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IN RE CHESTERFIELD DEVELOPERS

June 18, 1968

In the Matter of CHESTERFIELD DEVELOPERS, INC., also known as Roselawn Park Estates and Lord Chesterfield Homes, Debtor


The opinion of the court was delivered by: TENNEY

TENNEY, District Judge.

 This Petition for Review of an order of a Bankruptcy Referee raises the interesting and complex question of whether a mechanic's lien filed subsequent to the filing of a petition for arrangement is valid against the debtor-in-possession. The Referee found the mechanic's lien to be superior to the right of the debtor-in-possession, and I agree with this conclusion. Accordingly, the Referee's decision is confirmed.

 The petitioner is a debtor-in-possession in a pending arrangement proceeding under Chapter XI of the Bankruptcy Act. The respondent is a mechanic's lienor who, subsequent to the filing of the petition for arrangement, filed its mechanic's lien for materials and labor delivered and rendered prior to such petition. The filing of the lien was accomplished pursuant to Section 10 of the New York Lien Law, McKinney's Consol. Laws, c. 33, which allows such filing up to four months after completion of the contract or the completion of the performance of the work or the final furnishing of the material. There is no contention that the lienor filed improperly. The debtor-in-possession sought an order vacating the mechanic's lien, which request was denied.

 The problem in the instant case arises as a result of the 1966 amendments to § 67 of the Bankruptcy Act, 11 U.S.C. § 107. Prior to these amendments, it was clear that a lien such as that in question would survive bankruptcy. See, e.g., New York-Brooklyn Fuel Corp. v. Fuller, 11 F.2d 802 (2d Cir. 1926); In re Caswell Constr. Co., 13 F.2d 667 (N.D.N.Y.1926); In re Cramond, 145 F. 966 (N.D.N.Y.1906).

 Former § 67(b) of the Act, 11 U.S.C. § 107(b), provided inter alia that:

 
statutory liens in favor of * * * mechanics * * * created * * * by the laws * * * of any State, may be valid against the trustee * * *. Where by such laws such liens are required to be perfected and arise but are not perfected before bankruptcy, they may nevertheless be valid, if perfected within the time permitted by and in accordance with the requirements of such laws * * *.

 It is generally agreed that the 1966 amendment to § 67 was minor in nature, the provision concerning post-bankruptcy perfection being moved to § 67(c)(1)(B), 11 U.S.C. § 107(c)(1)(B), with some change in language. The policy of the section is not affected by the amendment. See King, Statutory Liens Under New § 67c of the Bankruptcy Act, 42 Ref.J. 11 (1968); Seligson, Treatment of Statutory Liens in Bankruptcy - The 1966 Amendments of Section 67b and c, 27 Fed.B.J. 111, 115 (1967); cf. Kennedy, The Bankruptcy Amendments of 1966, 41 Ref.J. 5, 8 (1967). See generally Statute Note, 45 Texas L.Rev. 374 (1966).

 New § 67(c)(1) sets forth basic tests for validity of statutory liens. *fn1" Subdivision A invalidates inter alia as against the trustee statutory liens first becoming effective upon the debtor's insolvency. The purpose of this provision is to invalidate an attempt by a State statute to force a priority system upon a bankruptcy administration. See S.Rep. No. 1159, 89th Cong., 2d Sess. (1966), U.S.Code Cong. & Admin.News 1966, p. 2456. Subdivision C invalidates statutory liens for rent and any liens of distress for rent.

 The most significant provision of § 67(c)(1) is contained in subdivision B, which states:

 
The following liens shall be invalid against the trustee:
 
* * *
 
(B) every statutory lien which is not perfected or enforceable at the date of bankruptcy against one acquiring the rights of a bona fide purchaser from the debtor on that date, whether or not such purchaser exists: Provided, That where a statutory lien is not invalid at the date of bankruptcy against the trustee under subdivision c of section 70 of this Act [11 U.S.C. § 110(c)] and is required by applicable lien law to be perfected in order to be valid against a subsequent bona fide purchaser, such a lien may nevertheless be valid under this subdivision if perfected within the time permitted by and in accordance with the requirements of such law * * *.

 The legislative history indicates that this provision is intended to invalidate statutory liens so tenuous in nature that they may be defeated by transfers to bona fide purchasers. In such case, "the holders of such liens have reason to know that their security is extremely vulnerable." S.Rep. No. 1159, 89th Cong., 2d Sess. (1966), U.S.Code & Admin.News 1966, p. 2461.

 It has been stated that § 67(c)(1)(B) sets forth a "bona fide purchaser" test and/or a "judgment lien creditor" test, but the commentators appear more clear with respect to the mechanics of such test than to its appellation. Compare 4 Collier, Bankruptcy P67.281[2.2], at 422 (14th ed. 1967), with King, Statutory Liens Under New § 67c of the Bankruptcy Act, supra at 12. ...


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