New Hampshire

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

Edward J. Burns v. Artcraft Painting Co.,
166 A.2d 699 (N.H. 12/27/1960)

SUPREME COURT OF NEW HAMPSHIRE

No. 4841

1960.NH.82, 166 A.2d 699, 103 N.H. 118

December 27, 1960

EDWARD J. BURNS

v.

ARTCRAFT PAINTING CO.

SYLLABUS BY THE COURT

1. An agreement for judgment for the satisfaction of a trustee process lien which attached to the funds of the defendant more than four months before proceedings in bankruptcy were instituted against the defendant constituted neither a preference nor a fraudulent transfer under the Bankruptcy Act (11 U.S.C.A. 1 (30) ), 96 (supp.), 107 (d) (2) or the Uniform Fraudulent Conveyances Act (RSA ch. 545).

2. In such case, since the creditors of the bankrupt are not entitled to avoidance of the prior lien as a preference or as a fraudulent transfer the Trustee in Bankruptcy is not so entitled under the Bankruptcy Act. 11 U.S.C.A. 110(e).

Petition, by James F. Murphy, a Trustee in Bankruptcy of the defendant, and United States Fidelity & Guaranty Company, an attaching creditor, to intervene with a prayer that the case be reopened and the plaintiff ordered to pay back into the court the amount paid to him pursuant to a judgment entered by agreement.

The plaintiff, Edward J. Burns, brought an action against the defendant Artcraft Painting Co., Inc. by a writ dated December 12, 1957, naming Davison Co., Inc. as trustee. By an assignment on January 3, 1958, the defendant Artcraft assigned to the clerk of the Superior Court certain funds to be paid by the trustee, which funds were to be held by the clerk as security for any judgment which the plaintiff might secure against Artcraft. The assignment by its terms was for the release of the attachment by trustee process against the Davison Company. The company paid a total of $11,469.01 to the assignee by several payments commencing on January 22, 1958, and ending on June 12 following. The United States Fidelity & Guaranty Company, as a plaintiff, by writ dated June 27, 1958, wherein Artcraft was the defendant, trusteed the clerk of court, making service on him on the same day.

By an "Agreement for Judgment" dated and filed in the Superior Court on July 11, 1958, the plaintiff Burns and the defendant Artcraft agreed that there could be judgment for the plaintiff in the sum of $11,469.01.

Pursuant to a motion for payment of judgment filed by the plaintiff Burns on July 25, 1958, the Superior Court, by an order dated November 25, 1958, found that the "Agreement for Judgment" was valid and that the monies in the hands of the clerk should be paid to the plaintiff or his counsel. In the interim, it is alleged, the defendant was petitioned into bankruptcy in the United States District Court for the District of Rhode Island on November 5, 1958. However, the Superior Court ordered the clerk to suspend payment pending any appeal which might be taken in the matter. There being no appeal, the clerk of court, pursuant to the order, paid to counsel for Burns the money in question on January 12, 1959. This petition was then brought.

Further facts appear in the opinion.

Transferred by Morris, J.

Fuller, Flynn & Riordan (Mr. Fuller orally), for the plaintiff.

Devine, Millimet & McDonough (Mr. Millimet orally), for the defendant Artcraft Painting Co., Inc., the intervenors, United States Fidelity & Guaranty Co., and James F. Murphy, Trustee in Bankruptcy of Artcraft Painting Co., Inc.

The opinion of the court was delivered by: Blandin

The single question transferred to us is: "Was the Agreement for Judgment by the defendant Artcraft Painting Co., Inc., dated July 12, 1958, a preference or fraudulent transfer which would entitle the Trustee in Bankruptcy to intervene in this motion at this time?"

Under 11 U.S.C.A. 96 (supp.) of the Bankruptcy Act, a preference is defined as "a transfer... of any of the property of a debtor to or for the benefit of a creditor for or on account of an antecedent debt, made or suffered by such debtor while insolvent and within four months before the filing by or against him of the petition initiating a proceeding under this title, the effect of which transfer will be to enable such creditor to obtain a greater percentage of his debt than some creditor of the same class."

A transfer is defined under s. 1(30) (supra) to include "the sale and every other and different mode, direct or indirect, of disposing of or parting with property or with an interest therein... or of fixing a lien upon property... voluntarily or involuntarily, by or without judicial proceedings...."

The Act further provides by 11 U.S.C.A. 107 (d) (2) that "Every obligation incurred by a debtor within one year prior to the filing of a petition... [in bankruptcy]... by or against him is fraudulent (a) as to creditors existing at the time of such transfer or obligation, if made or incurred without fair consideration by a debtor who is or will be thereby rendered insolvent, without regard to his actual intent...." RSA 545:4 , our Uniform Fraudulent Conveyances Act, is essentially the same as 107 (d) (2), (supra) .

The plaintiff's lien under his trustee process in his suit against Artcraft attached to the disputed funds on December 13, 1957, judgment for the plaintiff was entered by agreement on July 11, 1958, and the defendant was allegedly petitioned into bankruptcy in the United States District Court for the District of Rhode Island on November 5, 1958. On these facts it would appear that the agreement for judgment would be valid and that no preference or fraudulent transfer resulted under 11 U.S.C.A. 1(30), 96 (supp.), 107 (d) (2) of the Bankruptcy Act or under our Uniform Fraudulent Conveyances Act. RSA ch. 545. The reason is that the judgment here obtained was for the enforcement of an allegedly valid lien acquired more than four months before the petition in bankruptcy was filed, and such a judgment is not affected by the Bankruptcy Act. Metcalf v. Barker, 187 U. S. 165; Hurlbutt v. Brown, 72 N.H. 235; see also, Haft & Bros. v. Wells, 93 F. 2d 991 (10th Cir. 1937). Since no power of avoidance inured to any creditor, none such was conferred on the Trustee under 11 U.S.C.A. 110(e).

The intervenors concede that the present case "superficially appears to fall within the decision of Hurlbutt v. Brown ..." and the Metcalf case. However, they attempt to distinguish these opinions from the present situation on the sole ground that in these cases no issues were raised as to the validity of the claims against the bankrupt. Here the intervenors assert "that the underlying claim [against the bankrupt] is without merit." In short, they would, in the present proceeding, invalidate the judgment obtained by the plaintiff against the Artcraft Company.

The difficulty with their position is that the question of the validity of the judgment on the grounds that the plaintiff's underlying claim is without merit was not alleged in the petition to intervene and is not before us. Accordingly the answer to the transferred question is no.

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