Appendix — F. P. Newport Corp. v. Sampsell
Supreme Court brief1955
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APPENDIX A
UNITED STATES COURT OF APPEALS
NINTH CIRCUIT
Nov. 12, 1954.
F. P. NEWPORT CORPORATION, |)
Limited, Appellant, )
vs. )
PAUL W. SAMPSELL, Trustee in )
Bankruptcy of the estate of F. P. )
Newport Corporation, Limited, et al., )
Appellees. )
Appeal from the United States District Court for
the Southern District of California, Central Division;
Paul J. McCormick, Judge.
Morris Lavine, Los Angeles, Cal., for appellant.
Norman A. Bailie, Richard A. Turner, Bailie,
Turner, Lake & Sprague, Los Angeles, Cal., for ap-
pellee.
Before MATTHEWS and ORR, Circuit Judges,
and WIIG, District Judge.
PER CURIAM.
This purports to be an appeal by F. P. Newport
Corporation, Limited, bankrupt, from a judgment af-
firming an order of a referee in bankruptcy. In re
Newport Corp., D.C.S.D. Cal., 123 F. Supp. 95. In
this court, two motions have been filed—(1) a motion
of Paul W. Sampsell, trustee in bankruptcy, to dismiss
the purported appeal and (2) a motion purportedly
filed by the bankrupt to vacate the judgment and
remand the case to the District Court. The motion to
vacate and remand is denied. The motion to dismiss is
anted, and the purported appeal is CaS,
No. 14572
Ne ee ee ee ae ioe Oey aD. CR Ae tet
zistL $ =~ $86I “1S ANVANVS—ONVH NO GONV IVE
sore ~~ SLNENESUAESIC TWILL
SUBJECT INDEX
Reasons for denying the writ..........
Correction of erroneous statements in petitioner’s statement of
the case, and statement of additional facts 4
The Delaware statutes do not confer on a bankrupt corporation
whose charter has become void, the right to appeal from an
order authorizing and confirming the sale of the remaining
unliquidated assets of the bankrupt corporation made pursuant
to a final order of liquidation...... 14
A dissolved and defunct corporation is without right or power
to do any act necessary to effect a valid appeal from an order
authorizing and confirming a liquidating sale of remaining
assets, exclusive of cash, under a final order of liquidation;
and the same rule should apply to every bankrupt, natural or
corporate ...... 32
The remaining assets of the bankrupt estate are insufficient to
discharge the approved unsecured and unpaid claims, the in-
terest due thereon, and the remaining costs, fees and expenses
of administration ............ 38
Petitioner in its Point III, page 45, of its petition for writ of
certiorari, relative to the dismissal of petitioner’s proposed
plan of reorganization under Chapter X, is not well taken for
two reasons, namely, (1) the purported appeal herein involved
does not purport to be an appeal therefrom, and (2) the order
of dismissal has long since become final............000000.......... ssinabtitin 47
Petition’s contention under Point VI, page 55 of its petition for
writ of certiorari to the effect that the District Court erred in
directing a sale in Solido rather than in separate parcels, has
no foundation upon which to rest
The bankrupt was not in anywise injured (1) by the fact that
Mr. Neblett represented Mr. and Mrs. Colter on the purchase
of the unliquidated assets; or (2) by the fact, if it be a fact,
that Mr. and Mrs. Colter were acting for themselves and as
the undisclosed agent for one or more associates... 48
ii.
