In re Richter
| Decision Date | 29 April 1941 |
| Citation | 40 F. Supp. 758 |
| Parties | In re RICHTER. |
| Court | U.S. District Court — Southern District of New York |
John E. Joyce, of New York City, Referee in Bankruptcy.
Hyman Eller, of Brooklyn, N. Y., for Trustee.
Schneider & Arzt, of New York City (Michael Berman, of New York City, of counsel), for respondent.
Barshay, Frankel & Rothstein, of New York City, for Fred W. Hinrichs, Inc.
The trustee in bankruptcy has petitioned for review of an order by the Referee denying a motion to compel the turnover by four creditors of certain monies paid them by the bankrupt subsequent to the filing of the petition.
Fannie Richter was the proprietress of a bakery and restaurant. On August 9, 1940, she filed a voluntary petition, and, on the same day, was adjudicated a bankrupt. No receiver was appointed and the trustee was not elected until October 10, 1940. During the two months intervening between the filing date and the election of a trustee, the bankrupt continued in possession of the bakery, and continued to operate the business.
At the time of filing her petition, the bankrupt had no quick assets. Her equity in the baker's tools, furniture and fixtures, with which the trade was carried on, is stated to be worthless, inasmuch as the debts represented by the two chattel mortgages upon them are greatly in excess of their value.
When the bankrupt filed her petition, she was indebted, among others, to the four respondents in this proceeding. They are Fred W. Hinrichs, Inc., who supplied the bankrupt with paper bags and boxes, in the sum of $26.93; William G. Bullock, for flour, in the sum of $150.75; Consolidated Edison Company, for gas and electricity, $36.27; and J. Sausville Sons, Inc., who supplied her with other ingredients required in making bread and cake, in the sum of $439. These several sums were for merchandise or services rendered prior to August 9th, and each of them was a dischargeable debt. Sausville was not listed in the schedules, but the referee has found that this creditor had actual notice of the bankruptcy by August 17th. The others were listed and received notice of the proceedings.
As previously stated, the bankrupt continued in possession of the store and ran the bakery. Upon the hearing before the Referee, Mr. Sausville testified that he refused to deliver goods to the bankrupt unless the claim of his concern was paid. He then stated (referring to the bankrupt's response): "She said, on every bill that I send up, she would pay me an old bill." It was established that, thereafter, Sausville delivered new materials to her on that basis. The result was that before the trustee took over, the bankrupt had liquidated the entire old claim of Sausville, amounting to $438.77. During the period she created a new debt for the later deliveries of $460.41.
The Referee found that the payments made by the bankrupt were from her daily cash receipts. He also agreed with Sausville's contentions that the monies he received were proceeds arising from the sale of bread, cake and other foods created in part out of the materials, furnished under his arrangement with the bankrupt subsequent to August 9th, except for a small sum said to represent goods on hand on that day.
The Referee ruled that the monies so paid were neither property in existence at the time the petition was filed, nor were they the proceeds of such assets. On the contrary, it was held that they were the proceeds of after-acquired property, and therefore the trustee could not recover the same.
A similar conclusion was reached respecting the other claims, inasmuch as they, too, were paid out of the bankrupt's daily cash receipts following the bankruptcy.
In my opinion, the Referee's conclusion cannot stand. The operation of the business by the bankrupt during the period involved was without the knowledge or authority of this court. Her adjudication had the effect of placing all her assets — encumbered or otherwise — in custodia legis. In the absence of a receiver she held the same as a trustee for the benefit of her creditors, and subject to the orders of this court.
The continued operation of a bankrupt's business is a matter within the discretion of the court. Bankruptcy Act § 2, sub. a(5), 11 U.S.C.A. § 11, sub. a(5). By virtue of that section, the court has the power, in a proper case, to direct the continuance of a business for limited periods by a receiver or trustee. The purpose of any such operation, manifestly, is to preserve a going business with the prospect of its sale, as such, to the greater advantage of the creditors. In 1 Collier on Bankruptcy, 14th Ed., Section 2.34, it is stated: ...
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