Royal Baking Powder Co. v. Hessey

• Decision Date: 02 April 1935
• Docket Number: No. 3754-3757.,3754-3757.
• Citation: 76 F.2d 645
• Parties: ROYAL BAKING POWDER CO. v. HESSEY and three other cases.
• Court: U.S. Court of Appeals — Fourth Circuit

76 F.2d 645 (1935)

ROYAL BAKING POWDER CO. v. HESSEY and three other cases.

Nos. 3754-3757.

Circuit Court of Appeals, Fourth Circuit.

April 2, 1935.

Carroll G. Walter, of New York City (Patterson, Eagle, Greenough & Day, of New York City, on the brief), for appellants in Nos. 3755 and 3756.

Herbert M. Brune, Jr., of Baltimore, Md. (Brown & Brune, of Baltimore, Md., and Davis, Polk, Wardwell, Gardiner & Reed, of New York City, on the brief), for appellant in No. 3754.

Neil P. Cullom, of New York City (J. Purdon Wright, of Baltimore, Md., Henry W. Steingarten, of New York City, and W. Frank Every, of Baltimore, Md., on the brief), for appellant in No. 3757.

Malcolm H. Lauchheimer, of Baltimore, Md. (Sylvan Hayes Lauchheimer, of Baltimore, Md., on the brief), for appellee.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

SOPER, Circuit Judge.

These appeals are from orders of the District Court disallowing claims filed by appellants against the estate of L. Van Bokkelen, Inc., a Maryland corporation, which was adjudicated bankrupt upon its voluntary petition, filed March 13, 1931. The four claims involved were all debts in the first instance of the bankrupt's predecessors in business, and the presence of common questions renders it desirable to dispose of the cases in a single opinion.

The bankrupt corporation was engaged in the business of importing and exporting fruits, vegetables, and other kinds of merchandise between the United States and South America. Offices were maintained in New York City, Buenos Aires, and Montevideo. Prior to November 1, 1929, when the corporation acquired the business, it had been conducted in the first instance as the individual business of Libertus Van Bokkelen, a resident of Argentina, who was represented in New York by his brother, Walter Van Bokkelen. Libertus Van Bokkelen died February 9, 1929, and the business was carried on for a short time thereafter by his estate, under the name "Sucescion L. Van Bokkelen"; Walter Van Bokkelen assuming the active management. On or about August 9th of the same year, the widow of Libertus, who had obtained the ownership of the business through assignment of the interest of certain other heirs and by virtue of an adjudication in the Argentine, transferred the entire business by bill of sale to Walter Van Bokkelen, for the stated consideration of 50,000 pesos, Argentine paper currency. It was he who sold it to the bankrupt corporation in November, 1929.

Libertus Van Bokkelen, during his life, had borrowed large sums of money for use in the business and had incurred other liabilities therein. Four items of this indebtedness are involved in the claims here: (1) Royal Baking Powder Company, one of the claimants, whose products Libertus Van Bokkelen sold in South America, loaned him $150,000 on January 18, 1929. This debt was evidenced by his demand note of that date, signed also by Walter Van Bokkelen as comaker. Subsequent credits for commissions reduced the total alleged indebtedness to $116,287.11, including interest to March 13, 1931, the date of adjudication in bankruptcy. (2) Previously, a loan of $125,000 had been made to Libertus Van Bokkelen by the trustees of a trust established in England, this debt being evidenced by a note to claimants Kennerly-Hall and Stirling, the surviving trustees. The note was indorsed by Walter Van Bokkelen, against whom judgment was secured May 6, 1930. (3) The claim of National Cold Storage Company, which amounts to $16,726.99, with interest, is based upon charges to the account of Libertus Van Bokkelen for storage and handling of merchandise at various times. (4) The claim of Grace E. Lowendahl likewise arises out of a loan to Libertus Van Bokkelen, made by her assignor and evidenced by a note upon which Walter Van Bokkelen was bound as indorser. A judgment in the amount of $222,594.12 against the bankrupt corporation was obtained by the claimant under circumstances later to be detailed, and she founds her claim principally thereon. The trustee, though admitting the liability of Libertus and Walter Van Bokkelen for these debts, resists proof of the claims on the ground that they do not represent debts of the bankrupt.

