Haynes v. Thrift Credit Union

1. The wages of a bankrupt earned after adjudication do not come into the possession and exclusive jurisdiction of the Federal bankruptcy court; and a State court is authorized to protect such wages from the claims of a dischargeable debt scheduled in bankruptcy, pending the grant or refusal of a discharge by the bankruptcy court.

2. A motion to dismiss is the equivalent of a general demurrer, and an objection to a petition on the ground of nonjoinder of parties can not be raised thereby.

3. Where the trial court sustains a motion to dismiss which limits its attack upon the petition to the questions of jurisdiction and nonjoinder of parties, and these are the only questions passed upon by the trial court, this court will not pass upon the sufficiency of the petition to state a cause of action.

No. 13724. MAY 17, 1941. Carl Grady Haynes filed a petition for injunction against Thrift Credit Union and named officers of the credit union, in which he made the following allegations: On May 16, 1939, the plaintiff borrowed $700 from the Thrift Credit Union, and gave a note to secure the indebtedness. On the same date he executed a "salary-deduction order" authorizing the credit union to have the Southern Railway Company, his employer, deduct $15 from his salary each pay day, to be applied on the indebtedness. The plaintiff has been unable to procure a copy of the deduction order for the purpose of attaching it to the petition as an exhibit, but the defendants are familiar with and know the contents thereof. On July 17, 1940, he filed a voluntary bankruptcy petition in the district court of the United States for the Northern District of Georgia, and he was duly adjudicated a bankrupt by that court on October 30, 1940. He now has an application for discharge pending in that court. The note and the indebtedness in favor of the credit union was duly scheduled in the bankruptcy proceedings among the unsecured claims against the plaintiff, and the defendants were given notice as an unsecured creditor as required by law. The adjudication in bankruptcy and the discharge, when granted, will release the plaintiff from all liability on the indebtedness to the credit union. Nevertheless it has continued to make regular deduction from the plaintiff's salary, which is contrary to justice, law, and equity. The prayer was that the defendants be restrained for a period of eighteen months from October 30, 1940, or until such time as the plaintiff will receive his discharge in bankruptcy, from using the deduction order and causing to be made any deduction from his salary in connection with the indebtedness mentioned in the petition. On December 20, 1940, a temporary restraining order conforming to the prayer of the petition was granted. On January 15, 1941, the plaintiff moved to rule the defendants for contempt of court, because deductions were made from his pay checks on January 1 and January 15, 1941. The defendants answered this motion by stating that the employer remitted the salary deductions as usual, but that they had not applied the same to the note, and were holding the money subject to the order of the court. When the case came on for an interlocutory hearing the defendants moved that the petition be dismissed, because (1) the superior court does not have authority to decide whether or not the claim in question is a secured or unsecured claim, but this question should be decided by the bankruptcy court; and (2) because of non-joinder of the Southern Railway Company as a party defendant. The court sustained the motion upon both grounds, and dismissed the action and the contempt proceeding. The plaintiff excepted. 1. This case presents the question whether a bankrupt who before adjudication executed a "salary-reduction order" to secure a debt which is scheduled in bankruptcy is entitled to come into a State court for protection of his wages earned after adjudication against this salary assignment, pending the grant or refusal of a discharge in the bankruptcy court. One side contends that the bankruptcy court has exclusive jurisdiction of the matter, while the other contends that the State court has exclusive jurisdiction thereof. However, we believe that it is a matter which either court may determine. Although salary earned by the bankrupt after adjudication does not pass to the trustee and is not a part of the estate to be administered by the bankruptcy court (Rogers v. GeorgiaFinance Co., 58 Ga. App. 871, 200 S.E. 476; In re Brown, 4 F.2d 806; In re Kane, 48 F.2d 96; 8 C.J.S. 662, § 197), it has been held that the bankruptcy court has authority to protect salary earned after adjudication from claims which are dischargeable in bankruptcy. In re Lineberry, 183 Fed. 338; In re Fellows, 43 F.2d 122; In re Potts, 54 F.2d 144; In re Skorcz, 67 F.2d 187; Seaboard Small Loan Corporation v. Ottinger, 50 F.2d 856 (77 A.L.R. 956). As was stated in Local Loan Co. v. Hunt, 292 U.S. 234 (54 Sup. Ct. 695,78 L.ed. 1230, 93 A.L.R. 195), "one of the primary purposes of the bankruptcy act is to `relieve the honest debtor from the weight of oppressive indebtedness and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes.'. . This purpose of the act has been again and again emphasized by the courts as being of public as well as private interest, in that it gives to the honest but unfortunate debtor who surrenders for distribution the property which he owns at the time of bankruptcy, a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt." In that case it was held that an assignment of wages to be earned in the future, to secure a present debt, does not constitute a lien within the meaning of § 67(d) of the bankruptcy act (11 U.S.C.A. § 107(d)), excepting liens from the effect of the act, and is not enforceable after discharge, in respect of wages earned after adjudication. A discharge in bankruptcy relates to the date of adjudication; and it has been held that the bankruptcy court has authority under section 2, subsection 15, of the bankruptcy act (11 U.S.C.A., § 11 (15)), to protect the bankrupt against the collection of dischargeable debts during the period between adjudication and the grant or refusal of a discharge. In re Fellows, In re Skorcz, supra.

