D. C. Wise Coal Co. v. Columbia Zinc & Lead Co.

COX, J.

— This is the third appeal in this case. The others are reported in 123 Mo. App. 249 , 100 S. W. 680 , and 143 Mo. App. 587 , 128 S. W. 232 .

The facts necessary for a determination of the questions arising upon this appeal are as follows:

The plaintiff began suit by attachment against defendant, Columbia Zinc & Lead Company, and levied upon certain property. The defendant gave a forthcoming bond with the United States Fidelity and Guaranty Company as surety, and the possession of the property was released to defendant. Within four months after the levy defendant was adjudged a bankrupt, and an *319 order made by the Referee in Bankruptcy, directed to plaintiff and other creditors of the bankrupt, enjoining them from taking any steps looking to the sale of the attached property, or interfering with it in any way for a period of twelve months, or if the bankrupt should apply for a discharge in a shorter time, then until such application should be determined. Notice of this order was Served upon plaintiff’s attorney. The attached property was then taken possession of by the trustee of the bankrupt estate and sold by order of the Referee in Bankruptcy. The plaintiff, however, proceeded with his attachment case to judgment. The defendant, having appeared in that case and filed an answer, and also a plea in abatement, the judgment finally rendered was a general judgment. Upon this judgment execution was issued which was returned nulla bona. The plaintiff then moved the court for an order upon defendant and its surety for the production of the property attached, and for an assignment to plaintiff of the forthcoming bond. The defendant and the surety upon the bond, and the trustee of the bankrupt estate, all appeared in opposition to these motions. Evidence was heard disclosing the facts as above set out. The court sustained plaintiff’s motions and made the orders as required and the objectors have appealed.

Plaintiff’s purpose in asking for the order to pro: duce the property and for an assignment of the forthcoming bond was to prepare the way for a suit upon the bond. The property attached had been taken in charge by the trustee of the bankrupt estate and sold and it was known that the property could not be produced, but the order for its production and failure to produce were essential to enable plaintiff to sue upon the bond. This fact was recognized by all of the objectors, hence their opposition to the orders.

The bankruptcy proceedings were begun within four months after the levy of the attachment writ and the important questions in this case are: Did the bank *320 ruptcy proceedings annul the attachment and destroy its lien, and if so, did this annulment release the surety on the forthcoming bond?

There are many cases which, if the language used therein is to be taken literally, hold that bankruptcy proceedings annul all liens acquired within four months, but we do not understand that the statute so reads. Section 67 of the. Bankrupt Act of 1898, upon -this question, is as follows:

“That all liens, judgments, attachments, or other liens obtained through legal proceedings against a person who is insolvent, at any time within four months prior to the filing of a petition in bankruptcy, against him, shall be deemed null and void in case he is adjudged a bankrupt and the property affected by the lien, judgment, attachment, or other liens, shall be deemed wholly discharged and released from the same.’’ (Italics are ours.)

As we construe this language it means that to render a lien, acquired by the levy of an attachment writ within four months, void, the bankrupt must be insolvent at the time the lien is acquired, and we have found no case holding otherwise when the attention of the court was called to this question. To our mind it would be unjust to hold that in the absence of fraud a party acquiring a lien upon specific property by attachment proceedings should, under all circumstances, be held to take the risk of his debtor becoming insolvent within four months threafter even though he might be entirely solvent at the time the lien was acquired. The purpose of the statute is to prevent preferences between creditors of an insolvent. In re Kenney 105 Fed. 897 , and is not in tended to hamper legitimate business between solvent persons. The creditor acquiring such a lien must take the risk of his debtor being insolvent at the time the lien attaches, if it is acquired within four months before bankruptcy proceedings are begun, but if the debtor •is solvent when the lien attaches though it be within *321 four- months of the beginning of proceedings in bankruptcy, there can be no preferences at the time the lien attaches, and the creditor cannot be forced to lose his security by the debtor becoming insolvent thereafter* [Collier on Bankruptcy (6 Ed.), p. 476; Simpson v. Van Etten, 108 Fed. 199 ; Paper Co. v. Gomenbel, 143 Fed. 295 .]

Although the levy was made within the four month’s period in this case it was not annulled by the proceedings in bankruptcy unless the debtor was,- in fact, insolvent at the time of the levy. But the plaintiff, in this case, is not now in a position to litigate that question for the reason that the Referee in Bankruptcy issued an order restraining the plaintiff and other creditors from taking any further steps to enforce sale of the áttached property, or interfering with it in any way, and notice of this order was served on plaintiff’s attorney. The trustee then took possession of the property and sold it without objection from plaintiff, hence, plaintiff must be held to have acquiesced in the sale of the property by the trustee for the benefit of the bankrupt estate, and if it has any remedy left it is to apply to the bankruptcy court and ask that the proceeds of the sale be applied to its debt; but for the purposes of this case in this court it must be held that the lien of the attachment was lost and the attachment itself annulled when the property ■was sold Avith plaintiff’s consent by the trustee of the bankrupt estate.

