In re Penfield Distilling Co.

• Decision Date: 04 December 1942
• Docket Number: No. 9104.,9104.
• Citation: 131 F.2d 694
• Parties: In re PENFIELD DISTILLING CO. LYONS v. SACHS.
• Court: U.S. Court of Appeals — Sixth Circuit

131 F.2d 694 (1942)

In re PENFIELD DISTILLING CO.

LYONS v. SACHS.

No. 9104.

Circuit Court of Appeals, Sixth Circuit.

December 4, 1942.

Leslie W. Morris, of Frankfort, Ky. (Marion Rider, of Frankfort, Ky., on the brief), for appellant.

D. A. Sachs, Jr., of Louisville, Ky., for appellee.

Before HICKS, SIMONS, and MARTIN, Circuit Judges.

MARTIN, Circuit Judge.

This is an appeal from an order of the District Court sustaining the disallowance by the referee of a claim in bankruptcy. A single determinative issue of fact is presented: Is appellant Lyons, as he claims, a creditor; or is he, as was found by the referee and the district judge, a stockholder of the bankrupt corporation, the Penfield Distilling Company?

Appellant pulls a heavy laboring oar. Findings of fact by a referee in bankruptcy, confirmed by the district judge, will not be set aside, on appeal, on anything less than a demonstration of plain mistake. Tennessee Finance Co. v. Thompson, 6 Cir., 278 F. 597, 600; In re Maki, 6 Cir., 18 F. 2d 89, 90; Kowalsky v. American Employers Ins. Co., 6 Cir., 90 F.2d 476, 480.

A detailed discussion of the background from which appellant's claim evolved is necessary. The appellant and his partners, Reed and Bixler, operated a distillery in Scott County, Kentucky, under the firm name of Tom Bixler Distilling Company. The partnership was indebted to appellant in the sum of $38,000. The partnership, and the three partners in their individual capacities, entered into a contract in writing on February 8, 1937, with the Penfield Company, a stock selling Ohio corporation, for the sale, to a corporation to be organized by the Penfield Company, of all the partnership property, including real estate, distillery plant, warehouses, whiskey, trade-name, trade-marks, and good will.

Under this agreement, the corporation which the Penfield Company undertook to organize under the laws of Ohio, for the acquisition of the partnership property, was to be capitalized at $250,000 of preference stock and an undetermined number of shares of common, non-par stock; and the expenses incident to organizing the corporation and certifying its shares for sale were to be advanced and paid by the Penfield Company.

It was agreed that the partnership would transfer and convey all of its assets to the corporation, when duly organized and existing, upon issuance and delivery by the corporation of all its common stock, and its assumption of and agreement to pay all the partnership debts. By the terms of the agreement, the common stock was to be endorsed in blank and deposited with a bank as escrow trustee, upon the understanding that if the Penfield Company failed within forty-five days thereafter to secure, from the Securities Commission of Ohio, a certificate for sale of the preference stock of the company to be organized, its common stock would be delivered to the partnership by the escrow agent. If, on the other hand, such certificate permitting the sale of the preference stock should be secured by the Penfield Company within the limited period, the escrow agent was authorized to deliver the common stock as directed by provisions of the agreement.

The Penfield Company agreed to act as fiscal agent for the corporation, when organized, to undertake the sale and disposition of such part of the preference stock as might be reasonably necessary to enable the corporation "to pay off and discharge the existing indebtedness assumed by said corporation at the time of conveyance" by the partnership of the distillery premises, and to "provide reasonably adequate financial facilities for the proper and economical prosecution of said distillery business." The Penfield Company agreed to prosecute the work of selling the stock diligently, vigorously and promptly from the time certificate for sale of the preference stock should be obtained from the Ohio Securities Commission.

It was agreed that the corporation, after its organization, would pay off and discharge the partnership indebtedness of $38,000 to appellant Lyons, and all other indebtedness of the partnership. The agreement recited: "Said Lyons has agreed to accept, and Penfield The Penfield Company undertakes that said corporation will, promptly after certification of said issue of preference stock, deliver to said Lyons preference stock of the par or declared value of thirty-eight thousand dollars, and said stock, when so tendered to him by Penfield or said corporation, said Lyons agrees to accept in satisfaction of said indebtedness assumed and undertaken to be paid by said corporation."

