surety for the bankrupt upon an appeal bond. I believe, however, that the correct view is stated in Stone v. Hole, 1924, 75 Colo. 115, 223 P. 1085, 4 Am.B.R., N.S., 35, 36:
"This bond recites that it shall be void only if [the appellant] 'shall prosecute said appeal with effect and without delay and shall pay all costs and whatever judgment may be awarded.' [the appellant] did not pay this judgment. The principal risk against which such bonds are intended as a protection is insolvency. To hold that the very contingency against which they guard shall, if it happen, discharge them, seems to us bad law and worse logic. The liability of the surety in such cases is upheld by numerous authorities. Brown & Brown Coal Co. v. Antezak, 164 Mich. 110, 128 N.W. 774, 130 N.W. 305, Ann. Cas.1912B, 778 [25 Am.B.R. 898]; Fisse v. Einstein et al., 5 Mo.App. 78, and cases therein cited. Others to the contrary may be found, but we are unable to assent thereto."
A copy of the supersedeas bond is not attached to the pleadings, but I assume it was executed in consonance with the provisions of the Pennsylvania statute, Act of May 19, 1897, P.L. 67, Sec. 6, 12 P.S. § 1138. The obligation is similar to that in Stone v. Hole, supra:
"An appeal from an order, judgment or decree directing the payment of money shall operate as a supersedeas, if the appellant gives bond with sufficient surety or sureties in double the amount of said order, judgment or decree and all costs accrued and likely to accrue, conditioned that the appeal be prosecuted with effect, and that the appellant will pay all costs and damages awarded by the appellate court or legally chargeable against him." 12 Purdon's § 1138.
The trustees, however, maintain that inasmuch as the surety received indemnity and the rendition of the judgment was within four months of the bankruptcy, the surety would be obligated to turn over the indemnity to the trustees and would be discharged of its obligation pro tanto, should it eventually be proven that the debtor was insolvent at the time of the rendering of the judgment. The surety takes the same position.
No case has been cited, and I have been able to find none, where the effect of possession of security by the surety on an appeal bond was considered when the discharge of a lien was not involved. I do not see how in such case the successful appellee is concerned with any private understanding or arrangement between the appellant and the surety unless modified by the Bankruptcy Act.
Section 67 of the Bankruptcy Act, 11 U.S.C.A. § 107, as amended August 22, 1940, c. 686, Title I, § 29(a), 54 Stat. 835, reads as follows:
"§ 107. Liens and fraudulent transfers
"a. (1) Every lien against the property of a person obtained by attachment, judgment, levy, or other legal or equitable process or proceedings within four months before the filing of a petition in bankruptcy or of an original petition under chapter 10, 11, 12, or 13 of this title by or against such person shall be deemed null and void (a) if at the time when such lien was obtained such person was insolvent or (b) if such lien was sought and permitted in fraud of the provisions of this title * * *.
"(2) If any lien deemed null and void under the provisions of paragraph (1) of this subdivision a, has been dissolved by the furnishing of a bond or other obligation, the surety on which has been indemnified directly or indirectly by the transfer of or the creation of a lien upon any of the non-exempt property of a person before the filing of a petition in bankruptcy or of an original petition under chapter 10, 11, 12, or 13 of this title by or against him, such indemnifying transfer or lien shall also be deemed null and void * * *.
"(3) The property affected by any lien deemed null and void under the provisions of paragraphs (1) and (2) of this subdivision a shall be discharged from such lien, and such property and any of the indemnifying property transferred to or for the benefit of a surety shall pass to the trustee or debtor, as the case may be, except that the court may on due notice order any such lien to be preserved for the benefit of the estate, and the court may direct such conveyance as may be proper or adequate to evidence the title thereto of the trustee or debtor, as the case may be.
* * *
"(5) The liability of a surety under a releasing bond or other like obligation shall be discharged to the extent of the value of the indemnifying property recovered or the indemnifying lien nullified and voided by the trustee or debtor * * *."
Obviously Section 67 relates only to the release of liens by furnishing a bond. The provision in this section requiring the return to the trustee of the security or indemnity received and the pro tanto release of the surety is fair and just. There is no averment in the case at bar that any lien was discharged, dissolved or released by the supersedeas bond. I cannot see how Section 67 can be extended even by implication as the trustees and the surety contend.
It should be noted that the surety here received the substituted indemnity after the filing of the petition under Chapter X. It is a serious question whether the surety would not be obligated to return the indemnity irrespective of Section 67; but I leave the determination of this point for the proper time, and I make this comment without prejudice to the surety.
In accordance with the above, the order dated May 5, 1942, temporarily restraining the surety from making payment to S. Walter Foulkrod, Jr., on the appeal bond should be vacated. The restraining order insofar as it relates to the disposition of the collateral indemnity received by the surety should be continued without prejudice. An appropriate decree may be submitted.