Sternbergh v. Duryea Power Co.

• Decision Date: 08 May 1908
• Docket Number: 19.
• Citation: 161 F. 540
• Parties: STERNBERGH v. DURYEA POWER CO.
• Court: U.S. Court of Appeals — Third Circuit

161 F. 540

STERNBERGH v. DURYEA POWER CO.

No. 19.

United States Court of Appeals, Third Circuit.

May 8, 1908

Cyrus G. Derr and John G. Johnson, for petitioner.

Andrew A. Leiser and George W. Wagner, for appellee.

Before DALLAS, GRAY, and BUFFINGTON, Circuit Judges.

BUFFINGTON Circuit Judge.

In the bankruptcy proceeding of the Duryea Power Company in the court below, Sternbergh, the petitioner for review, sought to prove his claim of $14,000, and to vote in the election of trustee. The referee held Sternbergh was indebted to the company in $26,000, on 510 shares of its stock, and rejected his claim. On hearing, the court approved the action of the referee. Thereupon Sternbergh petitioned for review.

The facts are not in dispute, and the substantial question involved is the alleged liability of Sternbergh on the stock. After a careful study of the facts we are of opinion the referee failed to grasp the significance of the transactions as a whole, and what the agreements between the parties sought to effect. No question of good faith is involved, nor is there any doubt that what the parties had in view could lawfully be done by fitting papers and proceedings. Mr Hiester, a lawyer of high standing, has testified to the purpose of the parties and frankly assumes the blame if the papers and proceedings fail to effect such purpose.

The entire matter was one between the four men, Sternbergh Duryea, Mulholland, and Crowther. No one else was interested and no question is involved of any outside party buying stock in the Duryea Power Company, the present bankrupt. Duryea and the Duryea Manufacturing Company of Peoria, Ill., had some patents, which the four parties contemplated acquiring, with a view to making auto-freight trucks at Reading, Pa. To obtain license under these patents it was necessary for Duryea to pay the Peoria Company $10,000. Presumably Mulholland and Crowther had some interest in the patents, or rendered Duryea some service in carrying out the proposed arrangement, for otherwise it cannot be explained how they got their $19,000 of minority stock in connection with Duryea. They contributed no part of the money, which Sternbergh furnished. The latter was the moneyed man of the four, and it was arranged that he contribute $25,000 to a proposed company of $100,000 capital. For this he was to receive 510 shares, the majority, of full-paid shares of $100 each. Duryea was to contribute the patents, and was to receive $10,000 in cash, to enable him to get the patent licenses from the Illinois Company, 300 shares of full-paid stock, and employment at $3,000 per year. Mulholland and Crowther were to get 190 shares of full-paid stock. All parties were to assign to the company inventions made by them. From this it is clear that the substance of the arrangement was that the patents were capitalized at $85,000. Sternbergh furnished $10,000 in cash, by which licenses could be obtained from the Illinois Company, and his $15,000 constituted the working capital of the proposed company. For this Sternbergh obtained the majority stock, and Duryea the minority, which for some, to him presumably sufficient, reason he divided between himself, Mulholland, and Crowther. The papers were drafted, and the proceedings had in furtherance of this general plan. The agreement between the four was entered into February 13, 1900; in pursuance thereof the Duryea Power Company, the bankrupt, was chartered on ...