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In re Einhorn Bros. Inc.

decided: December 1, 1959.

MATTER OF EINHORN BROS., INC., BANKRUPT. TEXTILE BANKING COMPANY, INC., APPELLANT.


Author: Wood

Before GOODRICH and KALODNER, Circuit Judges, and WOOD, District Judge.

WOOD, District Judge.

I. Statement of the Case

This is an appeal by a secured creditor, The Textile Banking Company, Inc., (hereafter called "Bank") from an Order of the District Court affirming the Order of Distribution of the assets of Einhorn Bros., Inc.

The facts of the case are not in dispute. Sometime prior to January, 1957, Einhorn Bros., Inc., had borrowed money from the appellant Bank. As security for the loan, Einhorn entered into an Inventory Loan Agreement granting the Bank a security interest upon all of Einhorn's merchandise inventory. Following the filing provisions of the Uniform Commercial Code,*fn1 the Bank perfected its security interest, e. g., obtained a valid lien, upon the inventory in January, 1957.

Thereafter, the Commonwealth of Pennsylvania filed claims against Einhorn for non-payment of sums due under the Unemployment Compensation Law,*fn2 and thereby obtained liens upon all real and personal property of Einhorn.*fn3

On June 4, 1957, the Dickinson Realty Company took an assignment of the lease under which Einhorn was operating its business. An installment of rent became due on November 1, 1957, but was not paid. On November 12, 1957, the Dickinson Realty Company had a warrant of distress for rent due and owing served upon Einhorn. The details of the landlord's distraint are important in this case, and will be fully discussed below.

On November 18, 1957, the Bank attempted to have the merchandise inventory removed from the leased premises by bringing an action of replevin with bond. On that same day, Einhorn filed a Petition for an Arrangement under Chapter XI of the Federal Bankruptcy Act, 11 U.S.C.A. ยง 701 et seq. The Bankruptcy Court issued an order restraining execution of the Writ of Replevin before the sheriff could have the inventory removed. The Bank took no further action in the replevin action or otherwise to contest the restraining order.

In the months following, Einhorn was unable to meet the terms of the proposed Arrangement, and as a result, an Adjudication of Bankruptcy was entered on January 22, 1958. The Receiver and Trustee finished the manufacture of the merchandise inventory and sold it for $36,025.59. The remaining assets were sold for $9,959.55.

II. The Distribution in Bankruptcy

The general scheme of distribution of a Bankrupt's assets under the Federal Bankruptcy Act is shown below.The claims shown are the claims against the Trustee in the case at bar.

I. Secured Creditors

Claims

A. Bank's lien on merchandise

inventory, covering amount of

loans plus interest $38,026.33

These liens are post- B. Commonwealth's liens on all

poned in payment property of Bankrupt, covering

until claims for costs of sums due under Unemployment

administration and claims Compensation Law 5,368.81

for wages have been paid C. Landlord's lien on property

in full. See Sec. 67, sub. distrained,covering

c(1) of the Federal rent ...


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