Marshall v. Roettinger , 294 F. 158 ( 1923 )

DONAHUE, Circuit Judge

(after stating the facts as above). While bankruptcy proceedings are for the protection of all the creditors of the bankrupt without favoritism, nevertheless bankruptcy courts will not hesitate to declare an equitable lien upon specific property or specific funds when it appears that in justice and equity a claimant is entitled thereto, and the fund or property upon which the lien is sought to be imposed can be definitely traced or distinguished with reasonable certainty; but this will not be done to the prejudice of equal or superior equities or legal rights of other creditors.

In this case the referee in bankruptcy found that the evidence introduced on behalf of the petitioner does not sustain any claim of a fraudulent scheme on the part of the Pfau Manufacturing Company to obtain money from the petitioner without the intention of shipping the goods, or that it realized at any time prior to the appointment of the receiver that it would not be able to continue in business or that it would not be able at a later date to fulfill the terms of the contract. Including the order of the City Plumbing Company, similar orders were given and advance payments made by other customers, aggregating 240 chino combination sets. These orders are all entitled to equal consideration. The fact that al the time the receiver was appointed there were in the general stock of the Pfau Manufacturing Company more than enough chino combination sets to have filled each of these orders is fortuitous only. The equitable consideration involved would not be different if there had been but 100 such sets. In such event it is, of course, evident that a lien could not have been declared upon any one of these 100 sets -in favor of any one of the 240 customers to the prejudice of others similarly situated. It is equally clear that neither of these customers, nor all of them, can assert a lien against 750 sets, or the proceeds thereof, for the protection of their claims for money advanced for the purchase of only 240 sets, to the prejudice of general creditors.

Upon the receipt of the order of the City Plumbing Company for 2 chino combinations, accompanied by its check to cover the purchase price,-it was the duty of the Pfau Manufacturing Company to select and separate from the common mass of like articlesothen in stock the definite articles required to fill this order and make reasonably early shipment to its customer] It did neither-,' and if no receiver had been appointed, and no bankruptcy proceedings had been commenced, the City Plumbing Company’s sole and only remedy against the Pfau Manufacturing Company would have been an action at law to recover the purchase price paid in advance and damages, if any, for the breach of contract. The fact that a petition in bankruptcy was filed and a large amount of property of the bankrupt of a kind and character fit and suitable to fill this order, but not separated from the common mass and not appropriated in any way to the City Plumbing Company’s order, passed into the possession of the receiver and the -trustee in bankruptcy could not create any additional rights in the plumbing company or enlarge its remedy.

No attempt was made to trace the fund arising from the proceeds of the check, but it is insisted upon the part of .the petitioner that the property which was the subject-matter of this contract of sale, while not sufficiently identified' to pass title to the purchaser, nevertheless is sufficiently identified in kind, although not segregated from the mass of like property, to justify' a court of equity in declaring a lien in its favor upon all property of like kind in the possession of the bankrupt at the time the receivers were appointed. In support of this proposition petitioner relies particularly upon Hurley v. Sante Fé, 213 U. S. 126, 29 Sup. Ct. 466, 53 L. Ed. 729; Gage Humber Co. v. McEldowney. 207 Fed. 255, 124 C. C. A. 641, and Greif Bros. Cooperage v. Mullinix (C. C. A.) 264 Fed. 391.

In the Hurley Case, supra, the property consisted of'a single unit The court found that it was the intention and purpose of the parties to pledge this specific property for the repayment of the advances made by the Railway company. The assets of the estate consisted in part, of the money advanced by the railway' company. The railway company had the power to declare a forfeiture of the lease for nonperformance of the conditions on the part of the lessee. It was clearly entitled to have a forfeiture declared, or to an order requiring the receivers and trustee in the bankruptcy proceedings to furnish the coal as mined in accordance with the terms of the contract, not only to the extent of the advance payments, but during the life of the lease. The bankruptcy proceedings in that case were commenced prior to the amendment of the National Bankruptcy Act in 1910 (36 Stat. 838), which amendment gives to the trustee in bankruptcy the status of an execution creditor instead of the same status as the bankrupt himself. In re Schilling (D. C.) 251 Fed. 966.

As said in the opinion of the Supreme Court in National City Bank v. Hotchkiss, 231 U. S. 50, 34 Sup. Ct. 20, 58 L. Ed. 115, the Hurley Case “stood on the peculiar facts of the case which were held to point to the identified res and give an immediate claim against it.” This court held in Gage Lumber Co. v. McEldowney, 207 Fed. 255, 124 C. C. A. 641, that where the purchaser had advanced large sums of money upon the purchase price for the convenience of the seller in meeting the expenses necessary to the manufacture of the lumber, which was the subject-matter of the contract, and that where in pursuance of this arrangement lumber was cut and piled in separate piles from other lumber-on the yards of the seller, and intended by the seller to be applied and shipped in fulfillment of the contract, that the res was sufficiently identified to charge the lumber so piled and segregated from other lumber with an equitable lien for the amount of the advancements. Substantially the same state of facts was involved in Greif Bros. Cooperage Co. v. Mullinix, supra.

These authorities are by no means in conflict with the established rule that no equitable lien will attach to unidentified or unsegregated property of the bankrupt passing into the possession and control of the trustee in bankruptcy, even where the contract apparently contemplates such a lien. It necessarily follows that, in the absence of a contract intending or purporting to create a lien, a court of equity will not, merely out of general consideration, declare a lien upon an unidentified res to the prejudice of equal equities of other creditors. National City Bank v. Hotchkiss, 231 U. S. 50, 57, 34 Sup. Ct. 20, 58 L. Ed. 115; Porter v. White, 127 U. S. 235, 8 Sup. Ct. 1217, 32 L. Ed. 112; Security Warehousing Co. v. Hand, 206 U. S. 415, 27 Sup. Ct. 720, 51 L. Ed. 1117, 11 Ann. Cas. 789; In re Stiger, 209 Fed. 148, 126 C. C. A. 96; In re Imperial Textile Co. (D. C.) 239 Fed. 775; In re Morris Bros., Inc. (D. C.) 282 Fed. 670, 672.

For the reasons stated, the- appeal is dismissed, and the judgment of the District Court is affirmed.