Respondent insists, however, that even if the attachment was annulled by the proceedings in bankruptcy, yet such annulment did not release the surety on the forthcoming bond. To sustain this position respondent contends that Haber v. Klauberg, 3 Mo. App. 342 , is squarely in point. The facts in that case were similar to the facts in this case with the exception that there was no restraining order issued by the Referee in Bankruptcy, and no appearance in the state court by the trustee in bankruptcy, and no resistance made to the order *322 for the production of the property, but when the sureties upon the forthcoming bond were sued upon the bond they sought to defend upon the ground that their principal had been adjudged a bankrupt within four months after the levy of the attachment writ, and that for that reason they were discharged. The court held in that case that the state court was not bound to take judicial notice of the proceedings in the bankruptcy court, and since the circuit court’s attention was not called to the proceedings in bankruptcy until after judgment upon the merits and an order to produce the property that it was too late for the sureties upon the forthcoming bond when sued upon the bond to plead the proceedings in bankruptcy as a defense. That question does not arise in this case because of the fact that a restraining order was issued in this case and service had upon the plaintiff. In addition to this the trustee of the bankrupt estate appeared in the circuit court and objected to the order for the production of the property being made. In this case the trial court’s attention was called to the bankruptcy proceedings before the order to produce the property was made, hence the holding of the Court of Appeals in the Haber case is not authority in this case.

Rosenthal et al. v. Perkins et al. (Cal.), 55 Pac. 804 , is also relied upon as squarely in point. In that case a bond with alternative conditions was given by which it was provided that should judgment be secured the property would be reproduced or its value paid. The principal in the bond went into voluntary insolvency under the California Statute, and the property was disposed of in that proceeding. The court held that the bond being in the alternative the impossibility of complying with one provision,- — to produce the property,— did not destroy the other provision which bound the surety to pay the value of the property and the surety was; held liable. This holding was based upon the terms of the bond which is unlike the bond in this case.

We are also cited to many other cases to sustain respondent’s position of which Hill v. Harding, 107 U. S. *323 699 ; King v. Block Amusement Co., 111 N. Y. Sup. 102, and World Publishing Co. v. Rialto Grain Co., 108 Mo. App. 479 , 83 S. W. 781 , are types. An examination of these cases will show that the result was determined by the terms of the bond. The bond in the Amusement case was an appeal bond, conditioned for the payment of the judgment, should it be affirmed. The other cases were bonds given in lieu of the attachment, and the giving of the bond dissolved the attachments, and the sureties upon these bonds also bound themselves to pay the judgment should one be obtained. In these cases it was held, and-rightly so, that the bankruptcy of the principal and his discharge did not release the sureties, and this because the sureties had, by the terms of their bond, become sureties for the debt, and, by the express provisions of the Bankrupt Act, sureties for a bankrupt’s debt are not released by the discharge of the bankrupt. In this case, hoAvever, no such obligation was assumed by the surety on the forthcoming bond. It did not agree to pay any judgment that might be secured. When the ■forthcoming bond was given the property was in the hands of the sheriff, under the attachment, and was, therefore, in custodia legis, and subect to the order of the court. When this bond was given the possession of the property wras, by the sheriff,-delivered to the attachment debtor and the obligation of the surety upon the bond was that the property should be forthcoming whén the court should so order. The property remained in .custodia legis, the lien of the attachment remained and the attachment debtor while holding possession of the property was merely a bailee of the sheriff, and the property remained subject to the court’s order. [Jones to the Use v. Jones, 38 Mo. 429 ; Fleming v. Clark, 22 Mo. App. 218 ; McDonald v. Loewen, 145 Mo. App. 49 l. c. 58, 130 S. W. 52 .]

Had no forthcoming bond been given, and the property remained in the hands of the sheriff it is clear that the bankruptcy proceedings would have resulted in the annulment of the attachment, and the sale of the *324 property for tlie. benefit of tbe estate of tbe bankrupt would bave released tbe property, and at tbe same time destroyed tbe state court’s control over it in this case. Tbe court would, in that case, bave bad no power to make an order upon tbe sheriff to produce tbe property or to sell it to satisfy tbe judgment. As we bave seen, tbe attachment debtor and bis surety on tbe forthcoming bond were mere bailees for tbe sheriff, and by tbe terms of their bond they were only bound to produce tbe property when tbe court should so order, and when tbe attachment was annulled and the authority of tbe court to order and require tbe production of tbe property was destroyed, tbe forthcoming bond was also destroyed, and the liability of tbe surety thereon brought to an end. •

Some other questions are presented but from what we bave said it follows that under, the facts in this casé there can be no recovery against tbe surety upon tbe forthcoming bond, hence, it is unnecessary to discuss tbe other questions.

Tbe orders of tbe circuit court for tbe production of tbe property and tbe assignment of tbe forthcoming bond are reversed and annulled.

All concur.