and the assignee not having sued in that time, so that his right to sue was at an end, the right of creditors then to sue was revived. Mabry, Giller & Walker v. Herndon, 8 Alab. R. 848, 863; Deadrick v. Armour, 10 Humph. R. 588; Mitford v. Mitford, 9 Ves. R. 87.
5th. That the allegation that Hayes was assignee of the bonds secured by the deeds of trust was an affirmative allegation, which should have been proved; but there was no proof of the fact in the record. Tennant v. Pattons, 6 Leigh 195; Corbin v. Emmerson, 10 Id. 663; Breckenridge v. Auld, 1 Rob. R. 148, 156. That the suggestion in the answers of Tichenor and Scott was not sufficient to induce the court to require the plaintiffs to amend their bills and make Hayes a party. Barbour v. Whitlock, 4 Monr. R. 180; West v. Sanders, 1 A. K. Marsh. R. 108. That Hayes' application to be made a party was in the character of a purchaser of the property, and as such he was a purchaser pendente lite, and not entitled to be made a party. Morton v. Long, 3 A. K. Marsh. R. 415; Barbour v. Whitlock, 4 Monr. 180; West v. Sanders, 1 A. K. Marsh. R. 108; Rugely v. Robinson, 19 Alab. R. 404; Camack v. Bisguay, 18 Id. 286.
DANIEL, J.
The first question which we have to decide, is that raised and disputed in the several bills and answers, as to the effect of Tichenor's discharge and certificate as a bankrupt. On the part of the appellees, it is charged that Tichenor " was guilty of fraud and willful concealment of his property and rights of property," in several particulars specified in the bills; and they insist that his discharge and certificate consequently present no bar to the recovery which they seek. Whilst he, denying all fraud and concealment, relies on the said discharge and certificate as a complete bar, and insists that though it should be made to appear that the allegations of fraud and concealment were true, there would still be no ground laid for the jurisdiction of the Circuit court.
The fourth section of the bankrupt act of 1841 declares, that " every bankrupt who shall bona fide surrender all his property and rights of property, & c. shall be entitled to a full discharge from all his debts, to be decreed and allowed by the court which has declared him a bankrupt, and a certificate thereof granted to him accordingly, upon his petition filed for that purpose. Such certificate not, however, to be granted until after ninety days from the decree of bankruptcy, nor until after seventy days' notice in some public newspaper designated by such court, to all creditors who have proved their debts, and other persons in interest, to appear at a particular time and place, to show cause why such discharge and certificate shall not be granted; at which time and place any such creditors or other persons in interest may appear and contest the right of the bankrupt thereto. Provided, that in all cases where the residence of the creditor is known, a service on him personally, or by letter addressed to him at his known usual place of residence, shall be prescribed by the court, as in their discretion shall seem proper, having regard to the distance at which the creditor resides from such court. And if any such bankrupt shall be guilty of any fraud or willful concealment of his property or rights of property, or shall have preferred any of his creditors contrary to the provisions of this act, or shall willfully omit or refuse to comply with any order or direction of such court, or to conform to any other requisition of this act, or shall, in the proceedings under this act, admit a false or fictitious debt against his estate, he shall not be entitled to any such discharge or certificate." If the section stopped here, there would, I think, appear strong ground for maintaining that it was the intention of the act to make the decree allowing the discharge binding, not only on the creditors who might prove their debts, but on all other persons in interest, who had an opportunity of contesting it, and conclusive as well in respect to questions of fraud or willful concealment of his property by the bankrupt, as in relation to any of the other matters which the act allows to be urged as causes for refusing the discharge. It is difficult to conceive on whet principle a creditor who had proved his debt, and who had unsuccessfully contested the right of the bankrupt to a discharge, on the ground of his refusal to comply with " some order or direction of the court," could be heard to dispute the validity of the discharge on the same ground in another forum. And I do not perceive how a creditor, who is served with notice of the