In re Schoenfield

DAYTON, District Judge (after stating the facts as above). I have very carefully read and considered all the evidence presented by this record, set forth as it is, in more than 1,400 typewritten pages, and some 130 odd exhibits filed therewith. The facts are so many and complicated I shall not attempt to set them forth in detail, but content myself with setting forth as above the certificate thereof filed by the referee. [1] It is .still contended by the petitioner, Salsburg, that the stocks of merchandise should have been turned over to him by reason of his [59] alleged purchase thereof from Max Pli. Schoenfield, by the trustee in bankruptcy, whose remedy then would have been the institution of a plenary suit in some court of competent jurisdiction to recover them back from him or their value. 1 did not think so at the time I entered the order', directing the referee to investigate and determine the validity of this claim of Salsburg, nor do I think so now. On the contrary I think the wisdom of that order, in the light of the remarkable disclosures of the evidence cannot for a moment be questioned. First. The evidence clearly discloses that the. storerooms both in Wheeling and Bay City were the leased premises of Herman Schoen-field ; that notwithstanding Salsburg claims to have made his purchase 21 days before Blackford, as receiver, took possession, he allowed the '‘Schoenfield” signs to remain, and further allowed the bankrupt, Herman Schoenfield, to remain in charge and in a local paper, under date of June 16th, a week before possession was taken by the receiver, to advertise these goods “at bankrupt sale” as belonging to “Sclioenfield’s store,” situate in this storeroom in Wheeling of which Herman was the lessee. The effort to show that the taking into possession of the goods by the receiver was tortious, has, in my judgment, utterly failed. Tt was a surrender by those in charge with substantially a declaration that Salsburg was the owner by the bankrupt’s brother, who had been connected with the “Schoenfield Store” management all along, and by young Salsburg, the son of claimant. It is just as much the purpose of the present bankrupt law (Act July 1, 1898, c. 541, 30 Stat. 544 [U. S. Comp. St. 1901, p. 3418]), as it was that of the Act of 1867 (Act March 2, 1867, c. 176. 14 Stat. 517) — “to secure tlie possession of the property of the bankrupt, so that it might tie administered under the proceedings in bankruptcy. Between the first steps initiating them and the appointment of the assignee, a considerable time often elapses, during which the effects of the bankrupt, especially in a case commenced by creditors, may be surreptitiously conveyed beyond the reach of the court or of the assignee, who, when appointed, is entitled to the possession of them. If the bankrupt does not voluntarily aid the court, or is inclined to defeat the proceedings, he can, witli the aid of friends or irresponsible persons, sell his movable property and put the money in his pocket, or secrete his goods or remove them beyond the reach of the assignee or the process of the court, and thus defy the law.” Sharpe v. Doyle, 102 U. S. «80, 689, 26 I., Ed. 277. The Code of this state (1906) § 3468 (chapter 100, § 13), provides: “If any person shall transact business as a trader, with the addition of the words ‘factor,’ ‘agent,’ ‘and company,’ or ‘and co.,’ and fail to disclose the name of his principal or partner by a sign in letters, easy to he read, placed conspienously at the house wherein such business is transacted, and also by a notice published for two weeks in a newspaper (if any) printed in the town or county wherein the same is transacted, or if any person transact such business in his own name, without any such addition, all the property, stock, choses in action, acquired or used in such business, shall, as to the creditors of any such person, be liable for the debts of such person. This section shall not apply to a person transacting such business under a license to him as an auctioneer or commission merchant.” This provision taken from the Virginia Code of 1860 has been considered in Partlow v. Lickliter, 100 Va. 631, 42 S. E. 671, where it was held that property used in such business is liable for the payment of [60] the trader’s debts, notwithstanding a bill of sale thereof may be recorded. The Supreme Court of Appeals of this state in the case of Gilbert v. Peppers, 65 W. Va. 355, 64 S. F. 361, has held that a conveyance of a shifting stock of goods or other personal property of a transitory character left in the possession of the grantor is void per se and on its face. This decision has been followed by this court in In re Elletson Company (D. C.) 174 Fed. 859, and its action in so doing has been affirmed by the Circuit Court of Appeals for this circuit in Ritchie County Bank v. McFarland, 183 Fed. 715, 106 C. C. A. 153. Then, too, section 1, c. 78, of the Acts of the Legislature 1909, was at the time in force, and provides: “The sale in bulk of any part or the whole of a stock of merchandise otherwise than in the ordinary course of trade and in the regular and usual prosecution of the seller’s business, shall be fraudulent and void as against the creditors of the seller, unless the seller and purchaser at least five days before the sale, make a written statement showing the nature and character of the sale and property to be sold and the price to be paid therefor, and unless the purchaser demands and receives from the seller a written list of names and addresses of creditors of the seller, with the amount of indebtedness due or owing to each and certified by the seller under oath, to be, to the best of his knowledge and belief, a full, accurate and complete list of his creditors and Of his indebtedness; and unless the purchaser shall at least five days before taking possession of such merchandise or paying therefor, notify personally or by registered mail, every creditor whose name and address is stated in said list, of the proposed sale and of the price, terms and conditions thereof.” Granting that Blackford, receiver, had full notice, by reason of the recordation of Salsburg’s bill of sale, of Salsburg’s claim to these goods, on its face he must have seen that it was of shifting stocks of