Matter of Brisbane
| Decision Date | 11 February 1980 |
| Docket Number | Bankruptcy No. 78-1023-A. |
| Citation | 2 BR 636 |
| Court | U.S. District Court — Virgin Islands, Bankruptcy Division |
| Parties | In the Matter of Steven W. BRISBANE, Bankrupt. Ethan Allen TURSHEN, Trustee in Bankruptcy, Plaintiff, v. BENNETT HEATING & AIR CONDITIONING, INC., f/d/b/a Bennett Air Conditioning, Inc., Runyon Pump Corporation, R.R. Runyon Company and Jones Masonry Company, Inc., Defendants. |
Ethan Allen Turshen, Arlington, Va., Trustee in Bankruptcy.
Edmund L. Walton, Jr., McLean, Va., for bankrupt.
MARTIN V.B. BOSTETTER, Jr., Bankruptcy Judge.
The Complaint filed by the Trustee in this case seeks a determination as to whether or not a certain lien obtained by judgment should be declared null and void under Section 67(a) of the Bankruptcy Act (11 U.S.C. § 107(a)).
The bankrupt, Steven W. Brisbane, filed a petition in bankruptcy on December 22, 1978. On July 31, 1979, the Court entered an order directing the Trustee to sell certain property, free and clear of liens, pursuant to a contract offer. The principal asset of this estate is a private residence located at 2730 Oak Valley Drive, Vienna, Virginia. The value of the property has been placed at $50,000.00.
The lien which the Trustee seeks to have voided was obtained by Jones Masonry Company, Inc., the defendant, in the Circuit Court of Fairfax County, Virginia, for the sum of $17,359.71 (Law 42776). The judgment was rendered on August 18, 1978, and duly docketed by the Clerk of the Circuit Court at 4:30 p.m. on August 24, 1978. (Trustee's Exhibit 2.)
In order to invalidate a lien under Section 67(a), it is incumbent upon the Trustee to establish that the lien: (1) was obtained by legal or equitable process; (2) either attached during the insolvency of the bankrupt or was sought and permitted in fraud of the provisions of the Bankruptcy Act; and (3) it was acquired within four months prior to the initiation of the bankruptcy proceeding.
1. It is clear that the rendition of a judgment is a "legal proceeding" within the meaning of Section 67(a)(1). See Wallace T. Bruce, Inc. v. Najarian, 249 Minn. 99, 81 N.W.2d 282 (1957). The judgment here was granted by default in the Circuit Court of Fairfax County on August 18, 1978. The record is quite clear that the judgment lien was obtained pursuant to legal or equitable process as required by Section 67(a).
2. In his Complaint, the Trustee alleged that on August 24, 1978, the date judgment was docketed and a lien obtained, that the bankrupt was insolvent. Section 1(19) of the Bankruptcy Act defines the term "insolvency" as follows:
"A person shall be deemed insolvent within the provisions of this Act whenever the aggregate of his property, exclusive of any property which he may have conveyed, transferred, concealed, removed, or permitted to be concealed or removed, with the intent to defraud, hinder, or delay his creditors, shall not at a fair valuation be sufficient in amount to pay his debts."
With respect to the issue of insolvency, Section 67(a)(1) of the Bankruptcy Act provides that a lien obtained against the real property of the bankrupt within the prescribed statutory period "shall be deemed null and void (a) if at the time when such a lien was obtained such person was insolvent. . . ."
In Jackson v. Valley Tie & Lumber Co., 108 Va. 714, 62 S.E. 964 (Va.1908), the Virginia Supreme Court of Appeals observed that not every judicial lien obtained within the four months of filing of a bankruptcy petition can be deemed null and void. In order to render a lien null and void "it must appear that the person whose property is subject to the lien was insolvent at the time of the creation of the lien." Id. 62 S.E. at 965. A later decision by the court, Newberry Shoe Co. v. Collier, 111 Va. 288, 68 S.E. 974 (Va.1910) established that "a discharge in bankruptcy does not necessarily affect a specific lien, but only releases the bankrupt from personal liability." Id. 68 S.E. at 975-76. The court in Dockery v. Flannery, 194 Va. 318, 73 S.E.2d 375 (Va. 1952), held that proof of insolvency at the time a bankrupt filed a petition in bankruptcy did not establish insolvency when the lien was obtained. Thus, even in an adjudication in bankruptcy no such presumption of insolvency relates back to when the lien was obtained. Id. 73 S.E. at 377.
The burden of proving that the bankrupt was insolvent when the lien was obtained is on the Trustee. Inland Sec. Co., Inc. v. Kirshner's Estate, 382 F.Supp. 338 (W.D.Mo.1974). It has been stated that the insolvency of a bankrupt may not always be susceptible of direct proof. Frequently, it must be determined by proof of other factors from which the ultimate fact of insolvency may be either inferred or presumed. Haynes & Hubbard, Inc. v. Stewart, 387 F.2d 906 (5th Cir. 1967).
