In re Poston Const. Corp.

• Decision Date: 10 September 1953
• Docket Number: Bankr. No. 68375.
• Citation: 115 F. Supp. 323
• Parties: In re POSTON CONST. CORP.
• Court: U.S. District Court — Northern District of Ohio

115 F. Supp. 323

In re POSTON CONST. CORP.

Bankr. No. 68375.

United States District Court N. D. Ohio, E. D.

September 10, 1953.

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Donald F. Kepple, Akron, Ohio, Trustee.

Wm. G. Roderick and Kent W. Woodward, Akron, Ohio, for trustee.

Wells & Marks and Paynter & Show, Cleveland, Ohio, for Hattendorf-Bliss, Inc.

Johnson, Whitmer & Sayre, Cleveland, Ohio, for bankrupt.

JONES, Chief Judge.

This matter is before the court upon the petition of Hattendorf-Bliss, Inc., for review of the referee's order of December 3, 1952, disallowing its claim.

Hattendorf-Bliss filed its claim in the amount of $7,807.21 for rental of equipment to the bankrupt during the months of July, August, and September, 1950. By separate rental purchase agreement, it had leased other equipment to the bankrupt in April, 1949. This agreement was converted to an outright sale with note and mortgage in December, 1949. The purchase price was $25,630.30 —after allowances for rentals and interest already paid. The bankrupt made no further payments, and in May and June, 1951, seven pieces of the equipment were returned to petitioner. They were then sold by petitioner for $26,936.92.

The bankrupt filed its voluntary petition on July 2, 1951, and adjudication followed thereafter.

In proceedings before the referee, the trustee objected to the claim of Hattendorf-Bliss on the ground that the claimant had received a voidable preference from the bankrupt, which preference, under Section 57, sub. g, of the Bankruptcy Act, it was required to surrender before its claim might be allowed.

In its answer, Hattendorf-Bliss, admitted receipt of the equipment from the bankrupt, prior to bankruptcy and within four months thereof. It denied, however, that the bankrupt was insolvent when the equipment was returned, or that it knew, or had reasonable cause to believe that the bankrupt was insolvent. It alleged that the machinery was taken back by it in due course, and credited on a mortgage note. While it admitted that the court might try the objection to its claim, it objected to the jurisdiction of the court to try the preference suit. It asserted that the trustee was not in possession of the chattels and that, therefore, it was an adverse party. It moved to dismiss the objection to its claim.

A hearing on the objections was had before the referee. On December 3, 1952, the referee entered his order that the claim of Hattendorf-Bliss be disallowed unless the claimant surrendered to the trustee the chattels received as a preference, or paid their value within thirty days.

The petition for review asks that the order of the referee be set aside and the claim allowed. Numerous errors in the findings and conclusions of the referee are assigned. Three substantial questions are raised: The questions of (1) jurisdiction, (2) reasonable cause to believe, and (3) insolvency.

Although the petitioner by answer did request "that the objection to its claim be tried fully", and the trustee's objection was based solely upon the preference obtained by the petitioner, nevertheless, I think it definitely cannot be found that the petitioner thereby consented to summary jurisdiction respecting the preference, or that the petitioner's claim to the equipment was merely colorable. However, the exercise of jurisdiction in this instance must be sustained, for reasons to follow.

In determining the validity and allowability of petitioner's claim, it became the duty of the referee to determine, when the trustee raised the question as a defense, the preferential status of the petitioner; and this would be so whether or not the claimant petitioner requested "that the objections to its claim be tried fully." It well may be that a plenary suit under Sections 23 and 60 of the Act will be required to set aside the alleged preferential transfer and secure the property or its value, but that is something other and different from disallowing the claim on the ground that there has been a preferential transfer and no surrender of the preference. See, however, In re Nathan, D.C.S.D.Cal.1951, 98 F.Supp. 686, where jurisdiction to summarily render an affirmative judgment on trustee's counterclaim for a preference was sustained. The counterclaim arose out of the same transaction as did the creditor's claim. See also, discussion of this problem in Journal of the National Association of Referees in Bankruptcy, Vol. 27, No. 3, pp. 90-92.

As stated earlier, Section 57, sub. g, of the Bankruptcy Act required surrender of the preference as a condition for allowance of the claim. Unless the referee determined upon hearing whether there had been a preference, he would not be in position to fulfill the mandate of the statute.

The referee's exercise of jurisdiction is in accordance with the well established rule in bankruptcy cases. Giffin v. Vought, 2 Cir., 1949, 175 F.2d 186; Schwartz v. Levine & Malin, Inc., 2 Cir., 1940, 111 F.2d 81; Metz v. Knobel, 2 Cir., 1927, 21 F.2d 317. See, however, B. F. Avery & Sons Co. v. Davis, 5 Cir., 1951, 192 F.2d 255, contra.

Petitioner concedes that its mortgage covering the equipment returned to it was not properly recorded, and is void under the applicable state statute. Ohio General Code, §§ 8560-8561. It has only the standing of a general creditor and not that of lien-holder.

The referee disallowed petitioner's claim because he found that every element of a voidable preference was present and established. In this review, the rule applies that the referee's findings may not be...