Warner Lambert Pharmaceutical Company v. Sylk, Civ. A. No. 42531.
| Decision Date | 30 September 1971 |
| Docket Number | Civ. A. No. 42531. |
| Citation | 348 F. Supp. 1039 |
| Parties | WARNER LAMBERT PHARMACEUTICAL COMPANY v. William H. SYLK. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
COPYRIGHT MATERIAL OMITTED
Howard T. Glassman, Philadelphia, Pa., for plaintiff.
Michael H. Egnal, Philadelphia, Pa., for defendant.
ADJUDICATION
This case comes before the court on a suit by a creditor to require a guarantor to pay the debt of a bankrupt corporation. The parties have stipulated to the following facts:*
1. Plaintiff is a Delaware corporation.
2. Defendant, at all times pertinent hereto, was an officer, director and stockholder of Sun Ray Drug Company (a Pennsylvania corporation), which name shall refer to the corporation existing prior to the merger set forth in paragraph 3 below and the Sun Ray Drug Company (a Pennsylvania corporation) chartered in Pennsylvania on February 23, 1961, Consolidated Retail Stores, Inc. (a Delaware corporation), and Penrose Industries Corporation (a Delaware corporation).
8. Sun Ray Drug Company, as a wholly-owned subsidiary of Consolidated Sun Ray, Inc., continued to operate the said chain of drug stores.
9. (a) Plaintiff sold merchandise to Sun Ray Drug Company on purchase orders issued by it prior to the merger and name changes as aforesaid and continued to do so until approximately May of 1962.
(b) At that time plaintiff concluded that the Sun Ray account was deemed by it to be insecure and seriously past due.
(c) In the month of May, 1962, plaintiff requested, and on or about May 25, 1962, received the guarantee admittedly executed by defendant, A true and correct copy of which is appended hereto as Exhibit "A-1".
11. In accordance with the aforesaid transactions, prior to May 11, 1965 plaintiff was owed the sum of $73,244.49 for goods sold and delivered.
12. On March 18, 1965, plaintiff made demand on defendant for payment under defendant's guaranty.
13. On May 11, 1965, the Honorable Francis L. VanDusen appointed Leon J. Obermayer as "Conservator", pursuant to a decree, a copy of which is hereto appended and marked Exhibit "A".
14. (a) Pursuant to the Order appointing the Conservator, he was obliged to notify creditors of Sun Ray Drug Company and Penrose Industries Corporation requiring them to file proofs of claim setting forth the nature and amount of their claims and whether they claimed secured lien or priority status.
(b) Under paragraph 12 of said decree all interested parties were enjoined from instituting or continuing suits or proceedings at law or in equity against the personal property which was the subject matter of a sales agreement between Sun Ray Drug Company and Marrud, Inc.
15. The notice sent to creditors is appended hereto as Exhibit "B".
16. On or about June 10, 1965, plaintiff filed its proof of claim for each of its divisions in the form as indicated by Exhibit "C-1" appended hereto, with the Conservator.
17. On or about June 25, 1965, plaintiff advised defendant, by certified mail, that it had filed its proof of claim with the Conservator but that said filing was not a waiver of its rights against defendant. Defendant made no response to said letter. A copy of said letter and return receipt is appended hereto as Exhibit "D".
18. (a) Under date of January 14, 1966, a Creditors' Committee, which included counsel for the plaintiff, (who at that time did not represent the plaintiff herein), sent to creditors of Sun Ray Drug Company and/or Penrose Industries Corporation, a proposal for settlement with general unsecured creditors by the payment of 32½% of their claims in full settlement, a copy of which is hereto appended as Exhibit "E". The settlement was recommended by the Creditors' Committee and was to be payable as follows:
8½% in cash on July 13, 1966 8% on January 13, 1967 8% on July 13, 1967 8% on January 13, 1968
(b) A copy of the agreement with the Conservator and Penrose Industries and Sun Ray Drug Company providing for the foregoing proposal is hereto appended and marked Exhibit "F".
19. Defendant participated in the aforesaid settlement negotiations and along with his brother, Harry, agreed to guarantee any deficiency in funds needed for the settlement, over and above the payment to be received by the Conservator from Marrud, Inc.
