Case Name: AIKEN v. BANK OF GEORGIA
Court: Court of Appeals of Georgia
Jurisdiction: Georgia
Decision Date: 1960-01-05
Citations: 101 Ga. App. 200
Docket Number: 37838
Parties: AIKEN v. BANK OF GEORGIA.
Judges: Gardner, P. J., Townsend and Quillian, JJ., concur. Felton, C. J., and Carlisle, J., dissent.
Reporter: Georgia Appeals Reports
Volume: 101
Pages: 200–208

Head Matter:
37838.
AIKEN v. BANK OF GEORGIA.
Decided January 5, 1960
Rehearing denied February 8, 1960.
Clifford Oxford, Thomas M. Stubbs, Jr., P. H. Antonion, for plaintiff in error.
Houston White, contra.

Opinion:
Nichols, Judge.
The action under consideration sounding in tort, the issue before this court as it was before the trial court on motion for judgment notwithstanding the verdict is not whether the bank, as against a proper defense by the judgment debtor, would be entitled to retain the proceeds of the bank account withdrawn by it from the debtor's account, but whether in acting as it did under the facts then existing it committed a legal wrong against the debtor by withdrawing the funds in question from the deposit. To decide this question involves a consideration of the purposes and procedures of the bankruptcy act. It is primarily, of course, a procedure for debtor relief, yet it has often been said that the discharge in bankruptcy is a shield and not a spear; it is a defense personal to the debtor which may be waived by him and which, if not properly insisted upon, is no bar to the collection of a debt. The discharge in bankruptcy in no wise extinguishes the debt; it merely makes collection of it unenforceable if and when the debtor desires to take advantage thereof. It has in this regard frequently been deemed analogous to the statute .of limitations in that it is is a personal defense which may be insisted on or waived at the election of the defendant. Howell v. Dowling, 52 Cal. App. 2d 487 (126 P. 2d 630); Personal Finance Co. of Chicago v. Silver, 327 Ill. App. 554 (64 N. E. 2d 398). Accordingly, the discharge in bankruptcy is not an automatic device for obliterating the debt, but it must be used in a proper manner by the debtor for his protection. A state court cannot take judicial notice of a discharge in bankruptcy. Boynton v. Bell, 121 U. S. 457 (7 S. Ct. 981, 30 L. Ed. 985); Woodward v. McDonald, 116 Ga. 748 (42 S. E. 1030); Crawford v. Bostwick-Goodell Co., 141 Ga. 356 (80 S. E. 1005). As to this tort action, accordingly, two issues suggest themselves: First, whether the bank may, after judgment, apply money on deposit with it which constitutes a debt by it to Aiken as a setoff against the judgment founded on such note, and secondly, whether, if it otherwise had the right at that time, the debtor had made proper' use of the shield of his bankruptcy discharge to protect the fund from being so attacked.
At the time the setoff was sought to be exercised the debt had been reduced to judgment. This fact did not eliminate the right of the 'bank, obtained through contract by the express provisions of the note on which the judgment was founded, to set off funds with it against the matured claim. A creditor does not, by reducing a note to judgment, so merge the rights obtained by contract under the note and consistent with the judgment as to utterly destroy them. Ryder v. Clare & Co., 56 Ga. App. 671 (193 S. E. 603). "The judgment only changes the form of action for recoveiy. The incident of the old debt may be carried forward to prevent the inequitable destruction of a right, privilege or exemption." 50 C. J. S. 23, Judgments, § 599; Remington, Bankruptcy, Yol. 7, 5th ed., p. 799. Furthermore a bank has a lien regardless of contract on funds of the debtor in its possession insofar as the right to set off such sums against matured claims of it against the debtor is concerned. Bank of Dawrenceville v. Rockmore & Co., 129 Ga. 582, 587 (59 S. E. 291); W. C. Caye & Co. v. Milledgeville Banking Co., 91 Ga. App. 664 (86 S. E. 2d 717). Had there been no bankruptcy proceedings there could be no contention that the action of the bank was not right and proper.
A discharge in bankruptcy does not necessarily and in all events settle the status of the judgment debt. Whether such debt was dischargeable in bankruptcy or not, the debt is collectible so long as the debtor does not take advantage of his discharge in a proper manner. "Where a suit in a State court is brought before or after the filing of bankruptcy proceedings, bankruptcy, to be relied upon as a defense, must not only be pleaded, but must be pleaded at the proper time; else the defense will be held to be waived, where no legal reason is shown to- account for the neglect." Duncan v. Southern Savings Bank, 59 Ga. App. 228 (200 S. E. 561). Before judgment in the State court, the discharge may be pleaded and proved; after judgment an affidavit of illegality may -be filed against the levy of the execution. Wofford Oil Co. v. Womack, 46 Ga. App. 246 (167 S. E. 331); Shabaz v. Henn, 48 Ga. App. 441, 442 (173 S. E. 249). It is strenuously contended by the plaintiff in error here that the law of stay has no relation to this case for the reason that the bank did not seek to levy the judgment against the fund in its possession by means of court procedure, but used its contractual and/or eommo-n-law right of setoff, as to which no court was involved. What the plaintiff in error overlooks is that the defendant in error had a judgment in an action in a State court which in effect provided a forum in which the debtor might interpose his "shield" against .the attack upon his fund, and it had an election as to whether to- make the attack by employing the agencies of the -court or by merely retaining possession of the fund which had been placed in its hands in order to- satisfy, the judgment. It naturally chose the simpler procedure; it retained the fund. Whether it could do so at that time or can do so now as against a proper defense is entirely aside from the question; it had a right to possess the fund for the purpose of setting it off against the judgment until the debtor took some affirmative action to either repossess it or to prevent the bank from retaining it. Under these circumstances it would be farcical to- say that, had the bank chosen one alternative remedy from two at hand, it would not have committed a tort, but because it chose the other and simpler method a tort was committed. It is also to be noted that some debts are not dischargeable in bankruptcy at all and that the bank contended in this case that this debt, having been procured by fraud, was not dischargeable. In such a case the discharge in bankruptcy "in no wise concludes the future determination as to whether the debt in question was included in it, and this question should properly be left for determination in the proper tribunal when the judgment is sought to be enforced," or when the judgment debtor seeks to recover the funds withdrawn by the bank from his account to pay the debt. In re Phillips, 298 F. 135, 137; Kendrix v. Superior Egg Co., 99 Ga. App. 575 (109 S. E. 2d 59). The bank in this transaction contended that the money which the notes were given to secure was procured by fraud, and it had the right to have this issue tried out in a proper forum. (However, that question is not involved in the case sub judice). The duty was not on the bank, however, to establish such fact in the first instance; it might need never go into the matter and would only do so to defeat the debtor's claim of discharge in bankruptcy if and when the latter was urged against the collection of the judgment. Had there been a stay order in the Civil Court of Fulton County where the judgment had been obtained, the bank could not have collected the judgment entered up by that court. There being no such order, the bank could collect the judgment, and it could do so either by attempting to levy the judgment fi. fa. or attempting to set off the indebtedness of the debtor to it against such judgment unless and until the debtor took action to prevent it from so doing. State v. Citizens' State Bank of Ralston, 115 Neb. 593 (214 N. W. 6). The, bank therefore committed no legal wrong against the debtor since the debtor's bank account, after the setoff was entered up, had insufficient funds left to honor the checks written against the account.
Accordingly, the trial court did not err in granting the motion for a judgment notwithstanding the verdict.
Judgment affirmed.
Gardner, P. J., Townsend and Quillian, JJ., concur. Felton, C. J., and Carlisle, J., dissent.