In re Marshall E. Smith & Bro.

• Decision Date: 01 August 1940
• Docket Number: No. 20746.,20746.
• Citation: 35 F. Supp. 56
• Parties: In re MARSHALL E. SMITH & BRO., Inc.
• Court: U.S. District Court — Western District of Pennsylvania

35 F. Supp. 56

In re MARSHALL E. SMITH & BRO., Inc.

No. 20746.

District Court, E. D. Pennsylvania.

August 1, 1940.

Benjamin H. Hellman, of Philadelphia, Pa., for petitioner-claimant.

Edward Cohen, Maurice A. Granatoor and Wexler & Weisman, all of Philadelphia, Pa., for trustee.

BARD, District Judge.

This case arises on a petition for review of an order of the Referee denying priorities to petitioners' wage claims and allowing them as general claims only.

The bankrupt had been in business for many years. In 1931, operations being unprofitable and the indebtedness large, the enterprise was turned over to Moskowitz & Herbach, who received an assignment of the stock of the Company. The claimants herein, Frank Houghkirk, Ludwig O. Liese and Samuel S. Polin, had been employees of the bankrupt both prior and subsequent to this transfer. In October, 1934, Moskowitz & Herbach, finding their operation unsuccessful, turned the business and its assets over to the claimants who received, without giving any consideration therefor, the entire issued outstanding stock, as follows: To Houghkirk, 40%; to Liese, 20%; and to Polin, 40%. These three operated the business until December 28, 1938, when the landlord distrained for rent. On January 5, 1939, the corporation made an assignment for the benefit of its creditors at which time the claimants signed the following writing:

"January 5, 1939

"We and each of us, being the Stock-holders, Officers and Directors of the Marshall E. Smith & Bro. Inc., for and in consideration of the sum of $1.00 and other good and valuable consideration, do hereby for ourselves, our heirs, executive (sic), administrators and assigns, waive any and all claim or claims for any preference, for wages or salary which may be due us or any of us, and do further agree that our claims for such wages or salary shall be subordinated to the claims of all Creditors.

"(Signed) "Frank Houghkirk, Pres "Ludwig O. Liese, Vice Pres "Samuel Polin, Treas.

"Witness:

"Margaret M. Deverey "1011 E. Tioga Street "Philadelphia, Penna."

On January 12, 1939, a petition for an arrangement under Chapter XI of the Bankruptcy Act, 11 U.S.C.A. § 701 et seq., was filed, which was followed on April 1, 1939, by an adjudication in Bankruptcy.

On April 26, 1939, petitioners filed their claims for wages earned within three months of bankruptcy, in the respective sums of $557 (Houghkirk), $623 (Liese) and $438 (Polin), alleging rights to priority under Section 64, sub. a(2), 11 U.S.C.A. § 104, sub. a(2), which provides: "The debts to have priority, in advance of the payment of dividends to creditors, and to be paid in full out of bankrupt estates, and the order of payment, shall be * * * wages, not to exceed $600 to each claimant, which have been earned within three months before the date of the commencement of the proceeding, due to workmen, servants, clerks, or traveling or city salesmen on salary or commission basis, whole or part time, whether or not selling exclusively for the bankrupt; * * *."

To these claims for priorities the Trustee filed his objections averring (1) that claimants were not such wage earners as would be entitled to priorities under the Act and (2) that they had waived any priorities which they might have possessed. As previously noted, the Referee sustained the Trustee's objections and disallowed the claims for priorities.

From the testimony adduced before the Referee and the inferences which fairly may be drawn therefrom, it appears that although the claimants devoted a great deal of their...