In re Steele Furniture Co.

• Decision Date: 23 March 1927
• Docket Number: No. 3520.,3520.
• Citation: 18 F.2d 490
• Parties: In re STEELE FURNITURE CO. Appeal of AMERICAN WHOLESALE CORPORATION.
• Court: U.S. Court of Appeals — Third Circuit

18 F.2d 490 (1927)

In re STEELE FURNITURE CO.^* Appeal of AMERICAN WHOLESALE CORPORATION.

No. 3520.

Circuit Court of Appeals, Third Circuit.

February 15, 1927.

Rehearing Denied March 23, 1927.

J. Julius Levy, of Scranton, Pa., and Frank R. S. Kaplan, of Pittsburgh, Pa., for appellant.

A. E. Kountz (of Kountz & Fry), of Pittsburgh, Pa., for appellee.

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

WOOLLEY, Circuit Judge.

George E. Lorch was president, sole surviving director and owner of 89 per cent. of the shares of the Steele Furniture Company, a corporation chartered for "the manufacture, purchase and sale of all kinds of furniture and other merchandise related thereto," doing business in Allegheny County, Pennsylvania. Lorch was also president and owner of a majority of the shares of Lorch Bros. Company, a corporation engaged in a like business in the same place and elsewhere. Being managing official of both corporations and assuming responsibility for their financing, Lorch would, at times, shift assets from one to the other rather freely, as, for instance, when he manipulated and pledged with finance companies installment lease accounts belonging to the Furniture Company and turned over the money received from them — about $100,000 — to Lorch Bros. Company.

In March, 1924, Lorch Bros. Company, aside from its indebtedness to the Furniture Company of about $210,000, owed the American Wholesale Corporation $39,000 for merchandise. On inquiries in respect to this indebtedness made by that concern, Lorch told its representative that Lorch Bros. Company was indebted to the Furniture Company; that he controlled both companies; that Lorch Bros. Company needed more merchandise, and in order to obtain an increased line of credit and secure past and future indebtedness he, acting for the Furniture Company without notice to or authority from the corporation or any of its officials or shareholders, gave the Wholesale Corporation what purported to be a written guaranty of the accounts of Lorch Bros. Company made by the Furniture Company and himself to the extent of $49,000. Concededly on the faith of this guaranty the Wholesale Corporation later sold merchandise to Lorch Bros. Company amounting finally to the sum of $76,000; and, later, the Furniture Company increased its cash advances to Lorch Bros. Company from $210,000 to $366,000 and received payment of about $117,000 on account. In October, 1924, both of these Lorch companies went into bankruptcy accompanied by Lorch himself.

The Steele Furniture Company filed a claim against the estate of Lorch Bros. Company in the sum of $252,984.60, which has been allowed. The Wholesale Corporation filed a claim against the estate of Lorch Bros. Company in the sum of $70,000 for merchandise sold and (on the guaranty mentioned) it filed claims against the Furniture Company for $49,000, and against Lorch for the same amount. The contest, it will be seen, is between the general creditors of the Furniture Company on the one hand and the Wholesale Corporation on the other not only for the dividends which may be declared on the claim of the Furniture Company against Lorch Bros. Company but also for the assets of the former company. These will be available to one or the other in large or small measure according as the claim of the Wholesale Corporation on the guaranty shall be allowed or disallowed. On exceptions, the referee disallowed the claim of the Wholesale Corporation against the Furniture Company on the ground that the act of Lorch in causing that company to guarantee merchandise accounts of Lorch Bros. Company was without authority and the act of that bankrupt corporation in making the guaranty was ultra vires and that, no benefit therefrom having enured to the company, it (or its trustee) was not estopped from setting up that defense. On a certificate, the District Court sustained the referee's order and from that action the Wholesale Corporation has taken this appeal.

We shall limit this review to one phase of the question of ultra vires. In the trial court and in this court the parties discussed at length the theory of the law of that subject and from the conflict of judicial decisions drew different conclusions. We are not presently concerned...