TABLE OF AUTHORITIES CITED
Cases PAGE
Berl v. Crutcher, 60 F. 2d 440........ - 33
Big Sespe Oil Co. v. Cochran, 276 Fed. 216 27
Fidelity Metals Corp. v. Risley, 72 Cal. App. 2d 377............... 7, 32
Gardner, Trustee v. State of New Jersey, 329 U. S. 565, 91
L. Ed. 504......... 45
Greva v. Rainey, 2 Cal.. 2d 338. 42, 43
Gross v. Irving Trust Co., 289 U. S. 342, 77 L. Ed. 1243... Kt]
Harned v. Beacon Hill Real Estate Co., 9 Del. Ch. 411, 84
Atl. 229 29
Higgins to Use of Wil. & Reading R.R. Co. v. Downward &
Sons, 8 Houst. 227, 14 Atl. 720, 32 Atl. 133 27
Johnson v. Norris, 190 Fed. 459 6, 47
Kiyoichoi Fujikawa v. Sunrise Soda Water Wks. Co., 158 F.
2d 490; cert. den., 331 U. S. 832, 91 L. Ed. 1846... 43
Local Loan Co. v. Hunt, 229 U. S. 294, 78 L. Ed. 1230, 93
A. L. R. 195 Kt)
People v. American Loan & Trust Co., 172 N. Y. 371, 65 N.
is, STI stibipicicustiestidapiceeienpipeiitnndecieaiaaniaiantnteantnansamseniie 43
People v. Merchants’ Trust Co., 187 N. ¥. 293, 79 N. E. 1004. 43
Rosenberg v. Lawrence, 10 Cal. 2d 587 50
Ruckel v. Metropolitan Life Ins. Co., 240 Pac. 409... - 3
Sawilowsky, In re, 284 Fed. 975 2, 33
Settem, In re, 118 Fed. Supp. 897 33
United Rifle Corp. v. Johnson, 41 Fed. Supp. 86... 27
United States v. Metcalf, 131 F. 2d 677 2
Whitney, as Trustee in Bankruptcy of Dresser & Co. v. Emna
B. Dresser, 200 U. S. 532, 50 L. Ed. 584. a4
a
iii.
RuLEs PAGE
Bankruptcy Rules of the United States District Court for the
Southern District of California, Rule 218, pars. (a), (b)........ 47
Federal Rules of Civil Procedure, Rule 17, par. (b)..........-....00- 7
Federal Rules of Civil Procedure, Rule 83 47
Rules of the United States Supreme Court:
Rule 19(b) 2
Rule 23, par. (i) 3
Rule 23, par. 4 3
Rule 24 ....... 2
Rule 31, par. 2 3
STATUTES
Bankruptcy Act, Sec. 70a 32
Bankruptcy Act of 1938, Sec. 47 51
Bankruptcy Act of 1938, Sec. 64 6
Delaware Code (new), Title 8, Chap. 1, Subchap. XII, Sec. 312. 16
Delaware Code (new), Title 8, Chap. 1, Subchap. XII, Sec. 314. 16
Delaware Code (new), Title 8, Chap. 5, Sec. 512 0-0... 14, 25
Delaware Code (new), Title 8, Chap. 5, Sec. 513......13, 14, 25, 28
Delaware Franchise Tax Law, Sec. 71 14
Delaware Franchise Tax Law, Sec. 72 15
Delaware Franchise Tax Law, Sec. 73 15
Delaware Franchise Tax Law, Sec. 74 16
Delaware General Corporation Law, Sec. 42 17
Delaware General Corpoartion Law, Sec. 43 17
Delaware General Corporation Law, Sec. 44 17
Delaware General Corporation Law, Sec. 45 18
Delaware General Corporation Law, Sec. 46. 19
Delaware General Corporation Law, Sec. 74. 24
ow
Delaware General Corporation Law, Sec. 75
Delaware General Corporation Law, Sec. 77....
Delaware General Corporation Law, Subchap. X, Sec. 281............
Delaware Laws of 1941, Vol. 43, Chap. 132
Delaware Laws of 1945, Vol. 45, Chap. 158.
Delaware Laws of 1951, Vol. 48, Chap. 353.................:.scseceseseesees
Delaware Revised Code of 1935, Chap. 6, Sec. 105...................:000
Delaware Revised Code of 1935, Chap. 6, Sec. 106.
