In re Castle Braid Co.

• Decision Date: 25 June 1906
• Citation: 145 F. 224
• Parties: In re CASTLE BRAID CO.
• Court: U.S. District Court — Southern District of New York

145 F. 224

In re CASTLE BRAID CO.

United States District Court, S.D. New York.

June 25, 1906

James Schell & Elkus, Abram I. Elkus, and Joseph M. Proskauer, for the trustee.

Sol Kohn (Louis Marshall, of counsel), for claimants.

RAY District Judge.

In due form the proof of claim of Meyer W. Schloss and Joseph W Schloss, jointly, alleges:

'That the Castle Braid Company, the corporation against which a petition for adjudication of bankruptcy has been filed was, at and before the filing of said petition, and still is, justly and truly indebted to said deponent and Joseph W. Schloss, jointly, in the sum of sixty-six thousand five hundred and sixty-two and 47/100 ($66,562.47) dollars and interest. That the consideration of said debt is as follows: That said corporation agreed with deponent and said Joseph W. Schloss, by agreement in writing bearing date the 30th day of March, 1904, which agreement is hereto annexed, to pay to deponent and Joseph W. Schloss the sum of one hundred and fifty-eight thousand one hundred and twenty-five ($158,125.00) dollars for their interest was by said agreement duly transferred to the said corporation, and in further consideration of the performance by deponent and said Joseph W. Schloss of certain obligations therein set forth, which they have duly performed. That said sum was to be paid as follows: twenty-five thousand ($25,000.00) dollars on or about April 1, 1904, and five thousand one hundred and twenty-six 19/100 ($5,126.19) dollars monthly thereafter until the balance of said sum should be fully paid. That no part of the said sum of one hundred and fifty-eight thousand one hundred and twenty-five ($158.125.00) dollars has been paid, except the sum of ninety-one thousand five hundred and sixty-two 47/100 ($91,562.47) dollars, leaving a balance due of sixty-six thousand five hundred and sixty-two 47/100 ($66,562.47) dollars.'

Then follows a detailed statement of the dates when certain specified sums became due, and of the times when the other sums not due and payable would become due and payable. Then the claim continues:

'That no part of the said debt has been paid. That no note has been received for said debt, nor has any judgment been rendered thereon. That there are no offsets or counterclaims to the same. That the only security held by deponent and said Joseph W. Schloss, or either of them, for said debt is the following: The sum of ten thousand two hundred and forty 38/100 ($10,240.38) dollars, which, as deponent and said Joseph W. Schloss claim, is held for their benefit by C.A. Auffmordt & Company, a copartnership in the borough of Manhattan, city of New York, and a certain mortgage, dated March 18, 1897, made by William J. Schloss, Henry W. Schloss, and Meyer W. Schloss for fifty thousand ($50,000.00) dollars, upon which there is now due and unpaid the sum of twenty-five thousand ($25,000.00) dollars and accrued interest, which deponent and said Joseph W. Schloss claim is also held for their benefit by the said C.A. Auffmordt & Company.'

The agreement referred to in such proof of claim and thereto annexed, dated March 30, 1904, made between said claimants, parties of the first part, the Castle Braid Company, party of the second part, and Henry W. Schloss, party of the third part, recites that the parties of the first and third parts are 'the owners of a large majority of the stock of the Castle Braid Company,' and 'are directors and officers thereof'; Henry W. Schloss being president, Joseph W. Schloss vice president, and Meyer W. Schloss treasurer. It also recites that:

'Serious differences have arisen between them regarding their respective interests in the said stock, and with reference to the management of the said corporation, which differences have resulted in litigation now pending between the parties hereto, and other litigation is apprehended, which differences and litigation have greatly impaired the efficient conduct of the business of the said corporation, and threaten to cause great damage and loss to it.'

And also:

'It is desired for the best interests of the party of the second part that the parties of the first part should dispose of their stock and all interest in the said corporation, and resign as directors and officers thereof, and agree not to engage in competition with the party of the second part of the period of three years in respect to the matters and things hereinafter set forth.'