merchandise, such as set forth in Gilbert v. Peppers and a very little investigation would have informed him that the “bulk sales” law had not been complied with; that after a lapse of 21 days from the date of such bill of sale, these goods still remained as before under the control of the bankrupt and in his possession, upon his leased premises, and were being advertised and sold, in part, under the old name of the “Schoenfield Store” and in part were being boxed up and shipped to Michigan. Could there be any excuse for. his not discharging his duty and taking possession? I think not. Plaving possession, the law is clear that the bankrupt court’s jurisdiction to summarily ascertain and determine Salsburg’s title or right to these stocks was complete, as held by such cases as White v. Schloerb, 178 U. S. 542, 20 Sup. Ct. 1007, 44 L. Ed. 1183; Whitney v. Wenman, 198 U. S. 539, 25 Sup. Ct. 778, 49 L. Ed. 1157, and In re Elletson Co. (D. C.) 174 Fed. 859, affirmed in Ritchie County Bank v. McFarland, 183 Fed. 715, 106 C. C. A. 153. [2] Second. Touching the determination of the merits upon Sals-burg’s claim to these stocks of goods I have no hesitation in sustaining the conclusions reached by the referee, adverse to such claim, for several very pertinent reasons. (a) The Supreme Court has held the validity of such claim of title to be a question of local law, in the determination of which state statutes and decisions will control (Thompson v. Fairbanks, 196 U. S. [61] 516, 25 Sup. Ct. 306, 49 L. Ed. 577; Humphrey v. Tatman, 198 U. S. 91; 25 Sup. Ct. 567, 49 L. Ed. 956) ; and 1 have above shown that this sale in bulk was contrary to chapter 78, Acts 1909; that Salsburg- did not comply with section 3468 of the Code 1906, and that this sale ran Counter to the rulings in Gilbert v. Pepper. (b) The claim must be rejected also because it is undisputed that Salsburg claims only through purchase from Max Ph. Schoenfield, who, it is clearly shown, never had title to these goods. Going back only one step, it is to be remembered that the goods were in the possession of the Schoenfield Company, a corporation under the laws of Pennsylvania; that this company became bankrupt; that a composition was offered, accepted and confirmed whereby the stock became vested again in this company; that Max Ph. Schoenfield claims (which claim we will more fully consider later) to have furnished the money to effect this composition, but there was no decree vesting in him the title and possession of the goods and there was no subsequent authorization for or transfer of the goods to him by the corporation. As president of this corporation he could not sell and transfer the stock of goods to himself without the consent of the corporation directors at least. [3] The result was he could acquire no title as against the corporation by merely taking possession and by reason of such possession could sell and confer no title at least to any other than an innocent purchaser without notice and such Salsburg certainly was not; for (c) The whole proceeding had been, in my deliberate judgment, a corrupt scheme originated by Plerman Schoenfield, the- bankrupt, and Salsburg to secure the debts due to Salsburg’s firms and to defraud the other creditors. This is shown by the fact that Salsburg first obtained the guarantee agreements from Max Ph. Schoenfield, that his firms’ debts should be paid; that his two firms then became two of the three petitio'ning creditors, asking for and obtaining this corporation’s adjudication in bankruptcy; that Salsburg or one of his firms loaned nearly $6,000 to effect the 20 per cent, composition; that while this loan was nominally to Max it was largely repaid to him by Herman. Max has testified that he was a “figurehead” in the Schoenfield Company, and I think there can be no question that this was true. The company itself, in my judgment, has been clearly shown to have been nothing more and nothing less than a mere device to enable Herman to carry on business which he could not do because his effort to defraud creditors by the bankrupt proceedings at Youngstown, Ohio, had failed and he was an undischarged bankrupt. Max and Herman, it seems, just before this attempted sale to Salsburg had fallen out and Max had left Wheeling. It seems clear he wanted to return to Europe. Doubtless he needed money. Herman sent for his friend Salsburg who came on to help out. Max was paid substantially $1,000 to quit, and this bill of sale was made to Salsburg with the strong presumption arising that Herman hoped to get free by this new proceeding in bankruptcy in this court, and then be able to run another course of unparalled fraudulent and corrupt business transactions, in the meanwhile “managing” the goods in Salsburg’s name, selling them out quickly by rea [62] son of false advertising, realizing and paying Salsburg and his firms their debts in full, while the other creditors got nothing. Herman, it seems was a valuable man to Salsburg, for the latter, in one of his letters “takes off his hat” to him in admiration of his qualities as a “hustler” in selling and disposing of goods. [4] I- do not deem it necessary to consider the contention of counsel for Salsburg, that if Herman was the true owner, yet allowed credit to be extended to Max, there would be an estoppel in favor of those who had extended such credit to Max as against Herman and his trustee, further than to say that such question cannot be raised by Salsburg, but only by the persons themselves who have been so innocently defrauded. Salsburg certainly was not so innocently defrauded, but was a party to the scheme by which it was done. [5] The bankrupt under oath has listed in his schedules debts to the amount of $14,000 and declared himself to have no assets, therefore it was not incumbent upon the trustee in his petition to allege, nor, by evidence prove, “that he has not sufficient assets in his hands to satisfy' the claims of the creditors of Herman Schoenfield, bankrupt.” I affirm the conclusion reached by the referee that these two stocks of goods were properly taken in charge by Blackford, receiver and trustee, and must be held liable for the payment of bankrupt’s debts, and that Salsburg’s petition must be dismissed, and he be required to pay the costs of its defense.