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IN RE VAN METER

November 22, 1955

IN THE MATTER OF FRANK L. VAN METER, BANKRUPT.


The opinion of the court was delivered by: John E. Miller, District Judge.

This proceeding is before the Court upon a petition for review of an order of the Referee entered July 25, 1955, said petition being filed by Mrs. Mary H. Proctor, a creditor of the bankrupt, Frank L. Van Meter. The order in question allowed a claim of the Benton County Nursery Company, Inc., as a valid prior claim upon certain proceeds remaining from the sale of certain shares of stock which had been in the bankrupt's possession.

At the outset, it should be noted that in its consideration of the petition for review the Court must accept the Referee's Findings of Fact unless they are clearly erroneous. Bankruptcy General Order No. 47, 11 U.S.C.A. following section 53; In re California Associated Products Co., 9 Cir., 183 F.2d 946, 950; Dunsdon v. Federal Land Bank of St. Paul, 8 Cir., 137 F.2d 84; In the Matter of Springs Investment Co., D.C.Ark., 123 F. Supp. 856. To the contrary, the Referee's Conclusions of Law are not presumptively correct and are not binding upon the Court. Walker v. Commercial National Bank of Little Rock, 8 Cir., 217 F.2d 677, 681.

The Referee's Findings of Fact Nos. 1 through 5, inclusive, are supported by the record and are adopted by the Court as a part of its opinion herein. (It should be noted that the Referee heard no testimony on the claim in question, and that his Findings of Fact and Conclusions of Law are based upon the record — particularly the pleadings and decree in the Benton County Chancery Court.)

   "Findings on prior claim of Benton County Nursery
                     Company, Inc.
    "Now on this day comes on for hearing the claim of
  the Benton County Nursery Company, Inc. together with
  exhibit thereto attached, asking for priority against
  the estate of the bankrupt in the amount of
  $15,031.79 together with the objections of the
  trustee in bankruptcy and the amendment to the
  objections to said claim filed by said trustee in
  bankruptcy; and the court having considered said
  claim together with the briefs filed by the
  respective parties, doth find:
    "1. On August 9, 1950, the bankrupt filed a suit in
  the Chancery Court of Benton County, Arkansas,
  against the claimant for an accounting; that on
  August 11, 1950, claimant filed an answer and
  cross-complaint in which claimant first denied the
  allegations of the complaint and by way of
  cross-complaint alleged Van Meter was indebted to it
  in the sum of $25,000.00 obtained by fraudulent
  means, that is to say by means of deceit, fraud and
  misrepresentation. The cross-complaint alleged the
  bankrupt then to be the owner of certain real estate,
  a Buick automobile and equities in other properties
  to it unknown. Claimant alleged the bankrupt to be
  insolvent and secured a restraining order enjoining
  and restraining the bankrupt from disposing of his
  properties. Claimant further prayed that the bankrupt
  be required to account for any and all funds, moneys,
  credits and personal properties which he had and
  which belonged to claimant.
    "3. On November 16, 1950, the Chancery Court of
  Benton County, Arkansas, having considered the
  complaint of the bankrupt and the answer and
  cross-complaint of the claimant here and the
  amendment to the cross-complaint and after hearing
  evidence introduced, duly made and entered an order
  by the terms of which that court adjudged and decreed
  that the complaint of the bankrupt filed by the
  bankrupt be dismissed for want of equity, and that
  the claimant here `on its cross-complaint and
  amendment thereto do have and recover judgment of and
  from the plaintiff, Frank Van Meter, on the
  cross-complaint and amendment thereto in the sum of
  $15,031.79 * * *.'
    "4. On December 9, 1950, Charles Womble, Sheriff of
  Benton County, Arkansas, levied upon shares of stock
  in the Benton County Nursery Company, Inc. owned by
  Frank L. Van Meter numbered 36 to 45 inclusive,
  representing a par value of $6,700.00 or 67 shares.
  According to the certificate of levy filed by the
  Sheriff, Certificate No. 36 for $500.00, Certificate
  No. 38 for $1,000.00, and Certificate No. 39 for
  $1,000.00 were held by the American National Bank,
  Rogers, Arkansas, as security on a note. The balance
  of the certificates of stock were taken into the
  actual custody possession of the Sheriff by virtue of
  the levy of the execution.
    "5. The bankrupt filed his petition in bankruptcy
  on January 17, 1951, and on March 13, 1951, the
  trustee was appointed. Shortly thereafter the trustee
  took into his possession the shares of stock held by
  the Sheriff of Benton County and the shares of stock
  held by the American National Bank and sold all of
  the stock certificates under an order of the
  bankruptcy court; said shares of stock were sold for
  the sum of $7,200.00 out of which amount the American
  National Bank was paid the sum of $3,000.00 for the
  stock held by them and upon which apparently they
  held a valid pledge, leaving the balance of $4,200.00
  upon which the claimant claims an equitable lien by
  virtue of the aforesaid decree of the Chancery Court
  of Benton County, Arkansas."

As above stated, these Findings of Fact are correct. However, the Court has concluded that Findings Nos. 6 through 10, inclusive, which are in actuality conclusions of law, and the Refferee's designated Conclusions of Law Nos. 1 through 4, inclusive, are not entirely correct.

The basis upon which the Referee reached his decision is stated in his findings as follows:

    "7. * * * The trustee in bankruptcy stands in the
  identical position of the bankrupt. According to the
  cross-complaint and the amendment thereto, which must
  be considered together with the final decree of the
  Benton County Chancery Court, the bankrupt obtained
  the money with which he purchased the 67 shares of
  stock in question by fraud, deceit and embezzlement
  from the claimant. If the specific subject matter of
  a trust has been disposed of by the trustee and its
  identity is traceable into substituted property or
  funds, a suit in equity may be maintained to enforce
  a trust therein.

  Pioneer Mining Co. v. Tyberg, 9 Cir., 215 F. 501,
  L.R.A. 1915B, 442. The rule is that equity will
  follow the fund regardless of where it may be found.
  Williams v. McCarty, 82 W. Va. 158, 95 S.E. 638,
  100 S.E. 565, 15 A.L.R. 9.
    "8. It is apparent from the wording of the decree
  of the Chancery Court of Benton County, Arkansas,
  that the claimant is entitled to judgment on the
  cross-complaint and the amendment thereto against the
  bankrupt, from which it necessarily follows that the
  claimant had an equitable lien upon the certificates
  of stock in question by reason of the
  misappropriation of the funds by the bankrupt which
  went into the purchase ...

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