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Schwartz v. A. J. Armstrong Co.

UNITED STATES COURT OF APPEALS SECOND CIRCUIT.


decided: January 30, 1950.

SCHWARTZ
v.
A. J. ARMSTRONG CO., INC.

Author: Hand

Before AUGUSTUS N. HAND, CHASE and FRANK, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

On July 30, 1947, Florida Shoe Corporation transferred all its assets to Vanity Fair Shoe Corporation in consideration of the assumption by Vanity of Floradora's liabilities. The transfer was made without notice to the creditors of Floradora, and without complying with the so-called Bulk Sales Act of the State of New York. See New York Personal Property Law, McKinney's Consol. Laws, c. 41, § 44.*fn1

On November 18, 1947, at a time when Vanity was insolvent, and within four months of the filing against it of an involuntary petition in bankruptcy, Armstrong delivered an execution to the sheriff upon a judgment which it had theretofore recovered against Floradora. As Judge Rifkind said in his opinion in the court below [84 F.Supp. 533, 534]: "It is clear that by virtue of the execution delivered to the Sheriff, petitioner obtained a lien on the goods and chattels of Floradora. Section 679 of the New York Civil Practice Act provides, 'The goods and chattels of a judgment debtor * * * are bound by the execution * * * from the time of delivery thereof to the proper officer to be executed * * *'. And goods of the judgment debtor fraudulently conveyed are bound by the execution though they are in the possession of the fraudulent transferee. Section 278 of N. Y. Debtor and Creditor Law [McKinney's Consol. Laws, c. 12] entitles a judgment creditor to 'disregard the conveyance and attach or levy execution upon the property conveyed.'"

On May 17, 1948, the trustee in bankruptcy of Vanity filed a petition with Referee Stephenson alleging that the assets, formerly of Floradora, had been sold on January 20, 1948, and praying that the lien claimed by Armstrong against the proceeds be held void as against the trustee in bankruptcy. The referee granted the motion to invalidate the lien of Armstrong, and his decision was affirmed by the District Judge. The question before us is whether the lien claimed by Armstrong, or that claimed by the trustee in bankruptcy of Vanity, should prevail.

Section 67 of the Bankruptcy Act provides that "every lien against the property of a person obtained by * * * judgment, levy, or other legal * * * proceedings within four months before the filing of a petition in bankruptcy * * * by or against such person shall be deemed null and void (a) if at the time when such lien was obtained such person was insolvent * * *." 11 U.S.C.A. § 107, sub. a(1).

The appellant Armstrong argues that its lien was not divested by the bankruptcy of Vanity for the reason that the lien attached to the property of Floradora and not to the property of the bankrupt. But under § 44 of the New York Personal Property Law the transfer from Floradora to Vanity was voidable and not void until so adjudged by a court. City of New York v. Johnson, 2 Cir., 137 F.2d 163, 165. Therefore, the trustee obtained a lien upon the property, or its proceeds, held by Vanity. In other words, legal title to the property of Floradora passed to Vanity through the transfer and was not disturbed until the bankruptcy of Vanity when the trustee by virtue of § 67 and § 70 of the Bankruptcy Act, 11 U.S.C.A. §§ 107, 110, established his rights. It seems clear from what has been said that the lien sought to be established by Armstrong was invalid because it was founded on a levy upon the property of an insolvent debtor made within four months of the filing of the petition in bankruptcy and was avoided by the express terms of § 67 of the Bankruptcy Act and the property was subject to seizure by the trustee under § 70.

The order of the District Court is affirmed.


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