Stark v. Baltimore Soda Fountain Mfg. Co.

• Decision Date: 04 January 1952
• Docket Number: No. 5300.,5300.
• Citation: 101 F. Supp. 842
• Parties: STARK v. BALTIMORE SODA FOUNTAIN MFG. CO., Inc.
• Court: U.S. District Court — District of Maryland

101 F. Supp. 842

STARK v. BALTIMORE SODA FOUNTAIN MFG. CO., Inc.

No. 5300.

United States District Court, D. Maryland, Civil Division.

January 4, 1952.

Isidor Roman, Baltimore, Md., for plaintiff.

Jacob S. New, John O. Herrmann, Baltimore, Md., for defendant.

CHESNUT, District Judge.

In this case the Trustee in Bankruptcy sues to recover an alleged preference under section 60 of the Bankruptcy Act, 11 U.S. C.A. § 96. The principal defenses are (1) limitations and (2) res adjudicata.

The preference, according to the plaintiff's contention, resulted from the re-taking by the defendant of chattels sold by it to the bankrupt under a conditional sale contract which the plaintiff asserts was defectively recorded under the applicable State law, Maryland Code of 1939, Art. 21, § 71, and could have been avoided at the instance of intervening creditors without notice.

The principal facts are these. Prior to September 18, 1947 the bankrupt, Leiberman, living in Baltimore City, who had been occupied as a life insurance agent or collector, decided to open a delicatessen store at 7913 Harford Road, Baltimore County, some distance north of the boundary line between Baltimore City and Baltimore County. Leiberman was personally acquainted with a Mr. Levy who was a salesman for the Baltimore Soda Fountain Manufacturing Company, Inc., which for many years had been engaged in Baltimore City in selling store fixtures. On September 18, 1947 Leiberman signed an order for delivery to his new place of business of a soda fountain and other office furniture, fixtures and equipment. The total purchase price was to be $9,300 of which amount he paid at the time of giving the order $1,000 deposit. The order stated that Leiberman would execute further papers to protect the title to the goods and to keep them in good repair and insure them for the benefit of the vendor. Levy knew that Leiberman was personally residing in Baltimore City but was informed by the latter that he proposed very shortly to move to Baltimore County so that his residence would be near his place of business. Subsequently under date of November 1, 1947 a formal printed and typewritten conditional sales contract was executed by Leiberman in which the Baltimore Soda Fountain Manufacturing Company, Inc., 101 S. Hanover Street, Baltimore, Maryland, agreed to sell the specified articles to Charles Leiberman, 7913 Harford Road, Baltimore County, Maryland. The applicable Maryland statute, Art. 21, § 71, provides that conditional sales contracts shall be void as to creditors without notice unless recorded in the City or County where the vendee resides unless the vendee is a partnership or corporation, in which event the recording is to be in the County or City where its principal place of business is located. The contract was recorded in Baltimore County on November 7, 1947. Shortly thereafter, on or about January 12, 1948, Leiberman moved his residence to Baltimore County a few blocks away from the store.

Prior to the delivery of the store equipment Leiberman paid $2,000 more and subsequently $150 more. The equipment consisted of 19 separate items listed and described in the conditional sales contract which further provided that the equipment "shall at all times be located at 7913 Harford Road, Baltimore, Maryland". The purchaser agreed to pay the total price of $9,300 plus $186 sales tax, of which $3,000 was payable before delivery and the balance of $6,486 was payable in 36 monthly installments evidenced by promissory notes; the title to the equipment was to remain in the seller until fully paid for; and in the event of the purchaser's default at any maturity date of the notes or failure to comply with the contract provisions or in the event of bankruptcy or insolvency, the full amount of the purchase price then unpaid to become immediately due and payable at the seller's option with right to the seller to enter upon the premises and take immediate possession, the seller to retain all payments made by the purchaser as liquidated damages, etc. Some of the equipment was delivered on October 25, 1947, but, as the store was a new one, it was not opened until November 8, 1947, the day after the final delivery and completion of the installation of the equipment for the store.

