In re Foley

• Decision Date: 03 March 1925
• Docket Number: 4287,4288.,4260,No. 4259,4259
• Citation: 4 F.2d 154
• Parties: In re FOLEY. WITHERS v. WHITE. In re E. Y. FOLEY, Inc.
• Court: U.S. Court of Appeals — Ninth Circuit

4 F.2d 154 (1925)

In re FOLEY.

WITHERS v. WHITE.

In re E. Y. FOLEY, Inc.

Nos. 4259, 4260, 4287, 4288.

Circuit Court of Appeals, Ninth Circuit.

March 3, 1925.

I. Henry Harris, of Los Angeles, Cal., for petitioner.

Newton A. Johnson and Theodore M. Stuart, both of Fresno, Cal., for respondent.

Before ROSS, HUNT, and RUDKIN, Circuit Judges.

ROSS, Circuit Judge (in part dissenting).

These four matters were consolidated and heard together in the court below and have been argued together here. The first is a petition for the revision of an order of the District Judge confirming the order of the referee in bankruptcy appointing William E. White trustee of the estate of E. Y. Foley, bankrupt. (D. C.) 1 F.(2d) 568. The second is a petition for the revision of an order of the judge confirming the order of the referee appointing White trustee of the estate of E. Y. Foley, Inc., bankrupt. (D. C.) 1 F.(2d) 568. The third and fourth are petitions for the revision of the order made by the judge confirming an order made by the referee consolidating the estate of E. Y. Foley, bankrupt, and the estate of E. Y. Foley, Inc., bankrupt, and providing for a dividend of 5 per cent. of the assets of the bankrupt E. Y. Foley, Inc., to be paid to the creditors of the two bankrupt estates. (D. C.) 4 F.(2d) 152. The objection to the compensation of $10,000 allowed to the receiver of the two estates, also made by the last-mentioned order of the court, has been here waived in the brief of the petitioner.

We are of the opinion that the record shows no just ground of complaint, either over the action of the court below in holding that the receiver of a bankrupt's estate was not thereby disqualified from being selected by the creditors as trustee of the estate, or in holding that there was no sufficient showing of any improper action on the part of any of the parties concerned as to the qualifications or the propriety of the appointment of Mr. William E. White to those positions.

The real question in the case is whether there is such a conflict of interests between the creditors of the individual, Foley, and those of the Foley corporation, as to make it improper to have consolidated the two estates and to have appointed the same person to serve as trustee in the two.

The court below took this view according to its opinion: "I am of the view that the two estates are of the same ownership — that the property of Foley and of Foley, Incorporated, is to be considered as one sum of assets subject to the claims of all creditors, and for that reason I think that a consolidation of the two estates can appropriately be made."

The record shows that Foley during and prior to the year 1923 was extensively engaged in the business of buying, handling, and shipping fruit at and in the vicinity of Fresno, and in the early part of that year had incurred indebtedness to various fruit growers, and fruit brokers and materialmen to the amount of more then $1,000,000, which was largely in excess of his assets. It appears that 98 per cent. of his creditors, evidently having confidence in his ability to weather his financial difficulties and for their own expected benefit, for the purpose and with the hope of re-establishing his business on a sound basis, entered into and signed this written contract in the month of May, 1923:

"Whereas, it is proposed to organize a corporation under the name of E. Y. Foley, Inc., with a capital stock of $2,500,000. Seven per cent. cumulative preferred stock, subject to call at 105, and 50,000 shares of nonpar value stock for the purpose of taking over all of the assets of E. Y. Foley of Fresno, California, and

"Whereas, it is proposed that the creditors of said E. Y. Foley accept twenty-five per cent. (25%) in notes of said corporation for said amounts, payable February 1, 1924, and seventy-five per cent. (75%) of preferred stock of such corporation when organized or all preferred stocks in settlement of the respective claims of creditors:

"We, the undersigned, creditors of E. Y. Foley of Fresno, California, for the amount set opposite our respective names, in consideration of the insolvency of the said E. Y. Foley and of the payment to us of

"Twenty-five per cent. (25%) of the amount of our claims in promissory notes of the corporation payable as above stated.

"Seventy-five per cent. (75%) of our claims in preferred capital stock of the corporation when organized, or in promissory notes of E. Y. Foley, payable not less than two years from the date hereof and secured by preferred stock of said corporation at par as may be desired by the undersigned, said election to be indicated in writing thirty days after the organization of said corporation.

"do hereby jointly and severally agree with said E. Y. Foley and with each other, and with all creditors of said E. Y. Foley, signing like counterpart agreements, that we will and do hereby accept of and from said E. Y. Foley, in full payment and liquidation of our respective claims against the said E. Y. Foley, the settlement provided for herein;

"It being understood and agreed that such payments shall be made and said stock delivered within thirty days after the completion of the organization of said corporation.

"It being further understood and agreed that said cash and stock when delivered shall be in full settlement, compromise and discharge of our respective claims against E. Y. Foley, and that the said E. Y. Foley shall thereafter be released and discharged from all further liability thereon or with respect thereto, excepting as to his liability upon his personal promissory notes taken in accordance with this agreement.

"May ______, 1923. "Name of Creditor. Amount."

By another contract, according to the stipulation of the parties the "`grower creditors' were given the option of receiving 25 per cent. of the amount of their claims in cash, or in promissory notes of the corporation to be organized, while the other creditors were required to accept said 25 per cent. in promissory notes of the corporation, and were not to receive any cash."

The record shows that the petitioner did not sign either of the contracts, but that they were executed by Foley and 98 per cent. of his creditors, after which the E. Y. Foley corporation was formed and organized under and pursuant to the laws of the state of Delaware with a total authorized capital stock of 75,000 shares, consisting of 50,000 common, of no par value, and 25,000 shares of preferred stock of the par value of $100 each; that subsequently application was made by it to the Commissioner of Corporations of the State of California for permission to issue the 50,000 shares of the common stock and 22,031 of the preferred stock of that corporation to Foley in exchange for the transfer by him to the Delaware corporation of all of his assets. The application to the California Corporation...