Harvey v. Critchfield Marine, Inc.

BROCK, Chief Judge. Plaintiff contends that the trial court erred in allowing defendant’s motion for summary judgment. Specifically, plaintiff contends that the United States District Court for the Southern District of Florida in defendant’s Chapter XI arrangement proceeding had no jurisdiction to determine the merits of plaintiff’s claim, and therefore, the decision is not res judicata. Plaintiff contends that his status is that of a secured creditor and, as such, is not bound by confirmation of a Chapter XI arrangement proceeding and denial of his claim under the Bankruptcy Act. No provision of the Bankruptcy Act permits an arrangement proposed under Chapter XI to deal with the rights of secured creditors. See 8 Collier on Bankruptcy, Para. 7.05 [4], at 29 (14th ed. 1972). For the reasons hereinafter stated, plaintiff’s contentions are partly meritorious but partly without merit. Under the Bankruptcy Act, a creditor may occupy the position of a secured creditor for a part of his claim and occupy the position of an unsecured creditor for the balance of his claim. 9 Collier on Bankruptcy, Para. 7.05 [4], p. 29-30 (14th ed. 1972). When the plaintiff obtained an attachment of defendant’s property, plaintiff became a secured creditor to the extent of the value of the property attached. In this case defendant’s property was attached 16 January 1970. Defendant’s petition in bankruptcy was filed 22 June 1970. Therefore, plaintiff’s security was over four months old at the time the petition in bankruptcy was filed. The posting of bond by defendant, with Ohio Casualty Insurance Company as surety, did not interrupt plaintiff’s security. The bond merely substituted promissory security to obtain release of the property. “[A]n attachment lien remains invulnerable if over four months old although the suit in which it was issued has not resulted in judgment.” 4 Collier on Bankruptcy, Para. 67.07, p. Ill (14th ed. 1972). Therefore, the United States District Court in the bankruptcy proceeding had no jurisdiction over plaintiff’s claim up to the amount secured by the bond. Plaintiff’s claim in excess of the [716] amount secured by the bond was within the jurisdiction of the United States District Court, and its decree denying plaintiff’s claim is res judicata, to the extent that plaintiff’s claim exceeds the amount protected by the bond. An order confirming .an arrangement is a judgment in rem, a final determination of the rights and liabilities created by the arrangement, binding upon all parties in interest, whether or not they appeared. 9 Collier on Bankruptcy, Para. 9.25 [2], at 336-337 (14th ed. 1972). Plaintiff was a secured creditor to the extent of the value of the property attached; therefore, plaintiff’s claim to that extent was not discharged in the bankruptcy proceeding. Plaintiff is entitled to prosecute this action to judgment although execution thereon shall not be issued against defendant. It is only by prosecuting this action to judgment that plaintiff will be enabled to bring an action against the surety on the bond which was posted to release the defendant’s attached property. See 4 Collier on Bankruptcy, Para. 67.07, pp. 114-115 (14th ed. 1972). Upon a new trial, plaintiff should be permitted to offer such competent evidence as he may have to establish his entire claim. The verdict should be in the full amount determined by the finder of facts to be the amount owed by defendant to plaintiff. If the verdict exceeds the value of the property at the time it was attached, the trial judge should enter judgment only for an amount not exceeding the value of the property at the time it was attached. The judgment should contain a perpetual stay of execution against the defendant. New trial. Judges Morris and Carson concur.