In re General Lumber Products Co.

• Decision Date: 15 October 1927
• Docket Number: No. 4950.,4950.
• Citation: 21 F.2d 979
• Parties: In re GENERAL LUMBER PRODUCTS CO.
• Court: U.S. District Court — District of Maryland

21 F.2d 979 (1927)

In re GENERAL LUMBER PRODUCTS CO.

No. 4950.

District Court, D. Maryland.

October 15, 1927.

F. Hall Hammond, of Baltimore, Md., for petitioner.

William Lentz, G. W. S. Musgrave and J. Purdon Wright, all of Baltimore, Md., for receiver and trustee.

COLEMAN, District Judge.

This case arises on exceptions to the findings of the referee in the matter of the petition of R. B. Homer Lumber Company for the reclamation of certain lumber sold to the bankrupt, which petition was dismissed by the referee. His report in full is as follows:

"The bankrupt was a corporation engaged in the purchase and sale of lumber and builders' supplies, in Baltimore city. Its principal office appears to have been in Uniontown, Pa. All of its books were kept there, and all of its financial affairs were conducted from that office.

"Mr. Browne was the president of the company, and had charge of the Baltimore office, and made all purchases and sales for the company. He had charge of the local pay roll, but the monthly pay roll was handled from the Uniontown office.

"Mr. Palmer acted as the general manager of the company, and had charge of the latter office, and attended to the financial affairs of the company from that office. While Browne was president of the company, he appears to have been president in name only, as he took his orders from Palmer, who was also the principal stockholder of the company.

"On February 18, 1927, Browne purchased from the Homer Lumber Company, the petitioner herein, 13,628 feet of No. 1 box rough pine lumber through Mr. Albach, the salesman of the Homer Company. This lumber was immediately hauled from the municipal pier, where it had been stored, to the yard of the bankrupt, where it was stored with other lumber of similar character, and, at the time of the bankruptcy, the greater portion, if not all, of it was still in the yard. Mr. Albach testified that he saw it about two weeks later, and identified it by the name of the Homer Lumber Company stamped on the ends of some of the boards.

"On February 28th, ten days after the sale, a bill in equity was filed in the state court for the appointment of a receiver for the General Lumber Products Company, Inc.

"Upon receiving notice of this action on the part of one of its creditors, Mr. Palmer came to Baltimore and consulted Mr. Scheu, his attorney. He assured Mr. Scheu that the company was solvent and would be able to pay its creditors in full, if the matter was properly handled; that he was the holder of $51,000 of its preferred stock, and that he did not want the assets sacrificed, as he was satisfied that with proper handling the company would not only be able to pay its creditors in full, but that he would receive a substantial amount on account of his stock; but that, inasmuch as the Bank of Dunbar, which handled the company's financial affairs, had closed its doors, thereby embarrasing the company in its financial transactions, he thought it expedient to consent to the appointment of a temporary receiver to take charge of the company until the matter could be straightened out, which would be a matter of only a few weeks. Acting on this suggestion, the company consented to the appointment of receivers.

"On March 18, 1927, an involuntary petition in bankruptcy was filed against the company. Acting upon the assurance of Mr. Palmer that the company was solvent, Mr. Scheu, as its counsel, took steps to resist an adjudication. After repeated efforts to secure the books of the company, he sent Mr. Browne to Uniontown to secure them, and upon his return an accountant was employed to audit them, who, after working on them for several days, reported that the company was hopelessly insolvent. This was about three or four days prior to the adjudication. Up to this time every one connected with the company thought it was solvent. An adjudication followed this discovery, and receivers were appointed by this court.

"Mr. Browne, who was called as a witness by the petitioner, testified that he purchased the lumber in question in the usual course of the business of the bankrupt; that he had no knowledge of the insolvency of the company at that time, and that he fully expected the company to be able to pay for it; that he did not know of the insolvency of the company until he was informed of it by the auditor. He stated that he had no knowledge of the financial condition of the company between February 18th and 28th, but believed it to be solvent. He admitted that he knew that the company had outstanding notes which were maturing, but he did not know the amount or to whom they were payable. It was his habit to sign notes of the company in blank, at the request of Palmer and that the latter negotiated them, and that he (Browne) did not know to whom they were given or when they matured, as he did not have access to the books. All he knew about the business, except in the purchase and sale of lumber, was what Palmer told him.

"He also admitted that some of the creditors were making demands for payment of their account, but that all of these were referred to the Uniontown office, and he supposed that Palmer would attend to them.

It is admitted that the lumber was sold to the company, that it was not paid for and that a large portion, if not all of it, came into the possession of the receivers, and that it was sold by the receivers with the rest of the assets of the company.

"The R. B. Homer Lumber Company, on the 5th of April, filed its petition, asking for the return of the lumber or that the receivers pay to it the purchase price. To this petition the receivers filed their answer contesting the right of the claimant to the return of said lumber, and, upon the petition of the claimant, the matter was referred to the referee to hear and determine the same and report his findings to the court.

"The three requisites necessary to entitle the claimant to a recovery are (1) the insolvency of the debtor at the time the sale was made; (2) the concealment of the insolvency; and (3) an intent not to pay for the goods at the time they were bought.

"1. The claimant's own witness, who was the president of the company, testified that at the time he made the purchase he thought the company was solvent and able to pay for the lumber; that he purchased it in the regular course of its business, and that he purchased other merchandise subsequent to the purchase of this lumber, which was not paid for; that he did not know that the company was insolvent until some time in March, when he received information to that effect from the auditor who examined the books of the...