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IN RE BREINIG

July 25, 1941

In re BREINIG


The opinion of the court was delivered by: KALODNER

On September 23, 1940, Alfred Oliver Breining, trading as Business Supply Company, filed a petition for Arrangement and Composition under Chapter 11 of the Bankruptcy Act, 11 U.S.C.A. § 701 et seq. Louis Fow, Esq., a member of the Philadelphia Bar, represented the debtor in the filing of the petition.

The debtor continued in possession (under Section 342 of the Act, 11 U.S.C.A. § 742) until October 1, 1940, when the court appointed receivers with leave to operate.

 On October 24, 1940, the debtor was adjudicated a bankrupt, and on the same date a trustee was elected by the creditors, who was thereafter duly qualified.

 It appears that the debtor was engaged in the business of furnishing furniture and equipment, etc. On May 1, 1940, almost five months prior to the filing of the Arrangement petition, the debtor company entered into a contract with the Commissioners of Philadelphia County to supply certain furniture and equipment to the new Municipal Court Building in the City of Philadelphia for the sum of $40,192.22.

 The debtor as contractor had numerous sub-contracts with various sub-contractors for the fabrication of the furniture. On the day that the petition was filed the debtor had already made partial delivery of the furniture in the amount of $850.

 The contract between the bankrupt and the County Commissioners provided in Section 24 *fn1" that the Commissioners had a right to stop work or terminate the contract in the event that the contractor was adjudged a bankrupt or made an assignment for the benefit of creditors, etc.

 Section 26 of the contract also provided as follows:

 "26. Owner's right to withhold payments.

 "The owner may withhold from the contractor such an amount or amounts as may be necessary to adjust claims for labor and services rendered and materials furnished in and about the work. The owner shall have the right, acting as agent for the contractor, to apply such retained amounts to the payment of such just claims."

 Prior to, and subsequent to, the filing of the debtor's petition on September 23, 1940, the debtor was in receipt of notice from the County Commissioners of their intention to stop the work then in progress and to terminate the contract pursuant to the provisions of Section 24 of the contract.

 As a result of the notice of the County Commissioners, Fow, as counsel for the debtor, filed a petition with the referee on September 25, 1940, for leave to complete the executory contract aforementioned. The petition was granted and an order made on September 25, 1940, granting leave to the debtor to continue the business and to complete the contract with the County Commissioners.

 Thereafter the contract was completed and all claims thereunder were paid. A balance of $2,905.30 remained in the hands of the County Commissioners, belonging to the bankrupt estate, which the Commissioners arranged with the trustee to turn over to him.

 Before payment took place, Fow on February 13, 1941, forwarded a statement to the County Commissioners wherein he claimed the sum of $1,500 out of the funds in their hands as compensation for legal services rendered from September 21, 1940, to September 25, 1940, inclusive, in connection with the September 25, 1940, proceeding for leave to the debtor to complete the contract. *fn2"

 On February 21, 1941, the trustee in bankruptcy filed a petition praying for a rule on Fow to show cause why he should not withdraw his demand for compensation from the County Commissioners. The rule was granted by the referee in bankruptcy to whom the matter was referred when the petition for Arrangement was filed.

 On February 24, 1941, prior to filing his answer to the trustee's petition, Fow instituted suit in the State court against the County Commissioners to recover the sum of $1,500 for services rendered in accordance with his demand.

 On February 27, 1941, Fow filed an answer to the trustee's petition of February 21, disclaiming jurisdiction of the referee in the premises.

 On April 12, 1941, the referee in bankruptcy made an order enjoining Fow "from further proceedings against the County Commissioners of Philadelphia County in any matter arising out of the instant bankrupt estate, without prejudice, however, to his right to seek compensation in the bankruptcy court for any services rendered in the instant matter."

 Upon entry of this order, Fow filed the certificate for review now under consideration.

 Briefly stated, the issue presented both to the bankruptcy referee and ...


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