In re Crafts-Riordon Shoe Co., Inc.

• Decision Date: 15 December 1910
• Docket Number: 15,053.
• Citation: 185 F. 931
• Parties: In re CRAFTS-RIORDON SHOE CO., Inc.
• Court: U.S. District Court — District of Massachusetts

185 F. 931

In re CRAFTS-RIORDON SHOE CO., Inc.

No. 15,053.

United States District Court, D. Massachusetts.

December 15, 1910

Eugene F. O'Neill and Robert A. B. Cook, for petitioning creditors.

Murdoch & McLellan, for alleged bankrupt.

DODGE District Judge.

The question in this case is whether or not the defendant has committed an act of bankruptcy under section 3a (3) of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 546 (U.S. Comp. St. 1901, p. 3422)).

On May 28, 1909, within four months preceding the filing of the petition, a suit was brought against it in the Massachusetts superior court, wherein on the same day its property was attached. It failed to dissolve the attachment. The plaintiffs requested a sale of the property, on the ground that it could not be kept without great and disproportionate expense. Thereupon the sheriff, after due appraisal certificate, and notice to the defendant, sold the property June 29, 1909, and thereafter held the proceeds of the sale under attachment in its place. When this petition was filed there had been no final judgment in the suit. The writ was returnable on the first Monday of July, 1909 (July 5th). The petition was filed July 3, 1909. There is no dispute that the defendant was insolvent on June 24, 1909, five days before the sale, but there is no proof that it was insolvent at any earlier time.

The provisions of the bankruptcy act regarding liens include all liens valid by the laws of the states. (2) By the laws of Massachusetts a plaintiff attaching under mesne process obtains a lien, though he has obtained no judgment, and such a lien as is entitled to recognition in bankruptcy proceedings. Peck v. Jenness, 7 How. 612, 12 L.Ed 841. (3) The lien is obtained at the time the attachment is made, and under the present bankruptcy act it is not avoided by the provisions of section 67f if the attachment has been made more than four months before bankruptcy, though the judgment or decree in enforcement of the lien is not obtained until within the four months period referred to. Judge Lowell so held in this court in Re Blair, 108 F. 529, and the decision was later approved by the Supreme Court in Metcalf v. Barker, 187 U.S. 165, 174, 23 Sup.Ct. 67 47 L.Ed. 122, overruling the District Court for the Southern District of New York in Re Lesser, 100 F. 433.

Of course, it does not follow that, because a lien has been obtained which would become void under section 67f by adjudication upon the petition, a preference has been obtained within the meaning of section 3a (3). The first inquiry must be whether or not the bankrupt has 'suffered or permitted, while insolvent, any creditor to obtain a preference through legal proceedings.' (4) The bankrupt suffered or permitted the attachment to continue undisturbed until the sale, and he was insolvent five days before the sale. So much is admitted; but the bankrupt says that in any case no act of bankruptcy is proved, because he is not shown to have been insolvent when the attachment was made. If his failure to lift the attachment was otherwise suffering or permitting a preference, it seems to me enough to sustain the petition that his insolvency, at any time while the failure continued, has been shown.

Admitting that there has been such a 'transfer' of the property attached as will satisfy the definition of that term given in section 1a (25), because the bankrupt parted with the possession of it to the attaching officer conditionally and as security, it is further necessary, in order to call the transfer so accomplished a preference, as defined in section 60a, that the effect of 'the enforcement of such transfer will be to enable any one of the bankrupt's creditors to obtain a greater percentage of his debt than any other creditor of the same class.'

(6) To be creditors of the bankrupt, the plaintiffs in the suit must own a demand or claim provable against him in bankruptcy. Section 1a (9). A copy of the writ is annexed to the referee's report. This shows that the action brought was in contract, and the ad damnum $2,000; but there is no declaration or affidavit, and no further indication regarding the nature or amount of the claim. When the petition was filed the return day of the writ had not arrived, so that not only was there time remaining within which the bankrupt might appear to contest the claim, but he had not yet had any opportunity to appear for that purpose. (7) A finding, therefore, that the plaintiffs owned a demand or claim provable in bankruptcy, and were therefore creditors, must be based on the mere fact that they brought a pending suit. I find it difficult to believe that this is enough to justify the finding. It was said in W. A. Gage & Co. v. Bell (D.C.) 124 F. 371, 375, 376, that if a petitioning creditor presents a claim reasonably fair and honest on its face he is not bound to prove and establish it before adjudication, but may rely for the purpose of maintaining the petition upon its provable quality prima facie, whether it is to be disputed by the bankrupt or not. A petitioning creditor's claim would have the support of his affidavit to the petition. Not only the existence of a claim, but its provability in bankruptcy, are here left to be presumed from the bringing of a suit upon it in contract, and the fact that the suit was pending when the petition was filed.

The petition in bankruptcy alleges, on information and belief, that the claim sued on was for $700. If this be true, and if, as the officer's return shows, the plaintiffs' was the first attachment, they will, if they get judgment and levy execution, obtain payment of their claim in full. But the referee has made no finding as to the amount or the nature of the claim, and the plaintiffs' lien had given them, when the petition in bankruptcy was filed, nothing more than security for a claim remaining to be established, and which may turn out, so far as any evidence thus far offered has shown, to be wholly without merit.

If the plaintiffs' lien stood as security for an undisputed debt, 'enforcing' it would mean nothing more than leaving it to stand as such security and...