proceedings, but declines to make any objection, stands on higher ground in this regard. And if this be so, there is, in this portion of the section, nothing which reserves to any of the creditors a right to impeach the discharge, after it is obtained, for " fraud or willful concealment." All the creditors are allowed to contest the right of the bankrupt to a discharge; and all the conditions to be complied with on his part, before his right to the decree is perfected, are placed in the same category; the creditors have the same right to show his failure to perform any one of these conditions as they have to show his failure to perform any other of them. His right to have a decree might be defeated by showing a willful refusal on his part to comply with " the orders of the court," as effectually as by proving a " willful concealment of his property." And when the bankrupt shows that he has made a bona fide surrender of all his property, and otherwise obeyed all the other requisitions of the act, this portion of the section declares him to be entitled to a full discharge from all his debts. If, therefore, the act said nothing further in relation to the discharge, the jurisdiction of the court being conceded, the conclusiveness of the decree, on all the creditors who might have resisted its allowance, and in respect to all prerequisites, (including absence of fraud on the part of the bankrupt,) would seem, on general principles, to follow as a legitimate consequence. But the section, a part of which we have already quoted, does not stop here. It proceeds, in terms, to declare what shall be the legal effect of the discharge and certificate, and in doing so, presents an entirely different view of the influence of fraud or willful concealment by the bankrupt, on their conclusiveness. It declares, that " such discharge and certificate, when duly granted, shall, in all courts of justice, be deemed a full and complete discharge of all debts, contracts and other engagements of such bankrupt, which are provable under this act, and shall be and may be pleaded as a full and complete bar to all suits brought in any court of judicature whatever; and the same shall be conclusive evidence of itself in favor of such bankrupt, unless the same shall be impeached for some fraud or willful concealment by him of his property or rights of property as aforesaid, contrary to the provisions of this act, on prior reasonable notice, specifying in writing such fraud or concealment."
This clause of the section, it is perceived, is wholly silent as to all the matters mentioned as prerequisite to the discharge, except the bona fides of the conduct of the bankrupt. The discharge is declared liable to impeachment for his " fraud or willful concealment," but for nothing else. To that extent, and to that extent only, a conclusive character is denied to the discharge; but is it not denied to that extent fully and in all regards? What is there in the terms employed which would exclude any creditor from the benefit of this proviso? I can perceive none. And I can conceive of no process of reasoning, founded on this section of the act, which would place a creditor in the predicament to be bound by the discharge in other respects, that would not at the same time show him entitled to impeach the discharge for fraud. If the design to debar any of the creditors of the bankrupt of this right is to be found in the act, reference must be had to some other section for its disclosure. I have been unable to discover any language in the act, which, by fair interpretation, can be regarded as having such an aspect, unless perhaps it may be found in one of the clauses in the proviso to the 5th section. That section, after declaring that all creditors, who shall come in and prove their debts in the manner prescribed by the act, shall be entitled to share in the bankrupt's property and effects, provides, among other things, " that no creditor or other person, coming in and proving his debt or other claim, shall be allowed to maintain any suit at law or in equity therefor, but shall thereby be deemed to have waived all right of action and suit against such bankrupt." Whether this clause is to be construed into an inhibition on any of the creditors to open the discharge for fraud, is a question which it is obviously unnecessary for us to decide. Such inhibition can, by the terms of the clause, reach only those creditors who come in and prove their debts; and, as appears by the report of the commissioner in bankruptcy, none of the appellees (indeed none of Tichenor's creditors) proved or appeared to prove their debts.
