As all of the positions taken by counsel for the United States (except the denial that the issuance of a writ is the bringing of a suit within the meaning of the acts of Congress giving the District Courts jurisdiction of claims by actions against the United States) may be deemed well taken without affecting the conclusion reached, it is unnecessary for us to determine whether the two-year limitation applies to actions. brought directly against the United States to recover excise taxes, the payment of which has been unjustly exacted, or only to those actions. which have been brought indirectly against the United States through the Collector being made defendant. We think the judgment directed to be entered in these cases has the sanction of the approval expressed and implied in United States v. Greathouse, 166 U. S. 601, 17 Sup. Ct. 701, 41 L. Ed. 1130, and United States v. Emery, 237 U. S. 29, 35 Sup. Ct. 499, 59 L. Ed. 825. It may not be out of place to make this additional statement with respect to the attitude and its effect of the United States district attorney and other counsel representing the United States toward the previous and present attempts of the plaintiffs to enforce the respective claims. The conduct of any defendant who throws procedure obstacles in the way of the plaintiff, instead of defending against the substantial merits of the complaint, is always deemed by the plaintiff to be ungracious and felt to be exasperating. Such a defense, however, it is the right of the defendant to interpose, and no law officer of the United States can, or, in this instance, has attempted to, do anything which could or has prejudiced this right in any degree. We state the situation thus broadly, as we do not understand the service of the writs to be in question, assuming the suits to have been properly instituted by the issuance of writs of summons, instead of by petition. The request of the plaintiff for a finding in its favor is granted, and judgment in this case is accordingly rendered in favor of the plaintiff and against the United States for the sum of $553.61 as requested. In re BERLER SHOE CO., Inc. (District Court, S. D. New York. October 15, 1917.) STOCK ISSUED FOR INSUFFICIENT 1. BANKRUPTCY 387 CORPORATIONS Any right against stockholders, because of a corporation issuing stock in exchange for property of inadequate value, belonging, under Stock Corporation Law N. Y. (Consol. Laws N. Y. c. 59) § 55, to the creditors, is unaffected by composition with creditors by the bankrupt corporation. 2. BANKRUPTCY 375 COMPOSITION-TIME OF OFFER. Composition by bankrupt with creditors should be rejected; the offer to creditors being before the bankrupt was examined in open court and had filed in court its schedules. In Bankruptcy. In the matter of the Berler Shoe Company, Incorporated, bankrupt. On motion to confirm report of special master. Composition rejected. For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes Harold Remington, of New York City, for objecting creditors. AUGUSTUS N. HAND, District Judge. This is a motion to confirm the report of the special master recommending that an offer of composition for 20 per cent. in cash should not be confirmed because the master had not satisfied himself: (1) That it is for the best interest of the creditors; or (2) that the offer and its acceptance are in good faith. Oscar Berler, a retail shoe dealer, went into bankruptcy in May, 1915, and thereafter effected a composition with his creditors of 60 per cent. Of this 60 per cent. 10 per cent. was paid in cash, and 50 per cent. in notes of the Berler Shoe Company, Incorporated, the bankrupt in this proceeding. These notes were indorsed by B. Levy & Son. The latter were guaranteed against loss to the extent of $20,000, which was the amount of the notes by Henry Weiss. Oscar Berler executed a general assignment for the benefit of creditors prior to the filing of the petition in bankruptcy. Henry Weiss contracted with Berler to guarantee B. Levy & Son against any liability arising from their indorsement of the bankrupt's notes in return for an assignment to Weiss of the business and assets of Berler in the event of a composition. Henry Weiss assigned his interest to his son, Nat Weiss, as a gift, in order to start him in business, and proceeded to have the Berler Shoe Company incorporated to carry out the plan of composition. Nat Weiss transferred the business and assets, including the good will and two lots of land on Morris avenue, Morris Park, to the Berler Shoe Company in return for an issue of $12,800 par of the capital stock of that company. This transfer was subject to payment out of the Berler assets of 10 per cent. upon the claims of creditors, $2,992.22 for expenses of administration in bankruptcy, $500 fees for incorporating the company, and notes of the Berler Shoe Company amounting to $20,000, which represented the 50 per cent. payment to creditors. The directors of the Berler Shoe Company found that the business and property of Berler had a value amounting to $12,800, and by resolution ordered the issue of the stock to that amount. As the payments from the Berler assets and upon the notes of the company aggregated $23,492.22, the $12,800 