Lyon Realty Co. v. Milburn Realty Co.

• Decision Date: 05 February 1932
• Citation: 56 F.2d 187
• Parties: LYON REALTY CO. et al. v. MILBURN REALTY CO.
• Court: U.S. District Court — District of Maryland

56 F.2d 187 (1932)

LYON REALTY CO. et al. v. MILBURN REALTY CO.

District Court, D. Maryland.

February 5, 1932.

J. Morfit Mullen and Eli Frank, Jr., both of Baltimore, Md., for receivers.

Lauchheimer & Lauchheimer, of Baltimore, Md., for petitioning creditors Lyon Realty Co. and others.

CHESNUT, District Judge.

In this case the petition of creditors for adjudication in bankruptcy of the Milburn Realty Company, was filed in due form on November 28, 1931. On December 21, 1931, Edward H. Hammond and Abraham Davidson, receivers (after dissolution) appointed by the circuit court No. 2 of Baltimore city, filed a motion to dismiss the petition in bankruptcy. The grounds assigned are (1) the Milburn Realty Company was dissolved by decree of the circuit court No. 2 of Baltimore city on October 1, 1931, prior to the filing of the petition in bankruptcy under the provisions of article 23, § 92 et seq., of the Maryland Code; (2) the Milburn Realty Company had not committed acts of bankruptcy; (3) laches and estoppel on the part of the petitioning creditors. However, at the hearing of the case, counsel for the receivers abandoned all contentions but the first, and therefore the sole question presented for decision is whether the fact that the corporation was dissolved prior to the bankruptcy proceedings deprives this court of jurisdiction in bankruptcy.

The contention of the receivers is that a dissolved corporation is legally dead for all purposes, and therefore may not be sued unless the statutes affecting the proceeding resulting in dissolution permit such a suit to be brought, and that the applicable Maryland statute does not permit this to be done. See Maryland Code, article 23, § 96. In support of the contention, reference is made to a recent case in the Supreme Court of the United States, Oklahoma Gas Co. v. Oklahoma, 273 U. S. 257, at page 259, 47 S. Ct. 391, 392, 71 L. Ed. 634, where it was said, but not with special reference to bankruptcy procedure: "It is well settled that at common law and in the federal jurisdiction a corporation which has been dissolved is as if it did not exist, and the result of the dissolution cannot be distinguished from the death of a natural person in its effect."

The particular case dealt with the effect of the dissolution of a corporation during a pending suit. Obviously the exact question here must depend for its solution upon the provisions of the bankruptcy law and the judicial decisions construing and applying it. The United States Code, title 11, § 22, 11 USCA § 22 (being section 4 of the Bankruptcy Act), provides with regard to involuntary bankruptcy as follows: "Any natural person * * * any moneyed, business, or commercial corporation * * * may be adjudged an involuntary bankrupt * * * and shall be subject to the provisions and entitled to the benefits of this title."

With regard to an individual, that is, a natural person, United States Code, title 11, § 26, 11 USCA § 26 (Bankruptcy Act, § 8) provides as follows: "The death or insanity of a bankrupt shall not abate the proceedings, but the same shall be conducted and concluded in the same manner, so far as possible, as though he had not died or become insane."

The quite clear implication from this statutory provision is that the estate of a deceased individual, although he committed acts of bankruptcy prior to his decease, is not subject to administration in bankruptcy, but is left for the probate procedure of the several states. And it has been so held in a number of federal decisions, and I understand is the generally accepted law. See In re Fackelman (D. C. Cal. 1918) 248 F. 565; Adams v. Terrell (C. C. Tex. 1880) 4 F. 796; Graves v. Winter (D. C. Miss. 1874) Fed. Cas. No. 5710.

The quite logical argument is submitted by counsel for the receivers that the same rule must apply to a corporation which has been dissolved prior to bankruptcy because it is said to be incapable of being sued after dissolution. But despite the seeming logic of the contention I find that the federal decisions construing and applying the bankruptcy law to such a situation have been uniformly contrary to this contention. It happens that, in the earliest reported case in which there was an identical situation, Judge Morris in the District Court of Maryland, in the case of In re Storck Lumber Co., 114 F. 360, 361 (decided in 1902), recognized the logical difficulty, but sustained the bankruptcy jurisdiction on the broad principle: "That the national bankrupt law is to govern the administration of the estate of all insolvent debtors who are within its provisions, and supersedes all the state laws having the like object."

Judge Morris held in that case that the same applicable Maryland statute relating to dissolution of corporations was in the nature of a proceeding in insolvency. And this view of the Maryland statute was confirmed by the Court of Appeals of Maryland in the later case of Hughes v. Hall, 118 Md. 673, 677, 678, 85 A. 946. Judge Morris' decision in the Storck Case has been approved and followed in several subsequent federal cases involving quite similar situations. See the opinion of District Judge Hough, In re Munger Vehicle Tire Co., 159 F. 901, at page 903, affirmed by the Circuit Court of Appeals for the Second Circuit; and also see referee's opinion, In re Adams & Hoyt Co., 164 F. 489, at pages 493, 494, confirmed by District Judge Newman. And in a very recent bankruptcy case, Straton v. New, 283 U. S. 318, 330, 51 S. Ct. 465, 75 L. Ed. 1060, the Supreme Court has cited the Storck Lumber Co. Case with apparent approval. To the same effect is the earlier decision in Re Double Star Brick Co. (D. C. N. D. Cal.) 210 F. 980. In Vassar Foundry Co. v. Whiting Corporation (C. C. A. 6) 2 F.(2d) 240, the view was taken that the applicable Michigan corporate dissolution statute was superseded by the bankruptcy act so far as it applied to insolvent corporations, but could stand as to solvent corporations. See, also, Scheuer v. Smith (...