The claimants seek to establish the liability of the bankrupt corporation for these debts upon certain common grounds that rest upon the circumstances under which Walter Van Bokkelen transferred to the corporation the business he had acquired. The first of these contentions is that irrespective of any fraud, the bankrupt became liable for the debts of Libertus to the extent of the assets which it purchased and received. It is pointed out that in Strongin v. International Acc. Bank, 70 F.(2d) 248 (C. C. A. 2), it was held that the assets in question belonged to the estate of Libertus and did not belong to Walter. But it is quite clear that the court there had before it much evidence which is not in the present record although that decision was rendered before the decision of the District Court in the pending case. We must confine ourselves to the showing here that on August 9, 1929, the widow of Libertus sold the business to Walter. She had previously acquired the interests therein of Libertus' parents, and it had been adjudicated in the proceedings of the estate probated before the Court of First Instance in Civil Causes in the City of Argentina, that the business belonged to her with the right to dispose of it.

The claimants say that it is immaterial whether Walter or the estate was the owner of the assets when they were transferred to the bankrupt corporation, because in either event, they had previously belonged to the estate, and were liable for the debts thereof, and it does not matter whether the bankrupt bought them from the heirs or distributees of the estate, or from one who had himself bought them from the heirs or distributees. The point urged is that the bankrupt could get no better title than the vendor of the assets, who had acquired them subject to the rule that the assets of a decedent are primarily liable for his debts; and reference is made to such cases as Borer v. Chapman, 119 U. S. 587, 7 S. Ct. 342, 30 L. Ed. 532, and McClellan v. Carland (C. C. A.) 187 F. 915, and the general rules set out in 18 C. J. 897, 898 and 953. These propositions cannot be denied, but they have no application to the facts before us. We are not dealing with property acquired from an executor de son tort, and from one who was merely the distributee of an estate, but from one whose ownership of the property had been adjudicated. In the absence of further proof, we are not at liberty to question the validity of that holding.

The second contention is that the agreement of sale from Walter to the corporation, executed by the parties in New York on November 1, 1929, was fraudulent under the Debtor and Creditor Law of New York, §§ 271, 272 and 273 (Consol. Laws N. Y. c. 12), which provide in substance that every conveyance is fraudulent as to creditors, without regard to actual intent, when made by a person who is or will be thereby rendered insolvent, if the conveyance is made without a fair consideration. The facts are discussed at length in an effort to show that the District Judge was wrong in his finding (see 7 F. Supp. 639, 645) that Walter was solvent on November 1, 1929. The point is not without difficulty for the facts are intricate, and an estimate of values necessarily conjectural when made a long time after the crucial date, which occurred shortly after the beginning of an extraordinary collapse of business in this country. In our opinion, it is not essential to make a finding on the point, and we shall assume, for the purpose of the argument, that Walter was then insolvent. It is necessary, however, for the claimants to go a step further under the statute and to show that the bankrupt corporation did not pay a fair amount for the property which it received. The amount paid was $275,998.07, of which $124,000 was paid for 51 per cent. of the stock of a subsidiary corporation, Van Bokkelen & Rohr, Inc., and $151,998.07 for the goods on hand. It is not suggested that $151,998.07 was not a fair amount for these goods, since they were taken at inventory cost, but it is said that $124,000 was inadequate for the stock of the subsidiary corporation because this sum was arrived at by excluding the good will, trade-marks, and trade-names in determining the liquidated value of the total capital stock. In answer to this it is sufficient to say that there is nothing in the record to show that any other person would have given any more for the assets transferred. The active head of the business, who had owned the majority of the stock, was dead. The time of the purchase was November 1, 1929, immediately after the slump in the market had begun. The business was in need of financing, and it was considered a stroke of good fortune when the Baltimore & Ohio Railroad was found willing to invest $500,000. We cannot take seriously the fanciful valuation of $3,000,000 placed by the incorporators on 30,000 shares of capital stock now said to represent the good will of an insolvent concern. The stock was issued as a bonus, 51 per cent. to the Baltimore & Ohio Railroad interests, and 49 per cent. to Walter. It was subject to $500,000 of preferred stock, and gave the active manager a share of the future profits if any should be earned. As it turned out, there were no profits.

A third argument is that the transfer was fraudulent in law irrespective of insolvency or the fairness of consideration, because it hindered and delayed the creditors of the transferor; and reliance is had upon decisions invalidating transfers because the parties to the transactions, although innocent of fraudulent intent, must have known that their creditors would be hindered and delayed thereby; as in Means v. Dowd, 128 U. S. 273, 281, 9 S. Ct. 65, 32 L. Ed. 429, where there was an assignment to trustees for the benefit...