Clifford Ludvigh v. American Woolen Company of New York

• Citation: 34 S.Ct. 161,231 U.S. 522,58 L.Ed. 345
• Decision Date: 15 December 1913
• Docket Number: No. 55,55
• Parties: CLIFFORD G. LUDVIGH, as Trustee in Bankruptcy of the Estate and Effects of Philip Horowitz and Joseph Horowitz, Individually and as Copartners, etc., Appellant, v. AMERICAN WOOLEN COMPANY OF NEW YORK and the Niagara Woolen Company
• Court: United States Supreme Court

231 U.S. 522

34 S.Ct. 161

58 L.Ed. 345

CLIFFORD G. LUDVIGH, as Trustee in Bankruptcy of the Estate and Effects of Philip Horowitz and Joseph Horowitz, Individually and as Copartners, etc., Appellant,

v AMERICAN WOOLEN COMPANY OF NEW YORK and the Niagara Woolen Company.

No. 55.

Argued November 7 and 10, 1913.

Decided December 15, 1913.

Messrs. Abram I. Elkus and Garrard Glenn for appellant.

Messrs. Daniel P. Hays and Edwin D. Hays for appellees.

Mr. Justice Day delivered the opinion of the court:

This was a suit in the district court of the United States for the southern district of New York by Ludvigh, as trustee in bankruptcy of the firm of Philip Horowitz & Son, to see aside as fraudulent certain transactions of the bankrupts with the American Woolen Company of New York (which we will call the 'Woolen Company'), and to recover for goods taken from the bankrupts by the Woolen Company prior to the institution of proceedings in bankruptcy. The district court held in favor of the trustee and sustained his right to recover the value of the goods so taken (176 Fed. 145). Upon appeal to the circuit court of appeals for the second circuit the judgment of the district court was reversed (110 C. C. A. 180, 188 Fed. 30), and the case is here upon appeal.

The facts as found by both courts are very little in dispute. It appears that Horowitz & Son, the bankrupts, had had a contract in writing with the Woolen Company which expired on December 1, 1902, whereby goods were to be consigned to Horowitz & Son, the title to the merchandise or its proceeds to remain in the Woolen Company until fully accounted for, all bills of such consigned goods to be payable to the Woolen Company and accounts of sales to be rendered to that company at least once a month. The Horowitzes were also to give security to protect the Woolen Company from any failure to perform the contract; the profit of the Horowitz firm was to be the difference between the invoice prices and the selling prices of the goods; they were to have 7 per cent discount for payment within four months, and any increase in profits by varying the terms of trade was to go to them, and they were to have a drawing account of $1,200 a month, provided the goods sold by them warranted such payment. In 1902, for reasons which do not distinctly appear in the record, the Woolen Company expressed its desire to have the Horowitz firm incorporated, and a corporation was formed under the name and style of The Niagara Woolen Company (which we will designate the 'Niagara Company'), for the purpose of contracting and dealing with the Woolen Company and of dealing in fabrics received therefrom. One hundred and ninety-five of the two hundred shares of the Niagara Company were issued to Philip Horowitz, as fully paid up, in consideration of a mortgage by him on certain real estate for $19,500. A contract in writing was entered into by the terms of which it was agreed that the Woolen Company would deliver such merchandise to the Niagara Company as it saw fit, and that the Niagara Company would accept possession of the merchandise upon the following conditions: The Niagara Company should hold and care for the merchandise as the property of the Woolen Company, the title thereto or proceeds therefrom being vested in the latter company, and the merchandise being at all times under its control. The title to the merchandise was to pass directly from the Woolen Company to the purchaser. The property was to be insured for the benefit and in the name of the Woolen Company. The Niagara Company was to be given the usual discounts allowed by the Woolen Company, and was restricted to the city of Elmira, New York, and the state of Montana in doing a merchandise business other than as provided in the contract. The Niagara Company agreed to execute such other documents as the Woolen Company deemed advisable to carry out the agreement, and the Woolen Company had the option to terminate the agreement upon the breach of any condition by the Niagara Company. The agreement further provided:

'IV. Said party of the second part [the Niagara Company] agrees to sell such merchandise to such persons as they shall judge to be of good credit and business standing, and to collect for and in behalf of the party of the first part [the Woolen Company], all bills and accounts for the merchandise so sold, and to immediately pay over to the said party of the first part any amount collected as aforesaid, immediately upon its collection, minus, however, the difference between the price at which said merchandise so collected for has been invoiced to the party of the second part, and the price at which said merchandise has been sold as aforesaid by the party of the second part.

'v. Said party of the second part does hereby guarantee the payment of all bills and accounts for merchandise possession of which is delivered to it under this agreement, and it hereby agrees, in case any merchandise delivered under the provisions of this agreement by the party of the first part to the party of the second part is not accounted for to the party of the first part under the provisions of clause IV. of this agreement, to pay to the party of the first part the invoice price of said merchandise, and thereupon title to said merchandise, or to the proceeds thereof, so paid for, shall pass to the party of the second part, and shall then be exempted from the provisions of this agreement.

* * * * *

'VIII. This agreement shall continue for one year. If, for any reason, this agreement terminates, all of the merchandise, possession of which is held by the party of the second part under this agreement, shall at said termination be immediately returned to the possession of the party of the first part.'

At the same time an agreement was made by the Woolen Company and Horowitz & Company and one Jeremiah P. Murphy, whereby Horowitz & Company guaranteed the performance of the contract of the Niagara Company, and the Horowitzes, in accordance with the contract, transferred 197 shares of that company's stock to Murphy, who really represented the Woolen Company, in trust, the stock to be voted as the Woolen Company directed, except that so long as the Niagara Company and the Horowitzes performed their agreements, the stock should be voted for whomsoever they designated for president of the Niagara Company, and should be used in all meetings as though the Horowitzes had control of it, and they were to receive the dividends thereon. Upon breach the stock was to be transferred to the Woolen Company or whomsoever it designated. Horowitz was elected president of the Niagara Company, and...