In re Harper

• Decision Date: 04 January 1910
• Citation: 175 F. 412
• Parties: In re HARPER.
• Court: U.S. District Court — Northern District of New York

175 F. 412

In re HARPER.

United States District Court, N.D. New York.

January 4, 1910

John J Mackrell (James Farrell, of counsel), for trustee and objecting creditors.

Thomas H. Guy (H. D. Bailey, of counsel), for claimant.

RAY District Judge.

On the 26th day of February, 1908, an involuntary petition in bankruptcy was filed against the above-named bankrupt, Howard E. Harper, by Peninsular Paint & Varnish Company, and this petition alleged that such company was a creditor of said Howard E. Harper. March 12, 1908, said Harper filed a voluntary petition in bankruptcy, and filed schedules in which he states that said Peninsular Paint & Varnish Company is a creditor to the amount of about $3,500, but also sets forth that the said company is indebted to him in the sum of $6,500. The nature of this last-mentioned alleged indebtedness will be referred to later.

On his voluntary petition Harper was adjudicated a bankrupt on the 16th day of March, 1908, and thereafter, and on the 27th day of March, 1908, the two proceedings were consolidated, and Harper was adjudicated a bankrupt under the involuntary petition, also without answer or objection. No issue was raised as to the validity of the claim of the Peninsular Paint & Varnish Company by Harper or any of his creditors. After adjudication and consolidation such proceedings were had that a trustee was duly appointed. He qualified and entered on the discharge of his duties Thereafter the said company, hereafter called the 'Peninsular Company,' filed its duly itemized and verified claim with the referee. It is in due form, and is a valid proof of claim on its face. Certain creditors, at the first meeting of creditors, filed objections thereto; but, for the purpose of electing a trustee, it was temporarily allowed, with the understanding that later the trustee should file objections, so as to test the validity of the claim. On the 29th day of July, 1908, the trustee filed his petition for the re-examination of such claim of the Peninsular Company. September 23, 1908, said company moved for an order quashing the objection filed by such creditors and dismissing the said petition of the trustee. The motion was based upon the petitions and proceedings for adjudication, the schedules of the bankrupt the proof of claim of the Peninsular Company, the objections thereto, the said petition of the trustee, certain testimony given by the bankrupt on his examination in the proceedings and on the petition filed by the trustee for a settlement of the estate of such bankrupt. The referee denied the motion to quash the objections and dismiss the petition of the trustee to re-examine the claim of said Peninsular Company, and this proceeding for a review of that decision follows.

The claim of the Peninsular Company, amounting to $3,391.17, after deducting payments and credits for discount, shortage, and merchandise returned between October 10, 1906, and October 23, 1907, is for goods, wares, and merchandise sold and delivered to said Harper between October 13, 1906, and July 18, 1907, 'of the reasonable value and stipulated price of $6,272.87, no part of which has been paid, except the sum of $2,881.70, leaving a balance due, owing, and unpaid of $3,391.17, a statement of which account is hereto annexed and made a part of this proof; that said debt exists upon an open account and became due on the 5th day of June, 1907, that day being the average due date of the items of said account. ' The claim then proceeds as follows:

'This deponent further alleges that heretofore, and in the month of November, 1907, an account was stated between the said Howard E. Harper and the Peninsular Paint & Varnish Company, Limited, and that upon such accounting it was fixed, determined, and agreed that the said Harper was indebted unto the said Peninsular Paint & Varnish Company in the sum of $3,391.17, together with the interest thereon, from the 5th day of June, 1907, which said sum and the interest thereon said Harper promised and agreed to pay; that no part of said debt has ever been paid; that there are no set-offs or counterclaims to the same; that no note has been received for said account; that no judgment has been rendered thereon; that said corporation has not, nor has any person by its order or, to the knowledge or belief of this deponent, for its use, had or received any manner of security for said debt whatever.' A statement of items is annexed as referred to in the claim.

