Dakota Trust & Savings Bank v. Hanson
| Decision Date | 31 July 1925 |
| Docket Number | No. 6714.,6714. |
| Citation | 5 F.2d 915 |
| Parties | DAKOTA TRUST & SAVINGS BANK OF SIOUX FALLS, S. D., v. HANSON. In re TORNBERG. |
| Court | U.S. Court of Appeals — Eighth Circuit |
E. O. Jones, B. C. Matthews, J. H. Fitzpatrick, T. G. Owen, and Odean Hareid, all of Sioux Falls, S. D., for appellant.
Before SANBORN and LEWIS, Circuit Judges, and POLLOCK, District Judge.
This is an appeal from an order holding attachment levies made within four months of bankruptcy adjudication to be void under section 67 of the Bankruptcy Act (U. S. Comp. St. § 9651), and directing that the property levied upon be delivered to the trustee of the bankrupt estate.
From March 15, 1922, up to August 1st of that year the bankrupt, E. R. Tornberg, carried on an automobile business in a rented garage at Sioux Falls, S. D., where he did repair work and kept a stock of supplies for that purpose, made charges for the storage of automobiles and sold new ones when he could find a purchaser. On the last-named date he sold out his business, and on October 20, 1922, went into voluntary bankruptcy. He was insolvent. The business up to March 15, 1922, had belonged to and had been carried on by him and H. C. Lembkey as partners. On that day the partnership was dissolved by written agreement, Lembkey withdrew as a partner and transferred to Tornberg all of his interest in the partnership business, its property and good will. He received nothing from Tornberg on dissolution except Tornberg's assumption of the firm's debts and his promise to pay them, and he gave Tornberg his note for money he had taken from the partnership. After dissolution, which was duly published, the business was at once taken over by Tornberg.
The firm was indebted to appellant bank, it was insolvent and the bank knew it was insolvent. It appears to have been the desire of the bank officials, as well as of Tornberg, that Lembkey should get out and that some one else be found to go in with Tornberg. Its officers had discussed this plan before the dissolution agreement was drawn. Its vice president was present when the agreement was executed, and immediately thereafter a copy of it was delivered to the bank. In the following month the bank loaned Tornberg $1,000 to be used by him in carrying on the business. It continued, however, to hold the firm's notes for the partnership indebtedness, and on August 2d, the day after Tornberg sold out, it sued in the State Court on those notes, got out a writ of attachment and served garnishments on the purchaser from Tornberg, who had not paid over the purchase price for the business, and also on others who were debtors to the old firm. These levies were held to be void by the Bankruptcy Court. Under the dissolution agreement by which Lembkey transferred all of his interest in the partnership property to Tornberg that property thereupon became the individual property of Tornberg. Sargent v. Blake, 160 F. 57, 87 C. C. A. 213, 17 L. R. A. (N. S.) 1040, 15 Ann. Cas. 58; Case v. Beauregard, 99 U. S. 119, 25 L. Ed. 370; Fitzpatrick v. Flannagan, 106 U. S. 648, 1 S. Ct. 369, 27 L. Ed. 211; Crawford v. Sternberg, 220 F. 73, 135 C. C. A. 641; Titus v. Maxwell (C. C. A.) 281 F. 433; Stringer v. Stevenson, 240 F. 892, 899, 153 C. C. A. 578. The property being that of Tornberg individually when the garnishments were served, the adjudication that he was bankrupt within four months thereafter rendered those levies void. This is not seriously refuted, but the bank claimed on the hearing in the court below and now contends that inasmuch as part of the property sold by Tornberg had belonged to the partnership, it, as a creditor, was entitled to a preference in payment of its claim out of that property, and it objected to being classed as a general creditor of the bankrupt estate. It says it has an equitable lien on all of the property which had belonged to the old partnership. But such a creditor has no specific lien upon partnership assets, even while those assets belong to the firm. Emerson v. Senter, 118 U. S. 3, 17, 6 S. Ct. 981, 30 L. Ed. 49; Peck v. Jenness, 7 How. 612, 620, 12 L. Ed. 841; Hollins v. Coal & Iron Co., 150 U. S. 371, 385, 14 S. Ct. 127, 37 L. Ed. 1113.
Through the equitable right of a partner to have firm assets applied first to the payment of firm indebtedness a firm creditor may be subrogated to that equity when firm assets are brought into a court of equity for administration. This equitable right, however, cannot be recognized and enforced until the property is in custodia legis, for administration and distribution between conflicting claimants. Case v. Beauregard, supra. The writ of attachment sued out by appellant was not an enforcement of this right. Levies made under it created statutory liens and withheld the property levied upon from the Bankruptcy Court, a court of equity in which appellant's claimed right of preference might be recognized and granted, if there were no valid objections to the granting of such relief. Relief of that character has been granted by Bankruptcy Courts, but under facts and circumstances that do not prevail here. In re Filmar, 177 F. 170, 100 C. C. A. 632; Rapple v. Dutton, 226 F. 430, 141 C. C. A. 260. In the Filmar Case the rights of third parties had not intervened when relief was sought, all of the property scheduled by the bankrupt partner who continued the business had been property of the partnership, and the retiring partner joined the firm creditor in asking that a preference be given him against firm assets. In the present case none of those facts appear. Between March 15th and August 1st substantial changes from conditions that prevailed on March 15th had taken place, additional property had been bought by Tornberg on credit extended to him and mingled with the old stock, and Tornberg had incurred other indebtedness in carrying on the business. In Rapple's Case he, as the retiring partner, asked for an order on the trustee compelling him to apply the partnership assets to the payment of a firm debt.
But again, the facts in that case and the principle on which the court seems to have rested its conclusion are...
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