Gentry v. Twin City Glass, Inc., Civ. A. No. 17356.

• Decision Date: 11 June 1973
• Docket Number: Civ. A. No. 17356.
• Parties: Herschel A. GENTRY, Trustee in Bankruptcy, In the Matter of Twin City Fixtures, Inc., v. TWIN CITY GLASS, INC.
• Court: U.S. District Court — Western District of Louisiana

358 F. Supp. 1022

Herschel A. GENTRY, Trustee in Bankruptcy, In the Matter of Twin City Fixtures, Inc., v. TWIN CITY GLASS, INC.

Civ. A. No. 17356.

United States District Court, W. D. Louisiana, Monroe Division.

June 11, 1973.

Louis D. Smith, Hayes, Harkey, Smith & Cascio, Monroe, La., for plaintiff.

Anthony J. Bruscato, Bruscato & Loomis, Monroe, La., for defendant.

OPINION

DAWKINS, Chief Judge.

This is an action by the Trustee in Bankruptcy to avoid a "lien" and preference in order to recover property transferred allegedly subject thereto or for its value.

The salient facts are simple. Twin City Glass, Inc., being a judgment creditor of the bankrupt, caused a writ of fieri facias (seizure and execution upon its judgment) to issue from the Fourth Judicial District Court, Ouachita Parish, Louisiana, directed to its Sheriff. The writ was executed April 27, 1970, by seizure of movable property belonging to the bankrupt, which was sold at a Sheriff's Sale conducted on May 20, 1970. Shortly thereafter, the petition for bankruptcy was filed on June 9, 1970.

November 22, 1971, the Trustee instituted this action to recover the property, or value thereof, on behalf of general creditors of the bankrupt.

In his brief, the Trustee assumes the position that the basis of this action is Section 67(a)(1)(a) of the Bankruptcy Act, which provides:

"Every lien against the property of a person obtained by attachment, judgment, levy, or other legal or equitable process or proceedings within four months before the filing of a petition initiating a proceeding under this Act or against such person shall be deemed null and void (a) if at the time when such lien was obtained such person was insolvent. . . ."

The Trustee is in error. See 4 Collier on Bankruptcy, § 67.154:

"Section 67(a)(3) begins, `The property affected by any lien deemed null and void under the provisions of paragraph (1) and (2) of this subdivision (a) shall be discharged from such lien. . . .' The use of the phrase `property affected by,' rather than `property subject to,' `any lien deemed null and void' has been said to make it clear that the proceeds of the sale to a bona fide purchaser of property subject to such a lien may nevertheless pass to the Trustee. Where the lien of a judicial proceeding has been enforced by the sale of the debtor's property subject thereto and the proceeds paid over to the lien creditor prior to the debtor's bankruptcy, the lien becomes merged in the payment and accordingly cannot be affected by § 67(a), notwithstanding the occurrence of bankruptcy within four months of the acquisition of the lien . . . . So long as payment of the proceeds has not been made to the lien creditor, his rights by virtue of the legal proceedings are, therefore, subject to the interception by the filing of the bankruptcy petition." (Emphasis added.)

Here the lien creditor has enforced his lien and has received the proceeds from sale of the property. Therefore, Section 67 is not applicable to the fact situation presented here.

"A lien creditor who purchases property at a judicial sale to enforce his lien or who receives the proceeds of such a sale made to an innocent purchaser was generally not regarded as a bona fide purchaser for value under former § 67(f). The provision in § 67(a)(3) limiting the protection of a bona fide purchaser acquiring title otherwise than at a judicial sale to the extent of the present consideration paid therefor may carry an implication that the lien creditor purchasing at his own sale is now fully protected even though his bid does not exceed the amount of his claim. But if the transaction is complete, so far as the creditor is concerned, at the time the petition is filed, then no lien remains for § 67(a) to affect. Yet the Trustee may be able in some cases to reach the proceeds of the sale in the hands of the Court officer making it. Or, the

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