Delaware Revised Code of 1935, Chap. 6, Sec. 107............-----+0+0+: 15
Delaware Revised Code of 1935, Chap. 6, Sec. 108.
Delaware Revised Code of 1935, Chap. 65, Sec. 2074..........-..-..-+ . 7
Delaware Revised Code of 1935, Chap. 65, Sec. 2075..................0-
Delaware Revised Code of 1935, Chap. 65, Sec. 2076..............-.-+- 17
Delaware Revised Code of 1935, Chap. 65, Sec. 2077.0...
Delaware Revised Code of 1935, Chap. 65, Sec. 2078....................
Delaware Revised Code of 1935, Chap. 65, Sec. 2106................. —
Delaware Revised Code of 1935, Chap. 65, Sec. 2107.................... 24
Delaware Revised Code of 1935, Chap. 65, Sec. 2109.................... 24
Delaware Revised Code of 1935, Sec. 278...... 16, 25, 27, 28, 29, 31
Delaware Revised Code of 1935, Sec. 279. 16, 26, 27
Delaware Revised Code of 1935, Sec. 280. 16, 26, 27
Delaware Revised Code of 1935, Sec. 510 14, 25
Delaware Revised Code of 1935, Sec. 511 14, 25
General Order 56............... 47
Revenue Act of 1938, Sec. 52. 2
v.
PAGE
United States Code, Title 11, Chap. 5, Sec. 75 7, &
United States Code, Title 11, Chap. 6, Sec. 94(a).........---.--0--es0+ 30
United States Code, Title 11, Chap. 6, Sec. 94(a) (4)..........-.-- oe ae
United States Code, Title 11, Chap. 7, Sec. 104 6
United States Code, Title 11, Chap. 7, Sec. 110...........--...-ce--0e-- 32
TEXTBOOKS
6 American Jurisprudence, Sec. 26, p. 569 30
6 American Jurisprudence, Sec. 494, pp. 840-841 41
12 California Jurisprudence, Sec. 62, p. 800. 49
Treadwell’s Constitution of California, Art. XX, Sec. 22.............. 40
[Pe < Cee S440) OU Oe at 6 Se oe ia OOP
IN THE
Supreme Court of the United States
October Term, 1954
a, adetenin
F. P. Newport Corporation, Ltp.,
Petitioner,
vs.
Paut W. SAMPSELL, Trustee in Bankruptcy of the Estate
of F. P. Newport Corporation, Ltd., Bankrupt,
Respondents.
RESPONDENT’S BRIEF IN OPPOSITION TO
PETITION FOR WRIT OF CERTIORARI.
To the Honorable Chief Justice Earl Warren, and to The
Honorable Associate Justices of the Supreme Court
of the United States:
Respondent, Paul W. Sampsell, as Trustee in Bank-
ruptcy of the Estate of F. P. Newport Corporation, Ltd.,
presents his brief in opposition to the petition of the
bankrupt for a writ of certiorari herein, and in support
of an order denying said writ.
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The omitted documents specified above in clauses (1)
(a), (1)(b), (2), (3), (4), (5) of this Paragraph 9, will
be found in said document file at the following pages,
respectively :
(1) (a) D 394*
(1) (b) D 431
(2) D 433
(3) D215
(4) | D 329
(5) D 331
Correction of Erroneous Statements in Petitioner’s
Statement of the Case, and Statement of Addi-
tional Facts.
Petitioner at page 11 in its petition omitted to make
reference to any ground for dismissing the purported
appeal, other than that petitioner’s charter had been de-
clared void by the State of Delaware for failure to pay
the Delaware franchise taxes.
Actually, the motion to dismiss was based on six: differ-
ent grounds. [R. 598-602.]
