Petition of Allen

• Citation: 9 F.2d 209
• Decision Date: 15 January 1926
• Docket Number: No. 1877,1885.,1880,1881,1877
• Parties: Petition of ALLEN et al. THE REDMOND CASES.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

9 F.2d 209 (1926)

Petition of ALLEN et al.

THE REDMOND CASES.

Nos. 1877, 1880, 1881, 1885.

Circuit Court of Appeals, First Circuit.

January 15, 1926.

Bernard J. Killion, of Boston, Mass., for Mildred M. Redmond.

Richard C. Curtis, of Boston, Mass. (Charles P. Curtis, Jr., of Boston, Mass., on the brief), for trustees.

Before BINGHAM, JOHNSON, and ANDERSON, Circuit Judges.

ANDERSON, Circuit Judge.

These cross-petitions to revise and (in the alternative) cross-appeals grew out of petitions brought by the trustees in bankruptcy of George F. Redmond & Co., Inc., seeking to secure by summary proceedings certain stock and title to lands alleged to belong to the bankruptcy estate of this corporation.

The questions are properly here on petitions to revise; the appeals, Nos. 1889, 1881, should be dismissed. Wiedhorne v. Levy, 253 U. S. 268, 269, 270, 40 S. Ct. 534, 64 L. Ed. 898; In re Codman-Fletcher Co. (C. C. A.) 287 F. 806, 807, and cases cited.

George F. Redmond & Co., Inc. (hereafter called Redmond Company), did a stock brokerage business in Boston. George F. Redmond was treasurer and head of the company, and owned outright all but two shares of the stock, and beneficially the other two shares. On March 5, 1924, an involuntary petition was filed against the Redmond Company; adjudication followed on April 28, 1924. On March 24, 1924, an involuntary petition was filed against Redmond, on which he was adjudicated on June 15, 1925. Allen, Brickley, and Curtis were trustees of the Redmond Company; they were also receivers of Redmond individually.

In October and December, 1924, the trustees of the Redmond Company filed petitions, seeking by summary proceedings to obtain possession and full title to certain stock, and also to two parcels of land in West Newton called the Gray and Trotter parcels, constituting together an extensive estate occupied by the Redmonds as a residence. After various proceedings not now material, the case has sifted down to contentions concerning this realty. The Gray parcel was purchased by Redmond in 1920, and the Trotter parcel in 1923. At the time of the Trotter purchase, Redmond conveyed the Gray land, through a conduit, to himself and to his wife as tenants by the entirety. Title to the Trotter lot was taken in like tenancy in February or March, 1923, in the names of Redmond and his wife. About that time Redmond also executed quitclaim deeds of his interest in both parcels directly to his wife. But the deeds were not recorded until March 5, 1924, and March 11, 1924, after the filing of the involuntary petition against the Redmond Company, but before the filing of the bankruptcy petition against Redmond individually.

The result was that, at the time of the filing of the petition against the Redmond Company on March 5, 1924, record title to both parcels stood in the names of Redmond and wife as tenants by the entirety. But at the time when the petition was filed against Redmond individually the quitclaim deeds to his wife of Redmond's interest in these parcels had been duly recorded.

Counsel for the trustees rely on G. L. Mass. c. 209, § 3, for their contention that these quitclaim deeds were for present purposes void, as follows:

"Gifts of personal property, and conveyances of real estate other than mortgages, between husband and wife, shall be valid to the same extent as if they were sole, except that no such conveyance of real estate shall have any effect, either in passing title or otherwise, until the deed describing the property to be transferred is duly acknowledged and recorded in the registry of deeds for the district where the land lies."

The trustees of the Redmond Company, by summary proceedings, now seek to recover from both Redmond and his wife their respective interests in this estate, incorrectly described by the trustees as "halves." The referee and the District Court assumed jurisdiction over the husband's interest, and Redmond complied with resultant orders. The referee ordered that Mrs. Redmond should release to the trustees her interest in the Gray parcel acquired by her husband's deeds, recorded in March, 1924, after the filing of the petition against the bankrupt company, and also her entire interest in the Trotter lot, subject to a claim of $1,228.58, which was apparently to be apportioned, in a manner not now material, between the two bankrupt estates. The District Court affirmed the orders of the referee, except as to Mrs. Redmond's interest in the Trotter lot, derived from the original deed of 1923, which conveyed this parcel to Redmond and wife as tenants by the entirety.

