Nicolai-Neppach Co. v. Smith

• Decision Date: 23 June 1936
• Parties: NICOLAI-NEPPACH CO. v. SMITH et al. [*]
• Court: Oregon Supreme Court

58 P.2d 1016

154 Or. 450

NICOLAI-NEPPACH CO. v. SMITH et al. ^[*]

Supreme Court of Oregon

June 23, 1936

Department 1.

Appeal from Circuit Court, Multnomah County; John P. Winter, Judge.

Action by the Nicolai-Neppach Company, a corporation, against Hedwig Smith and Elsa A. Schnabel. Judgment for the plaintiff, and defendants appeal.

Reversed and remanded, with directions.

This is an action instituted by the plaintiff, Nicolai-Neppach Company, against the defendants, Hedwig Smith and Elsa A Schnabel, upon an undertaking executed by defendants, as sureties, to secure the redelivery to Smith & Valley Iron Works Company, an Oregon corporation, of certain personal property belonging to said company, which plaintiff had caused to be attached in an action it had instituted against that company in the circuit court. The cause was tried to the court and jury and a verdict rendered in favor of the plaintiff. From a resulting judgment, defendants appealed.

The action of plaintiff against the Smith & Valley Iron Works Company was filed on January 21, 1932. On the same day plaintiff caused a writ of attachment to issue in said action directed to the sheriff of Multnomah county, Or., commanding him to attach and safely keep all of the property of the Iron Works Company, or so much thereof as might be sufficient to satisfy plaintiff's claim against said company. The sheriff received the writ of attachment on January 21, 1932 and executed the same upon that date by attaching certain real property belonging to the Smith & Valley Iron Works Company, and also by levying upon and attaching said personal property belonging to said company. Thereafter, and on January 30, 1932, the Smith & Valley Iron Works Company, as principal, and the defendants herein, as sureties, executed and delivered to the sheriff of Multnomah county the undertaking involved in the present action to secure the redelivery to said Iron Works Company of the personal property that was held under the attachment, and upon delivery of such undertaking to the sheriff the possession of said personal property was redelivered to the Iron Works Company. Thereafter, on May 21, 1932, a default judgment was entered in favor of plaintiff in its action against the Smith & Valley Iron Works Company for $4,573.66, together with interests thereon at the rate of 6 per cent. per annum from October 5, 1931. On the same date that this judgment was entered, and within four months from the date of the attachment in said action, an involuntary petition in bankruptcy was filed against the Smith & Valley Iron Works Company in the United States District Court for the District of Oregon, Bankruptcy Division, and a subpoena was duly issued to that company. Thereafter, on June 13, 1932, an order was duly made in said proceedings adjudicating said Smith & Valley Iron Works Company a bankrupt and the matter was ordered referred to A. M. Cannon, as referee, and A. J Ersted was appointed receiver. At the first meeting of the creditors one Ray Smythe was elected as trustee, and he thereafter duly qualified and filed his bond, which was approved. On April 20, 1934, the plaintiff caused an attachment execution to be issued on the judgment it had previously secured against the Smith & Valley Iron Works Company commanding the sheriff to sell the property that had been previously attached. The sheriff thereafter made return on this writ to the effect that the real property that had been attached and a certain debt that had been garnisheed had been disposed of in the bankruptcy proceedings; that he had made a demand upon the Smith & Valley Iron Works Company through its president, W. G. E. Smith, for the return of the personal property that had been theretofore attached and redelivered to the said company upon the execution and delivery of the undertaking heretofore referred to, but that such demand was refused, and that he had also made demand upon defendants, the sureties, on said undertaking for the return of said personal property, or that they pay the value thereof. After this writ was returned to the clerk the sureties, having failed to comply with said demands plaintiff, on September 15, 1934, instituted the present action against the defendants on the said redelivery bond so executed by defendants as sureties.

Among other things the plaintiff alleges in its complaint that the provisions of said redelivery bond were breached by reason of the fact that after the execution and delivery of such bond and after the attached personal property had been redelivered to the Smith & Valley Iron Works Company, portions of said personal property so attached had been sold by said company. Defendants filed an answer to plaintiff's complaint wherein they alleged, by way of an affirmative defense, that on January 21, 1932, the date of the issuance of the attachment in said action against the Iron Works Company that company was insolvent and by reason of such fact said attachment became null and void upon the filing of the involuntary petition in bankruptcy on May 21, 1932, against said Smith & Valley Iron Works Company and the subsequent adjudication of said company as a bankrupt.

