Rosen v. Garston
| Decision Date | 01 April 1946 |
| Citation | 319 Mass. 390,66 N.E.2d 29 |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
| Parties | SAMUEL ROSEN, trustee in bankruptcy, v. LOUIS I. GARSTON& others. |
January 8, 1946.
Present: FIELD, C.
J., QUA, DOLAN RONAN, & WILKINS, JJ.
Fraudulent Conveyance. Sale, Transfer of title. Pledge. Mortgage, Of personal property: what constitutes, validity, recording. Bankruptcy, Trustee's rights, Fraudulent conveyance.
On conflicting evidence of the circumstances in which printed matter was specially manufactured by a corporation with its labor and from materials furnished by it on an order by a second corporation, was of value only to the second corporation, and portions thereof were shipped to the second corporation from time to time on its orders and were paid for by it upon shipment, and goods unshipped at the end of a year were to be paid for by the second corporation, a judge hearing a suit in equity was not plainly wrong in finding that title to goods so manufactured, while they remained unshipped in the possession of the first corporation within such year, was in that corporation and that the amount which would become due it upon shipment or at the end of the year was not an account receivable belonging to it.
A pledge of goods remaining in the possession of the pledgor constituted a chattel mortgage thereof and, if unrecorded under G. L. (Ter Ed.) c.
255, Section 1, was invalid as against an assignee for the benefit of creditors of the pledgor, or against a purchaser from such assignee, or against a trustee in bankruptcy of the pledgor afterwards appointed.
Upon warranted findings in a suit in equity by the trustee in bankruptcy of a corporation against the mortgagee under an unrecorded chattel mortgage given by the corporation, conclusions were required that a sale of the mortgaged goods for a price determined without regard to their value by an assignee for the benefit of the creditors of the corporation, who was an employee of and straw for the mortgagee and exercised no independent judgment, had been made with intent, participated in by the corporation, the mortgagee and the purchaser, to hinder, delay or defraud its unsecured creditors and was a fraudulent conveyance, and that the mortgagee was liable to the trustee in bankruptcy for the entire amount of certain sums which the assignee's purchaser, who had assumed the liability secured by the mortgage, had received upon his reselling such goods and had turned over to the mortgagee.
BILL IN EQUITY filed in the Superior Court on June 21, 1943. The case was heard by Goldberg, J.
J. Minkin, (G.
Minkin with him,) for the defendant New Bedford Acceptance Corporation.
J. C. Johnston, (S.
Rosen with him,) for the plaintiff.
The trustee in bankruptcy of the Superior Printing Company, Inc. brought this bill in equity to set aside certain conveyances alleged to be in fraud of the creditors of the company. An amendment to the bill alleged that the bankrupt on May 23, 1942, pledged certain merchandise as collateral security for the payment of its note for $9,100 payable to the defendant New Bedford Acceptance Corporation; that the pledge constituted a personal property mortgage; that this mortgage was not recorded as required by G. L. (Ter. Ed.) c. 255, Section 1; that the bankrupt on May 25, 1942, made an assignment for the benefit of its creditors to the defendant Da Rocha, who acted in behalf of all the defendants; that Da Rocha on June 1, 1942, sold all the assets of the Superior Printing Company, Inc., to a new corporation known as the Superior Printers, Inc.; and that this latter corporation received from Wesco Water Paints Inc. for which this pledged merchandise was manufactured the sum of $7,100 which it turned over to the New Bedford Acceptance Corporation, "which took the same on account of and in trust for the plaintiff." The bill as amended prayed that the New Bedford Acceptance Corporation be ordered to account for and pay to the plaintiff the said money received by it from the Superior Printers, Inc. The defendant New Bedford Acceptance Corporation, hereinafter called the acceptance corporation, appealed from a final decree ordering it to pay the plaintiff $2,973.27 and dismissing the bill as to all the other defendants. The plaintiff appealed on the ground that the judge should have ordered the acceptance corporation to pay a larger amount, and that he should not have dismissed the bill against all the other defendants.