Leiberman's new commercial venture was not successful and after being in default for many months in the payment of deferred purchase price installments, and after repeated requests for payment from the seller, Leiberman informed the latter that he could not pay as he had no money and on or shortly before September 30, 1948 he closed the store. On that date the seller instituted a replevin suit in the Circuit Court for Baltimore County against Leiberman in accordance with the Maryland practice and procedure and filed an approved bond. On the same day the writ of replevin was issued and on October 4, 1948 the sheriff filed a return of non est as to the summons to the defendant and also showing that he had replevied the articles seized as per schedules filed. On October 5, 1948 the summons was renewed to the first Monday in November and "copy of subpoena Nar in Replevin and Notice sent". On November 1, 1948 the sheriff again made a return of non est as to the summons. On February 14, 1949 the plaintiff in the replevin suit moved for and obtained a judgment by default and order of court that the judgment be entered as prayed.

On October 18, 1948 Leiberman filed his voluntary petition for adjudication in bankruptcy in this court and on the same day the order of adjudication was filed. The petition and schedules, prepared for Leiberman by a lawyer connected with the Legal Aid Society, made no reference to the store fixtures which had been replevied by the seller. On November 17, 1948 Alexander Stark was elected trustee in bankruptcy for Leiberman and on November 30, 1948 counsel for the trustee was appointed. On May 5, 1949 the trustee filed before the Referee in Bankruptcy a petition for recovery of the store equipment on the ground that the conditional sales contract was void because of intervening creditors without notice before recording. At first no point was made of the alleged defective recording but the then Referee in Bankruptcy suggested that the petition could also include that point. The Soda Fountain Company as respondent to that petition objected to the exercise of summary jurisdiction by the Referee who upheld that contention with consequent petition for review filed in this court where the Referee's order was affirmed on June 9, 1950. On June 28, 1950 the trustee filed notice of appeal to the United States Court of Appeals for the Fourth Circuit where, on August 5, 1950 an order was passed extending time for filing the record on appeal. The order of this court was affirmed by the Court of Appeals, 1 Cir., 185 F.2d 398, and this plenary suit was then filed by the trustee on March 18, 1951.

My conclusion of law is that the plea of limitations is good. By the Chandler Amendment of the Bankruptcy Act in 1938, Section 11e, 11 U.S.C.A. § 29, sub. e, now provides in material part as follows: "A receiver or trustee may, within two years subsequent to the date of adjudication or within such further period of time as the Federal or State law may permit, institute proceedings in behalf of the estate upon any claim against which the period of limitation fixed by Federal or State law had not expired at the time of the filing of the petition in bankruptcy".

This statutory period of limitations is applicable to and controlling of the present case where adjudication was on October 18, 1948 and this plenary suit was not instituted until more than two years thereafter on March 8, 1951. In Herget, Trustee in Bankruptcy, v. Central National Bank & Trust Co., 324 U.S. 4, 65 S.Ct. 505, 89 L.Ed. 656, the Supreme Court applied the statute in a similar case where a trustee in bankruptcy was suing to recover a preference. In the opinion the court reviews the historical development of limitations provisions in former Bankruptcy Acts and concludes that the 1938 Amendment was clearly intended by Congress to apply to such cases as this where the trustee is seeking by authority of the Bankruptcy Act to recover a preference. On page 8 of 324 U.S., on page 507 of 65 S.Ct. it is said: "The actual language used in Section 11e is clearly appropriate to an action under Section 60. Section 11, sub. e is not limited by its words to actions inherited by the trustee; nor does it discriminate against actions by the trustee accruing to him under the Act. It provides simply that the trustee must bring action on any claim in behalf of the estate within two years subsequent to the date of adjudication, or within such further time as the federal or state law permits, provided that such law did not bar the action on the date when the petition was filed".

And with respect to the relation of the quoted provision in Section 11e referring to federal or state limitation statutes, it was further said in the opinion on page 9 of 324 U.S., on page 508 of 65 S.Ct.: "Inasmuch as the federal Bankruptcy Act has created the liability and has also fixed the limitation of time for commencing actions to enforce it, we have no occasion to consider the trustee's arguments concerning the applicability and construction of the Illinois statutes of limitation".

It was suggested by counsel for the plaintiff here that the plaintiff's effort to recover the preference by the summary jurisdiction of the Referee might be regarded as the institution of "proceedings in behalf of the estate" but in my view this contention is untenable. It has been decided in this very bankruptcy case that the Referee did not have summary jurisdiction and that the defendant was entitled to defend in a plenary proceeding which was instituted for the first time on March 8, 1951, more than two years after the occurrence of the alleged preference. A somewhat similar contention...