Spach v. Bryant
| Decision Date | 21 November 1962 |
| Docket Number | No. 19079.,19079. |
| Citation | 309 F.2d 886 |
| Parties | May SPACH, Edwin L. Hubbard and John Nicholas, as Co-Trustees of B & L Farms Co., a Florida corporation, Bankrupt, and Davison Chemical Co., a division of W. R. Grace & Company, International Minerals & Chemical Corporation, American Machinery Corp., Wilson & Toomer Fertilizer Company and Hoyt Bragdon, as Trustee for stockholders of Trueman Fertilizer Company, a dissolved Florida corporation, Appellants, v. Robin I. BRYANT and Clarence A. Lounsbury, Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Edwin L. Hubbard, Coral Gables, Fla., Ralph H. Martin, Jacksonville, Fla., William P. Tomasello and Monterey Campbell, Bartow, Fla., John W. Hardwicke, Baltimore, Md., Irving Vichness, Newark, N. J., for appellants.
B. E. Hendricks, Robert E. Venney, Hendricks & Hendricks, Miami, Fla., for appellees.
Before JONES, WISDOM and GEWIN Circuit Judges.
This is an appeal from a judgment of the District Court for the Southern District of Florida refusing to subordinate certain claims of the appellees, Robin I. Bryant and Clarence A. Lounsbury, filed by them against a bankrupt corporation, to the rights of other unsecured creditors.
B & L Farms, a Florida corporation, filed a Plan of Arrangement under Chapter 11 of the Bankruptcy Act1 in August of 1958 and a Receiver was appointed to administer the plan. The Plan of Arrangement was unsuccessful, the corporation was adjudicated a bankrupt in June of 1959, and trustees were appointed. Bryant and Lounsbury are the only stockholders of the corporation and are its President and Secretary-Treasurer respectively. Bryant and Lounsbury filed claims in the amount of $87,829.30 and $140,309.71 respectively as unsecured creditors for alleged loans or advances to the bankrupt.
The Referee allowed the amounts claimed by each appellee as unsecured claims, but directed that $50,000.00 of each of the allowed claims be subordinated to the rights of other unsecured creditors for the reason that said sums represented advances made, which were deemed by the Referee to be unnecessary, made solely for bookkeeping or tax purposes, and at a time when the corporation was not in need of operating capital, funds or loans. Petitions for review were filed by the appellees objecting to the portion of the order of the Referee which subordinated $50,000.00 of their respective claims to the claims of other unsecured creditors. The co-trustees sought review objecting to that portion of the order which gave parity to the claims of the appellees in excess of the mentioned sum of $50,000.00 A number of creditors filed petitions for review objecting to the order of the Referee in its entirety, contending that the Referee erred in allowing claims of appellees as unsecured claims and in granting parity to portions of the claims with other unsecured creditors.
Upon review, the trial court held that the record contained ample evidence to sustain that portion of the order which allowed the claims of the appellees as unsecured claims and granted parity to a portion of such claims with the claims of other unsecured creditors; but further held that the record failed to show that there was sufficient evidence to support that portion of the Referee's order which subordinated $50,000.00 of each of the claims to the claims of other unsecured creditors. The effect of the order of the trial court was to put the claims of the appellees on a parity with other unsecured creditors of the bankrupt corporation.
Commencing about the year 1928, Bryant and Lounsbury began farming operations in Dade County, Florida, as a partnership, which continued for several years. Thereafter, appellees formed the corporation which is now in bankruptcy for the purpose of engaging in the business of farming, primarily growing and shipping tomatoes, and to a limited extent growing other crops such as potatoes, soy beans and corn. The original capital paid in by Bryant and Lounsbury was $146,000.00. At the end of the first fiscal year in 1950, the corporation had earned a taxable income of $39,000.00. The corporation continued to grow until its taxable income amounted to approximately two million dollars and its gross sales were several million annually. At one time the corporation employed over 3,000 people with a payroll of approximately $100,000.00 per week during the peak season. At the beginning, the corporation had only a few hundred acres under cultivation, but immediately preceding bankruptcy it had several thousand acres in cultivation. During the growth of the corporation, demands for substantial operating funds exceeded corporate income and the corporation borrowed money from various sources, including the officers of the bankrupt. Money advanced by the appellees was described on the books as "personal accounts" and "note accounts". The books reflected withdrawals and advances and the claims filed are shown by the books to be the credit balances in favor of the appellees. Actually, no notes were ever issued by the corporation.
In July of 1957 each of the appellees drew from the corporation the sum of $50,000.00 as salaries and immediately wrote personal checks payable to the corporation for an equivalent sum, which were deposited by the corporation. This is the amount which the Referee subordinated for the reasons stated in his order and mentioned above. The trial...
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