The objections filed by the creditors contain no denial of any allegation of the claim, but set up counterclaims alleged to exist in favor of Harper against said Peninsular Company connected with and growing out of the same transaction or transactions set forth in the claim. The objections read:

'The undersigned creditors of the above-named bankrupt do hereby object to the allowance of the claim of the Peninsular Paint & Varnish Company, of Detroit, Michigan, herein, against the bankrupt estate, upon the ground that there is a valid counterclaim existing in favor of the bankrupt and his estate against said Peninsular Paint & Varnish Company, which counterclaim exceeds in amount the claim of said Peninsular Paint & Varnish Co. against said bankrupt, and which counterclaim should be set off against the claim of said Peninsular Paint & Varnish Co., in accordance with the provisions of section 68 of the bankruptcy law. The annexed affidavit of Howard E. Harper, verified March 31, 1908, contains a statement of the basis of said counterclaim, and is made a part of this objection.'

The affidavit of Harper, referred to in such objection and annexed thereto, so far as material, reads as follows:

'Rensselaer County, City of Troy-- ss.:

'Howard E. Harper, being duly sworn, says that he is the bankrupt above named, and that the claim existing in his favor against the Peninsular Paint & Varnish Company, which claim is scheduled as an asset of the bankrupt estate herein, consists in substance of the following items:

'First. Damages sustained by deponent by reason of the false and fraudulent representations made by said Peninsular Paint & Varnish Company to deponent, by which deponent was induced to engage in business in the city of Troy, N.Y., in or about the month of August, 1906, as the local representative of said Peninsular Paint & Varnish Company in the sale of the goods manufactured by said company. Said representations were in substance to the effect that said company had business in this locality amounting to $20,000 per year. Said representation was false, and was known to be false by said company when it was made, and deponent relied upon such representation in making the contract, which was then made for the purchase by deponent of goods made by said Company. Deponent paid to said company about $2,300 for the first car load of paint mentioned in said contract. The purchase price of the second car load of paint mentioned in said contract amounted to about $1,900, and that amount has not been paid by deponent, but is included as a part of the claim of said company herein. By reason of the false representations made by said company to deponent, deponent has lost the $2,300 which he paid to said company, besides about 18 months' time and labor, which is worth to deponent not less than $3,000. That the business of said company in this locality did not amount to more than $5,000 per year. That the gross profits of said business, if it had amounted to $20,000 per year, would have been $4,000 per year, and the net profits to deponent would have been at least $2,000 per year. Said business amounted in fact to only $5,000 per year, and the gross profits thereof being but $1,000, there were not net profits to deponent, but an actual loss, not only of said net profits, but of money which deponent was obliged to borrow in order to carry on said business. Said amount of borrowed money amounts to at least $1,300, making the total losses sustained by reason of said false and fraudulent representations of the said Peninsular Paint & Varnish Company at least the sum of $6,600.

'Second. In and by the contract entered into between deponent and said Peninsular Paint & Varnish Company, in or about August, 1906, said company agreed to furnish to deponent the services of a capable salesman to assist deponent in disposing of the goods manufactured by said company in this locality for certain periods of the year, specified in said contract. Said company failed and neglected to furnish such salesman at the period specified in said contract, and when a salesman was eventually furnished to deponent for

a short time by said company said salesman was incapable and inexperienced, and was of no assistance whatever to deponent.

That by reason of the failure of said company to carry out its contract with deponent in the respect herein referred to deponent has suffered damages in the sum of at least $1,000.

'Howard E. Harper.

'Sworn to before me this 31st day of March, 1908.

'James W. Wright, Notary Public, Rens. Co.'

The verified petition of the trustee, asking that such claim be expunged and rejected, so far as material, reads as follows:

'To Edwin A. King, Esq., Referee in Bankruptcy:

'Your petitioner respectfully shows: That he is the trustee herein. That the proof of debt of the Peninsular Paint & Varnish Company, a corporation, of the city of Detroit, in the state of Michigan, claiming to be a creditor of said Howard E. Harper, was filed herein on the 31st day of March, 1908, but the same has not been allowed and should not be allowed for the following reasons:

'That said claim is based in part upon the alleged account stated between the bankrupt and said Peninsular Paint & Varnish Company, and as your petitioner is informed and

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