Colston v. Austin Run Mining Co.

GRAY, Circuit Judge. This is an appeal by a creditor or creditors of the Austin Run Mining Company, a corporation of the state of Delaware, from the judgment of the court below sustaining a demurrer to the petition filed by said creditors, alleging that the .said respondent had committed an act of bankruptcy, in that on the 31st day of May, 1911, it had permitted, while insolvent, one William J. Westcott, a creditor, to obtain a preference over other creditors of said corporation, through legal proceedings in an action of foreign attach935 merit in the state of Virginia, and to afterwards obtain a decree thereon for the payment of a debt of $41,080.69, entered in a court of that state; that in said legal proceedings, an order of sale was made on said date bi' the court, whereby all the real and personal property of die respondent corporation, situated in the county of Stafford, state of Virginia, was ordered to be sold at public sale; and that the same was advertised to be sold on Friday, August 13, 1911; by which order of sale, it is alleged that Westcott was about to obtain an unlawful preference over other creditors of the Austin Run Mining Company by the payment of said debt, that company not having, at least five days before said sale and final disposition of said property affected by such preference -vacated and discharged the same. To the petition thus filed, a demurrer was interposed by the alleged bankrupt, on the general ground that the said petition did not state facts sufficient to warrant an adjudication of bankruptcy. The petition did not state the date on which the writ of foreign attachment issued and the lien thereof became operative. The court, however, felt bound to assume that the lien of the foreign attachment became operative prior to the commencement of the four months preceding the filing of the petition, and it was afterwards admitted by the counsel for the petitioning creditors during the hearing on the demurrer, and the argument of counsel on both sides proceeded on the ground, that the lien of the foreign attachment was a valid lien upon the property of the alleged bankrupt subsequently ordered to be sold, much longer than four months next before the filing of the petition in bankruptcy. The question is thus presented, as stated by the court below, whether an attempted enforcement while insolvent within the space of four months next before the filing of a petition in involuntary bankruptcy, of a lien on the property of the alleged bankrupt validly created and subsisting for more than that period, coupled with an omission by him to secure, at least live days before a sale or final disposition of such property, the vacation or discharge of such lien, constitutes an ad of bankruptcy under section 3a of the Bankruptcy Act. There has been some conflict in the decisions upon this question, but we agree with the learned judge of the court below that both reason and the weight of authority compel the conclusion that mere failure, while insolvent, to vacate or discharge the lien within the statutory, period of four months, and at least five days before a sale or final disposition of the property affected, does not constitute an act of bankruptcy. Priority is obtained when a lien attaches, and not when it is enforced. The -date of the sale is immaterial in this respect; whenever it takes place, it relates hack to the date when the lien attached. The attaching creditor in the case before us, therefore, did not obtain a preference by the decree liquidating his debt. In the language of Mr. Chief Justice Fuller, in Metcalf v. Barker, 187 U. S. 165, 23 Sup. Ct. 67, 47 L. Ed. 122: “A judgment or decree in enforcement of an otherwise valid pre-existing lien is not the judgment denounced by the statute (section 671' of the Bankruptcy Act of 1898), which is plainly coniined to judgments creating liens.” [936] It is not our purpose, however, to discuss at length the interesting question raised by this appeal. The authorities in support of our conclusion, as well as those that conflict therewith, have-been elaborately discussed in the well-reasoned opinion of the learned judge of the court below, and its decree is hereby affirmed.