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IN RE WALTON PLYWOOD

January 27, 1964

In the Matter of WALTON PLYWOOD, a limited partnership, and Richard E. Walton, a/k/a R. E. Walton (whose wife is Peggy-Paige Walton), and J. H. Fletcher (whose wife is Florence W. Fletcher), General Partners, Alleged Bankrupts


The opinion of the court was delivered by: SWEIGERT

This is a Petition for Review by the bankrupts hereinafter named, of an Order of Adjudication of Bankruptcy entered by Millard P. Thomas, Referee in Bankruptcy, on February 7, 1963, and of the Findings of Fact and Conclusions of Law made in support thereof.

On October 19, 1962, a petition in involuntary bankruptcy was filed by two creditors, (1) Washington Plywood Co., and (2) Harold Larson, William Nolan and Fred V. Ness against Walton Plywood, a limited partnership and Richard E. Walton and J. H. Fletcher, general partners thereof.

 The basis for the claims asserted by the two creditors was a judgment entered by the Superior Court of Snohomish County, State of Washington in Larson v. Walton, Case No. 71332.

 As relevant here, this judgment provided:

 1. Paragraph First: Judgment in favor of Washington Plywood Co., Inc., and against R. E. Walton and J. H. Fletcher, among others, individually, jointly and severally, in the amount of $ 322,004.51.

 2. Paragraph Second and Third: Judgment in favor of Washington Plywood Co., Inc., and against Walton Plywood, R. E. Walton, J. H. Fletcher and their marital communities, jointly and severally, in the amount of $ 3,518,677.09, subject to an offset in paragraph Fourth in the amount of $ 942,391.75.

 3. Paragraph Eighth: Judgment in favor of Washington Plywood Co., Inc., and Harold Larson, William Nolan and Fred V. Ness, and against Walton Plywood, R. E. Walton and J. H. Fletcher, among others, individually, jointly and severally, for costs later fixed at $ 1,348.05.

 An appeal from each of these judgments was taken to the Supreme Court of the State of Washington, and is currently pending there.

 On said appeal certain arrangements were made by the judgment creditors under Rule 23, Washington Supreme Court, for a supersedeas of said judgment. These arrangements will be hereinafter set forth. The issues presented by the Petition for Review are:

 (1) Were the judgments in fact superseded?

 (2) Whether, if superseded, the judgment claims became 'contingent as to liability' within the meaning of Bankruptcy Act, Sec. 59, sub. b, 11 U.S.C. § 95, sub. b.

 (3) Whether two petitioning creditors were sufficient within the meaning of Sec. 59, sub. b, and the related issues whether the bankrupts had less than twelve creditors, as found by the Referee, or had twelve or more creditors, as contended by petitioner, and whether the Referee erred in excluding three creditors for the purpose of this computation upon the grounds set forth in Sec. 59, sub. e(4) and (5).

 (4) Whether upon computing the number of creditors for the purpose of determining how many creditors must join in the petition, creditors, who have claims against the general partners thereof, should be counted once, as counted by the Referee, or twice as contended by petitioners.

 (1) WERE THE JUDGMENTS IN FACT SUPERSEDED?

 Petitioners contend that the judgment was in fact wholly superseded -- as to Paragraph First and Eighth by a Supersedeas Bond filed by defendants and, as to Paragraph Second and Third by a certain 'other security' order of the Superior Court -- and that the Referee erred in finding and concluding that Paragraph Eighth of the judgment was not in fact covered or superseded by the supersedeas bond. Rule 23 of the Washington Supreme Court provides that wherever an appellant desires a stay of proceedings on appeal, he may present a supersedeas bond; that the supersedeas bond, whether or not combined with the bond for costs on appeal, shall be conditioned for the satisfaction of the judgment in full, together with the interest thereon; that when the judgment is for the recovery of money not otherwise secured, the amount of the bond shall be fixed at such a sum as will cover the whole amount of the judgment remaining unsatisfied, together with interest thereon, unless the Court, after notice and hearing and for good cause shown, fixed a different amount or orders security other than bond; that if the supersedeas bond is intended to stay proceedings on only a part of the order, judgment or decree appealed from, it shall be varied as circumstances may require to accomplish the purpose desired.

 On September 21, 1962, all of the defendants named in Paragraph First of the judgment executed a supersedeas and cost bond on appeal, (Ex. 1A of Petitioning Creditors), as principals, with General Insurance Company of America as surety, providing that they would be firmly bound to Washington Plywood Co., the additional plaintiff, 'in the sum of $ 322,044.51 plus interests and costs', the condition of the bond being further stated to be that, whereas Washington Plywood Company recovered a judgment against said defendants 'for the sum of $ 322,044.51, plus interest and costs, in Paragraph First of said judgment', now, therefore, if the principals 'shall pay Washington Plywood Co., Inc., all costs and damages that may be awarded against these defendants on the appeal, or on the dismissal thereof, and shall satisfy and perform the judgment or order appealed from in full, together with interest thereon, if for any reason the appeal is dismissed or the judgment affirmed, then this obligation to be void, otherwise to remain in full force and effect.'

 On the same day, September 21, 1962, the defendants also deposited $ 300 in cash, in lieu of cost bond on appeal, pursuant to Washington Supreme Court Rule 22 (See Respondent's Ex. 8).

 On October 1, 1962, the Superior Court, Snohomish County, made an order pursuant to Rule 23 (the portion thereof providing for 'security other than bond'), granting a motion of defendants for fixing security to stay proceedings on appeal (Ex. 1B of Petitioning Creditors), and ordering defendants to transfer all of their non-exempt property into a trust pending determination of the appeal and staying as of October 1, 1962, all proceedings to enforce Paragraphs Second and Third of the judgment.

 This particular portion of Rule 23, pursuant to which this security order was made with respect to Paragraphs Second and Third of the judgment, is identical with a provision of Rule 73(d), F.R.Civ.P., and was designed to cover cases in which judgment debtors could obtain a stay of judgments awarded against them for such enormous amounts which would otherwise preclude the possibility of providing a supersdedeas bond. (See, 24 Minn.L.Rev. 1 (1939).

 It may have been the purpose of the defendants to supersede all paragraphs of the judgment, including Paragraph Eighth, by means of the supersedeas bond and the 'other security' order, together with the cash deposit of $ 300 for costs on appeal, and such purpose should be recognized and given effect if such a construction is reasonably possible.

 Petitioners contend that the reference in the bond to 'costs' must be deemed to refer to the trial court costs awarded in Paragraph Eighth of the judgment because defendants had separately deposited costs on appeal.

 However, notwithstanding such separate deposit, the bond falls short of covering the costs, $ 1348, awarded by the trial court in Paragraph Eighth of the judgment.

 The bond expressly refers only to Paragraph First of the judgment (for $ 322,004,51) and the amount of the bond was precisely fixed in that amount.

 It is true that the whereas clause of the bond recites that Paragraph First of the judgment was awarded for $ 322,004.51 'plus interest and costs'. However, this recital is inaccurate because Paragraph First does not contain any reference to either costs or interest.

 In any event the effective 'condition' of the bond refers only to costs awarded 'on the appeal' and to the judgment, (i.e., Paragraph First for $ 322,004.51) 'together with interest' -- this latter provision being obviously intended to comply with Rule 23 requiring that a supersedeas bond 'be conditioned for the satisfaction of the judgment in full, together with interest thereon.'

 Thus, there is no effective provision covering Paragraph Eighth of the judgment and, further, there is no reference to Larson, Nolan or Ness to whom, along with Washington Plywood Company, the Paragraph Eighth costs were awarded. The reference is only to Washington ...


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