Brown v. Presbyterian Ministers Fund

• Citation: 484 F.2d 998
• Decision Date: 07 September 1973
• Docket Number: No. 72-1431.,72-1431.
• Parties: Francis Shunk BROWN 3rd Esq. Trustee in Bankruptcy for I. J. Knight Realty Corp., Appellant, v. PRESBYTERIAN MINISTERS FUND, a Pennsylvania corporation.
• Court: U.S. Court of Appeals — Third Circuit

484 F.2d 998 (1973)

Francis Shunk BROWN 3rd Esq. Trustee in Bankruptcy for I. J. Knight Realty Corp., Appellant, v. PRESBYTERIAN MINISTERS FUND, a Pennsylvania corporation.

No. 72-1431.

United States Court of Appeals, Third Circuit.

Argued March 9, 1973.

Finally Submitted May 30, 1973.

Decided September 7, 1973.

Arthur E. Newbold, III, Dechert, Price & Rhoads, Philadelphia, Pa., for appellant.

Bernard J. Smolens, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., for appellee.

Before BIGGS, HASTIE and GIBBONS, Circuit Judges.

BIGGS, Circuit Judge.

This is a suit brought by Francis Shunk Brown, 3rd, Esquire, Trustee in Bankruptcy for I. J. Knight Realty Corporation (Knight), against Presbyterian Ministers Fund, Inc. (Presbyterian) to recover $97,789.45, together with interest and costs for the benefit of the estate. The following facts are largely undisputed, appearing from the record or stipulated by counsel, or appearing from letters of counsel, or from admissions at a post-argument conference.¹

I.

In December, 1955, Presbyterian loaned Knight $200,000, secured by a mortgage on the latter's sole physical asset, real estate known as the Fretz Building, located at 10th and Diamond Streets in Philadelphia. Between 1959 and 1962, Knight was in default in amortizing the mortgage, and when in September of 1962, Knight defaulted on the interest due as well, Presbyterian became mortgagee in possession.

The shares of stock of Knight were at this time held as follows: Nathan Hoffman, 325 shares; Jacob Hoffman (Nathan's son), 150 shares; Marvin Hoffman (Nathan's son), 112 1/2 shares; Seymour Hoffman (Nathan's son), 112 1/2 shares. Nathan Hoffman was President of the corporation and Seymour Hoffman was Secretary. Both Nathan and Seymour were directors.²

On November 16, 1962, when the principal balance remaining on the mortgage was $149,000, Presbyterian agreed to sell the mortgage to Nathan Hoffman for $65,000. This agreement was entered into with the knowledge and approval of all of Knight's officers, directors, and shareholders.³ Later on that same day, Knight filed a petition in bankruptcy stating that the corporation was unable to meet its debts as they matured and proposing an Arrangement pursuant to Chapter XI of the Bankruptcy Act. Brown was appointed Receiver and authorized by then District (now Circuit) Judge Van Dusen to conduct the business of Knight. Still later on the same day, Presbyterian gave to Seymour Hoffman a letter reflecting the agreement and acknowledging receipt of $2,500 on account of the $65,000. An additional $2,500 was to be paid no later than November 26, 1962, and settlement was to be made by January 15, 1963.⁴ Presbyterian knew of Knight's bankruptcy petition and that Nathan and Seymour Hoffman were officers and shareholders of Knight. Receiver Brown, on the other hand, was unaware of the agreement between Presbyterian and the Hoffmans.

On November 26, 1962, Presbyterian acknowledged receipt of another $2,500 payment from Seymour Hoffman toward the purchase price.⁵

On January 1, 1963, the Fretz Building was totally destroyed by fire. With the advent of insurance proceeds (which amounted to $800,000), Presbyterian deemed itself to be in an excellent position to receive full payment on its mortgage loan if it could avoid its contractual commitment to settle the mortgage for $65,000. J. B. Millard Tyson, Esq., attorney for Presbyterian, testified at an October 16, 1963 hearing before the Referee in Bankruptcy that "then on the first of January the fire occurred. I promptly told Mr. Hoffman that the basis for having given him this agreement was now over. We did not intend to go through with any sale of the mortgage. * * * So the letter of November 16, 1962, from Presbyterian to Seymour Hoffman was still outstanding, but we refused to go through with it. The Ministers' Fund discussed it and decided the purpose was to take this white elephant off our hands, and now we would just be exchanging really two and a half dollars for one dollar. So we wouldn't go through with it at that point."⁶ On May 13, 1963, in consideration of the return of the $5,000 "and other considerations,"⁷ Nathan and Seymour Hoffman agreed to and purported to release Presbyterian from its obligation to sell the Hoffmans the mortgage.

