Love v. Clayton

• Decision Date: 26 June 1926
• Docket Number: 143
• Parties: Love, Receiver, v. Clayton et al., Appellants
• Court: Pennsylvania Supreme Court

134 A. 422

287 Pa. 205

Love, Receiver, v. Clayton et al., Appellants

No. 143

Supreme Court of Pennsylvania

June 26, 1926

Argued April 19, 1926

Appeal, No. 143, Jan. T., 1926, by defendants, from decree of C.P. No. 4, Phila. Co., Sept. T., 1924, No. 11,127, in case of Alexander Love, Jr., Receiver for United States Fashion &amp Sample Book Co. v. Paul Clayton et al. Affirmed.

Bill for accounting and discovery. Before McCULLEN, J.

The opinion of the Supreme Court states the facts.

Decree for plaintiff. Defendants appealed.

Error assigned was, inter alia, decree, quoting it.

The learned chancellor made a careful and exhaustive study of the case, and the decree should be affirmed, which is accordingly done, at the cost of appellnts.

Edward Hopkinson, Jr., with him Dickson, Beitler & McCouch, for appellants. -- Buehler was estopped: Creech Bros. Lumber Co., 240 F. 8; Bennet & Co.'s Assigned Est., 21 Pa. C.C. 609.

The agreement was not an assignment for creditors: Johnson's App., 103 Pa. 373; Schaefer's Est., 194 Pa. 420; Beans v. Bullitt, 57 Pa. 221; Lockhart v. Stevenson, 61 Pa. 64; Wood v. Kerkeslager, 227 Pa. 536; Fallon's App., 42 Pa. 235; Chaffees v. Risk, 24 Pa. 432; Claflin v. Maglaughlin, 65 Pa. 492.

Preference in payment to creditors or their agents were entirely proper: York Co. Bank v. Carter, 38 Pa. 446; Miller v. Shriver, 197 Pa. 191; Lake Shore Banking Co. v. Fuller, 110 Pa. 163.

Buehler became creditor at too late date to complain even if transaction had been an assignment for the benefit of creditors: McBroom & Wood's App., 44 Pa. 92; Miller's Est., 82 Pa. 113; Chestnut St. Trust Co.'s Assigned Est., 217 Pa. 151.

Grover C. Ladner, of Ladner & Ladner, for appellee. -- This case has all the elements which go to make a voluntary assignment under the Act of 1843. There was a declaration (1) of trust, (2) made by debtors, (3) on account of present inability to pay their debts, (4) with intent to prefer certain creditors over others. It was immaterial, as was suggested by the court below, that no residuary interest was expressly reserved in favor of the assignors; for that was implied in the character of the transaction. The assignment does not purport to have been made in adjustment and satisfaction of the debt. Directness would have been a badge of good faith and prima facie valid; but the creation of a trust raised a suspicion of collusion which the statute turns to the benefit of all the creditors in proportion to their respective demands in accordance with the law relative to voluntary assignments.

No particular form of words is necessary to constitute an assignment for the benefit of creditors. Any instrument which contains the essential elements will be so considered: Johnson's App., 103 Pa. 373; Fallon's App., 42 Pa. 235; Mann v. Wakefield, 179 Pa. 398; Bittenbender v. R.R., 40 Pa. 269; Lucas v. Sunbury R.R., 32 Pa. 458.

There was an assignment in trust: Wallace v. Wainwright, 87 Pa. 263; Kendall v. Klaperthal, 202 Pa. 596.

There was an intent to prefer certain creditors over others: Mann v. Wakefield, 179 Pa. 398.

Before MOSCHZISKER, C.J., FRAZER, WALLING, SIMPSON, KEPHART, SADLER and SCHAFFER, JJ.

OPINION

MR. JUSTICE KEPHART:

The United States Fashion & Sample Book Company, for brevity called Sample Company, in 1917, found its business in doubtful condition. After an investigation by some of the larger creditors, in January, 1918, an agreement was entered into between the company, three persons styled "officers," "such" creditors as would join, and three persons designated as "committee." Seventy per cent of the stock was to be transferred to the committee, to be elected directors in place of the "officers" who had resigned. They were to continue the business of the company, or dispose of it in a manner specified.