Irving Rand and Charles W. Erskine, both of Portland (Fred Gronnert, of Portland, on the brief), for appellants.

R. R. Rankin, of Portland (Wood Matthiessen & Rankin, of Portland, on the brief), for respondent.

The defense in this action is based upon certain provisions of the Federal Bankruptcy Act, § 67f, which provides in part as follows: "(f) That all levies, judgments, attachments, or other liens, obtained through legal proceedings against a person who is insolvent, at any time within four months prior to the filing of a petition in bankruptcy against him, shall be deemed null and void in case he is adjudged a bankrupt, and the property affected by the levy, judgment, attachment, or other lien shall be deemed wholly discharged and released from the same, and shall pass to the trustee as a part of the estate of the bankrupt." (U.S.C.A. title 11, § 107 (f) p. 138).

This subdivision of section 67 was amended by the act of June 7, 1934 (11 U.S.C.A. § 107), in certain particulars, which need not be mentioned as they do not affect the present action. See Collier on Bankruptcy, 13th Ed. (1935 Supp.) 564.

Plaintiff introduced evidence showing that between the date of the execution of the redelivery bond and the date of the filing of the involuntary petition in bankruptcy, certain personal property covered by plaintiff's attachment had been sold by the Smith & Valley Iron Works Company. Plaintiff at the trial urged that this evidence showed a breach of the redelivery bond and that it was therefore immaterial whether the Smith & Valley Iron Works Company was solvent on the date of the attachment and that it was immaterial whether an involuntary petition in bankruptcy had been filed against said company within four months from the date of the attachment. The trial court passing upon this contention remarked in part as follows: "*** but as I view the bankruptcy act, the adjudication in bankruptcy, assuming that at the time that the attachment was levied, the Smith and Valley Iron Works Company was insolvent, that the lien would thereby be destroyed, the same as if it never hadattached, and for this reason, if that be true, it is my opinion that the sureties are not liable on the bond. ***"

Evidence was introduced upon the issue raised in defendants' answer relative to the insolvency of the Smith & Valley Iron Works Company on the date of plaintiff's attachment, January 21, 1932. The jury brought in a verdict in favor of plaintiff and against defendants in the sum of $4,573.66, with interest thereon at 6 per cent. per annum from October 5, 1931, and for costs in the original action in the sum of $12, with interest thereon at the rate of 6 per cent. per annum from May 21, 1932, and judgment was entered accordingly.

At the close of all the testimony the defendants moved the court for a directed verdict in favor of defendants, which motion the court overruled and which ruling defendants assign as error.

Chapter 1, section 1, subd. 15 of the Bankruptcy Act (11 U.S.C.A. § 1 (15) provides that a person is insolvent within the provisions of the Bankruptcy Act whenever the aggregate of his property, exclusive of any property which he may have conveyed, transferred, concealed, or removed, or permitted to be concealed or removed, with intent to defraud, hinder, or delay his creditors, shall not, at a fair valuation, be sufficient in amount to pay his debts. The term "fair valuation," as used in this section, means the fair market value, or the value that can be made promptly effective by the owner of the property for payment of debts. It means the fair cash value or fair market value of the property as between one who wants to buy and one who wants to sell. Stern v. Paper (D.C.) 183 F. 228, 230; In re Sedalia Farmers' Co-operative Packing & Produce Co. (D.C.) 268 F. 898; Mitchell v. Investment Securities Corporation (C.C.A.) 67 F. (2d) 669, 671.

The question in this case is the solvency or insolvency of the Smith & Valley Iron Works Company on the date of plaintiff's attachment January 21, 1932. See Stern v. Paper, supra; Grandison v. Nat. Bank of Commerce (C.C.A.) 231 F. 800, 804.

Defendants contend that the competent evidence on the part of defendants conclusively shows that on January 21, 1932, the Smith &amp Valley Iron Works Company was hopelessly insolvent. The plaintiff maintains that the testimony in regard to the insolvency of that company on the date of the attachment, January 21, 1932, is conflicting, and that the question was properly submitted to the jury. The attachment levied on January 21, 1932, was within the four months'...