In re Halsey Elec. Generator Co.

• Decision Date: 08 July 1908
• Citation: 163 F. 118
• Parties: In re HALSEY ELECTRIC GENERATOR CO.
• Court: U.S. District Court — District of New Jersey

163 F. 118

In re HALSEY ELECTRIC GENERATOR CO.

United States District Court, D. New Jersey.

July 8, 1908

Riker &amp Riker and Howard H. Williams, for creditors.

McCarter & English and A. J. Dittenhoefer, for bankrupt.

LANNING District Judge.

This case comes before the court on exceptions to the report of the master to whom a reference was made to take testimony and report to the court on the issues made by the petitions and the answer of the alleged bankrupt. The issues are: (1) Whether the petitioners are creditors of the alleged bankrupt, (2) whether the alleged bankrupt is insolvent, and (3) whether the alleged bankrupt committed the act of bankruptcy charged. The master has reported against the alleged bankrupt on all these issues and finds that it should be adjudged bankrupt.

The petitioners are James P. Murray, Charles H. Williams, Howard H. Williams, George F. Van Slyck, and William M. Clark. The claim of Howard H. Williams was assigned to him by his father, Charles H. Williams, and constitutes but a part of the original claim of the father. Charles H. Williams is a petitioner for the unassigned part of his original claim. It is contrary to the policy of the bankruptcy act to permit a creditor to split up his claim against his debtor and assign some of the parts to other persons for the purpose of qualifying them as joint petitioners in a bankruptcy proceeding. In re Tribelhorn, 137 F. 3, 69 C.C.A 601; Leighton v. Kennedy, 129 F. 737, 64 C.C.A. 265; In re Independent Thread Co. (D.C.) 113 F. 998. It follows that Howard H. Williams cannot be counted as a petitioning creditor.

It also appears that Murray and Van Slyck each hold an assigned claim, that neither of them has any financial interest in the claim held by him, and that each of them holds his claim solely for the benefit of his assignor. This fact, however does not disqualify either of them as a petitioning creditor. The assignments were made by persons who originally claimed to be separate creditors of the alleged bankrupt for the respective amounts of the claims assigned. Murray and Van Slyck are trustees for their respective assignors, and, as they hold the legal title to the claims assigned, they are the owners of those claims and, if they be valid claims, are creditors.

There is no dispute as to the validity of any of the claims, except that of Murray. His claim was assigned to him by Clemuel R. Woodin and is for $25,050. It is agreed by counsel that, if this be not a valid claim the Halsey Electric Generator Company is solvent, and, if it be a valid claim, that the company is insolvent and did commit the act of bankruptcy charged by the petitioners. The preliminary questions above mentioned having been disposed of, the validity or invalidity of Murray's claim is the only remaining one to be considered.

The Halsey Electric Generator Company was organized November 24, 1902, with a capital stock of $100,000, divided into 1,000 shares of the par value of $100 each. On May 13, 1903, the capital stock was increased to $10,000,000; the additional shares (99,000) being issued to Woodin for certain patents and by him divided equally among himself, James C. Haydon, and Henry Halsey. Of the 33,000 additional shares which each of these three gentlemen received, they agreed that Woodin should use 23,000 shares (or 69,000 shares in all) for the purpose of raising a surplus fund. Accordingly, Haydon and Halsey each transferred to Woodin certificates for 23,000 shares, and Woodin thereupon gave to Halsey the following written instrument:

'Received from Henry Halsey twenty-three thousand (23,000) shares of the capital stock of the Halsey Electric Generator Company to be used, together with a like number of shares to be contributed by each James C. Haydon and myself, by me as in my sound discretion I deem best in procuring a paid-in surplus fund for said company of not less than two hundred and twenty-five thousand dollars ($225,000), and the sum of twenty-five thousand dollars ($25,000) to be paid by me to said Halsey, and without any responsibility or obligation on my part to account for the manner of holding or disposing of the same. New York, May 13, 1903. (Signed) C. R. Woodin.'

Woodin made efforts to raise the desired surplus fund by operating through the Guaranty Trust Company of New York. The generator company's books show that between May 13, 1903, and April 18, 1905, he succeeded, with the aid of the trust company, in securing subscriptions for a part of the capital stock of the generator company and in raising for the surplus fund the aggregate amount of $75,187.50. The cash book entries as to this fund are as follows:

May 14, 1903. Surplus, C. R. Woodin . . . $25,000 00

Feb. 5, 1904. Surplus, C. R. Woodin . . . 25,000 00

Nov. 15, 1904. Paid-in surplus . . . 5,000 00

Dec. 1, 1904. Paid-in surplus, Guaranty Trust Co. . . . 10,000 00

Mar. 24, 1905. Paid-in surplus . . . 10,187 50

Each of these items was posted from the cash book into the ledger book and therein credited to the account denominated the 'Paid-in Surplus Account.' Between May 13, 1903, and April 18, 1905, other cash receipts were entered in the cash book as follows:

May 13, 1903. C. R. Woodin . . . $2,000 00

Nov 5, 1903. C. R. Woodin . . . 11 85

Jan. 12, 1904. C. R. Woodin . . . 2,261 68

Feb. 21, 1905. C. R. Woodin . . . 1,000 00

Apr. 18, 1905. C. R. Woodin . . . 25 07

Each of these latter items was posted from the cash book into the ledger book and therein credited to the separate account of C. R.

Woodin.

This account also shows cash credits to the amount of several thousand dollars previous to May 13, 1903. All these credits down to and including the one of April 18, 1905, being for $25.07, were settled long before the commencement of these bankruptcy proceedings. The account is here referred to only for the purpose of showing that before May 13, 1903, Woodin had been loaning money to the generator company which it repaid, and that after May 13, 1903, indeed beginning on that very day, other cash items were credited to him in his personal account, evidently as loans, and running along parallel with the paid-in surplus account, which was opened on May 14, 1903. This makes it clear that, so far as the books show, these two accounts were treated as wholly separate and independent. It may also be noted that the bills payable account shows that on November 30, 1904, while the two accounts above-mentioned were active accounts, the generator company gave its promissory note payable to the order of Woodin, which was by him indorsed for the accommodation of the generator company, discounted by the Guaranty Trust Company, and paid by the latter company on December 2, 1904, evidently out of the $10,000 paid into the surplus account on December 1st.

In the early part of 1905, the previous expectations of business success by the generator company had become so much impaired that no more of its capital stock could be disposed of and consequently, that nothing more could be raised by Woodin for the surplus fund. As shown by the paid-in surplus account, the Guaranty Trust Company ceased to give its aid after March 24, 1905. Between April 18, 1905, and December 12, 1906, Woodin, however, personally paid to the generator company sundry...