Liberty Nat Bank of Roanoke, Va v. Bear

• Decision Date: 26 May 1924
• Docket Number: No. 238,238
• Citation: 265 U.S. 365,68 L.Ed. 1057,44 S.Ct. 499
• Parties: LIBERTY NAT. BANK OF ROANOKE, VA., v. BEAR
• Court: U.S. Supreme Court

265 U.S. 365

44 S.Ct. 499

68 L.Ed. 1057

LIBERTY NAT. BANK OF ROANOKE, VA.,

v BEAR.

No. 238.

Argued April 25, 1924.

Decided May 26, 1924.

Mr. James D. Johnston, of Roanoke, Va., for petitioner.

Messrs. Harvey B. Apperson, of Salem, Va., and James A. Bear and G. A. Wingfield, both of Roanoke, Va., for respondent.

Mr. Justice SANFORD delivered the opinion of the Court.

This case, which arises in proceedings in bankruptcy, involves claims by a judgment creditor to liens upon the real estate of the bankrupts.

On July 20, 1920, the Liberty National Bank recovered a judgment in a Virginia court against the Roanoke Provision Co., a partnership composed of the two Beckers, and against the Beckers individually. This judgment—which was duly docketed in the Judgment Lien Book and on which execution was issued—was under the laws of Virginia a lien upon the real estate of the judgment debtors. Code of 1919, § 6470.

Thereafter, on August 6, an involuntary petition in bankruptcy was filed in the Federal District Court against the Company, as a partnership composed of the two Beckers, alleging that it had committed an act of bankruptcy on August 4 by executing a general assignment for the benefit of creditors, and that it was insolvent. There was no allegation that the Beckers were individually insolvent or had committed acts of bankruptcy; and no prayer that they be adjudged bankrupt individually. They filed a joint answer admitting the allegations of the petition. On August 20, the Company, as a partnership composed of the two Beckers, was adjudged bankrupt by the District Judge; but they were not adjudged bankrupt ad individuals. Thereafter, pursuant to an order of the referee, the Company and the Beckers filed schedules of their respective assets and liabilities.

In April, 1921—more than nine months after the recovery of the judgment—the Beckers filed separate voluntary petitions in bankruptcy; and each was adjudged bankrupt as an individual. Bear, the trustee in the partnership proceeding, was appointed trustee of their individual estates.

Thereafter the Bank filed proofs of claim on its judgment against the separate estates of the Beckers, alleging that it constituted a lien upon their individual real estate and was entitled to priority as such. The trustee filed objections to the allowance of these prior claims, on the ground, among others, that by virtue of the proceedings against the Company he had been vested with title to the property of the individual partners as well as that of the partnership, as of the date of the filing of the petition in bankruptcy against the partnership, and that as the judgment against the individual partners had been recovered within four months prior to the filing of that petition, it could not, under the provisions of the Bankruptcy Act (Comp. St. §§ 9585-9656), be enforced as a lien upon their separate estates. He did not aver, however, that either the Company or the Beckers were insolvent at the time the judgment was recovered.

The referee, holding that the liens created by the judgment upon the separate properties of the Beckers had been 'annulled' by the proceedings under the petition against the partnership, disallowed the claims of the Bank, as secured claims and allowed them as unsecured claims merely.¹ This order of the referee was reversed by the District Judge, on the ground that as the order of adjudication had merely adjudged the bankruptcy of the Company, and not the bankruptcy of the Beckers individually, the lien of the judgment upon their separate estates had not been 'nullified.' The trustee was thereupon granted an appeal to the Circuit Court of Appeals. The Bank moved to dismiss this appeal upon the ground, among others, that the trustee had not alleged, either in his objections to the allowance of its claims or elsewhere, that the Beckers were insolvent at the time the judgment was recovered, nor had such insolvency been proven; and that allegation and proof of their insolvency at the time the lien of the judgment attached was 'absolutely essential.' The Circuit Court of Appeals—without ruling on this motion—reversed the decree of the District Court upon the ground that the 'adjudication of the partnership was necessarily an adjudication of the bankruptcy of the individuals composing it, and that * * * the lien of a judgment obtained within four months of the filing of the petition against the partnership was lost by the adjudication.' 285 Fed. 703. This decision was apparently based upon Section 67f of the Bankruptcy Act (Comp. St. § 9651)—upon which the trustee had relied at the hearing before the referee²—although no reference to it is made in the opinion; it being evidently assumed by the court that under that section a judgment lien obtained within four months prior to the filing of a petition in bankruptcy is dissolved by the subsequent adjudication of the bankruptcy of the judgment debtor, without reference to his solvency or insolvency at the time the lien was obtained.³ This writ of certiorari was then granted. 261 U. S. 612, 43 Sup. Ct. 434, 67 L. Ed. 826.

Upon the question whether the adjudication of the bankruptcy of a partnership involves an adjudication of the bankruptcy of the individual partners, there appears to have been a diversity of opinion in the lower federal courts. The decision in Francis v. McNeal, 228 U. S. 695, 33 Sup. Ct. 701, 57 L. Ed. 1029, L. R. A. 1915E, 706, upon which the Circuit Court of Appeals chiefly relied, did not involve a determination of this direct question. And we do not find it necessary to determine it now; since, even if the adjudication of the bankruptcy of the Company operated as an adjudication of the bankruptcy of the Beckers individually—which we do not intimate—nevertheless,...