In re Eureka Furniture Co.

• Decision Date: 17 May 1909
• Docket Number: 2,387.
• Citation: 170 F. 485
• Parties: In re EUREKA FURNITURE CO.
• Court: U.S. District Court — Eastern District of Pennsylvania

170 F. 485

In re EUREKA FURNITURE CO.

No. 2,387.

United States District Court, E.D. Pennsylvania.

May 17, 1909

Samuel Scoville, Jr., and Harris S. Sparhawk, for trustee.

Furth &amp Singer, for Morris L. Zimmerman and Alexander J. Brian.

J. B McPHERSON, District Judge.

The two orders of the referee, each dated June 30, 1908, with reference to the unpaid stock subscriptions of Morris L Zimmerman and Alexander J. Brian, respectively, are hereby affirmed for the reasons given by the learned referee (Joseph Mellors, Esq.):

Sur rule to show cause why stockholders should not be assessed.

Certificate of Referee.

To the Honorable the Judges of the Said Court:

The undersigned, referee to whom the matter entitled as above was referred, respectfully certifies:

This matter is before the referee upon petition of trustee for rule to show cause why Alexander J. Brian, Mark M Dintenfass, David H. Cohen, and Morris L. Zimmerman should not be assessed in the sum of four dollars, fifty and seventy-six hundredths cents ($4.50 76/100) on each share of stock of the Eureka Furniture Company, Inc., subscribed to by them.

This rule was made absolute against Mark M. Dintenfass, and a judgment has been entered against him in the court of common pleas.

As to David H. Cohen, the trustee has never been able to obtain service on him.

An answer was filed on behalf of Alexander J. Brian and Morris L. Zimmerman, which practically admits all the substantial facts set forth in the petition for the rule, which are as follows:

Findings of Fact.

The Eureka Furniture Company, Inc., was adjudicated a bankrupt on the 13th day of December, 1905, and on the 3d day of February, 1906, Charles E. Schwartz was elected trustee of the bankrupt's estate.

The total amount of claims filed and allowed against the said estate, amount to $17,028.18, and the statutory time for filing claims has long since expired. There has been one dividend of 15 per cent. paid on said claims, leaving due thereon $14,473.95.

The trustee has now in his hands a balance of funds applicable to the payment of these claims, amounting to the sum of $951; said balance being also subject to the payment of costs, disbursements, commissions, and counsel fees.

The only remaining assets of this estate are certain book accounts, which are not collectible, and unpaid subscriptions to the stock of said bankrupt.

The said company was chartered under the laws of Pennsylvania July 20, 1905, with a capital stock of $50,000, divided into 5,000 shares of $10 each.

The original subscribers to the stock of said company and the amount subscribed for by each are the following:

Alexander J. Brian, . . . 750 shares.

Mark M. Dintenfass, . . . 750 shares.

David H. Cohen, . . . 750 shares.

Morris L. Zimmerman, . . . 750 shares.

There is due on said subscriptions of Alexander J. Brian the sum of $7,500, by Mark M. Dintenfass the sum of $7,500, and by Morris L. Zimmerman the sum of $7,500.

None of the facts as to the subscription to the stock or the sum of the call are denied, but the answer alleges that both Brian and Zimmerman were induced to subscribe to this stock by false and fraudulent representations. These fraudulent representations were alleged to have been made by David H. Cohen, and were in effect that the business of the Eureka Furniture Company was worth $25,000, and that the business yielded a net profit of $10,000 per annum. The time and place of making these representations is not given. It is undenied that the stock was subscribed for by Brian and Zimmerman on July 20, 1905. The answer goes on to allege that on a date (not fixed), but prior to the 19th day of September, 1905, Brian and Zimmerman discovered that the business of the Eureka Furniture Company was not worth $25,000, but was hopelessly insolvent, and that thereafter Cohen, Dintenfass, Brian, and Zimmerman agreed that Brian and Zimmerman should be released from their subscriptions, and that at the first meeting of the stockholders Brian and Zimmerman were formally released from their subscriptions.

Admitting all of the allegations of the answer, they do not constitute a defense to the petition or any sufficient reason why the prayer of the petition should not have been granted. The testimony offered in support of the allegations of the answer, moreover, shows a state of facts which by no means support the contention of the respondents. At the hearing of the issues framed by the petition and answer, Zimmerman did not appear at all and offered no testimony, and there is no question that as to him the rule should have been made absolute. Brian testified vaguely as to statements made to him by a certain Cohen as to the worth of the business of the Eureka Furniture Company, that on the faith of these representations he subscribed for 750 shares. Brian is a member of the bar, and presumably acquainted with business affairs, but testified that he subscribed to the stock on July 20, 1905, but never examined the stock or the books of the company, and made no investigation at all of the company until some months afterwards. He further testified that, although he became aware that the company was a fraudulent affair, he nevertheless acted as secretary at the first meeting of the corporation, and the minutes of all meetings of the corporation were kept in his handwriting. The minute book was offered in evidence, and at the first meeting it appeared that an election of officers was held and that Brian participated in this meeting before any resolution was passed absolving him from any liability. It appeared that the Eureka Furniture Company, Inc., took over the old business of the Eureka Furniture Company, a partnership, taking over its assets and assuming its liabilities, and that, despite the statement of Brian in his answer that the corporation had no creditors at the time of the first meeting, a bill of sale was offered in evidence in his handwriting containing a list of the creditors of the partnership assumed by the corporation bearing date of the first meeting of the corporation.

This bill of sale shows that there were $5,000 of accounts payable by the corporation. It further appears that Brian in his own handwriting made at the first meeting stated that Cohen sold to the corporation stock, fixtures, book accounts, good will etc., of the net value, exclusive of the good will, of $20,694.52, and that the corporation paid therefor the sum of $21,000, of which $8,000 was paid in cash and $13,000 in stock. No investigation was made of these facts, and the respondent never even examined the stock or the books of the corporation. Some months later he became convinced that the corporation was insolvent. He attended the first meeting of the corporation, of which he is one of the incorporators, and acted as the secretary of the meeting, conducted the election of the officers, wrote the minutes of this and subsequent meetings in his own handwriting, and spread on the record that the business of the partnership was worth about $20,000, and allowed the corporation to purchase it for $21,000 without a word of protest, and prepared a bill of sale setting forth the list of creditors taken over by the corporation, and then had a resolution introduced purporting to release himself and Zimmerman from any liability...