Hilb v. American Smelting & Refining Co.

• Decision Date: 01 February 1921
• Citation: 275 F. 384
• Parties: HILB et al. v. AMERICAN SMELTING & REFINING CO.
• Court: U.S. District Court — Southern District of Ohio

275 F. 384

HILB et al. v. AMERICAN SMELTING & REFINING CO.

United States District Court, S.D. Ohio, Western Division.

February, 1921

Kramer & Bettman and Wm. R. Collins, both of Cincinnati, Ohio, for petitioning creditors.

Harmon Colston, Goldsmith & Hoadly, of Cincinnati, Ohio, for bankrupt.

PECK District Judge.

This case is here upon the creditors' amended petition, which avers that within four months of the filing of the petition on the 15th of January, 1920, the defendant company, while insolvent, committed an act of bankruptcy, in that it did heretofore, to wit, on the 15th day of January, 1921, while insolvent, make application for the appointment of a receiver for its property, in the insolvency court of Hamilton county Ohio, and because of insolvency a receiver has been put in charge of its property under the laws of the state of Ohio. Petitioners pray that the defendant may be adjudged a bankrupt. Defendant denies that it has committed the act of bankruptcy set forth in the petition, or that it is insolvent, and avers that it ought not to be declared bankrupt for any cause in the petition alleged.

This cause was referred to an auditor, to report upon the solvency or insolvency of this corporation at the date of the commission of the alleged act of bankruptcy and at the date of the institution of these proceedings, and he reports that at both dates the corporation was insolvent by some $40,000 that the aggregate of its property at a fair valuation was not sufficient in amount to pay its debts. The conclusions of the auditor are unchallenged. From the evidence adduced I find that the allegations of the creditors' petition, other than those charging the act of bankruptcy, presently to be considered, are true.

Coming now to the act of bankruptcy alleged, it appears from the evidence that the defendant, being, as has been found, an insolvent corporation upon January 15, 1921, was the defendant in an action that day filed against it in the court of insolvency of Hamilton county, Ohio, by Harvey Cantor, a director and one of the two managing officers of the corporation. There were five stockholders, of whom four were members of the same family, Harvey Cantor, his father, his mother, and his brother owning all but one share of stock, which was held by an employee, presumably to qualify him as a director. The corporation was managed by Harvey Cantor and his father. Harvey Cantor was on that day the indorser upon certain promissory notes past due, in the aggregate $6,236, of which the corporation was the maker. The corporation was in financial difficulty and embarrassment, and he consulted counsel concerning his own obligation as indorser and concerning the affairs of the company, and determined to take proceedings for the purpose of securing the appointment of a receiver. There was no meeting of the board of directors. There is no evidence that the other directors, except his father, were informed of his purpose. He states that his father did not agree with him in the propriety of this step. Nevertheless he proceeded and filed his petition in the court of insolvency, setting up his notes and the fact of his indorsement and that they were past due and unpaid, setting up also that he was indorser upon some other notes not yet due. He further alleged that the defendant was indebted to divers creditors whose claims were past due and that other creditors of the defendant had brought suit against it, which suits were then pending; that other claims were in the hands of attorneys for collection; that judgments and executions were threatened against the property of the defendant; that the property would thereby be offered for sale, and, if sold in that manner, would realize but a small part of its real value, but that, if it could be kept from such sale and its product sold in the usual course of business, the business would be conserved and saved from sacrifice, which would benefit the creditors of the defendant, the plaintiff, and all parties in interest; and that he was entitled to have the property, in which he had an interest, saved from loss or material injury. He further averred that the assets of the defendant, at a fair valuation, were more than sufficient to pay all its indebtedness; that the company was amply solvent; but that, owing to the then present financial and commercial stringency, the assets of the defendant were in danger of being dissipated and impaired. He further averred that the business of the defendant would be mismanaged, the creditors of the defendant would levy executions and sell the property at forced sales, and that not enough money would be realized to pay the claims of the creditors and indemnify and repay the plaintiff the amount of his indorsements. The prayer of his petition was that a receiver be appointed, authorized, and empowered to continue the business of the defendant until the further order of the court; that the assets might be ordered sold by the receiver to be appointed by the court, at such times and in such manner as will be most conducive to the interests of the persons in interest, so that the receiver will be able to realize the highest and best price for the assets of the defendant, and for such further relief as he might be entitled to have.

The application was presented to the court. Counsel for the company asked further time to investigate, which was not allowed; and an order was made to the effect that the court found that the defendant corporation had had due notice of the hearing and that the plaintiff was an indorser on promissory notes and negotiable paper, a comaker thereto with the defendant company; that the promissory notes are due; that defendants have neglected to pay or satisfy them, and they are unpaid; and that, unless a receiver is appointed, the assets of the defendant company will be dissipated, to the great and irreparable damage of the petitioning creditors. The order further recites, 'The court further finds from the evidence that the plaintiff is solvent, and that his assets are in excess of his liabilities'-- probably an error in the drafting of the order, by which, no doubt, it was intended to find that the defendant was solvent and its assets were in excess of its liabilities.

Thereafter the receiver took charge of the business. The defendant acquiesced in the receivership. The plaintiff Harvey Cantor was appointed manager for the receiver at a salary of $500 a month, and the plaintiff's father was appointed assistant manager at a like salary. No effort on the part of defendant was made to contest the receivership or otherwise dispose of it.

Do these facts show that because of insolvency a receiver has been put in charge of the defendant's property under the laws of the state of Ohio within the meaning of section 3a(4) of the Bankruptcy Law?

The petition shows beyond a peradventure that the defendant was unable to meet its obligations in due course. There were suits of creditors pending against it, claims in the hands of attorneys for collection, and it feared judgments and executions thereon. It obviously could not pay its debts as they matured. This situation shows a condition of 'insolvency,' as the term is commercially used, and within the meaning of the laws of Ohio and as defined by its highest court. In Mitchell v. Gazzam, 12 Ohio, at page 336, it is said that insolvency in the mercantile sense means inability to pay debts according to the ordinary usages of the trade--

'but in the broad sense used by the statute it means a person whose affairs have become so deranged that he is unable to pay his debts as they fall due; and if, from such a deranged state of his affairs, and * * * inability to meet his moneyed engagements, he should transfer his property to a trustee to pay his debts, we should regard such assignment as made in contemplation of insolvency, and within the meaning of the statute.'

See, also, American Hosiery Co. v. Baker, 18 Ohio Cir.Ct.R. 604.

It is impossible to conclude otherwise than that the defendant then was, and by the plaintiff's petition in the...