The same clause of the fourth section, which declares the effect of the discharge, ascertains clearly, as I conceive, the tribunals or " courts" in which the impeachment of the discharge for fraud may be had. Jurisdiction over the matter is, by obvious implication, conferred on every court in which a suit may, independent of the act, be properly brought against the bankrupt. In the language of the court in the case of Mabry, Giller & Walker v. Herndon, 8 Alab. R. 857, " I cannot understand, by the terms ‘ all courts of justice,’ and ‘ any court of judicature whatever,’ that none other than the federal courts are competent to entertain an objection to the validity of the discharge and certificate of a bankrupt. In employing words of most extensive application and import, when every thing said was, or at least should have been, well considered, it cannot be contended that congress designed to convey a meaning much more limited than is expressed. The fair and natural inference is, that as the discharge and certificate, when duly granted, were effectual in all judicial tribunals in which they should be drawn in question, so they should be invalid in every court in which the bankrupt was sued and relied on them as a bar, if impeachable for any of the causes for which they are declared to be inoperative. If competent for congress to have withheld from the state courts the right to examine the validity of a bankrupt's discharge for extrinsic objections, it is enough to say that this has not only not been done, but that the power has been conferred in terms of unequivocal signification."
These views are fully sustained by numerous decisions of the supreme courts of other states, and are not in conflict with any decision of the Supreme court of the United States which I have seen. Bond & Bennett v. Baldwin, 9 Georgia R. 9; Beekman v. Wilson, 9 Metc. R. 434; Gupton v. Connor & c. 11 Humph. R. 287; Humphreys v. Swett, 31 Maine R. 192; Wales v. Lyon, 2 Mich. R. 276; Dorimus, Suidam & Co. v. Walker, 8 Alab. R. 194.
It seems to me, therefore, that it was competent for the appellees to impeach Tichenor's discharge and certificate on the grounds of fraud alleged in the bills, and that the Circuit court had jurisdiction over the question of its validity.
And I do not perceive how the decree in bankruptcy operated as any bar to the jurisdiction which the Circuit court would otherwise have had to hear and determine the matters of controversy, litigated in the cause, in respect to the property conveyed by the several deeds in the bills and proceedings mentioned. It is true that all the property and rights of property of Tichenor were, upon his obtaining the decree declaring him a bankrupt, vested in his assignee in bankruptcy. And it may be conceded that there was a period during which it was competent for the assignee to have instituted suits for the purpose of recovering from any alienee or assignee of Tichenor, property or evidences of debt held by them in virtue of conveyances or assignments made by him, in fraud of his creditors, previously to his being declared a bankrupt; and that during such period such alienees and assignees might have relied on the outstanding title of the assignee in bankruptcy as a defense to suits instituted for a like purpose by creditors of Tichenor seeking to recover in derogation of such title. But that period had passed long before the institution of this suit, the right of the assignee to institute suits for the purpose of recovering the property of the bankrupt, from the adverse holders of it, being, by the 8th section of the bankrupt act, limited to two years after the decree of bankruptcy, or after the cause of suit shall first have accrued. During that period no suit was instituted by him to recover the property in controversy; nor indeed did any exigency arise making it necessary for him, in the performance of the duties of his trust, to institute such suit, as none of the creditors came in to prove their debts; no occasion presented itself calling for the prosecution of the rights of action with which he was temporarily clothed, and they were suffered to expire under the limitation imposed by the law which conferred them.
The creditors who are seeking to subject the property of Tichenor to the payment of their demands, claim nothing by virtue of his assignment in bankruptcy. They do not invoke the aid of the bankrupt law, nor do they seek to interfere with any right of the assignee under it. The appellees, Ellet and the Bank of Virginia, are seeking to enforce liens which had been acquired by them under the laws of the state before Tichenor was declared a bankrupt. Such liens, so far from being invalidated by the act, are expressly recognized in the proviso of the second section; and it is now well settled that the jurisdiction of the federal courts to enforce such liens, is not in exclusion of a like jurisdiction in the state courts. Russell v. Cheatham, 8 Smeades & Marsh. 703; Talbert v. Melton, 9 Id. 9; McCance v. Taylor, 10 Gratt. 580. The jurisdiction of the Circuit court to extend to the appellees Allen, Mosby's administrator and Clough's administrator, the aid sought by them in their several bills, in subjecting Tichenor's property to their demands, is, I think, equally clear, and equally free from the objection of involving an encroachment on the rights of the assignee in bankruptcy, or any claiming under him. The claim of Mosby's administrator is founded on a judgment obtained against Tichenor in 1842, since the decree in bankruptcy; and upon showing that Tichenor's discharge was procured by fraud, the right of Allen and of Clough's administrator to obtain judgments against him upon their debts, would stand on the same footing as if he had never been declared a bankrupt; and for all the purposes of the jurisdiction of a court of equity, the second section of the 179th chapter of the Code of 1849 places them (on proof of their allegations) on the same footing as if they had obtained judgments against Tichenor before filing their bills. To enforce such judgments against the property of Tichenor in the hands of his fraudulent alienees, would now, on account of the facts already adverted to, defeat no purpose or policy of the bankrupt law, nor interfere, in any manner, with the right of the bankrupt court to administer the assets of the bankrupt.