represented value wholly in excess of this sum of $23,492.22, or a total of $36,292.22. The $12,800 of stock was issued upon the theory that the good will of the business was worth $5,000, the fixtures $5,276, and the two lots of land, subject to a mortgage indebtedness of $2,400, had an equity of $2,400. The Berler Shoe Company, Incorporated, began business with the assets and liabilities above referred to, paid off the $20,000 of notes, and shortly after, and in about a year, went into bankruptcy, and now offers a composition to its creditors of 20 per cent. Nearly half of the creditors voted against the composition. Shortly before the failure. there was a fire in one of the stores of the Berler Shoe Company, from which insurance moneys of $4,406.87 were collected, and there was a salvage of $541.25, or altogether $4,948.12. There was paid to Henry Weiss, the Metropolitan Shoe Company, of which he had been the president, B. Levy & Son, and to Ottensoser, the sum of $4,770.24, within a month before the petition was filed. Those are said by the objecting creditors to have been illegal preferences. [1] I agree with the master that there is no evidence of concealment of assets. Section 55 of the Stock Corporation Law of New York provides that: "In the absence of fraud in the transaction, the judgment of the directors as to the value of the property purchased shall be conclusive." It cannot be said that there was an adequate payment for the stock issued, but the remedy is statutory, and the Circuit Court of Appeals of this Circuit, as well as the Appellate Division of the Supreme Court of New York, have held that no right of recovery would pass to the trustee in bankruptcy. In re Jassoy Co., 178 Fed. 515, 101 C. C. A. 641; Courtney v. Georger, 228 Fed. 859, 143 C. C. A. 257; Breck v. Brewster, 153 App. Div. 800, 138 N. Y. Supp. 821. The statutory remedy is only given to creditors, and does not inhere in the corporation. The latter does possess a right of action to enforce an unpaid stock subscription. Any right of the corporation is contractual.` In the case at bar, where the stock was issued in exchange for the property for which it was offered, no contractual liability remains. I can see no reason why the right of the creditors against the stockholders, if it exists, would be affected by the composition. The further objection to the composition is made upon the ground that the recovery by the trustee of the alleged preferential payments would create an estate that would yield a greater dividend than the 20 per cent. offered. Payments which are claimed to be preferential aggregate. Estimated value of equity in two lots on Morris avenue. Expenses of administration, including recovery of alleged preferred payments may be estimated at................ Preferred claims $4,770 24 2,332 32 1,000 00 $8,102 56 .$1,500 00 1,573 33 $6,529 23 $20,314 91 4,770 34 Net amount for division among proved unsecured claims of. Would produce a dividend of 26 per cent...... .$25,085 25 On the other hand, if the litigation to recover the alleged preferential payments failed, the dividend, after deducting from existing assets aggregating $3,332.32, estimated expense of administration of $750, and preferred claims of $73.33, would amount to only about 12 per cent. While some of the payments were probably preferential, others apparently represented realization from insurance moneys pledged for current advances, and I do not think the evidence indicates that the creditors would realize more than 20 per cent. if such preferential payments as were made were recovered. [2] In regard to the consents to the offer of composition which were signed before, and not after the bankrupt corporation had been examined, it is argued that the matter does not properly come before me, because the only parties criticizing the master's findings as to this matter are moving to confirm the report. I have, of course, entire control over the master's report, which is only for convenient administration, and does not prevent a consideration of the record as it stands. I agree with the criticism of the common practice in compositions and regard it as irregular to have composition offers made and signed before examination of the bankrupt, even if they are not formally filed until afterwards. Such a practice does away with that access to full information on the part of the creditors which the statute aims at. If they have the right to withdraw their consents before the composition offer is filed, it may be doubted whether they are aware of this right, and they are by their signatures in fact, if not in law, committed to a course of action in a way not contemplated by the Bankruptcy Act and contrary to its spirit as well as its express language. It is not likely that a creditor will seek any information after he has consented to an offer of composition, even if the offer has not been filed. Nor is he likely ever to attend the examination after he has taken this step. He is therefore, under the common practice, deprived of the plain safeguards of the statute. I hold that the composition should be rejected, because it was offered to the creditors before the bankrupt was examined in open court and had