W.A. Liller Bldg. Co. v. Reynolds
| Decision Date | 26 October 1917 |
| Docket Number | 1550. |
| Parties | W. A. LILLER BLDG. CO. et al. v. REYNOLDS et al. |
| Court | U.S. Court of Appeals — Fourth Circuit |
William MacDonald, of Keyser, W. Va., for appellants.
Frank C. Reynolds and Taylor Morrison, both of Keyser, W. Va., for appellees.
The following is the opinion of Dayton, District Judge, in the court below, upon petitions to revise.
I have carefully examined the questions involved in this bitterly contested controversy, and am satisfied that the crucial one is whether the referee had power, by summary order, to direct the seizure of the personal property claimed by the W. A Liller Building Company, a corporation, as the property of the bankrupt, or, in other words, whether the claim thereto by this corporation was adverse and required a plenary suit to determine its validity. Collier (10th Ed.) at page 477, discussing section 23b of the Bankruptcy Act, very pertinently says: 'It is impossible to declare a general rule which will determine in every case whether a person claiming a right or interest as against the trustee is an adverse claimant.'
Generally possession of the property is a controlling element, and where such possession is in a claimant, it is not a right of the bankruptcy court by summary proceeding to determine the nature of the possessor's right and title to it. Such summary proceeding should always be resorted to with caution. However, the cases of York Mfg. Co. v. Brewster, 174 F. 566, 98 C.C.A. 348, In re Rieger et al. (D.C.) 157 F. 609, In re Berkowitz (D.C.) 173 F. 1013, and In re Holbrook Shoe & Leather Co. (D.C.) 165 F. 973 seem to well establish the doctrine that, where an individual is insolvent and undertakes to form a corporation, with near relatives as incorporators, to which he conveys his property with a view to withdraw such property from the reach of creditors, such corporation should not be held to be an adverse claimant, its holding to the contrary is only colorable and should be held to be that of the insolvent himself. It seems to me the logic of such conclusion is clear. A corporation is only a creature of law, and the law never creates means to defraud. By the admission of the bankrupt himself in this case the building corporation was formed for no other purpose than to withdraw his property from the reach of his creditors and enable him to secure for himself a salary and possibly some gain for the incorporators, who were himself, his wife, his son under age, his brother-in-law, and his attorney securing the corporation charter for him. The shares of stock subscribed by others than himself were nominal, two shares of the par value of $25 a share, those of the son and attorney being paid for in services.
The case here, it seems to me, falls clearly within the legal principles established by the cases cited, and therefore I must hold that the referee was justified, by summary order, in directing the seizure of the property.
Having so determined this question, the other rulings of the referee can be easily disposed of. One is to the allowance made to the attorneys for the petitioning creditors, two of whom were also trustees. The impression indicating that it was improper to appoint such attorneys trustees is erroneous. 'A general creditor of a bankrupt or his attorney is competent. ' Loveland (4th Ed.) vol. 1, p. 730, Sec. 353; In re Lewensohn (D.C.) 98 F. 576; In re Lazoris (D.C.) 120 F. 716; In re Blue Ridge Packing Co. (D.C.) 125 F. 619. The fee allowed here was paid out of funds payable to a secured bank creditor who has not complained of it. I think it could have done so under the ruling in Re Gillespie (D.C.) 190 F. 88, but not having done so, and months having elapsed since the allowance was made, I am inclined to hold it now estopped by its acquiescence from doing so. I do not think others can complain.
The contention made, that in order to take over this property the corporation went into bank and borrowed...
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