R.E. McDonald & Co. v. Finkovitch

• Decision Date: 12 February 1930
• Citation: 170 N.E. 112,270 Mass. 362
• Parties: R. E. McDONALD & CO. et al. v. FINKOVITCH et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

270 Mass. 362

170 N.E. 112

R. E. McDONALD & CO. et al.

v.FINKOVITCH et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Feb. 12, 1930.

Appeal from Superior Court, Suffolk County; Fox, Judge.

Suit by R. E. McDonald & Co. and others against Joseph A. Finkovitch and others. Decree for plaintiffs, and defendants appeal. Modified and affirmed.

H. A. Mintz and G. S. Alberts, both of Boston, for appellants.

L. M. Friedman and Friedman, Atherton, King & Turner, all of Boston, for appellees.

SANDERSON, J.

This is a bill in equity filed by creditors and an assignee of Clifford C. Fox, formerly of St. Louis, Missouri, against M. Finkovitch, Inc., Joseph A. Finkovitch and Arthur Finkovitch, reciting that Fox was indebted to the plaintiffs in the various amounts set forth in the bill, and was also indebted to the defendant corporation, whose controlling officers are the individual defendants. The bill sought to set aside a conveyance made to the defendant Joseph A. Finkovitch by Fox while insolvent on the ground that it was a conveyance in trust for the use and benefit of the plaintiffs and that the defendants had procured such transfer by fraud, or, in the alternative, that it was a conveyance to hinder, delay and defraud creditors; and that in either event the property be reached and applied to satisfy the plaintiffs' claims.

The case was heard by a judge of the Superior Court without a jury, who found that the conveyance was in fraud of Fox's creditors, made with the intent to hinder, delay and defraud them; that in this fraud the defendants participated, and that the claims of four of the plaintiffs were established in specified sums, which were less in amount than the value of property alleged to have been fraudulently conveyed. He ordered the defendants to pay them respectively the sums found to be due. The findings upon which this decree was based were in substance that in December, 1921, Fox wrote certain of his creditors that his assets were approximately $4,000 in excess of his liabilities but that he was unable to meet his obligations. The defendant corporation received one of these communications, and Joseph A. Finkovitch went to St. Louis and discussed with Fox the quickest way to liquidate. An arrangement was made between them by which Fox would turn over to Joseph A. Finkovitch all his assets including merchandise and bills receivable. It was agreed that the latter would settle the account of the defendant corporation and the accounts of two other creditors, for whom he purported to be acting, and that he would then obtain an extension for six months from all other creditors by paying them thirty per cent. on their claims, leaving Fox to pay the balance at the expiration of the extension period. Finkovitch also agreed to give Fox a new line of credit to enable him to sell goods at low prices so that he could make enough money to pay the other creditors the balance of their claims. Thereupon, shoes worth at least $6,000 were packed and shipped by Finkovitch to the ‘Boston Novelty Shoe Company’ in Boston, a name sometimes used by the defendant corporation in its business. The accounts receivable amounting to $6,300, some of which were uncollectible, were then assigned to him.

While Joseph A. Finkovitch was in St. Louis, he arranged with his brother Arthur, in Boston, to go with a member of another concern, for whom Joseph A. Finkovitch was acting, to Fox's creditors and secure from them extensions of their claims against Fox for six months. The creditors were told that Arthur Finkovitch had just heard from his brother and that the best thing to do was to sign extensions and thereby get the money as some of Fox's relatives were going to put money into the business. Later Joseph A. Finkovitch delivered these extensions to Fox's attorney. In March, 1922, a draft agreement between Fox and the defendant corporation was prepared and signed, but never consummated. Fox collected some of the accounts receivable after they were assigned and used the proceeds to pay some creditors. Six months later, after creditors had signed the extension agreements and after at least one of them had been informed by Fox of his arrangement with Joseph A. Finkovitch, some of them had a talk with the latter in which he denied that he had received any shoes or anything from Fox or was to pay anything to creditors because of any arrangement with Fox. Joseph A. Finkovitch in fact did nothing by way of settling with any of the creditors except the three whom he represented, namely, the defendant corporation, I. Cohen, and Cohen and Weinstein.

When the arrangement between Fox and Joseph A. Finkovitch was made, Fox was insolvent and Finkovitch knew it. The judge found that Joseph A. Finkovitch, who was acting for the corporation, did not intend to settle with any of the creditors except the three represented by him and obtained the merchandise from Fox by agreeing ‘to that which he did not intend to do.’ He also found: ‘Fox may have thought when he made this agreement that he was doing the best thing for his creditors, but he must be presumed to have intended the natural consequences of his acts. One consequence was that his creditors extended the time for demanding their claims six months. Fox bargained for that extension. He clothed Finkovitch with authority to negotiate these extensions and it is fair to assume, in face of the letters he had written his creditors, that he should have known they would not stand idly by if they knew that all his assets had been turned over to one creditor, and that some assurances would be required by creditors before executing extensions. Remedies which they might have against him or his estate in bankruptcy might not be effective after six months had elapsed. It is not unreasonable to assume that Fox must have known that other creditors would not agree to extend their claims were they told that Finkovitch was preferred and that for at least seventy per cent. of...