The trustees of the Redmond Company now claim error, in that the court below refused to take jurisdiction on summary proceedings over Mrs. Redmond's interest in both parcels acquired by her in 1923. Mrs. Redmond, on the other hand, claims that her rights in both parcels, grounded on the deeds recorded after March 5, 1924, can only be determined by a plenary suit; otherwise stated, that the referee had no jurisdiction in summary proceedings over her rights. Mrs. Redmond's objection to the jurisdiction was seasonably and repeatedly asserted. There was no waiver of her rights.

While the trustees in their petitions allege possession, the record states:

"No evidence was offered in support of the allegation of the petitioners that they were in possession of the Gray and Trotter properties. On the contrary, it was shown that the respondent Mildred M. Redmond was and has at all times been in possession and has never relinquished possession; all of which is shown by stipulation filed in these proceedings, copy of which is hereto annexed marked C."

The trustees cannot ground summary jurisdiction on possession. In re Flynn (C. C. A.) 300 F. 693, 695, and cases cited; In re Marquette, 254 F. 419, 166 C. C. A. 51.

In the view we take of the case, many of the contentions on both sides have become immaterial.

The fundamental contention in both petitions is, as stated in the brief for the trustees, as follows:

"The theory of the petitions is simply the tracing of company funds; there is no question of a preference or of a conveyance in fraud of the company's creditors involved The issue in substance is whether the property was purchased with funds of the company or with Redmond's personal money."

They rely "simply upon tracing funds illegally withdrawn from the company into the purchase price of the land." The record shows, as noted above, that Redmond was, in 1920, the beneficial owner of all of the stock of the Redmond Company. There is evidence, on this record uncontrolled, if on such an issue it could be (In re Yorkville Coal Co., 211 F. 619, 128 C. C. A. 570), that at that time the corporation had large profits, acquired in stock speculations. The referee found that in 1920 Redmond, using the names of fictitious persons described as customers, drew out of the Redmond Company more than $270,000, and used this money in buying certain stock (not now involved) and the land in Newton. The referee's finding, adopted in effect by the court below, is that, because of the lack of votes by the directors and the use of fictitious names and false entries in the books, these withdrawals were "without authority or other justification"; that "the whole performance is a bare-faced fraud."

We are unable to adopt that proposition. On this record, whatever we may suspect to be the truth, the corporation was, at the time of these withdrawals, solvent.

Whether the use of fictitious names and entries intrinsically false was merely for the purpose of concealing the destination of the money from employees, or for any other purpose, excusable or inexcusable, is for present purposes immaterial, for the money withdrawn did not, on this record, belong, in whole or in part, to creditors; it belonged, beneficially, to the sole stockholder, and it is obvious that the sole stockholder could not commit a fraud on himself, even if on any theory such fraud could for present purposes be held material. Compare Commonwealth v. Dow, 217 Mass. 473, 105 N. E. 995.

As there is no contention of fraud on creditors, the trustees' case is grounded simply on Redmond's failure to have dividends declared and paid, and on his use of fictitious names to cover his withdrawals. This is not enough. Compare 14 C. J. p. 807, notes 31, 32, 33, 34; Spencer v. Lowe, 198 F. 961, 117 C. C. A. 497. In 2 Cook, Corporations (7th Ed.) § 534, pp. 1560, 1561, it is said:

"A division of profits without the formality of declaring a dividend is equivalent to a dividend. A division of the profits is a dividend even though not called such and not considered such by the directors and stockholders. It is legal for a corporation to distribute its profits by the payment of salaries, provided all the stockholders assent thereto" — citing in the notes numerous cases.

In Spencer v. Lowe, supra, at page 965 (117 C. C. A. 501) the Court of Appeals for the Eighth Circuit cites with approval the following from the decision of the Supreme Court of Michigan in Barnes v. Spencer & Barnes Co., 162 Mich. 509, 127 N. W. 752, 139 Am. St. Rep. 587:

"Though the record does not show that, as formal action was taken as would be shown by the records of a carefully conducted corporation, we think it cannot be said that dividends were not authorized and declared. It must be...