In re Ved Elva, Inc.

• Decision Date: 06 December 1966
• Docket Number: Civ. No. B-935-64,B-965-64.
• Citation: 260 F. Supp. 978
• Parties: In the Matter of VED ELVA, INC., a New Jersey corporation, Gustave Abrahamsen, Individually and trading as North Arlington Bowl-O-Drome, Mary B. Abrahamsen, and 47 Schuyler, Inc., a New Jersey corporation, Bankrupts.
• Court: U.S. District Court — District of New Jersey

260 F. Supp. 978

In the Matter of VED ELVA, INC., a New Jersey corporation, Gustave Abrahamsen, Individually and trading as North Arlington Bowl-O-Drome, Mary B. Abrahamsen, and 47 Schuyler, Inc., a New Jersey corporation, Bankrupts.

Civ. Nos. B-935-64, B-965-64.

United States District Court D. New Jersey.

December 6, 1966.

Lautman & Rapson, by Donald J. Rapson, Asbury Park, N. J., for petitioner, Henry Baker.

Robert Friedlander, Asbury Park, N. J., and Julius J. Golden, Long Branch, N. J., for trustee in bankruptcy.

OPINION

COHEN, District Judge:

Petitioner, Henry Baker, a creditor of Gustave Abrahamsen, one of the individual bankrupts in these consolidated bankruptcy proceedings, seeks a judicial review of the determination of Referee William Lipkin relegating him to the status of a general, unsecured creditor in the distribution schedule of the assets of the bankrupt estate. The Referee's Certificate of Review was filed pursuant to Section 39a(8) of the Bankruptcy Act, and this Court has examined the record in order to ascertain whether his findings of fact are sufficiently supported by evidence in the record and whether his conclusions of law are correct. 11 U.S.C.A. § 67 subs. c, a(8).

Briefly, the record discloses that petitioner obtained a judgment on February 14, 1964 against the individual bankrupt, Gustave Abrahamsen, for $7,862.80 including costs, in the Superior Court of New Jersey. On February 24, 1964 he issued execution and levied on real estate owned as tenants by the entirety by Gustave Abrahamsen and Mary B. Abrahamsen, his wife, the bankrupts herein. No sale was effected under this levy. However, during petitioner's proceedings, a judgment was obtained by Shore Restaurant Equipment Co., Inc., on February 18, 1964 in the amount of $19,689.05, thereafter reduced to $14,252.75, against both bankrupts Gustave and Mary Abrahamsen. During this same period of time, two other judgments were entered against Gustave Abrahamsen, individually; Manzo Contracting Co., Inc. obtained judgment for $9,869.47 on February 13, 1964 including costs, and on February 25, 1964 Level Line, Inc. obtained judgment including costs in the amount of $1,837.05, upon which is presently due $784.55. On August 17, 1964 Shore Restaurant Equipment Co., Inc., as a judgment creditor of both Gustave and Mary Abrahamsen, levied execution against real estate held by them as tenants by the entirety, being premises known as 2609 River Road, Point Pleasant, New Jersey. No sale was effected under this levy. On the same date, the Abrahamsens filed petitions in bankruptcy.

Subsequently, the Trustee in Bankruptcy effected judicial sale of the real estate on July 26, 1965 which resulted in gross proceeds of $57,500.00 and, after the payment of a mortgage, taxes and sale expenses, a net of $24,956.78. The Trustee filed his Final Account and Report, and appeared before the Referee for a determination of the priority of liens inherent in the real estate sale proceeds.

The Referee isolated the issue, i. e., whether certain judgments became liens upon the proceeds of the real estate sale. After hearing, he decided that:

"The judgment in favor of Shore Restaurant was entered on February 18, 1964 more than four months prior to bankruptcy proceedings which commenced on August 27, 1964. It was against both parties in bankruptcy and pursuant to N.J.S.A., 2A:16-1 was effective and binding on the real estate from the time of the entry of the judgment. Wills v. McKinney, 41 N.J.L. 120, 122 (Sup.Ct.1879). Aside from its entry this creditor also issued a levy thereon and, it is clear, had a valid first lien on the proceeds ahead of the rights of any other creditor and also the Trustee of the bankrupt estates." (Referee's Certificate of Review, page 3).

