Virginia-Carolina Chemical Co. v. Rylee

Evans, P. J.

(After stating the foregoing facts.) The application of the complaining creditors for a permanent receiver, and the motion by the bankrupt’s trustee to require the temporary receiver to turn over to him the tract of land for administration in the United States court, were heard together: The judgment under review is silent as to any action by the court upon the creditors’ application for a permanent receiver; but notwithstanding the court’s omission in this regard, it becomes necessary, in passing upon the propriety of the judgment to which exception is taken, to consider whether the evidence on the interlocutory hearing presented a case for receivership.

1. The court was of'the opinion that the suit before him was an insolvency proceeding. The petition had one or two earmarks of a statutory proceeding against an insolvent trader, but its general structure clearly indicates that it was designed to subject in equity two specific tracts of land to the liens of the complaining creditors. One factor is conclusive against characterizing the petition as brought under the insolvent traders act; and that is, there is no pretense that the principal debtor was a trader at the time the petition was filed. The statutory proceeding under the insolvent traders act can be brought only as against a trader,—one engaged in business at the time. Civil Code, § 3249; Ball v. Lastinger, 71 Ga. 678.

2. In its original form the petition sought to subject in equity, to the plaintiff’s liens, specific property alleged to have been fraudulently conveyed for the purpose of hindering the complaining lien creditors. In its amended form the plaintiffs sought to subject the debtor’s equity of redemption in the same land to the payment of their liens. At an interlocutory hearing the court eliminated the creditors’ attack on the tract of land alleged to have been fraudulently conveyed to the debtor’s wife. So-that all that remained in the case at the time of the hearing were the allegations pertaining to the plaintiffs’ claim to subject in equity, to the payment of their liens, Kylee’s interest in the 200-acre tract of land which he conveyed to T. E. Atkins.

It is contended that though the plaintiffs’ petition may not have been brought under the insolvent traders act, nevertheless it is such an insolvency proceeding that the possession of the temporary receiver thereunder can not be saved from the nullifying effect of the bankruptcy of the principal defendant, occurring within four months of the filing of the petition. The accuracy of this contention depends upon the scope and purpose of the suit. The liens of the complaining creditors were obtained more than four months before the defendant was adjudged a bankrupt. The distress warrant had been levied.more than four months before .the defendant’s bankruptcy. Sec. 67 (b) of the bankruptcy act applies only to such liens as are created within four months prior to the filing of the petition in bankruptcy; but where the lien of a judgment, or of a distress warrant (fixed by its levy), is obtained more than four months prior to the filing of the petition, it is not only not to be deemed to be null and void on adjudication, but its validity is recognized. Metcalf v. Barker, 187 U. S. 165 (23 Sup. Ct. 67, 47 L. ed. 122); 1 Loveland on Bankruptcy, § 447. The plaintiffs had valid liens which were unaffected by the bankruptcy of the defendant, and which were enforceable in the State courts. They were attempting to enforce these liens in an equitable action having for its main purpose the equitable subjection of a specific tract of land to their lien. Where the main purpose of an equitable action is to subject specific property to the plaintiffs’ liens, 'an incidental prayer for relief appropriate to an insolvency proceeding will not alone suffice to convert the action into such a proceeding. Merry v. Jones, 119 Ga. 643 (46 S. E. 861).

3. On the hearing there was absolutely no evidence to sustain the original theory of the petition that Bylee’s deed to Atkins was fraudulent and made to hinder creditors in the collection of their debts. It appeared that Bylee borrowed of Atkins $3,000, and secured the debt by deed to the 200-aere tract of land, and that he owed this amount on January 1, 1913. Subsequently to the execution of the deed, but prior to its record, Billups Phinizy obtained a judgment against Bylee, upon which execution issued, and he also procured a distress warrant to be issued against Bylee and levied before the record of the deed. These two liens were levied on the same land, and statutory claims were filed by Atkins. The papers were returned to court, and were pending therein when the present petition was filed four or five years thereafter. During this time some sort of arrangement was made between Billups Phinizy and Atkins, whereby the execution which the former held against Rylee was transferred to Atkins, and at the time of the hearing it had been reduced by payments made by Rylee to $257. After the record of the security deed from Rylee to Atkins, the Virginia-Carolina Chemical Company obtained a judgment against Rylee, and later on Hardeman and Phinizy obtained judgments against Rylee. More than four months after the various judgments were obtained against him, Rylee was adjudged a bankrupt. The only property of which Rylee was possessed at the time of his adjudication was his equity of redemption in this 200-acre tract of land. The land was worth from $6,000 to $7,000, and the amount due Atkins on his assigned execution and security deed, and that due to Billups Phinizy on his distress warrant, aggregated about $5,000. The amount of the judgments of the other complaining creditors, when added to these liens, greatly exceeded the- value of the land. From the foregoing summary of the evidence it will 'appear that the situation was this: Atkins held a security deed to the land, and the oldest fi. fa. against the debtor. Billups Phinizy held a distress warrant which had been levied prior to the record of the security deed to Atkins.- This prior levy gave the warrant a priority of lien over the security deed. Civil .Code, § 3307. So the plaintiff Billups Phinizy needs no equitable aid to enable his distress warrant to proceed.

Under the facts developed on the interlocutory hearing, have the creditors whose judgments were obtained after the record of the security deed the right to subject the debtor’s equity of redemption as an equitable asset? Under the statute (Civil Code, §§ 6037, 6039) the holder of a bond for titles has no leviable interest in the land until he becomes invested with the legal title. The statute has been held applicable to the grantor in a security deed, who has taken from his. grantee a bond to reconvey upon payment of the debt. Before creditors of a grantor in a security deed can levy upon his-interest in the land, there must be a redemption of the property, which can be accomplished only by payment of the secured debt. Phinizy v. Clark, 62 Ga. 623; Groves v. Williams, 69 Ga. 614; Shumate v. McLendon, 120 Ga. 396 (48 S. E. 10.) The mere fact that the lien of a judgment creditor, obtained against the grantor subsequently- to the making of the - security deed, can not be enforced by levy and sale until the grantor’s title has become revested by redemption, is insufficient to subject the grantor’s interest in the land as an equitable asset. Swift v. Lucas, 92 Ga. 796 (19 S. E. 758). Perhaps a judgment creditor, unable by reason of his insolvency or inability to redeem the land, might go into equity and subject the interest of his debtor in land conveyed to another to secure, a debt, without redemption; but no such ground for equitable interference is made in this case. The undisputed proof was that the judgment creditors were able to redeem the land.

4. Therefore, inasmuch as the integrity of. the security deed was not impugned, and as the judgment creditors whose liens were obtained subsequently to the record of the security deed show no equitable ground for the subjection of the maker’s interest in the .land as an equitable asset, and as there is no legal impediment against the enforcement of the liens obtained prior to the record of the security deed, it follows that a permanent receiver should not have been appointed.

There being no ground for the appointment of a permanent receiver, the next question is, what disposition of the land in the hands of the temporary receiver should have been made. As we have shown, the trustee was not entitled, to the possession of the property, for the reason that at the time of the bankrupt’s adjudication the property was in custodia legis by virtue of the levy of a lien obtained more than four months prior to the bankruptcy. It was improper to appoint a permanent receiver under the facts developed at the hearing. Therefore the court should have refused the application for a receivership and also the application of the trustee of the bankrupt, and remanded the property to the sheriff, from whose custody it was taken, by the appointment of a temporary receiver, to await the final disposition of the litigation pending in Banks superior court, to wit: the issue formed by the filing of a claim to the levy of the distress warrant.

Judgment reversed.

All the Justices concur.