In re Kentucky Wagon Mfg. Co.
| Decision Date | 08 November 1932 |
| Docket Number | No. 8132.,8132. |
| Citation | 3 F. Supp. 958 |
| Parties | In re KENTUCKY WAGON MFG. CO. |
| Court | U.S. District Court — Western District of Kentucky |
D. A. Sachs, Jr., of Louisville, Ky., for petitioner and for Inter-Southern Life Ins. Co., James R. Duffin, William E. Massey, Robert V. Board, J. F. Murphy, and May S. Williams.
Woodward, Hamilton & Hobson, of Louisville, Ky., for Henry J. Stites, trustee.
David R. Castleman and Selligman, Selligman & Goldsmith, all of Louisville, Ky., for George D. Caldwell, successor trustee of Louisville Trust Co., Kentucky Wagon Mfg. Co., and Joseph S. Laurent, receiver of Banco Kentucky Co.
Peter, Lee, Tabb, Krieger & Heyburn, of Louisville, Ky., for A. M. Anderson, receiver of National Bank of Kentucky, of Louisville.
This proceeding is before me on the claim of Joseph S. Laurent, receiver of Banco Kentucky Company. The question is as to what right, if any, such receiver by virtue thereof has against the bankrupt's estate. The nature and extent of the claim should be first presented.
The bankrupt is a Delaware concern, incorporated July 8, 1924. Its business was that of manufacturing wagons, agricultural machinery, and vehicles of all kinds. So far as the manufacture of wagons, which came to it from its predecessor, was concerned, its business was a dying one. It continued in business from its incorporation until the appointment of the trustee in bankruptcy, the adjudication being had January 12, 1931. The amount of the claim in question is $2,327,649.60 principal, and $467,562.10 interest, totaling $2,795,211.70. Claimant holds as collateral security therefor the bankrupt's bond for $2,000,000, dated December 28, 1927, secured by mortgage by it to the Louisville Trust Company as trustee, dated November 1, 1927, on its plant in the city of Louisville, which mortgage the claimant and George D. Caldwell, successor to the trust company, as trustee, seek to enforce. The claim originally belonged to the National Bank of Kentucky and was sold and transferred July 23, 1930, by the bank to the Banco Kentucky Company for 100,000 shares of its capital stock, for which company claimant was appointed receiver November 24, 1930. The bankrupt did not own the plant at first. Seemingly it then occupied same under a lease from the National Motor's Corporation to the Kentucky Wagon Company of Kentucky, a Kentucky corporation, and its predecessor, which had theretofore conveyed same to such corporation. It acquired that lease and the inventory of that company, just after its incorporation, i. e. August 8, 1924, and the plant itself through judicial proceedings from the National Motor's Corporation November 1, 1927, the date of the mortgage hereinbefore referred to. The acquisition of the lease and inventory of the Kentucky corporation was on August 8, 1924, by a bill of sale made to it by the National Bank of Kentucky, Robert V. Board, and James R. Duffin and the Kentucky Wagon Manufacturing Company of Kentucky. This bill of sale was executed by the bank through James B. Brown, its president, and Nicholas H. Dosker, attorney and agent on its behalf, by Robert V. Board and James R. Duffin by such attorney and agent, and by the Kentucky Wagon Manufacturing Company by Robert V. Board its president. Theretofore that company had gone into bankruptcy and Robert V. Board had been appointed its receiver and trustee. On July 9, 1924, Nicholas H. Dosker as attorney and agent for his principal, not stating who they were, offered $385,000 for the assets of that bankrupt of which 10 per cent., or $38,500, was to be paid in cash. This bid was accepted July 17, 1924. The bill of sale, in that it was executed by Nicholas H. Dosker, attorney and agent on behalf of the bank, Board, and Duffin, indicates that these three were the principals on behalf of whom he made his bid. Robert V. Board as receiver and trustee of the bankrupt did not join in the bill of sale. For some reason on October 24, 1924, Nicholas H. Dosker as attorney and agent executed an assignment and transfer of his bid to the bankrupt herein, the Delaware corporation. On August 8, 1924, the date of the bill of sale, the former bankrupt owed the National Bank of Kentucky on account of moneys which it had loaned such bankrupt, two notes of the National Motor's Corporation which it had discounted, for its indebtedness to others which the bankrupt had purchased for 25 cents on the dollar, two small items and interest. The moneys loaned amounted to $370,896.48, the two notes so discounted to $86,000.11, and the indebtedness purchased to $361,091. I am not sure as to whether this indebtedness represented its total amount or only the amount paid therefor. The two small items amounted to $5,431.23. At the same time the present bankrupt, the Delaware corporation, owed the bank $800 for expense of its incorporation and $38,500 for the 10 per cent. of the purchase price which it had paid. It may be noted in passing that it does not appear how the rest of the purchase price, to wit, $346,500, was paid. At the same time the bankrupt, the Kentucky corporation, owed the following sums, to wit:
Inter-Southern Life Insurance
Company ........................ $ 52,383.33
Robert V. Board .................. 39,906.00
William E. Massie ................ 19,066.67
James R. Duffin .................. 75,781.67
J. T. Murphy ..................... 539.79
____________
Total .......................... $187,677.46
Duffin was the president of the insurance company and it held a disputed claim of an uncertain amount against the bankrupt. These and the indebtedness to the bank were all the debts of the then bankrupt.
