In re Rand Mining Co.

• Decision Date: 10 May 1947
• Docket Number: No. 6253.,6253.
• Citation: 71 F. Supp. 724
• Court: U.S. District Court — Southern District of California
• Parties: In re RAND MINING CO.

71 F. Supp. 724

In re RAND MINING CO.

No. 6253.

District Court, S. D. California, N. D.

May 10, 1947.

Siemon, Maas & Siemon, and Alfred Siemon, all of Bakersfield, Cal., for petitioners.

Harvey, Johnston, Baker & Palmer, and Oran W. Palmer, all of Bakersfield, Cal., for trustee.

YANKWICH, District Judge.

On November 15, 1945, the debtor-bankrupt, Rand Mining Company, a copartnership, composed of I. D. Budd, J. P. Champagne and H. C. Cleveland, filed its petition for arrangement under Chapter 11, of the Bankruptcy Act of 1938, 11 U.S. C.A. 701 et seq. It was adjudged a bankrupt on September 13, 1946, when a trustee was appointed.

On August 8, 1946, the debtor-bankrupt filed its petition for restoration to it of the sum of $4,724.06 from W. M. Atkinson and Walter L. Maas, Jr., petitioners herein, who filed an Answer claiming title to the fund.

A hearing was had before the Referee, at which the petitioners challenged the Referee's jurisdiction to hear the matter summarily. The objection being overruled, the Referee proceeded to hear the matter. At the conclusion of the hearing, the petitioners moved to dismiss the proceeding. The Referee took the entire matter under submission.

On December 9, 1946, he made a turnover order directing Atkinson and Maas to turn over and deliver to Mildred Uhler, Trustee of the Bankrupt, the sum of money mentioned.

This is a petition to review the Order.

While the Referee did not file formal findings, his turnover order is, in effect, such, except as to certain matters to be noted later. In it, he found the following facts to be true, which I adopt as findings.

Prior to November 15, 1945, and within the four months' period preceding, namely on July 26, 1945, certain property of the debtor was attached by the Constable of the Tenth Township, Kern County, California, under a writ of attachment, issued by the Superior Court of the State of California, in and for the County of Kern, in Case No. 42218, wherein W. M. Atkinson was plaintiff and the debtor-bankrupt was one of the defendants. On July 31, 1945, the debtor-bankrupt deposited with the Clerk of the Superior Court the sum of Four Thousand Seven Hundred Twenty Four and 06/100 Dollars pursuant to a stipulation of W. M. Atkinson and the debtor that the attached property be released upon the sum being deposited with the Clerk. The stipulation, among other things, recited that the Clerk should deliver the money to the prevailing party after final judgment. The attached property was then released. On or about March 20, 1946, W. M. Atkinson, with full knowledge of the pendency of the bankruptcy proceedings, took judgment against the debtor for Four Thousand Nine Hundred Thirty One and 57/100 Dollars and Eighty Five and 75/100 Dollars costs. The Judgment became final on May 21, 1946, and W. M. Atkinson and his agent, Walter L. Maas, Jr., Attorney, with knowledge of the bankruptcy proceedings, on that day obtained from the Clerk of the Superior Court the sum of Four Thousand Seven Hundred Twenty Four and 06/100 Dollars, which had been deposited with the Clerk by the debtor.

The evidence introduced before the Referee shows that Beulah H. Whitelaw purchased an interest in the Rand Mining Company for which she gave a check payable to the "Rand Mining Company", on July 30, 1946, for $5,000. On the same day, other persons purchased an interest, that is, Jay Eaton paid $1,000, Margaret Wells, $500, Mrs. H. C. Cleveland, $1,500 and Robert R. Coblentz, $1,000.

An agreement was entered into by the Rand Mining Company with each of the new partners making them members of the partnership on a percentage basis, dependent on the amount of their contribution. Mrs. Whitelaw was given a five per cent interest. The Agreement with her recited:

"First: Said co-partners of the Rand Mining Company have and do hereby agree to take into the business as a partner the above-mentioned Beulah H. Whitelaw for the consideration of Five Thousand Dollars ($5000.00) payment of which is hereby acknowledged.

"Second: That all rights in the equipment, land, leases, and such other property as may be owned by the Rand Mining Company, either before the date of this instrument or hereinafter acquired, will be shared in by said Beulah H. Whitelaw in the same ratio as the division of profit or losses will be made as enumerated in section four of this agreement." (Emphasis added.)

The other purchasers paid cash. Mrs. Whitelaw's check was cashed by the bankrupt, Rand Mining Company, and the proceeds, excepting $4,724.06, were used with the cash put up by the other persons, to pay power bills and wages.

An assignment of an interest in the partnership was given to each of the purchasers. Cleveland, one of the partners, with the $4,724.06 obtained from the check of Beulah H. Whitelaw purchased a cashier's check payable to R. J. Veon, Clerk of the Superior Court in Kern County, which was deposited with the Clerk by the debtor-bankrupt pursuant to the stipulation.

