Servall Automobile Service, Inc. v. McDuffie

• Decision Date: 18 December 1934
• Docket Number: Civil 3434
• Citation: 44 Ariz. 498,38 P.2d 655
• Parties: SERVALL AUTOMOBILE SERVICE, INC., a Corporation, R. E. DOWNING, Jr., and MARGUERITE M. DOWNING, His Wife, W. W. CADWELL and LAURA M. CADWELL, His Wife, Appellants, v. WILLIAM C. McDUFFIE, as Receiver of the RICHFIELD OIL COMPANY OF CALIFORNIA, a Corporation, Appellee
• Court: Arizona Supreme Court

38 P.2d 655

44 Ariz. 498

SERVALL AUTOMOBILE SERVICE, INC., a Corporation, R. E. DOWNING, Jr., and MARGUERITE M. DOWNING, His Wife, W. W. CADWELL and LAURA M. CADWELL, His Wife, Appellants, v. WILLIAM C. McDUFFIE, as Receiver of the RICHFIELD OIL COMPANY OF CALIFORNIA, a Corporation, Appellee

Civil No. 3434

Supreme Court of Arizona

December 18, 1934

APPEAL from a judgment of the Superior Court of the County of Maricopa. Charles L. Hardy, Judge. Judgment affirmed.

Messrs Armstrong, Kramer, Morrison & Roche, for Appellants.

Messrs Hayes, Stanford, Walton, Allee & Williams, for Appellee.

OPINION

ROSS, C.J.

On June 13, 1932, William C. McDuffie, as receiver of the Richfield Oil Company of California, filed a complaint against Servall Automobile Service, Inc., upon a stated account for $755.55 and at the same time caused the issuance and levy of a writ of attachment upon defendant's property as security for the satisfaction of any judgment recovered. Upon the same day the defendant replevided the property by giving a bond, with sureties (R. E. Downing, Jr., and Marguerite M. Downing, his wife; W. W. Cadwell and Laura M. Cadwell, his wife), payable to plaintiff in double the amount of plaintiff's debt conditioned that the defendant would satisfy any judgment rendered against it or pay the estimated value of the property replevied with lawful interest. The defendant's amended answer consists of a general demurrer and a counterclaim. It further sets out in its answer that it, on October 11, 1932, filed a petition in voluntary bankruptcy, and on October 12, 1932, was, by the United States District Court for Arizona, adjudged a bankrupt; that by reason thereof the action was barred, the exclusive jurisdiction of his estate being in the bankruptcy court.

The trustee in bankruptcy in the meantime tried to intervene, claiming the right of subrogation to plaintiff's rights under the attachment, but was denied such right.

The judgment was for the plaintiff against the defendant and the sureties on the replevin bond for the full amount of his claim, but the judgment as to defendant was perpetually stayed on account of his bankruptcy.

The defendant and sureties on the replevin bond have appealed.

While the appellants make several assignments of error, we think there is only one real question involved and that is the effect of the bankruptcy proceedings upon the liability of the sureties. Appellants contend that, the adjudication of bankruptcy being within four months of the date of the attachment, all rights and privileges thereunder were dissolved, including the release of both the principal and sureties on the replevin bond. This contention is based upon the provisions of section 107 (f), title 11 U.S.C.A., reading 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, unless the court shall, on due notice, order that the right under such levy, judgment, attachment, or other lien shall be preserved for the benefit of the estate...."

It is quite clear under the provisions of this statute that any existing attachment lien acquired within four months of the adjudication of bankruptcy would fail. It is, however, the contention of plaintiff that the effect of the replevin bond was to release the attachment lien and leave the attached property a part of the estate as though attachment had never been levied against it.

An examination of the local statutes concerning attachments convinces us that plaintiff's contention is right. The replevin bond provided for in section 4250, Revised Code of 1928, is one conditioned to satisfy any judgment obtained in the action, or to pay the estimated value of the property attached with lawful interest from date of bond, showing conclusively that the bond is a substitute for the attachment lien and that the attaching creditor must look to the bond, and not the attachment lien, for security to satisfy the judgment. Section 4255, Id., is confirmatory of this statement, for therein it is provided that the levy of the writ creates a lien upon real property from the date of the levy "and on such personal property as remains in the hands of the attaching officer, and on the proceeds of such personal property as may have been sold." This language implies as clearly as if it stated it affirmatively that the attachment lien is canceled or annulled when personal property no longer remains in the hands of the attaching officer, evidently meaning when the property is replevied the bond is the sole security of the creditor.

In House v. Smith's Cashway, Inc., 38 Ariz. 399, 300 P. 951, 952, we said:

"It [the order vacating the attachment] unquestionably dissolved the attachment, and substituted for such attachment lien the security of the bond."

The courts are not in accord on the effect of an adjudication of bankruptcy within four months of the levying of an attachment upon the liability of the sureties on a bond given to secure the satisfaction of a judgment or a return of the property attached to the debtor. There is one line of cases holding that under section 107 (f), supra, no judgment may be entered against the bankrupt, and, since the sureties' liability is under the terms of the bond contingent upon such a judgment, the sureties are likewise released. Windisch-Muhlhauser Brewing Co. v. Simms, 129 La. 134, 55 So. 739; Stull Bros. v. Beddeo, 78 Neb. 119, 112 N.W. 315, 14 L.R.A. (N.S.) 507; A. Klipstein & Co. v. Allen-Miles Co., (C.C.A.) 136 F. 385; Crook Horner Co. v. Gilpin, 112 Md. 1, 75 A. 1049, 136 Am. St. Rep. 376, 28 L.R.A. (N.S.) 233; House v. Schnadig, 235 Ill. 301, 85 N.E. 395.

But we think the assumption that no judgment may be entered against a debtor after he has been adjudicated a bankrupt is without basis in the law. Section 107 (f), supra, does not undertake to prohibit judgments against the bankrupt after adjudication. It only nullifies judgment liens with other liens. The context in which the word "judgment" is used conclusively shows that it is the lien created by judgment that is null and void. This is clearly and convincingly shown in Pope v. Title Guaranty & Surety Co., 152 Wis. 611, 140 N.W. 348, 350, in the following reasoning:

"The present bankruptcy act aims to secure an equal and equitable distribution of the debtor's property among his creditors, and to promote that end has in effect provided that no preference or advantage may be obtained by one creditor over another by virtue of any attachment garnishment, or levy made within four months of the adjudication in bankruptcy. This is as far as it was necessary for Congress to go to attain the ends aimed at. It may well be doubted whether Congress could go to the extent claimed. A creditor has a right to sue his debtor. State courts have jurisdiction of the persons of the parties, if they live therein, and of the subject-matter of an action on contract...