He concluded further that the judgments in favor of Manzo Contracting Co., Inc., The Level Line, Inc., and petitioner, Henry Baker, were not liens on the property or its proceeds superior, by way of priority, to the rights of the Trustee. These latter claims were allowed as general, unsecured claims against the sole estate of Gustave Abrahamsen.

Only petitioner Baker seeks review of the Referee's determination. His contention is that having made the first execution and levy in point of time upon the real estate in question, his lien is superior to the rights of the Trustee in Bankruptcy, as well as superior to Shore Restaurant and other judgment creditors. And having perfected his lien against an asset of the debtor more than four months prior to the bankruptcy, he is entitled to share in the proceeds of the Trustee's sale to the full extent of his judgment. Petitioner relies upon the cases of King v. Greene, 30 N.J. 395, 153 A.2d 49, 75 A.L.R.2d 1153 (1959) and Servis v. Dorn, 76 N.J.Eq. 241, 76 A. 246 (Ch.1909) as supporting his position.

The Trustee takes the position that upon the filing of the bankruptcy petitions, he immediately became vested with the real estate title of the bankrupts (Mr. and Mrs. Abrahamsen) under Section 70(a) of the Bankruptcy Act, 11 U.S.C. § 110(a) which, in pertinent part, provides as follows:

"The trustee of the estate of a bankrupt * * * upon his * * * appointment and qualification, shall in turn be vested by operation of law with the title of the bankrupt as of the date of the filing of the petition initiating a proceeding under this title, except insofar as it is to property which is held to be exempt, to all of the following kinds of property wherever located * *

"All property, wherever located, except insofar as it is property which is held to be exempt, in which the bankrupt has at the date of bankruptcy an estate or interest by the entirety and which within six months after bankruptcy becomes transferable in whole or in part solely by the bankrupt shall, to the extent it becomes so transferable, vest in the trustee and his successor or successors, if any, upon his or their appointment and qualification, as of the date of bankruptcy."

In Section 70(c) of the Bankruptcy Act, the trustee is given the rights of a lien creditor, providing in pertinent part:

"The trustee, as to all property, whether or not coming into possession or control of the court, upon which a creditor of the bankrupt could have obtained a lien by legal or equitable proceedings at the date of bankruptcy, shall be deemed vested as of such date with all the rights, remedies, and powers of a creditor then holding a lien thereon by such proceedings, whether or not such a creditor actually exists."

The Referee in Bankruptcy relying upon these sections, determined that the Trustee became a judgment lien creditor of the full, undivided tenancy by the entirety estate of both bankrupt husband and wife. At page 5 of his Certificate of Review, he states:

"In this case, by reason of Section 70(c) of the Bankruptcy Act, the Trustee of the husband and wife had possession of the real estate and also has the position of a judgment creditor holding a lien against the real estate owned by the husband and wife. The Trustee's position is akin, in effect, to the judgment in favor of Shore Restaurant against both parties, but inferior to it in time because the law in New Jersey gives priority to the creditor who first executes upon his judgment, Wills v. McKinney, 41 N.J.L. 120 (1879); Bogert v. Lydecker, 45 N.J.L. 314 (1883), and the prior judgment against the entire legal title is effective as against a creditor who at best has a lien on the interest of one of the parties holding title, which interest is subject to be rendered valueless if that party dies before the party against whom there is no lien."

He ruled that the only lien against the real estate superior to that of the Trustee was the judgment in favor of Shore Restaurant. Its judgment against both husband and wife was entered February 18, 1964, more than four months prior to the bankruptcy proceedings commenced August 27, 1964. This judgment attached and bound the full entirety interests of both judgment-debtors. R.S. 2A:16-1, N.J.S.A.; Wills v. McKinney, supra. Not only did Shore Restaurant enter judgment, but it also issued execution and levied on August 17, 1964, ten days before the bankruptcy proceedings. Hence, the Trustee's title rising no higher than the bankrupts' was in like manner subject and inferior to the lien of Shore Restaurant, the prior levying judgment creditor. So that when the Trustee effected judicial sale of the full entirety interests in the real estate, the priority judgment lien of Shore Restaurant attached to the money proceeds of the sale to the extent of the balance then due, i. e. $14,252.75. The net proceeds realized at sale were $24,956.78, and the Referee distributed the amount due to Shore Restaurant as a secured creditor. The other judgments, including petitioner's, were denied priority by the Referee and allowed solely as general, unsecured claims against the...