A statement of the bankrupt's assets and liabilities as of August 22, 1978, was set forth in Exhibits 1 and 3 filed herein by the Trustee. The defendant offered no objection to said exhibits' admission into evidence. The Trustee's Exhibit 3 places bankrupt's total liabilities (secured and unsecured claims) at $344,010.00. Assets were divided into two categories for purposes of computation. The first category was labelled "high" which indicated a sum of $241,475.00. The second category was labelled "low" which indicated a sum of $220,325.00. The difference in said sums appears in large part to be due to a higher value having been placed on property by the court-appointed appraiser which evidently did not yield the appraised amount at court-authorized foreclosure.
James E. Thompson, a certified public accountant, testified that the bankrupt was one of his first business clients. He performed various services for the bankrupt including the preparation of the latter's federal income tax returns. Thompson stated that he was familiar with the period of time in which the bankrupt became insolvent. Thompson's testimony also revealed that the bankrupt was involved in the commercial construction business and, when the bankrupt attempted to continue business in the area of residential construction in 1977, he incurred considerable financial losses. Thompson acknowledged, upon examination by the Court, that he based his knowledge as to the bankrupt's financial condition largely upon the petition filed in bankruptcy by Brisbane.
The bankrupt, Brisbane, upon examination, testified as to the accuracy of the figures as set forth in Trustee's Exhibit 3. The defendant presented no evidence for the Court's consideration.
Evidence presented by the Trustee sustains a finding of insolvency with respect to the bankrupt as of August 22, 1978.
3. In order for the Trustee to invalidate a lien under Section 67(a) of the Bankruptcy Act, he must establish that the judgment lien at issue was acquired within four months prior to the initiation of the bankruptcy proceeding. This point in time is determined when a lien attaches to real property of the bankrupt. It is immaterial when the proceeding to enforce the lien began or when the judgment enforcing the lien was entered. Jackson v. Valley Tie & Lumber Co., 108 Va. 714, 62 S.E. 964, 966 (Va.1908).
The principal issue before the Court is whether the judgment lien of defendant against the bankrupt comes within the four-month period prescribed in Section 67(a). As the bankrupt filed his petition in bankruptcy on December 22, 1978, all judgment liens obtained on or after August 22, 1978, would be within the four-month period and thus void. The judgment was rendered on August 18, 1978, and docketed on August 24, 1978. If the docketing date is accepted as the date on which the lien attaches, it is within the prescribed four-month period and is voidable. Liens acquired through judicial proceedings more than four months before the filing of the petition in bankruptcy are not within the reach of Section 67(a). Virginia law governs the resolution of this issue. Tucker v. Foster, 154 Va. 182, 152 S.E. 376, 379 (1930).
At common law, all judgments by a legal faction were supposed to be entered on the first day of the term of the court at which they were recovered. In Virginia, however, the doctrine has been abrogated.
Under Virginia law, Section 8.01-458 of the Virginia Code governs the time in which judgment liens on real estate may be enforced. This section provides, in pertinent part:
"Every judgment for money rendered in this Commonwealth by any state or federal court or by confession of judgment, as provided by law, shall be a lien on all the real estate of or to which the defendant in the judgment is or becomes possessed or entitled, from the time such judgment is recorded on the judgment lien docket of the clerk\'s office of the county or city where such land is situated. . . . "
A judgment may not be a lien on real property ex proprio vigore until it becomes such, as by docketing in a register's office. 4 Collier on Bankruptcy, § 67.08 (14th ed. 1978). See Matney v. Combs, 171 Va. 244, 198 S.E. 469, 472 (1938). The Virginia courts and legislature have long acknowledged the unique relationship between docketing of a judgment lien and the rendition of such judgment. In Hill v. Rixey, 67 Va. (26 Gratt.) 72, 74 (Va.1975), the court held that a judgment was not a lien on real estate as against subsequent purchasers for value and without notice, unless it was docketed in the mode and within the time prescribed by statute. See Ryan v. Kanawha Valley Bank, 71 F. 912 (4th Cir. 1895). The Hill court observed that creditors and trustees secured in a deed of trust are purchasers for value, and depending upon the circumstances of the particular case, may be purchasers for value without notice. The Supreme Court of Appeals of Virginia stated in Smith v. Litton, 167 Va. 263, 188 S.E. 714, 715 (1936) that a "trustee in bankruptcy is governed by the same laws applicable to other trustees."
The enforcement of a judgment lien upon docketing is evidenced by a...
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