In a suit brought by the assignee in bankruptcy or any claiming under him, the alienees of Tichenor might rely on the limitation of two years prescribed for such suits. But such defense, so far from presenting a bar to the claims of the creditors in this suit, just mentioned, shows a state of facts remitting them to the rights which they had before the decree in bankruptcy, and protecting the alienees from all danger of being subjected to a double recovery. No effort has ever been made by the assignee in bankruptcy, or any claiming under him, to disturb Cary or his trustees, or the assignees of his bonds, in the enjoyment of any rights which they may have acquired by the conveyances and assignments under which they claim; and no effort of the kind could now be of any avail. They are no longer exposed to demands founded on the proceedings in bankruptcy, and they can no longer set up those proceedings as a defense against those creditors of Tichenor who are in a condition to enquire into the fairness and validity of his conveyances and assignments. It seems to me that the Circuit court had full jurisdiction of the controversy, and power to determine the conflicting claims of the parties, uninfluenced by the proceedings in bankruptcy. But it seems to me that the Circuit court erred in proceeding to render a decree in the absence of David A. Hayes. Upon the supposition of the truth of the averments contained in the answers of Tichenor and the trustee Scott, he may have most important interests in the controversy, rendering it proper that he should be made a party before the subject is disposed of. For though the deeds from Tichenor to Cary and from Cary to his trustees should, upon a final hearing of the cause, be adjudged to be void as to the creditors of Tichenor, it would not, I think, necessarily follow that assignees, for value without notice, of the bonds given by Cary, might not have a better right to subject the property to the payment of the bonds than any creditor of Tichenor, who did not claim by some lien on the property, acquired prior to the execution of the deeds. No proof was offered of the assignment to Hayes, other than the affidavits of Tichenor and Scott.
These affidavits, however, furnished a sufficient ground for justifying and requiring the court to make a rule on the plaintiffs in the several suits, to show cause why the said Hayes should not be made a party.
And without expressing any opinion as to the extent and nature of the interests in the cause, which may be held by Hayes, or by Allen as assignee of the two bonds which he claims to hold as collateral security for the debt claimed by him in his bill, I think that the cause should be remanded in order that, unless the plaintiffs in the several bills will amend them, and make Hayes a party thereto, they be compelled to do so, if, upon the hearing of a rule to show cause why they should not make him a party, first granted, it shall appear that the said Hayes is an assignee of any of the bonds given by Cary to Tichenor, as averred in the answers of Tichenor and Scott; and in order for further proceedings, & c.
The other judges concurred in the opinion of DANIEL, J.
DECREE REVERSED.
[a1] See the opinion of Judge DANIEL for the statute.
[a1] See the opinion of Judge DANIEL for the statute.
[a1] Code, ch. 179, § 2, p. 677. " A creditor, before obtaining a judgment or decree for his claim, may institute any suit to avoid a gift, conveyance, assignment or transfer of or charge upon, the estate of his debtor, which he might institute after obtaining such judgment or decree; and he may in such suit have all the relief in respect to said estate which he would be entitled to after obtaining a judgment or decree for the claim which he may be entitled to recover."