In re Ann Arbor Mach. Co.

• Decision Date: 18 March 1922
• Docket Number: 4562.
• Citation: 278 F. 749
• Parties: In re ANN ARBOR MACH. CO. Petition of BOURNE-FULLER CO.
• Court: U.S. District Court — Eastern District of Michigan

278 F. 749

In re ANN ARBOR MACH. CO. Petition of BOURNE-FULLER CO.

No. 4562.

United States District Court, E.D. Michigan, Southern Division.

March 18, 1922

A. F Freeman, of Detroit, Mich., for petitioner.

Finkelston & Lovejoy, of Detroit, Mich., for trustee.

TUTTLE District Judge.

This is a petition to review an order of one of the referees in bankruptcy for this district. The referee has filed his return, stating his conclusions and decision, and reciting that attached to the return are the pleadings, but no transcript of testimony, as none was taken at the hearing before the referee which preceded and resulted in the order complained of. From an examination of the entire record in the cause and of the briefs filed by the parties to this proceeding, the following facts appear to be, and for the purposes of this opinion will be treated as, undisputed:

On August 18, 1920, and within four months prior to the filing of the voluntary petition in bankruptcy herein, the petitioner obtained a judgment against the Ann Arbor Machine Corporation, now the bankrupt in this cause, in the circuit court for the county of Washtenaw, Mich., for the sum of $4,649.95, including costs. On August 23, 1920, petitioner obtained a writ of execution upon said judgment, and said execution was, on the same day, levied by the sheriff of said county upon certain personal property belonging to the bankrupt, by seizure thereof under such writ of execution which then and thereby became a lien on such property. Thereupon a sheriff's sale under said seizure and levy was set for September 18, 1920, at 10 a.m., at a certain place, and notices thereof duly posted and advertised.

On September 15, 1920, the execution debtor filed a voluntary petition in bankruptcy in this court and on the same day was adjudicated a bankrupt. No showing, nor even allegation, of insolvency of the bankrupt at the date of such adjudication or at any time prior thereto, was made by said bankrupt, or by any other person, unless the filing of said voluntary petition or said adjudication can be considered as constituting such showing or allegation, as matter of law. On September 18, at the hour and place set for the aforesaid execution sale, as the said sheriff was about to offer the said property for sale, he was served with a restraining order issued by the state court, upon the application of the receiver of the bankrupt estate, enjoining such sale and any further proceedings under said execution. Thereupon said sheriff announced the abandonment of the sale and left the place. Who thereafter had possession of said property, or what disposition was made thereof, the record fails to show. It appears, however, that all of the assets of the bankrupt including the aforesaid property, have been sold by the trustee in bankruptcy, and that the proceeds realized therefrom exceed the amount of the aforesaid judgment and costs and lawful interest thereon to this date.

On September 7, 1921, and after the bankruptcy sale, petitioner herein filed a petition with the referees in bankruptcy asking that the trustee in bankruptcy be required to pay to it the amount of said judgment, costs, and interest. The trustee moved to dismiss said petition, the substantial ground urged being:

'That the alleged lien acquired through judicial proceedings is within the provisions of section 67f of the Bankruptcy Act, and is therefore null and void.'

The referee entered an order granting the motion to dismiss the petition, and directing that said petition be--

'dismissed in so far as it is a proof of claim * * * asking for payment * * * as a preferred claim and * * * that such petition may stand as a proof of a general claim.'

Thereupon petitioner filed the petition now before this court, praying for a review of the said order of the referee.

In view of the extent to which the petitioner has voluntarily asserted and invoked the jurisdiction of the referee to adjudicate the validity of its claim in these bankruptcy proceedings, and the waiver implied from such conduct, it is unnecessary to consider any question as to the right of petitioner, as an adverse claimant, to insist upon a determination of such validity in a plenary suit to be brought against it by the trustee. The meritorious questions involved upon this petition for review may be conveniently grouped and stated as follows:

(1) If a creditor obtains an execution lien against his debtor while the latter is solvent, but within four months prior to the filing by such debtor of a voluntary petition in bankruptcy on which the latter is subsequently adjudged a voluntary bankrupt, is such execution lien nullified by such adjudication?

(2) Does a voluntary adjudication in bankruptcy conclusively show that the bankrupt was insolvent at or prior to the time of the filing of the voluntary petition in bankruptcy on which such adjudication was based?

(3) Where a lien creditor of a bankrupt is claiming the benefit of a lien whose validity depends on the question whether such bankrupt was solvent or insolvent at the time of the attaching of such lien, who has the burden of proof upon such question?

1. It is correctly conceded by both parties hereto that the provision of the Bankruptcy Act applicable to this matter is section 67f of the act (Comp. St. Sec. 9651), the language of which section material here is as follows:

'All levies, judgments, attachments, or other liens, obtained through legal proceedings against a person who is insolvent, at any time within four months prior to the filing of a petition in bankruptcy against him, shall be deemed null and void in case he is adjudged a bankrupt, and the property affected by the levy, judgment, attachment, or other lien shall be deemed wholly discharged and released from the same.'

It is urged by the trustee, as I understand his position in this connection, that an execution lien obtained within four months prior to the filing of a petition in bankruptcy is nullified by the subsequent adjudication of the execution debtor, regardless of the question whether such debtor was solvent or insolvent at the time of the attaching of such lien, and even if the debtor were solvent at such time. This contention was apparently upheld by the referee. Although numerous authorities are cited in support of such contention (Metcalf v. Barker, 187 U.S. 173, 23 Sup.Ct. 67, 47 L.Ed. 122; Clarke v. Larremore, 188 U.S. 486, 23 Sup.Ct. 363, 47 L.Ed. 555; Chicago, Birmingham & Quincy R. Co. v. Hall, 229 U.S. 511, 33 Sup.Ct. 885, 57 L.Ed. 1306; In re South Arizona Smelting Co. (C.C.A. 9) 231 F. 87, 145 C.C.A. 275; Wagner v. Mount Carmel Iron Works (C.C.A. 3) 270 F. 80, and others), a careful examination thereof discloses that, with perhaps one exception hereinafter more fully discussed, in none of such cases was involved the precise question presented in the present case. Therefore, although certain language is found among the cases thus cited which, if standing alone and used in a case really involving this question, might merit serious consideration here, none of those decisions can be considered controlling or applicable here.

The decision principally...