The said agreement then continues:

'Now therefore, in consideration of the premises and of one dollar ($1.00) by each of the parties hereto to the other in hand paid, the receipt whereof is hereby acknowledged, this agreement witnesseth: (1) The parties of the first part sell, assign, and transfer and set over to the party of the second part all their shares of stock, and all their right, title, and interest in and to the assets of the said Castle Braid Company and of Schloss & Sons. (2) The first parties agree to resign as officers and directors in said company. (3) The parties agree to discontinue all actions pending between them. (4) The first parties agree not to compete with the company in the manufacture, etc., of certain specified things. (5) (Then follows the agreement of the second party to pay for the capital stock and other interests and things mentioned said sum of $158,125, in certain payments, as before mentioned.) (6) The second party agrees to pay certain moneys due the estate of one William J. Schloss. (7) The party of the third part agrees not to sell his stock until full payment is made to the first parties by second parties, and that until then he will continue to act as president of the company. (8) The second party agrees that it will not sell or dispose of the stock of the parties of the first part until it shall have fully paid the amount hereinbefore provided to be paid to the parties of the first part, save and except that it shall have the privilege of disposing of its treasury stock at not less than par, applying the proceeds towards the indebtedness of the party of the second part to the parties of the first part.'

This agreement, duly witnessed and duly acknowledged, the acknowledgment of the company being in due form to comply with the laws of the state of New York, was signed by all the parties, and there was annexed thereto a written ratification and approval of same, signed by all the stockholders of said corporation. There is also annexed to the certificate of review made by the referee a duly verified claim made by Meyer W. Schloss against said company, bankrupt, based on three promissory notes of said company, signed 'The Castle Braid Company by Henry W. Schloss, President,' given for cash loaned to the company, it is alleged in said claim, and which notes, each for $5,000, were made March 31, 1905, April 3, 1905, and May 1, 1905, respectively, payable at 552 Broadway, New York, to the order of Meyer W. Schloss. Each of these notes is indorsed by said Henry W. Schloss individually. This proof of claim is in due form, and states that such notes are due and have not been paid, or any part thereof, and that there are no offsets or counterclaims thereto, and that 'deponent has not, nor has any person by his order, or to his knowledge or belief, for his use, had or received any manner of security for said debt whatever. ' The notes, and also copies thereof, are attached to and filed with the claim. Meyer W. Schloss, the payee of the note, was in fact treasurer of the Castle Braid Company, the maker of the note, but this fact does not appear in the proof of claim. The proof says: 'That the said notes were given for cash loaned at the time of the respective dates of said notes by deponent (Meyer W. Schloss) to the corporation at its special instance and request; that no part of said debt has been paid, nor has any judgment been rendered thereon.'

The objections filed to the claim of Meyer W. Schloss and Joseph W. Schloss are: (1) Deny that there is any money due or owing on said claim. (2) Object that it appears on the face of the claim that securities are held for the payment of the debt alleged, and that the securities must be liquidated and their value determined before the allowance of the same. (3) Object that within four months prior to the filing of the petition in bankruptcy certain moneys ($10,000, or more) were paid to the claimant under such circumstances as to constitute a preference, and the claimants must surrender their preferences before their claims can be allowed. (4) That the contract being one between the corporation and its officers and directors, as stated, they (claimants) 'were prohibited from making a contract with the corporation of which they were directors which would operate to their individual advantage. That the said contract was void on this account, and no moneys are due thereon.' (5) Objects that the contract is void and of no effect. That 'at the time of the making of said contract there was no surplus from which the said Castle Braid Company could purchase its own stock,' and, also, that when the various sums agreed to be paid became due there was no surplus from which same could be lawfully paid, or purchase its own stock, and that from the date of the contract to the date of the filing of the petition in bankruptcy there was no surplus in the treasury of the corporation from which any of its own stock could be purchased, and therefore, said contract was wholly void. (6) Objects, in substance, that the payments made and turning out of security as alleged was part of, and done in pursuance of a fraudulent scheme to hinder, delay, and defraud the creditors of the corporation, the Castle Braid Company, now bankrupt. (7) Objects, in substance, that there is now pending and undetermined...