The terms of the agreement were carried out, the committee running the business until 1919. The operation not being profitable, the "committee," having received an offer for the entire business, including all property, decided to sell. The creditors signing the agreement accepted the offer, as did a majority of the stockholders, 1,300 shares held by the committee out of a total 1,600 shares approving the sale. It was consummated and the price received, $108,000, was turned over to the creditors' committee. This sum, with other items, brought the total assets to $113,000 in the committee's hands, which was distributed among the creditors named in the agreement.

In 1916, the Sample Company had contracted with Buehler for his services for a period of ten years. He agreed to purchase and pay for 100 shares of preferred stock; in case his services were not satisfactory, the company agreed to repurchase this stock. Buehler continued in its employ until 1919, when the above sale of all the company's assets took place. His service being thus discontinued, Buehler brought suit against the Sample Company on his contract, and recovered judgment. The creditors' committee did not consider his claim in distributing the $113,000. Buehler then secured the appointment of a receiver who filed this bill to compel the "committee" to account for all moneys received during their committeeship or as directors or officers of the company. An order was so made; it is here appealed.

The court below, after a very thorough consideration of the case, concluded the agreement of 1918 and all matters incidental thereto constituted an agreement for the benefit of creditors within the meaning of the Acts of April 17, 1843, P.L. 273, and April 16, 1849, P.L. 664, section 4. This conclusion is vigorously assailed because the transactions, it is claimed, lacked the essentials of such an assignment in that the committee were merely agents of the creditors and the proceeds of the sale were turned over to them as agents for their principal. It was denied Buehler had any standing as a creditor or otherwise to demand an accounting, or that there were any creditors who could demand it; and even if he was a creditor, he could not participate in the fund, as the funds in the committee's hands were there through a lawful contract that debarred other creditors.

Buehler, whose acts as a creditor brought on the present litigation, took part in the stockholders' meeting when the property was sold, acting as a teller and voting his common stock for the sale. He cannot now be heard to dispute the validity of that sale, question its propriety, or raise any other matter as to its regularity: Glenn v. Trees, 276 Pa. 165; In re Creech Bros. Lumber Co., 240 F. 8. But such acts do not prevent him from raising questions as to the annulment of his own contract, -- a matter already adjudicated, -- the distribution of the money received from the sale, or an accounting for money received during the course of administering the Sample Company's property, provided a trust relation existed or there was an assignment for the benefit of the creditors.

To properly grasp the situation, we must bear in mind exactly what took place. Here we have a company, in failing circumstances, unable to liquidate its accounts. A committee of its creditors, after conference with the principal stockholders, conceived the idea of taking the property out of the management and control of the stockholders and their directors and placing it and the ownership of more than two-thirds of its stock in the hands of third persons. They were to run the business for the best interest of the creditors until all the debts were paid or if necessary take such action in voluntary or involuntary liquidation or sale as would produce like results. The business was unsuccessful, the property was sold and the assets distributed among the creditors signing the agreement. Appellants contend the committee acted merely as agent or attorney, without obligation to account for the purchase money to any one but their principals, the creditors. The money was received for them, and no other persons, and there never was any transfer of company property, qua property, to or through the creditors' committee. At all times title remained in the corporation, and, when turned into cash, the latter was handed to the committee of the company for distribution among the creditors, under the agreement. Distribution was nothing more than payment of their claims. Though this may have been a preference and other creditors went unpaid, there is nothing in law to prevent a preference, where the end sought to be obtained was, the payment of a claim, not in bad faith, or with an intent to hinder, delay or defraud creditors.

In considering whether the agreement of 1918, including the consequent operation of the business under the direction of the creditors' committee, with the related facts, constituted an assignment for the benefit of creditors, equity will give a most liberal construction to the intent of the act, and the manner by which that intent was carried into execution, especially where the rights of innocent persons are jeopardized.

An assignment is described as "a transfer or making over to another of the whole of any property, real or personal, in possession or in action, or of any estate or right therein": 5 C.J. 836. It also has been defined as "a transfer or setting over of property, or of some right or interest therein, from one person to another, and unless in some way qualified, it is properly the transfer of one whole interest in an estate, chattel or other thing": Griffey v. New York Cent. Ins. Co., 100 N.Y. 417, 422, 3 N.E. 309, 311; Schaefer's Est., 194 Pa. 420, Johnson's App., 103 Pa. 373. No formal deed of assignment transferring property to a trustee for the benefit of creditors passed between the parties. But no such deed appeared in Mann, Moon & Co. v. Wakefield, 179...