filed in court his schedules. The master is allowed $150 as compensation. In re MORRIS et al. (District Court, D. Massachusetts. April, 1917.) BANKRUPTCY 384-COMPOSITION-DENIAL. On petition for confirmation of an offer of composition, it appeared that approximately a month before the petition in bankruptcy was filed, the bankrupts became concerned about their affairs and consulted an attorney, that he advised them to carefully conserve all money that they took in, keeping it in their own safe, instead of depositing it in a bank, so that it would be available to make a composition offer later, and that the bankrupts followed those instructions, until an attachment was made on their stock and fixtures and a keeper placed in their store. Thereafter the bankrupts made a general assignment for creditors, and delivered to the assignee nearly $3,000 in cash, which were the funds so accumulated. Directly thereafter an involuntary petition in bankruptcy was filed, and the sum of money received by the general assignee was not then paid over to the receiver in bankruptcy, although subsequently nearly $2,000 was paid to the receiver. The schedules of assets and liabilities did not show the cash fund, and no value was placed upon the merchandise and fixtures; the schedules showing total liabilities and nothing as assets. The bankrupts thereafter made an offer of composition, which was in an amount substantially less than the value of their assets. Held, that the offer should be rejected, not being for the best interests of the creditors, and it further appearing that the assent of various creditors was in the main procured by one of the alleged bankrupts, who did not discuss the question of assets with assenting creditors. For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes In Bankruptcy. In the matter of the bankruptcy of James H. Morris and others, alleged bankrupts. On objections by creditors to the confirmation of the bankrupt's offer of composition. Petition for confirmation of composition denied. The following is the opinion of Jackson, Referee: The objections contained in the specifications filed in opposition to the composition are three in number: First. That the composition offer is not for the best interest of the creditors. Second. That the bankrupts have been guilty of certain acts and have failed to perform certain of their duties, which would be a bar to their discharge. Third. That the offer and its acceptance are not in good faith and have been made and secured by means and promises and acts forbidden by the Bankruptcy Act (Act July 1, 1898, c. 541, 30 Stat. 544). Attorney for alleged bankrupts made a motion that note be made of his objections to any evidence being taken on specifications second and third. It appeared in evidence: That there are approximately 63 creditors of said alleged bankrupts, that at the first meeting 35 claims were proved, and 22 of said creditors assented to said composition. That 12 claims were proved at said meeting by creditors not assenting, and 4 creditors joined in filing specifications of objections to said composition. Also, the total deposit called for en said composition was $4,226.20, and that of this amount the alleged bankrupts deposited $726.20, and the balance, $3,500, was all deposited by the receiver. There remained in the receiver's hands above his probable expenses $600, and a stock of merchandise and fixtures in a going business in Lawrence; said business being that of retailing ladies' cloaks, suits, boots, and shoes. There was conflicting evidence in regard to the present value of said merchandise and fixtures. Witnesses produced by the alleged bankrupts testified that a fair value of the cloaks and suits would be $650, and that fixtures were not worth over $150 in the, store; that the boots and shoes were not worth over $250. On the other hand, a witness offered by the objecting creditors testified that all the merchandise in the store was worth $3,000 as a going business, and that the fixtures were worth $500. Upon all the evidence in regard to the value of the merchandise and fixtures, I find that a fair value for same at this time to be as follows: Therefore there would be in the hands of the receiver and available for expenses, and for the creditors approximately $5,900, if no composition had been offered. It appeared from the testimony of the alleged bankrupts that early in December of 1916, they became concerned about their affairs and consulted an attorney in Boston, and thereafter acted under his advice. That he advised that they carefully conserve all money that they took in; not to deposit any money in the bank, but to keep same in the safe in the store, so that said money would be available to make an offer in composition later, should the occasion arise; and that the alleged bankrupts followed these instructions until December 24, 1916, when an attachment was made on their stock and fixtures, and a keeper placed in their store. On December 26th a general assignment for the benefit of creditors was made by the alleged bankrupts to Charles E. Hayes, and $2,714.15 in cash was delivered to said assignee, Hayes, which was the fund accumulated under the advice as hereinbefore stated. |