20. A copy of the letter from the Conservator setting forth the above proposal is appended hereto as Exhibit "G".
21. Plaintiff filed its acceptance of said proposal with the Conservator. Plaintiff did not use the acceptance form submitted by the Creditors' Committee, a copy of which is appended hereto and marked Exhibit "H-1", but submitted its acceptance on a form in which plaintiff specifically reserved its rights against the defendant. A copy of said acceptance is hereto appended and marked Exhibit "H". Plaintiff received no objection to the form of acceptance filed by it but no specific approval thereof was received.
22. On September 2, 1966, plaintiff received a payment of $6,255.78 on account of the proposed settlement together with a letter of transmittal from the Conservator. The check in question contained a restrictive endorsement which was modified by the plaintiff prior to the deposit of the check. A true copy of said check, letter of transmittal and endorsement are appended hereto as Exhibits "I-a and I-b". The bracketed portion of the reverse side of the check denotes the modification made by the plaintiff. It was without any notice of any kind at the time to the Conservator or the defendant of said modification. Plaintiff received no objection to the aforesaid modification or any approval thereof.
23. The total percentage sum of 32½% was not paid.
24. On or before November 16, 1967, plaintiff received an additional check from the Conservator dated October 10, 1967, together with a letter of transmittal dated October 11, 1967. This check was in the sum of $5,859.56 and contained no restrictive endorsement. True and correct copies of the second check, its envelope and letter of transmittal are appended hereto as Exhibits "J-a and J-b".
25. (a) No further payments were tendered or received until July of 1970 when the sum of $5,859.56 was received from the Conservator. This sum was tendered by the Conservator in full and complete settlement against Penrose Industries, Sun Ray Drug Company, and Leon J. Obermayer, Conservator.
(b) This final payment was only accepted by the plaintiff after an agreement was reached between counsel for plaintiff and counsel for defendant setting forth the effect of the acceptance of this sum. True and correct copies of the letter agreements between said counsel are appended hereto and marked Exhibits "K-a and K-b".
26. Ten Thousand Dollars ($10,000.00) of the fund required to make the final payment in consummation of the settlement with the Conservator was contributed by the defendant and his brother, Harry Sylk.
Defendant, William H. Sylk, was a director, major stockholder, and the president of Consolidated Sun Ray, Inc., now known as Penrose Industries Corporation. Finding its account with Penrose to be past due, plaintiff obtained from Sylk a personal promise to pay Penrose's debt. Thereafter, plaintiff made demand upon defendant for payment, but received nothing.
Penrose suffered financial difficulties and as a result of an action against it, a Conservator was appointed to protect the rights of all creditors. Having received instructions from the Conservator, plaintiff filed a proof of claim and at the same time notified Sylk that the filing of the claim did not relieve him from liability under his guarantee.
After negotiations with the Conservator, Penrose proposed to settle the claims of its creditors by the payment of 32½% of its obligations in four instalments over an 18 month period. The defendant took part in the negotiations with the Conservator and executed the settlement agreement on behalf of Penrose and Sun Ray. In addition, he subordinated certain claims to the rights of creditors and with his brother, personally guaranteed the funds necessary to consummate the settlement.
The plaintiff agreed to the settlement proposed by Penrose but specifically noted a reservation of its rights against Sylk based upon his guarantee to it. Plaintiff then received a Conservator's check which contained a restrictive endorsement. Plaintiff deposited this check after changing the endorsement to add a reservation of its rights against Sylk. This suit was then started to require Sylk to pay the remaining balance due from Penrose. After suit was commenced, a subsequent payment was made by the Conservator, the check containing no restrictive endorsement.
More than three years after the second payment, a final payment was received by plaintiff in full and complete settlement of its claim against Penrose. This payment was not accepted, however, until counsel for Sylk agreed that it would in no way constitute a relinquishment of plaintiff's rights under the guarantee. The three payments to plaintiff totalled $17,974.90, approximately $5,600 less than the 32½% called for in the agreement reached with Penrose.
The defendant's agreement with plaintiff imposed upon him the liability of a surety: the Act of July 24, 1913, P.L. 971, 8 P.S. § 1. Thus, he was primarily liable to the plaintiff and it was not required to institute legal proceedings against Penrose, or even make demand upon Penrose, to be entitled to payment of the debt. The defendant contends, however, that he has been discharged from liability by plaintiff's accepting the composition with creditors proposed by Penrose through the Conservator. Under the defendant's theory, the plaintiff agreed to release Penrose in return for the promise to pay 32½% of the claim, and the legal effect of releasing Penrose, the principal debtor, was to release Sylk, the surety.
The ultimate decision in this case depends upon the following questions:
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