McDANIEL et al. v. STROUD, 106 F. 486

KDLONTON, Circuit Judge, and WADDILL, District Judge. The question at the threshold of this case is upon the motion to dismiss The appeal. Proceedings in involuntary bankruptcy were begun against A. M. Hayes and W. H. Murff, co-partners as Hayes & MurJf, in the Western district of Bouth Carolina. The peí ilion was filed in the name of a large number of creditors, it was duly referred to a referee. By consent of all parties the respondents were declared bankrupts. A trustee was appointed, and creditors were called in. Among other claims was one by II. T.

Stroud, who set up a claim for $1,000, with interest at 8 per cent, per annum from November 3,1897, with 10 per cent, attorney’s fees if the note be collected by process of law' or through an attorney. The referee took testimony on this claim, among others, and made his report disallowing it. Exceptions were taken, and the matter carried before the district court. The court sustained the exceptions and allowed the claim. At the references and before the court the contest against the claim was conducted by the attorneys for the petitioning creditors.

When this decree was filed (May 2J, 1900), the attorneys for the petitioning creditors went to the trustee (James A. McDaniel), and requested permission on behalf of the petitioning creditors to ajjpeal from this part of the decree in his name. The trustee at first said that he had no objection, but afterwards said that he wished to consult his counsel. Subsequently he informed (he attorneys for the petitioning creditors that his counsel had advised him that the matter did not concern him, and he therefore declined to permit the appeal to be brought in his name.

While this was going on, the 10 days with in which an appeal could be brought had nearly expired. There not being sufficient time to go before ike court and to get an order compelling the use of the name of the trustee in carrying up the appeal, the petitioning creditors on June 2, 1900, filed a petition for appeal in their own names, accompanied by assignments of error., and the appeal was allowed, the papers having been placed on file.

On IGth July the district court, hearing the affidavit of the attorney for the creditors stating the facts above set forth, granted an order that the appeal heretofore taken by them in this case be continued in the name of J. A. McDaniel, as trustee, in connection with said creditors, and that the record be amended accordingly. ■■ At the same time the creditors were required to file a bond for costs witbin 80 days. The appeal is here in that shape. The motion to dismiss the appeal proceeds on two grounds: The petitioning creditors have no right to appeal. This right belongs to the trustee alone.

This being so, no appeal in the name of the trustee was presented .or allowed within 10 days after the entry of the decree.

Section 25 of the bankrupt act. It will be noted that the trustee did not put his refusal on the ground that the decree, in his opinion, was correct, and that an appeal would be useless, resulting only in costs to the estate. He put it on the extraordinary ground that the matter did not concern him. Had the'creditors a right to appeal? This depends upon the construction of the bankrupt act. The rule governing questions of this kind is stated by Taney, C. J., in U. S. v. Curry, 6 How. 106, 12 L.

Ed. 363: “It has been said that this abjection is a mere technicality, and may be regarded rather as a matter of form than of substance. But this court does not feel authorized to treat the directions of

an act of congress as it might treat a technical difficulty growing out of ancient rules of the common law. The power to hear and determine a case like this is conferred on the court by acts of congress, and the 'same authority which gives the jurisdiction has pointed out the manner in which the ease shall be brought before us. And we have no power to dispense with any of these provisions,. nor to change or modify them.

And if the mode prescribed for removing cases by writ of error or appeal be too strict and technicdl, and likely to produce inconvenience or injustice, it is for congress to provide a remedy by altering the existing laws; not for the court. And as this appeal has not been prosecuted in the manner directed, within the time limited by the acts of congress, it must be dismissed for want of jurisdiction.” Under the'bankruptcy act of 1867 an assignee who was dissatisfied with the allowance of a claim upon the bankrupt estate was given the right to appeal. The language of the act (Rev.

St. 4980) is : “And any supposed creditor whose claim is in whole or .part rejected or any assignee who is dissatisfied with the allowance of a claim may appeal,” etc. It was held that this precluded the creditors from appealing in their own names, if a claim has been allowed. In re Troy Woolen Co., 24 Fed. Cas. 244 (No. 14,202); In re Joseph, 13 Fed. Cas. 1124 (No. 7,532); In re Place, 19 Fed. Cas. 790 (No. 11,200). The bankrupt act of 1898 is not so explicit. All that it says is, the trustees shall not be required to give bond when they take appeals or sue out writs of error.

The precise question now before this court has come up in two circuit courts of appeal. The court of the Eighth circuit, in Chatfield v. O’Dwyer, 42 C. C. A. 30, 101 Fed. 797, held that the act of 1898 must be construed as was the act of 1867, and that no one but the trustee can take up an appeal from a claim allowed; and that, if he will not do so of his own volition, the court will require him to do so at the instance of creditors. The circuit court of appeals for the Fifth circuit, on the other hand, in Re Roche, 42 C. C.

A. 115, 101 Fed. 956, decided that the omission of the provision of the act of 1867 in the act of 1898 was intentional, showing the desire of congress to leave appeals under the general rule, and that any one affected or injured by a decree or judgment may appeal; and so held in a case of a creditor dissatisfied with the allowance of another claim. The circumstances of this case make a strong inclination to follow this decision from the Fifth circuit.

The trustee, for no other reason than that the matter did not concern him, so conducted himself as not only to deprive the dissatisfied creditors of the use of his name, but to prevent them from applying to the court for an order compelling this use. There is nothing in the record showing bad faith on the part of this trustee. The most that can be said of him is that he showed bad judgment. But if a trustee, by action like this, can defeat the effort of creditors to assert their rights, he not only assumes the functions of this court; he opens the door for great fraud.

