Court Opinion

ID: 9584375
Source: CourtListenerOpinion
Date Created: 2023-08-21 22:47:28.617021+00
Date Added: 2024-06-11T15:07:39.795389
License: Public Domain

Felton, Chief Judge,
dissenting. The contention of the bank *205in this case is that it had a legal right to set off the notes of Aiken against the deposit made after his adjudication as a bankrupt. The discharge operated against the notes and the judgment obtained thereon, all of which were listed in a bankruptcy proceeding. The -bank argues that it was merely enforcing its judgment against the bankrupt by applying the amount of his subsequent deposit in satisfaction thereof and since no stay had been obtained against it in any court, it had a right to proceed in this manner. This argument assumes, of course, that the bankrupt who has failed to obtain an order from the State court staying execution of its judgment after his discharge is left without other remedy or defense, but this is simply not true. Regardless of whether or not he had obtained a stay, Aiken had a right to interpose his discharge as a defense to the collection of the judgment, although failure to plead it as such would constitute a waiver. Riggs v. Kinney, 37 Ga. App. 307, 3091 (140 S. E. 41). Since this is true, the action of the bank has deprived Aiken of his lawful right to assert his discharge as a defense. Such circumvention of the law cannot be tolerated. The bank had no right to enforce its judgment by a private action which deprives the bankrupt of the opportunity to assert a defense to which he is legally entitled. Since the manner in which it proceeded to enforce its judgment was unlawful, the fact that no stay had been obtained against it is immaterial.
Still another reason exists why the bank could not enforce its judgment in this manner. It is admitted that the deposit against which the setoff was directed was not made until almost four months after the discharge in bankruptcy. “It is the general rule that an execution in personam founded on a debt provable in bankruptcy can not be enforced against property of the bankrupt acquired subsequently to his discharge.” Shabaz v. Henn, 48 Ga. App. 441, 443 (173 S. E. 249). If an execution cannot be enforced against property acquired after discharge, there is all the more reason why such property should not be subjected to a mere private action seeking to accomplish the same purpose.
It is further contended that the right of setoff by the bank exists by operation of law and by express provision of the notes themselves. There is no merit in this contention because of the *206effect of discharge in bankruptcy. While it is true that such discharge does not extinguish the debt, it renders it a mere moral obligation sufficient only to> support the rendition of a judgment where discharge is not pleaded as a defense or to support a new promise to pay made in compliance with law. See Code § 3-902. A mere moral obligation is utterly insufficient to support the substantial contractual right which the bank has sought to assert. In addition, for the same reasons above stated, a right of setoff by operation of law or by provision of the discharged obligation cannot be enforced by a private action against deposits made by the bankrupt subsequently to his discharge.
The majority opinion presupposes that the bankruptcy proceedings have had no> effect on the bank’s right to setoff, but this is not the case. Once bankruptcy proceedings were begun, the right of setoff became subject to the provisions of Section 68 of the Bankruptcy Act (U. S. Code, Title 11, Oh. 7, § 108): “In all cases of mutual debts or mutual credits between the estate of a bankrupt and a creditor the account shall be stated'and one debt shall be set off against the other, and the balance only shall be allowed or paid. . .” The Supreme Court has held that “this section is not self-executing, but its benefit is to be had upon the action of the District Court, only when it is properly invoked, and that court has the primary duty of determining for itself whether there are ‘mutual debts or credits’ that should be set off one against the other according to> the true intent and meaning of the Bankruptcy Act.” Cumberland Glass Mfg. Co. v. DeWitt & Co., 237 U. S. 447, 457 (35 S. Ct. 636, 59 L. Ed. 1042). It is further stated in the same opinion that setoff in bankruptcy proceedings is not automatically made between parties holding mutual credits. This precludes setoff by private action prior to discharge, and should have an even greater effect thereafter. The extent of a bank’s right of setoff as to deposits is discussed in 4 Collier on Bankruptcy (14th Ed.) par. 68.16, page 772: “In keeping with the general theory permeating the Bankruptcy Act, the filing of the .petition represents the time of cleavage, after which sums deposited with a bank may not be set off against the bankrupt’s indebtedness to the bank. The bank may have a right of setoff as to the existing deposit balance when the petition *207is filed, but such right does not extend to subsequent deposits, and they are recoverable by the trustee or receiver.” If, therefore, 'the bank would have no right to set off deposits made by Aiken after the filing of his petition in bankruptcy and prior to his discharge, it certainly has no such right as to any subsequent deposits.
With regard to the question of stay, Section 11 of the Bankruptcy Act provides: “A suit which is founded upon a claim from which a discharge [in bankruptcy] would be a release, and which is pending against a person at the time of the filing of a petition against him, shall be stayed until after an adjucation or the dismissal of the petition; if such person is adjudged a bankrupt, such action may be further stayed until twelve months after the date of such adjudication, or, if within that time such person applies for a discharge, then until the question of such discharge is determined.” A comprehensive summary of the principles relating to the right of bankruptcy to- obtain a stay before or after discharge is contained in Wofford Oil Co. v. Womack, 46 Ga. App. 246 (1) (167 S. E. 331): “The word ‘suits,’ as used in this section, is given a wide meaning, and embraces legal steps after judgment, including the levy of an execution. Collier on Bankruptcy (13th ed.), 401, § 11. While it has been held that where a suit has been filed in a State court against one who has been adjudicated a bankrupt, it is the better practice, pending the determination of his application for discharge, to file in the State court a plea or motion suggesting the bankruptcy proceedings and asking a stay of the suit until the question of discharge has been finally determined, still, even if the suit is not stayed but a judgment is entered before discharge, the discharge may be availed of as a bar to further proceedings on the judgment. Portwood v. Shafer, 33 Ga. App. 421 (126 S. E. 556). And after discharge, when the discharge is pleaded, a bankrupt ‘is entitled to a perpetual stay of the execution on the judgment, although he did not before the rendition of the judgment ask for a stay of the proceedings in the State court. If the discharge of the bankrupt had been granted before the judgment was rendered, the rulings would be otherwise.’ Strickland v. Brown, 19 Ga. App. 73 (90 S. E. 1039), and cit.”
*208While a bankrupt is therefore entitled to a perpetual stay of execution after his discharge, he is not limited to this remedy in order to protect himself against unlawful enforcement of a discharged obligation. An alternative method is that stated in Peterson v. Calhoun, 137 Ga. 799 (74 S. E. 519): “An execution in personam founded on a debt provable in bankruptcy, where the plaintiff in fi. fa. had notice of the proceedings in bankruptcy, can not be enforced against property of a bankrupt acquired subsequently to his discharge; and an affidavit of illegality setting up this defense should not have been stricken.” It is therefoi’e apparent that even though Aiken had not obtained a stay in the State court he has a right to defend against the enforcement of the judgment by affidavit of illegality setting up his discharge in bankruptcy. The private action of the bank has deprived him of this right, and should not be condoned.
I am authorized to say that Carlisle, J., concurs in the foregoing dissent.