In re Smith
| Citation | 36 F.2d 697 |
| Decision Date | 02 December 1929 |
| Docket Number | No. 171.,171. |
| Parties | In re SMITH. MILLER v. EHRLICH. |
| Court | U.S. Court of Appeals — Second Circuit |
George M. Glassgold, of New York City (Arthur Miller, of New York City, of counsel), for appellant.
Abraham J. Halprin, of New York City , for appellee.
Before MANTON, AUGUSTUS N HAND, and CHASE, Circuit Judges.
The bankrupt, Isaac Smith, was the sole stockholder of the Israh Building Corporation. At the time the petition in bankruptcy was filed, the corporation owned certain real property in New York City, which was sold shortly after Smith's bankruptcy. The net proceeds of sale, amounting to $1,676.07, were turned over to the trustee in bankruptcy upon the theory that these moneys were general assets of the insolvent estate, because the bankrupt was the equitable owner of all the property of the corporation. Prior to the bankruptcy the claimant, Miller, drew plans for a building to be erected on the property belonging to the corporation and filed them with the building department of the city of New York. These plans were rejected, whereupon he drew another set of plans, which were filed thereafter. The plans were ordered by Smith, who was at the time the president of the corporation. Miller filed the usual architect's affidavit with the building department, in which he made application on "behalf of Isaac Smith, owner, * * * for the approval of such * * * plans." This affidavit was accompanied by an application signed by Smith himself, in which he swore that he was the owner of the premises on which the building was to be erected. Miller testified that he was informed by Smith that the latter was the president of the corporation and that the corporation owned the property.
After the bankruptcy occurred, Miller filed no proof of claim against the bankrupt estate and took no steps to obtain his pay (except by filing a mechanic's lien just before the sale of the land) until about a year afterwards, when he sued the corporation in the Municipal Court and obtained a judgment by default for $1,135 for his alleged services to the latter. Execution was issued to a city marshal and returned unsatisfied. Thereupon Miller petitioned the bankruptcy court for payment of this judgment to the marshal out of the proceeds of sale of corporate property in the hands of the trustee.
The referee held that Miller's claim against the corporation was an afterthought that he contracted solely with Smith, and never looked to the corporation until he found the former was insolvent and could not pay him. He accordingly dismissed the claim, and the District Judge affirmed the order of the referee.
It is manifest that the court below proceeded upon a wrong theory. It could not question the validity of the judgment obtained by Miller against the Israh Building Corporation. If the trustee wished to avoid the effect of that judgment, he doubtless might as sole stockholder set machinery in motion to require the corporation to apply to the state court to open its default, and thus attempt to defeat Miller's claim. He took no such step, but relied on testimony which he thought indicated that Miller contracted only with Isaac Smith as an individual. As long as the judgment stood, it conclusively established Miller's claim against the corporation, and all evidence that he did not contract with it was incompetent. In re Howard (C. C. A.) 135 F. 721.
Thus we have a case where corporate funds were turned over to the trustee in bankruptcy as sole owner of the corporate stock, though the indebtedness of the corporation to Miller was outstanding and unsatisfied. Such a transfer, even though made to a trustee, who did not know of Miller's claim, was, under familiar principles, void against creditors of the corporation. It is manifest that the proceeds of corporate property cannot be treated...
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