In re Harber

• Decision Date: 05 June 1925
• Docket Number: No. 343.,343.
• Citation: 9 F.2d 551
• Parties: In re HARBER.
• Court: U.S. Court of Appeals — Second Circuit

9 F.2d 551 (1925)

In re HARBER.

No. 343.

Circuit Court of Appeals, Second Circuit.

June 5, 1925.

Bennett, Werner & Grenthal, of New York City (Lewis F. Glaser, of New York City, of counsel), for petitioner.

Zalkin & Cohen, of New York City (S. Marshall Kronheimer and Moses Cohen, both of New York City, of counsel), for respondent.

Before ROGERS, HOUGH, and HAND, Circuit Judges.

HAND, Circuit Judge.

Harber, the bankrupt, was adjudicated on his voluntary petition on June 9, 1924. On the same day he obtained from the bankruptcy court a stay of any further proceedings in execution of a judgment obtained by Propp, the petitioner to revise, against him in the state court on November 26, 1923. On June 16, 1924, Propp moved before the bankruptcy court to vacate the stay and this was denied on July 24, 1924. The sole question was whether the stay should continue, and this in turn depends upon whether the judgment was upon a claim dischargeable in bankruptcy.

The action in the state court was against the bankrupt and a corporation. The complaint was in substance as follows: Propp and Harber had owned all the stock of an earlier corporation of the name of Schwartz, Harber & Propp, Inc. They had executed a contract by which Propp agreed to sell Harber 200 shares of the corporation for a small amount paid down, and, as to the rest, in four promissory notes. Harber was to hold 51 per cent. of the shares of the corporation, or of any successor corporation, as security for the notes. Thereafter the successor corporation was organized by Harber and his brothers, which took over the assets of the first. Harber remained the majority stockholder, and was in full control of this business, but had neglected to set aside 51 per cent. of the shares of the new company as security. The contract provided that, upon default in the payment of the notes, Harber should at once transfer to Propp the shares so held as security; this he had failed to do, though he defaulted. The contract further provided that, upon receiving the shares, the plaintiff might take over the company, continue or dissolve the business, and upon dissolution pay himself out of the assets. Harber had diverted the profits of the company to his own use in larger proportion than he was entitled to do, and had refused to pay the balance of the purchase price, saying that he would close up the business. In pursuance of this policy he had so conducted it as to make the stock worthless. The complaint prayed judgment that Harber specifically perform the contract, assign the shares, and that after its delivery and the sale of the assets he should be decreed to pay any deficiency.

The cause went to trial and resulted in a decree for Propp, adjudging that the stock was worthless, and that, as it would realize nothing upon any sale, none was necessary. It decreed that Harber pay Propp the balance due upon the notes. In the decision upon which the decree stood, the state court found that Harber had so conducted the corporation as to make the stock valueless by removing and disposing of the assets of the corporation....