The documentary evidence and the transcript of the testimony of the hearing before the Referee, which is before us, support fully the conclusions of the Referee. Before this Court, as before the Referee, the petitioners are in the anomalous position of claiming that the money was not the debtor's, but that it was deposited by Mrs. Beulah Whitelaw. But, although the transcript shows her to have been present at the hearing, she never contradicted the statement of Cleveland, the partner, that the check which she paid was not (as claimed by the petitioners) to purchase his or another individual partner's interest in the partnership, but to become a general partner with them. The contract with her, which the petitioners introduced, is to that effect. Consequently, as the petitioners cannot claim subrogation, the only right they can assert to the money deposited to release the attachment must come from the attachment itself and from the stipulation under which the deposit was made.

The stipulation did not confer any right to the money. It recited that the money was deposited in lieu of bond, and was to be paid over to the winning party.

Whatever right the petitioners claim thus springs from the Attachment. Any attachment within the four months period is invalid under the specific wording of Subdivision a(1) of Section 67 of the Bankruptcy Act of 1938, 11 U.S.C.A. § 107, sub. a(1).

If we treat the transaction as a deposit for security or indemnification under Subdivision a(2) of the same section, 11 U.S. C.A. § 107, sub. a(2), it is a lien obtained by legal proceedings and, as such, invalid.

The invalidity, in either case, of course, stems from insolvency within the four months' period from the filing of the petition. See Liberty National Bank, of Roanoke, Va., v. Bear, 1928, 276 U.S. 215, 48 S.Ct. 252, 72 L.Ed. 536; Dixon v. Koplar, 8 Cir., 1939, 102 F.2d 295, 297, 4 Remington on Bankruptcy, 1943, Sec. 1616. For it is the date of the filing of the petition which determines the invalidity of an advantage of this character obtained through legal or equitable proceedings. And this is true both under the old law and the new law. See, 4 Remington on Bankruptcy, 1943, Secs. 1606, 1613; Adolph Ramish, Inc., v. Laugharn, 9 Cir., 1938, 86 F.2d 686, 688; and see my opinion In re Club New Yorker, 1936, D.C.Cal., 14 Fed.Supp. 694. The petitioners, at the oral argument, stressed the point that they acquired some kind of equitable lien. The argument is repeated in the brief filed later. And it is there insisted that the deposit was a contract to pay a judgment and therefore was not a true indemnity. There are cases which hold that a contract to pay a judgment without having first to look to the judgment debtor is not an indemnity, but an original promise. Hawk v. Barton, 1900, 130 Cal. 654, 63 P. 64; Manufacturer's Finance Corporation v. Vye-Neill Co., 1 Cir., 1933, 62 F.2d 625; Bradley v. Duty, 1946, 73 Cal.App.2d 522, 166 P.2d 914. But, as will presently appear, that does not solve the problem here because the deposit was not conditioned upon the payment of a judgment, but was denominated as being in lieu of a bond to release an attachment and was to be turned over to the winning party. As a fact, the amount was less than the judgment obtained. The petitioners seem to think that if the sale to Mrs. Whitelaw is illegal, they acquired certain rights. Assuming that the sale of an interest in a mining partnership requires a permit from the California Commissioner of Corporations, the agreement was fully executed. And certainly no one could complain, least of all Atkinson, who was not a party to the transaction. If the contract was illegal, the only person who could lay a claim to the money was Mrs. Whitelaw. And she has made none. See, Pollak v. Staunton, 1930, 210 Cal. 656, 293 P. 26; Olds v. Simmons, 1932, 123 Cal.App. 275, 11 P.2d 36; Brooks v. Brooks, 1941, 48 Cal.App.2d 347, 119 P.2d 970. If any one acquired some kind of equitable lien to the money arising from invalidity of transaction, it is certainly not the petitioners. Both under the old statute and the new one, only certain liens created by state law which are absolute in their nature are exempt from the interdiction. Of this character are vendors' liens, attorneys' liens, landlords' distress liens, and the like. See, 4 Remington on Bankruptcy, 1943, Sec. 1610; In re Prudence, 2 Cir., 1938, 96 F.2d 157; In re San Juan Gold, 2 Cir., 1938, 96 F.2d 60; Commercial Credit Co. v. Davidson, 5 Cir., 1940, 112 F.2d 54; Moses v. Labofish, 1942, 76 U.S.App.D.C. 401, 132 F.2d 16; Reconstruction Finance Corp. v. Sun Lumber Co., 4 Cir., 1942, 126 F.2d 731.

An example of such lien, recognized by our own Circuit Court of Appeals for the Ninth Circuit under the California law, is the so-called "trust receipt" created under the Uniform Trust Receipts Act of California. In re Boswell, 9 Cir., 1939, 96 F.2d 239.

But here, the deposit of the money did nothing but release from...