On May 14, 1963, Knight was declared bankrupt and Receiver Brown was elected Trustee of the bankrupt corporation. Brown was still not aware at this time of the contract to purchase the mortgage, nor its purported cancellation. An insurance settlement of $800,000 was reached with the insurers, Lloyd's of London and other British companies, and on August 23, 1963, Brown petitioned the bankruptcy court for leave to compromise the insurance claims. Hearings were held on this matter on October 16, October 28, and November 7, 1963, and it was then that Brown first learned of the Presbyterian-Hoffman deal and its purported recision. Thereafter, on February 3, 1964, Brown filed an Amended Petition for Leave to Compromise Claim stating in part:

* * * 6. As a result of testimony adduced at the hearings referred to in paragraph 2 of this petition, your Petitioner now claims an interest in the mortgage on the premises formerly occupied by the Fretz Building, which mortgage is now held in the name of the Presbyterian Ministers\' Fund and also claims an interest in the proceeds of insurance payable under the mortgagee payable clause in policy of insurance No. 83872. Emphasis added.

7. Against this background the British Carriers have agreed to pay the full compromise figure of $800,000.00 to your Petitioner upon the following terms and conditions: * * *

(c) That Presbyterian Ministers\' Fund release all claims which it may have against the British Carriers under insurance policy No. 83872.

8. * * * The Presbyterian Ministers\' Fund refuses to give such a release to the British Carriers unless it is paid the current amount due on such mortgage or unless some other arrangement is made which will insure that it will be paid in full in the event that your Petitioner is unsuccessful in asserting his claim with respect to said mortgage, or in the event that his claim becomes moot.

9. Your Petitioner is informed and therefore avers that the British Carriers will not proceed with the proposed compromise unless it receives a release from the Presbyterian Ministers\' Fund.

10. In order to effectuate the proposed compromise your Petitioner proposes to enter into an agreement subject to the approval of this court, with Presbyterian Ministers\' Fund and the British Carriers pursuant to which Presbyterian Ministers\' Fund will release all claims which it may have against the British Carriers under insurance policy No. 83872. The proposed agreement, a copy of which is attached hereto as Appendix A, provides in substance that Presbyterian Ministers\' Fund will give a release to the British Carriers, the British Carriers will pay $800,000.00 to your Petitioner out of which your Petitioner will pay to Presbyterian Ministers\' Fund $149,000.00 plus interest at the rate of six per cent from September 8, 1962 to the date of payment together with a $7.00 satisfaction fee, such payment being without prejudice to your Petitioner\'s right to maintain a plenary action against the Presbyterian Ministers\' Fund in the United States District Court for the Eastern District of Pennsylvania on any claim your Petitioner may have which arises or in any way grows out of certain letters attached to the proposed agreement (Appendix A) as Exhibits A and B, it being further understood and agreed that your Petitioner shall have the same rights against the Presbyterian Ministers\' Fund with respect to said claim as he would otherwise have if such payment had not been made. Presbyterian Ministers\' Fund has agreed to consent to the jurisdiction of the United States District Court for the Eastern District of Pennsylvania in any plenary action brought by your Petitioner with respect to said claim.

11. The proposed agreement described in the preceding paragraph of this petition will avoid protracted litigation with respect to the proper tribunal in which your Petitioner\'s claim should be heard and will also protect the debtor\'s estate from incurring additional interest liability in the event that your Petitioner is unsuccessful in asserting his claim against the Presbyterian Ministers\' Fund, or in the event such claim becomes moot.

12. Your Petitioner believes and therefore avers that it is in the best interest of the bankrupt estate and its creditors to conclude settlement with the insurers under policy No. 83872 upon the foregoing terms and conditions.

WHEREFORE your Petitioner prays that he be authorized:

(i) to accept the sum of $800,000.00 in full accord and satisfaction of his claims against the Underwriters at Lloyd\'s, London and the British Companies under policy No. 83872; * * *

(iii) To enter into the proposed agreement attached to this petition as Appendix A and, in accordance with and subject to the terms and conditions of said agreement, to pay to the Presbyterian Ministers\' Fund $149,000.00 plus interest at the rate of six per cent from September 8, 1962, to the date of payment plus a $7.00 satisfaction fee.

Referee Curtin's order,⁸ dated March 3, 1964, authorized execution of the agreement referred to in the above petition and the releases required by the insurers. The agreement between Brown, Presbyterian, and the British Carriers was itself executed on March 23, 1964, pursuant to which the British Carriers paid Brown $800,000 and Brown paid Presbyterian $162,789.45 (which sum represented $149,000 for the unpaid principal balance of the mortgage plus interest on that amount at the rate of six per cent per annum from September 8, 1962, to the date of payment). Paragraph 3 of the agreement was as follows:

The Fund agrees with Trustee that Trustee\'s aforesaid payment to the Fund shall be without prejudice to Tr

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