In re Meyers

17 F. Cas. 249, 2 Ben. 424

Opinion

BLATCHFORD, District Judge.

The order of stay was made under that part of section twenty-one of the bankruptcy act which provides that “no creditor proving his debt or claim shall be allowed to maintain any suit at law or in equity therefor against the bankrupt, but shall be deemed to have waived all right of action and suit against the bankrupt, and all proceedings already commenced, or unsatisfied judgments already obtained thereon, shall be deemed to be discharged and surrendered thereby; * * * and any such suit or proceeding shall, upon the application of the bankrupt, be stayed, to await the determination of the court in bankruptcy on the question of the discharge.” The action in question, so far as it concerns the bankrupt as a defendant in it, is a suit for the debts set forth in the complaint, a suit to collect such debts, and the creditors, by proving such debts in the bankruptcy, waived all right of action thereon against the bankrupt, and the judgments, so far as they were judgments against the bankrupt, were thereby discharged and surrendered. This view applies, whether the action be regarded as founded on the original indebtedness of on the judgments. The order of stay was, therefore, proper, as respects the bankrupt. It is urged, however, that the suit ought to be allowed to proceed against the wife, as a suit to have the debts paid out of. real estate of which the legal title is in the wife, and to enforce a trust created by the statute law of New York, in favor of the creditors, it being provided thereby (1 Rev. St. 728, §§ 51, 52), that “where a grant for a valuable consideration shall be made to one person, and the consideration therefor shall be paid by another, no use or trust shall result in favor of the person by whom such payment shall be made, but the title shall vest in the person named as the alienee in such conveyance,” subject only to the provision, that “every such conveyance shall be presumed fraudulent as against the creditors at the time of the person paying the consideration, and, where a fraudulent intent is not disproved, a trust shall result in favor of such creditors, to the extent that may be necessary to satisfy their just demands.” It is claimed, that the real estate in question was, therefore, never the property of the bankrupt, and could not pass to his assignee in bankruptcy; and that it does not pass to such assignee under section fourteen of the act, as being “property conveyed by the bankrupt in fraud of his creditors,” because it never was conveyed by the bankrupt. This view overlooks the true character of the suit brought by the creditors in the state court. Their complaint shows that the bankrupt took his own money and made the purchase of the house and lot; that, on such purchase, it was conveyed by the vendors to the bankrupt’s wife; that the purchase money so paid by the bankrupt was more than enough to pay. the judgments; that the transaction was -fraudulent as agaiust the creditors; and that a trust resulted in favor of the creditors, to an extent sufficient to satisfy their demands. This trust they seek to have enforced against the house and lot, as representing the money so fraudulently applied by the bankrupt. The fraud, and the only fraud, committed by the bankrupt was in taking his own money and using it in this way. Therefore, on the case set up by the creditors in their complaint, the money so used and applied by the bankrupt, as now represented by the house and lot, is “property conveyed by the bankrupt in fraud of his creditors.” As such, it passed, by virtue of section fourteen of the act, to his assignee in bankruptcy, and he can sue for and recover such property. Any equitable right which the creditors had to enforce any trust created by the law of New York in their favor, in respect to such money or its representative, and any equitable right conferred on them by the bringing of their suit, is subordinate to the right and title of the assignee in bankruptcy. His title relates back to the 13th of February, 1868. The suit of the creditors was brought afterwards. The equitable right to enforce the statutory trust is not such a lien or pledge as is saved or protected, as against the as-signee, by the provisions of the fourteenth or twentieth or any other section of the act. The motion to vacate the order of stay is denied.