Davis v. National Mortgagee Corp.

• Decision Date: 30 July 1965
• Docket Number: No. 492,Docket 29622.,492
• Citation: 349 F.2d 175
• Parties: Mortimer J. DAVIS, as Trustee in Bankruptcy of Julius Portner, d/b/a J. P. Paint Co., Plaintiff-Appellant, v. NATIONAL MORTGAGEE CORP., Samuel Gruskin, Julius Portner, Julius Portner Paint Co., Inc. and Louis Portner, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

349 F.2d 175 (1965)

Mortimer J. DAVIS, as Trustee in Bankruptcy of Julius Portner, d/b/a J. P. Paint Co., Plaintiff-Appellant, v. NATIONAL MORTGAGEE CORP., Samuel Gruskin, Julius Portner, Julius Portner Paint Co., Inc. and Louis Portner, Defendants-Appellees.

No. 492, Docket 29622.

United States Court of Appeals Second Circuit.

Argued May 19, 1965.

Decided July 30, 1965.

Julius Zizmor, New York City, for plaintiff-appellant.

Alfred Fayer, Hempstead, N. Y., for defendants-appellees.

Before WATERMAN, MARSHALL and ANDERSON, Circuit Judges.

ANDERSON, Circuit Judge:

At the end of 1960 Julius Portner, who for fifteen years had been in the retail paint business under the name of J. P. Paint Co., found that he was insolvent, and in January of 1961 he initiated steps to work out a voluntary settlement with his creditors for twenty cents on the dollar. This endeavor came to naught, however, when the Federal Government levied upon his assets on March 15, 1961 to satisfy a $21,000 income tax liability. The assets consisted of the merchandise in the retail paint store which was in leased premises. There was some testimony that the stock, mostly paint, was worth $40,000. By March, 1961, Julius Portner was in arrears $1182.62 for rent, and therefore was in default under the lease. The landlord had commenced proceedings to dispossess him.

In connection with his plan to effect a voluntary composition of creditors, Julius Portner had negotiated for a loan from appellee, National Mortgagee Corp., of which the appellee Samuel Gruskin was president. Gruskin in this way became aware of Julius Portner's financial difficulties and of the imminent sale of the paint company's assets following the levy by the Federal Government. In February, 1961, in connection with the proposed plan of settlement with creditors, steps were taken to incorporate the business. Following the levy by the Government, Gruskin continued with the formation of the new corporation, which was given the name of Julius Portner Paint Co., Inc. Its certificate of incorporation was filed with the Secretary of State of New York on March 21, 1961. Gruskin, who was its president and sole shareholder, decided that if an arrangement could be made with the landlord for the lease to continue with the corporation as the tenant, he, individually, would bid at the tax sale of the merchandise. The landlord, however, would not agree to any assignment of the lease unless the arrears of rent were paid together with a $500 advance payment of rent for April and a security deposit for future rent in the amount of $1500. At the same time one Pintchick negotiated with the landlord for a lease of the paint store with a view to bidding in the merchandise at the tax sale and continuing the business at the same location. Evidently both Pintchick and the new corporation, Julius Portner Paint Co., Inc., placed in the landlord's hands rent for April and a security deposit of $1500, and the landlord said he would give the lease to the one who was the successful bidder for the merchandise.

The debtor's brother, Louis Portner, paid up the arrears of rent owed by the debtor. He testified that the money used for the purpose had been kept by him in a tin box in his attic, that it was money inherited by Mrs. Julius Portner from her father and that she had loaned it to her husband who turned it over to him. The debtor, Julius Portner, without consideration, assigned the lease to Julius Portner Paint Co., Inc. on March 30, 1961. The evidence does not disclose the source of the $500 payment for the April rent, but there was testimony that the $1500 deposited for security was paid by the corporation from money borrowed from the appellee, National Mortgagee Corp.

The public sale of the merchandise for the enforcement of the Government's tax levy took place on April 17, 1961. The successful bidder was the appellee, Gruskin, whose bid of $11,500 was made on his behalf by Louis Portner. The merchandise was turned over to the new corporation and the $11,500 was treated as a loan from Gruskin to the corporation. It has since been fully repaid. Pintchick had bid up to $11,000, and there were a few other bidders at lesser amounts. The landlord recognized the corporation as assignee of the old lease; and the business was continued by the corporation at the same location. There was no evidence that Julius or Louis Portner had any proprietary interest in the corporation but they continued to operate the business and managed the corporation's finances.

On August 11, 1961, Julius Portner, d/b/a J. P. Paint Co., was placed in involuntary...