Stitzer Hotel Co. v. Beyer, 4654.

• Decision Date: 22 January 1932
• Docket Number: No. 4654.,4654.
• Citation: 55 F.2d 620
• Parties: STITZER HOTEL CO. v. BEYER et al.
• Court: U.S. Court of Appeals — Third Circuit

55 F.2d 620 (1932)

STITZER HOTEL CO. v. BEYER et al.

No. 4654.

Circuit Court of Appeals, Third Circuit.

January 22, 1932.

Bourgeois & Coulomb and Wm. B. Hunter, Jr., all of Atlantic City, N. J., for appellant.

Bolte & Tripician and Harry Miller, all of Atlantic City, N. J., for appellees.

Before BUFFINGTON and WOOLLEY, Circuit Judges, and THOMSON, District Judge.

THOMSON, District Judge.

By involuntary petition filed December 31, 1927, the Stitzer Hotel Company, a corporation of the state of New Jersey, doing business in Atlantic City, was alleged to be a bankrupt owing debts approximating $175,000. The petition alleges that petitioners are creditors, having provable claims amounting in the aggregate, in excess of the securities held by them, to approximately $18,000.

The petition alleges that the hotel company is insolvent and that it committed an act of bankruptcy on the 26th of September, 1927, by paying to the Chelsea National Bank $7,500 on account of a promissory note in the sum of $15,000, payable three months after its date, which was July 11, 1927. That on the 5th of October it paid to the bank $2,000, on account; on October 11th, it paid $2,500 on account, on which latter date it made and delivered a renewal note for the balance of $3,000, payable one month after date; and that on October 17, 1927, it paid the sum of $3,000, which paid off the note in full.

The answer denies that the hotel company committed an act of bankruptcy as set forth, and further denies its insolvency. There are only two questions involved in this situation:

First, was the alleged bankrupt insolvent on the dates alleged preferences were given? And

Second, were the preferences in fact given by the alleged bankrupt?

The proceedings were delayed from the date of the filing of the petition, December 31, 1927. The order of the court adjudging the company bankrupt was not entered until May 18, 1931. The insolvency of the alleged bankrupt was sought by petitioners to be proved by the testimony of one George R. Specht, bookkeeper of the defendant company. Through this witness, a balance sheet dated October 31, 1927, was introduced, showing a deficit as of that date of $120,408.28, and a balance sheet dated December 31, 1926, showing a deficit as of the latter date of $54,371.77. The books did not show the actual financial condition of the company as of the dates when the alleged preferences were given, nor could the witness testify as to the condition of the company at those dates because, as he said, "There may have been periods during the summer months when the deficit was balanced by accumulated profits."

In both of said statements, the real estate holdings of the company were valued at approximately $800,000, but one Morganweck, a witness produced on behalf of the petitioners, placed a valuation on the real estate of $475,000. This witness was offered as an expert, but his qualifications as such were disputed.

The testimony showed that between August 31, 1927, and October 17, 1927, the hotel company paid off promissory notes made by it totaling the sum of $30,000 to the Chelsea National Bank. A number of these notes were paid before they were due, and such practice was shown to be the usual course of business in Atlantic City, where the bulk of the business is done during the summer season. The officers of that bank all testified that they had no knowledge of the fundamental condition of the company when the payments were made, or that such payments were, or did amount to, preferential payments.

Petitioners having charged the defendants with the commission of acts of bankruptcy, the burden is on them to prove that the defendants were in fact insolvent on the dates the alleged preferences were given. In addition to the payments made to the Chelsea National Bank, the evidence showed that the company paid off a note of $10,000 to the Chelsea National Bank on August 21, 1931, and another in the amount of $5,000 on September 6, 1931.

We are of opinion that a careful examination of the testimony of Specht discloses that he had no such real knowledge of the financial condition of the company as entitled him to speak as an expert. The witness was unable to tell the financial condition of the company at the time the various alleged preferential payments were made. He was not able to give, within the period covered by those payments, any substantial loss of any large amount. The witness admitted, inasmuch as the company was a going concern, that any deficit which might appear at a particular date might have been entirely wiped out during the summertime, and have re-established itself after...