The decision in the Fifth circuit does not change or modify the act of congress. If construes it, and its construction is reasonable. What was the effect and purpose of the order of July 16,1900? It certainly was not the granting of another leave to appeal. The language of the order is “that the appeal heretofore; granted in this case be continued in the name of J. A.

McDaniel as trustee, in conjunction with the creditors.” There is no question that the court would, in the first instance, have directed the trustee to allow the use of his name to conduct the appeal if it was thought necessary; and that authority it could exercise at any time, provided (hat no change was wrought in the status quo which could be detrimental to the appellee. In this case this certainly did no*t occur.

If this appeal be dismissed on this ground, it will be for a mere defect of f</rm. “A decree of the circuit court ought not to be reversed for a defect of form in the process which is amendable.” Semines v. U. S., 91 U. S. 21, 23 L. Ed. 198. An appeal in the name of an individual when the real appellant is a firm is amendable. Moore v. Simonds, 100 U. S. 146, 25 L. Ed. 590. It seems that this motion to dismiss the appe.al should not be granted. As to the Merits. II. T.

Stroud presented a claim against the bankrupt estate as follows: A debt of $1,000, from November 1, 1897, and 10 per cent, thereon for counsel fees, interest on which was paid to March 4,1898, secured by mortgage of a lot of land, with buildings thereon, in the city of Greenville. The history of this claim is this: The National Bank of Greenville held a note signed by A. M. Ilayes and W. H. Murff, and also by Hayes & Murff, for $1,000, dated February 27, 1897, payable November 1, 1897, interest after maturity at 8 per cent, and 10 per cent, attorney’s fees in case of collection through an attorney.

This note was secured by the mortgage of this lot in Greenville. The lot had been conveyed to A. M. Hayes and W. H. Murff. When this note became due, it was not paid. On April 18, 1898, Murff executed to the bank a mortgage of a lot of land, his individual property, securing the sum of money due on this note, and thereupon the bank on that day assigned to Murff the original note. This assignment of the note carried with it the mortgage. Wright v. Eaves, 10 Rich. Eq. 582; Walker v. Kee, 14 S. C. 143. Murff’s individual note was given in substitution of the original note.

This being its object, the mortgage was not satisfied by the transaction. Burton v. Pressly, Chev. Eq. 1; Carter v. Burr, 113 U. S. 740, 5 Sup. Ct. 713, 28 L. Ed. 1146. On April 17, 1899, — nearly a year alter the note was assigned to Mm by the bank, — Murff assigned it to H. T. Stroud, to secure a loan of f500 to Hayes & Murff. On June 7th, Stroud made another loan to the firm df $500, and an additional assignment was made on the note to him.

The firm of Hayes & Murff was dissolved February 26, 1899, Hayes assuming all the debts, and on March 1, 1899, Murff conveyed his interest in the lot held by him and Hayes to Hayes. This deed was recorded June 14, 1899. The money so lent by Stroud on these assignments was paid to Hayes by Stroud, and used by him in paying debts of the firm. The petition for bankruptcy was filed July 21, 1899. The act of bankruptcy (an assignment for benefit of creditors) was on June 14,1899.

As has been seen, the substitution by Murff to the bank of his individual note for that of Hayes and himself and the firm did not extinguish that note, nor did it satisfy the mortgage. Murff held these under assignment to himself until March, 1899, the date of his1 conveyance of his undivided interest in the lot of land to Hayes. This deed was not recorded until June 14, 1899.

The statute of South Carolina as to the recording of deeds is this: In order to affect' the rights of subsequent creditors or purchasers for valuable consideration without notice, they must be recorded within 40 days from the date of their execution. If- this be done, they give constructive notice, and are good as of the date of execution. If recorded after the 40 days, they give constructive notice, and are good from the ddte of their record. Rev. St. S. C. 1894, § 1968.

When Stroud took this assignment of the mortgage, April 17, 1899, the deed conveying the title out of Murff was not on record, and it did not affect him. He was both a creditor and a purchaser for valuable consideration without notice. Jones v. Hudson, 23 S. C. 501. ' Another point of view may be taken. Hayes held the title to property, the mortgage upon which was open on the record, and not satisfied in terms, apparently in the hands of Murff.

When he received the Money from Stroud, secured by the assignment of this mortgage, it was in fact and effect a reissue of the mortgage by him and bound him to all intents and purposes. Jones, Mortg. § 945; Sheddy v. Geran, 113 Mass. 378. And as it was for a present payment of cash, which cash was used in payment of his current debts, it was no fraud upon the bankrupt act, and was good. It is urged that when the conveyance of his undivided half in the lot was made by Murff and Hayes, the whole title being then in Hayes, the' mortgage mer*ged.

There was no merger of estates in the land, for in South Carolina a mortgage creates no estate. It is simply a security for a debt. Rev. St. S. C. 1894, § 1893; Warren v. Raymond, 17 S. C. 181. Nor does the conveyance of land to the mortgagor ipso • facto satisfy the mortgage, if the intent to the contrary appear. Investment Co. v. Shaw, Fed. Cas. No. 10,556; Bradley v. Claflin, 132 U. S. 388, 10 Sup. Ct. 125, 33 L. Ed. 367.

The general rule is that a • mortgage will not be merged or extinguished by a subsequent conveyance’ by the mortgagor to the mortgagee of the mortgaged premises • unless such seems to be the intent of the parties, and justice requires it, Case v. Fant, 3 C. C. A. 420, 53 Fed. 41. In the case at bar the intent to preserve the lien of the mortgage is shown by the fact of its liansi'er with the full knowledge and consent of Hayes, and for his use and benefit.

He, at. least, cannot deny it; and, as no liens or riglris of third persons had intervened as between these parties, the transaction holds, Ho error appears in the judgment of the district court.