Having seen that it has been held that the bankruptcy court has jurisdiction of cases such as this, it remains to be determined whether this jurisdiction is exclusive. It is well recognized that the bankruptcy court has exclusive jurisdiction of all matters respecting property of the bankrupt which is in its possession. However, property acquired after adjudication does not come into the possession of the bankruptcy court. This fact caused it to be said in at least two cases that the State court is the only one authorized to grant the bankrupt relief by protecting property acquired after adjudication from pre-existing dischargeable claims. Brouwer v. Superior Court, 130 Cal.App. 163 (19 P.2d 834); In re Rashbaum, 4 F. Supp. 774. In the Brouwer case the court granted the bankrupt relief similar to that here sought. While we do not go so far as to say that the State court has exclusive jurisdiction of the matter, we do hold that the State court may entertain such a suit. Certainly the bankrupt would have the right to come into his State court and protect himself against pre-existing claims, after receiving his discharge in bankruptcy. He can plead his discharge in any suit in any State court in which suit the discharge would be a proper defense. If the circumstances require affirmative action by the discharged bankrupt, he may use the State courts to obtain the benefits of his discharge. Morris v. Perkins, 148 Ga. 554 (97 S.E. 526). What is true after the discharge is granted is also true during the period in which the application for a discharge is pending. A case very similar to the one here involved is that of Public Finance Co. v. Rowe, 123 Ohio St. 206 (174 N.E. 738, 74 A.L.R. 900). There the jurisdiction of the court was not questioned, and the State court granted the bankrupt the relief sought by enjoining a creditor, who held an assignment of future wages as security for a dischargeable debt, from interfering with his employment pending the determination of the bankrupt's discharge, and ordered the bankrupt's employer to pay to him the wages earned since his adjudication as a bankrupt. No reason appears why the State court should not have jurisdiction; and since the property involved is not in the possession of the bankruptcy court, it must be held that the judge erred in sustaining the motion challenging the jurisdiction of the court. This case differs on its facts from In re Cleapor, 16 F. Supp. 481, cited by the defendant in error. In that case the salary assigned was scheduled by the bankrupt as an asset, and, upon adjudication, came regularly into the custody of the bankruptcy court for disposition. It was properly said that the bankruptcy court had the sole power of determining the validity, amount, and method of liquidation of liens against such fund. After further holding that the debt there involved was discharged by the bankruptcy proceedings, the court held that it was authorized to enjoin a suit in a State court on the debt, and to determine the effect of the discharge in bankruptcy; but it will be noted that it said it was not "bound to exercise this authority."

2. A motion to dismiss is the equivalent of a general demurrer, and such a motion will not reach defects in pleading which may be cured by appropriate amendment. Minnesota LumberCo. v. Hobbs, 122 Ga. 20 (49 S.E. 783); Meads v.Williams, 55 Ga. App. 224 (189 S.E. 718). One of the grounds of the motion to dismiss in the instant case was that the Southern Railway Company should have been made a party defendant. An objection on the ground of nonjoinder of parties must be raised by special rather than general demurrer to the petition.Shingler v. Shingler, 184 Ga. 671 (192 S.E. 824), and cit. The motion to dismiss was insufficient to reach the question of nonjoinder, and it was error for the court to sustain this ground of the motion.

3. The motion to dismiss limited its attack upon the petition to the two grounds previously discussed, and these appear to be the only grounds ruled upon by the judge. Since the merits of the petition were not attacked by the motion and were not passed on by the judge, it would not be proper for this court, which sits for the purpose of reviewing rulings of the trial courts, to make any adjudication with reference to the sufficiency of the petition to state a cause of action. Blount v. MetropolitanLife Insurance Co., 190 Ga. 301 (4) (9 S.E.2d 65). This is not such a case as Barksdale v. Security Investment Co.,120 Ga. 388 (4) (47 S.E. 943), Huggins v. Southeastern Lime Cement Co., 121 Ga. 311 (48 S.E. 933), Hicks v. Hicks,186 Ga. 362, 365 (197 S.E. 878), and Coker v. Atlanta,186 Ga. 473 (198 S.E. 74), in which it appeared from the pleadings or evidence under consideration that the judge reached the right result although he may have given a wrong reason therefore. The pleadings in the instant case expressly limited the judge's consideration to the grounds on which he based his decision.

Judgment reversed. All the Justices concur.