The evidence is reported, and the judge made a report of the material facts. The facts found by the judge and those which we ourselves find, Lowell Bar Association v. Loeb, 315 Mass. 176 , may be summarized as follows: The defendant Costa, a printer, together with the defendant Garston, a money lender, organized the Superior Printing Company, Inc., in October, 1936. Costa was the treasurer and general manager and Garston the clerk, and both were directors from the inception of this corporation until it was adjudged a bankrupt on July 29, 1942. Garston held twenty-four shares of stock, Costa twenty-five shares, and a bookkeeper the remaining share. Garston lived in New Bedford, and on account of other ventures gave little time to this printing business. His father, who became president, represented his interest in this business. Garston's principal duty was to guarantee payment to those selling materials to this corporation, lending his credit by indorsement of its paper and also making it loans. Garston in 1940 became president of the acceptance corporation, and soon thereafter this corporation began to make loans to the Superior Printing Company, Inc., hereinafter called the old corporation. On May 23, 1942, the acceptance corporation held two notes, one for $2,000 and another for $10,000, secured by mortgages upon the plant and equipment of the old corporation. On that day the old corporation gave its note for $9,100 to the acceptance corporation in payment of a previous note and for some cash. This note was secured by printed stock manufactured for the Wesco Waterpaints Inc. and also by accounts receivable.
The old corporation on May 25, 1942, made an assignment for the benefit of creditors to the defendant Da Rocha, an employee of and a straw for the acceptance corporation. A meeting of the creditors was held on May 29, 1942, at which an offer of ten per cent was made to the unsecured creditors. The amount then owed to the unsecured creditors was $5,266.11. These creditors refused to accept the offer. The Superior Printers, Inc., hereinafter called the new corporation, was formed on June 1, 1942. The assignee, Da Rocha, on the same day sold all the assets of the old corporation to the new corporation for $625. This sum was lent by the acceptance corporation to the new corporation. This latter corporation assumed the liabilities of the old corporation to the secured creditors, took over the plant and equipment of the old corporation, and continued the business. The new corporation on June 5, 1942, gave a new mortgage for $15,000 to the acceptance corporation. The consideration for this mortgage was the discharge of the two mortgages for $2,000 and $10,000 and the payment of $2,650 to the new corporation.
The Wesco Waterpaints Inc., hereinafter called Wesco, began in 1941 to have some of the printing of color cards, wrappers and labels done by the old corporation. This work was done upon orders from Wesco, and the paper stock except one small lot was furnished by the old corporation. When the paper was printed, it was packed and put to one side to await a shipping order from Wesco. Bills were sent to Wesco as the goods were shipped, and Wesco agreed to pay for any goods that it did not direct to be shipped within a year after they had been printed. Wesco, after the old corporation ceased to do business, continued without any interruption to do business with the new corporation in the same manner as it did with the old corporation. It paid the new corporation for all paper that the old corporation had printed but had not delivered, and thereafter in all respects Wesco continued as if the old corporation had never existed.
The principal contentions of the acceptance corporation are (1) that the relations between the old corporation and Wesco were such as to create only a claim in favor of the old corporation against Wesco for labor and materials, or in the alternative (2) that in any event title to the finished printing done by the old corporation for Wesco passed to Wesco as soon as the work was done and while the goods were still in the possession of the old corporation; that after title passed the old corporation had only claims against Wesco for the agreed price; and that according to either alternative these money claims were accounts receivable of the old corporation which it could and did validly pledge to the acceptance corporation even though the instrument of pledge was not recorded. We assume, as have the parties, that an instrument pledging accounts receivable is valid against third parties, and that such a pledge does not come within G. L. (Ter. Ed.) c. 255, Section 1. See Taylor v.
Barton Child Co. 228 Mass. 126 , 131. Under the acceptance corporation's first alternative it contends that the contract for printing between the old corporation and Wesco was a contract for goods to be manufactured especially for the buyer and not suitable for sale to others in the ordinary course of the seller's business, and that it is recognized in the statute of frauds that such contracts are for materials and labor and not for the sale of goods. G. L (Ter. Ed.) c. 106, Section 6 (2). This provision of the statute of frauds takes cognizance of the common law of this Commonwealth prior to the adoption of the sales act, and we...
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