The consideration for this sale and transfer of August 8, 1924, to the present bankrupt, the Delaware corporation, was the execution of promissory notes by it to the bank for the then and present bankrupts' indebtedness to it amounting to $899,014.22 and to these other creditors for the amount of their debts as set forth and the issuance of 90,000 shares of its common capital stock of the par value of $10, 45,000 to the order of the bank and 45,000 to the order of Board. By the original articles of incorporation it was provided that the authorized capital stock was 50,000 shares of preferred stock of the par value of $100 per share, amounting in the aggregate to $5,000,000, and 50,000 shares of common stock without nominal or par value. By amended articles of incorporation adopted July 25, 1924, it was provided that the preferred stock should consist of 500,000 shares of the par value of $10 per share, amounting in the aggregate to $5,000,000, and the common stock of 500,000 shares of the par value of $10 amounting in the aggregate to $5,000,000.
The notes and stock called for by the bill of sale were never executed and issued. In view of the fact that Robert V. Board and James R. Duffin are designated along with the National Bank of Kentucky as the principals on whose behalf Dosker made his bid and executed the bill of sale, there may be some uncertainty as to just who was the purchaser of the personal assets of the bankrupt, the Kentucky corporation. All the witnesses agreed in their testimony that the National Bank of Kentucky was the sole purchaser and that such was the understanding at the time. It is to be noted that the bank through its president, Brown, executed the bill of sale and that neither Board nor Duffin executed it in person. The bank paid the expense of the incorporation of the assignee and transferee, the Delaware corporation, and the $38,500 cash payment on the purchase price of those assets. It is not likely that Board and Duffin would bind themselves to pay any portion of the balance of the purchase price, to wit, $346,500, except possibly in the way of the indebtedness to them. That they were to do so in this way is negatived by the fact that it was provided that the Delaware corporation was to pay their debts. It was not expected that they would make advances to that corporation to enable it to transact business. Such advances were essential to enable it to do so. The bank alone could be looked to for this purpose. Their connection with the transaction in this way must, for some unknown reason, have been purely formal. Their sole individual connection therewith was in taking pot luck with the bank in the outcome of the venture, without assuming any of its burdens. Such being the case, Board had no personal interest in the 45,000 shares of stock of the par value of $10 per share of $450,000 in all which were to be issued to his order. He gave nothing for them. He was the president of the bankrupt and it must have been intended that they should be used by him in advancing its interests. It is not unlikely that the consideration which the bankrupt received, to wit, the assets of the Kentucky corporation, came far short of being equal to what it was to pay therefor, so that in reality it received nothing for the stock which it was to issue. There is an intimation in the evidence that prior to the change from the Kentucky to the Delaware corporation there was an understanding between the bank and the Inter-Southern Life Insurance Company of which Duffin was president that they were to act together in an attempt to save the business carried on by the Kentucky corporation, the bank to the extent of 90 per cent. and the insurance company to the extent of 10 per cent., but nothing ever came of it. If the insurance company was interested in the purchase of its assets to the extent of 10 per cent., which may account for Duffin's connection with the transaction as purchaser and assignor of the assets of that corporation, it abandoned such interest to the bank, for it did nothing in accordance therewith. It must, therefore, be taken that the bank was in reality the sole purchaser of those assets and was entitled to the full benefits arising therefrom and from the transfer of...
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