In re Wyoming Valley Ice Co.

• Decision Date: 03 May 1907
• Docket Number: 559.
• Citation: 153 F. 787
• Parties: In re WYOMING VALLEY ICE CO.
• Court: U.S. District Court — Middle District of Pennsylvania

153 F. 787

In re WYOMING VALLEY ICE CO.

No. 559.

United States District Court, M.D. Pennsylvania.

May 3, 1907

[Copyrighted Material Omitted]

George R. Bedford, for exceptions.

W. S McLean, opposed.

ARCHBALD District Judge.

At the sale by the trustee of the real estate of the bankrupt corporation the property was purchased by George R. McLean as attorney for bondholders, for $40,000, who, after paying $1,650 in cash to recover the costs, was permitted, in conformity with the state practice in cases of judicial sales, to receipt for the balance of his bid in bonds of the company, secured by a first mortgage on the property, the lien of which was divested by the sale. A return of sale to this effect having been made by the trustee, exceptions were taken by the Bear Creek Ice Company and the Albert Lewis Lumber Company, judgment creditors, which were dismissed by the referee and the sale confirmed, the proceeds as the result being appropriated pro rata to the payment of the bonds, and it is the propriety of this disposition that is now in question. The exceptants claim that the bonds are invalid, not having been issued for value, but having been given to the parties, by whom they are now held for money advanced with which to buy up the capital stock of the company, and to a small extent also to secure the business and property of certain other companies, altogether inadequate to meet the requirements of the law.

The facts are not in dispute, and are in substance as follows: The Wyoming Valley Ice Company was incorporated by act of assembly of April 15, 1869 (P.L. 1870, p. 1415), with a capital stock of $25,000, divided into 1,000 shares of $25 each, and an authorized capital of ten times that amount. And on February 12, 1901, Albert Lewis, being the owner of 690 of such shares, gave an option in writing to Dr. H. N. Young to sell him the same at $75 a share; Dr. Young undertaking to buy the shares of other stockholders at the same figure. It was at the same time further agreed by Mr. Lewis, acting on behalf of the Bear Creek Ice Company and the Albert Lewis Lumber Company, both of which he controlled, that these companies would abstain from engaging in the wholesale or retail ice business in the Wyoming Valley as they had been doing theretofore, or from selling to other parties there, Dr. Young on his part undertaking that the Wyoming Valley Ice Company which was thus turned over to him and to which the Bear Creek Ice Company had previously been furnishing ice, should take from the said company, for a period of ten years, 12,000 tons of ice annually at certain prices; a contract to this effect being subsequently executed with these companies.

The purpose of Dr. Young was to consolidate and control the ice business in the section designated, and, following upon the option obtained from Mr. Lewis, he secured another from Isaac Stauffer and Daniel G. Callahan, doing business as the Pocono Ice Company, by which they were to sell him the property of that company for $50,000-- that is to say, $5,000 in cash and $45,000 in stock of the Wyoming Valley Ice Company, part of an increase of it to $225,000, which was contemplated-- Stauffer and Callahan at the same time agreeing that they would not, directly or indirectly, engage or become interested in the ice business within the territory sought to be monopolized, and Stauffer further undertaking individually to deliver 10,000 tons of ice annually, which Dr. Young was to pay for at certain designated prices. Actuated by the same idea, Dr. Young a few days later also secured from E. D. Cramer, president of the Summit Lake Ice Company, an option on the capital stock and property of that company for the sum of $28,000, payable in the stock of the Wyoming Valley Ice Company as so to be increased, Mr. Cramer engaging not to enter into the ice business within the territory named, and Dr. Young agreeing to pay off the indebtedness of the company, which amounted to $10,000.

Armed with these several options and agreements, Dr. Young then proceeded to enlist other parties in the enterprise, securing from them an advance of $90,000, of which $75,000 was to be used to pay Mr. Lewis and the other holders of the existing stock of the Wyoming Valley Ice Company-- 1,000 shares at the agreed price of $75 a share; and the balance, $15,000, was to pay the $5,000 cash to Stauffer and Callahan, and to take care of the $10,000 of obligations of the Summit Lake Ice Company. This money was advanced by the parties who went into the arrangement, upon the understanding that, when the reorganization of the company was effected and the proposed increase of stock had been authorized, they should receive bonds of the company to the amount which they had severally contributed, and a certain per cent. of the increase stock as a bonus.

The so-called reorganization of the company was then proceeded with. The original $25,000 of capital stock was assigned and turned over by Mr. Lewis and the other holders of it to the parties whom Dr. Young designated; and on March 15, 1901, the old directors having resigned, new directors and officers were chosen, Dr. Young being one of them and the others being taken from those who were associated with him. Immediately following this the new board met-- only four, however, of the six being present, with Dr. Young among them-- and a resolution was passed that the agreements and options which he held with Lewis, Stauffer, and Cramer, and the companies which they severally represented, should be purchased of him by the Wyoming Valley Ice Company for $90,000 of the bonds of the company and $200,000 of its capital stock, when the stockholders should have authorized the issuing of the bonds and the increase of the capital; a meeting of the stockholders for that purpose being called for the next day. The agreement of Dr. Young with the Bear Creek Ice Company and the Albert Lewis Lumber Company to take a certain quantity of ice yearly was also accepted, and the officers of the company were directed to execute a contract to this effect with them, which was done the same day. On March 16th the stockholders took action on the proposed issue of bonds and increase of stock, further notice being waived, and the whole 1,000 of existing shares were voted in favor of it. This was followed on April 1st, by a meeting of the directors, at which by formal action it was resolved that, in consideration of the options and agreements held by Dr. Young and the property and business thereby acquired and controlled which he undertook to sell, the company should issue to him in payment thereof $200,000 of the capital stock (the increase voted), and make and issue coupon bonds to the amount of $90,000, to be secured by a first mortgage on the franchises property and contracts of the company. Dr. Young thereupon duly executed and delivered assignments to the company of the agreements referred to, receiving in return the stock and bonds which he was to get, and the transaction was complete. The stock and bonds so received were subsequently distributed by him among his associates according to the preceding arrangement with them, and it is the validity of the bonds in his and their hands, as stated above, that is now in controversy. The value of the property and business of the Wyoming Valley Ice Company at the time of the transfer was approximately $75,000, the price paid to Mr. Lewis and the others for the stock which represented it; that of the Pocono Ice Company was about $15,000; and that of the Summit Lake Ice Company some $12,500, subject, however, to the $10,000 indebtedness which was assumed and paid. The freedom from competition secured by the consolidation of these companies, and the economies made possible thereby, no doubt somewhat augmented these values, but certainly not to the extent which is claimed, of which the subsequent bankruptcy of the company is proof, if there were nothing more.

In determining just what Dr. Young contributed to the company in return for the stock and bonds turned over to him, the property of the company itself has, of course, to be left out of the consideration. That already belonged to the company together...