In the paragraph immediately following that just quoted, it was provided that, in consideration of the agreement of Lyons to accept the preference stock in discharge of the indebtedness of the new corporation to him in the amount of $38,000, the Penfield Company, on or before twelve months from the date of delivery of the preference stock to Lyons, would purchase from him one-half of such stock at par, plus accumulated dividends; and on or before the expiration of two years, would purchase at par, plus accumulated dividends, the remainder of his preference stock. It was further provided that should Lyons so elect, he should have the right to retain the preference stock agreed to be purchased from him by the Penfield Company, upon notifying the latter of such intention at least thirty days prior to the ultimate date upon which the Penfield Company had agreed to purchase and pay for his stock.

The Penfield Company agreed to cause the new corporation to employ Bixler as distiller upon a fixed salary basis and to issue him portions of its common stock, and to employ Reed as secretary at a fixed salary and to deliver him $5,000 of its preference stock.

The corporation to be organized in compliance with the contract of February 8, 1937, was duly incorporated under the laws of Ohio on February 15, 1937, as the Tom Bixler Distilling Company; and held its first meeting of stockholders and directors on February 22, 1937. The minutes of the organization meetings show the election of six directors, among whom Lyons was elected treasurer, Bixler, vice-president, and Reed, secretary of the company.

Lyons did not attend these meetings, and Reed deposed that, shortly after the time of the meetings appellant stated to him that he had no intention of becoming a director or officer of the new company, or of having anything to do with its business, and that all he wanted was to collect his money. In his affidavit, Lyons corroborated this statement. Lyons deposed that, in the inception of the distilling corporation, he informed its organizers of his purpose to withdraw entirely from the distilling business; that he gave no authority for his election as director and treasurer of the new corporation; that he did not qualify as an officer or director or perform any duties as such, attend any meetings, or in any manner participate in the management of the company.

It is important to observe, however, that Lyons signed a waiver of notice of a special meeting of the board of directors of the distilling company to be held in Cleveland, Ohio, on May 11, 1937; and that he tendered, by writing dated July 10, 1937, his resignation as treasurer and as director of the company. Moreover, an order of the referee, entered in this cause, certifies that appellant objected to the receipt in evidence of photostatic copies of the minutes of meetings of the board of directors and stockholders of the bankrupt corporation, "but, however, not on the ground of any failure to properly prove the authenticity of said minutes of the meetings of the board of directors and stockholders."

The Penfield Company failed to secure from the Securities Commission of Ohio the necessary certificate for sale of the preference stock of the new company within the forty-five-day period prescribed in the contract of February 8, 1937; and, on April 23, 1937, Tom Bixler resigned as vice-president of the distilling company which then bore his name.

Notwithstanding the default of the Penfield Company, the appellant individually entered into a new agreement, dated May 10, 1937, with that company and with the newly incorporated Tom Bixler Distilling Company. This agreement provided that, in consideration of the delivery by appellant to the two companies of a deed and a bill of sale conveying and transferring the partnership property to the Tom Bixler Distilling Company, that company and the Penfield Company would carry out and perform all obligations set out in the contract of February 8, 1937. All other documents were to be held by the same escrow trustee named in the agreement of February 8th; and the two corporations agreed that the Tom Bixler Distilling Company would deliver to the escrow trustee a deed conveying to appellant, Lyons, all property described in the foregoing deed and bill of sale. It was provided that if, within forty-five days, the Tom Bixler Distilling Company should fail to secure from the Securities Commission of Ohio a certificate to sell the company's preference stock, or fail to procure a permit to operate its distillery, the escrow trustee would deliver to appellant the deed of conveyance and bill of sale; but, if the certificate and the permit were obtained within the time limited, the deed and bill of sale would be delivered to the Tom Bixler Distilling Company and the requisite certificates for the preference stock referred to in an original letter of instructions to the escrow trustee were to be delivered to appellant.

Another provision of the contract recited that the Penfield Company would assume the payment of a promissory note of the Tom Bixler Distilling Company for $10,000, endorsed by the Penfield Company and G. R. Lyons and delivered on the same date to a Frankfort, Kentucky, bank; and that, as between Lyons and the two corporations, Lyons and his partnership would be saved harmless from any liability or obligation growing out of...