*The Clerk of the District Court of the United States, Southern
District of California, Central Division (hereinafter usually called
the District Court), has compiled a file of all documents specified by
appellant and appellee for use on the purported appeal to the United
States Court of Appeals (hereinafter usually called the Court of
Appeals), and has numbered the pages in said file. He has also
compiled an index to the documents included in said file, and op-
posite each document described has specified the page in said
document file where the document can be located. The Clerk of the
Circuit Court has advised us that said document file and index
thereto are now on file in the Supreme Court of the United States
(hereinafter usually called the Supreme Court). That document
file will hereinafter be referred to as “D’”, followed by the number
of the page where the document appears.
The objects of the motion, as more fully stated therein,
were (a) to save the bankrupt estate the cost of printing
the record on the purported appeal; (b) to save the bank-
rupt estate attorney’s fees and costs of printing briefs
incident to a hearing of the purported appeal on the
merits, and (c) to enable the trustee without further
hindrance and delay by the bankrupt to comply with the
order of liquidation. [R. 601-602. ]
The grounds for dismissal, greatly condensed, were:
1. The bankrupt is not an aggrieved party; that the
assets will be insufficient to pay the allowed claims, inter-
est thereon, and the remaining costs, fees and expenses of
administration; and that the bankrupt has no financial
interest in the subject matter of the purported appeal;
2. That the bankrupt has no standing to appeal;
3. That bankrupt since April 1, 1937, has been a
defunct corporation without legal capacity to prosecute
the purported appeal;
4. That the purported authority from the corpora-
tion to the attorney who filed the purported appeal was in-
sufficient to legally authorize him to file such notice, and
the former directors and officers of the corporation were
without power to confer such authority;
5. That to permit said purported appeal to stand would
be contrary to the spirit and purpose of the Bankruptcy
Act; and,
6. The purported appeal is invalid, confers no juris-
diction on the court, and has been taken for the sole pur-
pose of hindering and delaying the Trustee in the per-
formance of his statutory duties. [R. 598-601.]
The Court of Appeals granted the motion to dismiss
without any specification of the ground or grounds upon
which it acted. [R. 707.] It must be assumed, therefore,
that it was granted on all grounds enumerated in the mo-
tion.
The petition in bankruptcy was filed against the bank-
rupt on March 19, 1935 [R. 604], and it was adjudicated
a bankrupt on the 12th day of January, 1937, with the
consent of the bankrupt [R. 604; Petition for Writ of
Certiorari, last line, p. 14], and it became a defunct cor-
poration on April 1, 1937, and has never since been re-
vived. [Ex. E, R. 639.]
There is no Delaware statute which provides that a
defunct corporation would be revived if the Trustee were
to pay Delaware’s claim No. 32 for $471.25 [R. 633-
635], or the Delaware franchise taxes with or without
penalties, for which bankrupt’s charter was forfeited on
April 1, 1937.
There is nothing in the record (or elsewhere) to show
any demand was ever made upon the Trustee to pay Dela-
ware’s said claim (a) before the purported appeal was
taken to the Court of Appeals, or (b) before said court
dismissed said purported appeal.
There is nothing in the record (or elsewhere) to show
that the Trustee ever had or now has any funds in his
possession which he could have heretofore lawfully applied
or which he could now lawfully apply toward the payment
of Delaware’s said claim, nor that the claims having
priority over Delaware’s claim have been paid. (See
Sec. 64 of Bankrupty Act of 1938, U. S. C., Title 11,
Ch. 7, Sec. 104.)
LIE I EIN TANGER: SMe ABD
—
The corporation acting through two of its former of-
ficers is the only one which under the Delaware statutes
is authorized to take the proceedings necessary to revive
a defunct Delaware corporation.
A Delaware corporation whose charter has been for-
feited is deemed to have a continuing existence for only
limited purposes, none of which are present in this case.
The Trustee has no duty or power to revive a bankrupt
corporation whose charter has been forfeited. (U. S. oe
Title 11, Ch. 5, Sec. 75.)
The fact that the trustee paid California franchise
taxes after the time the bankrupt forfeited its charter,
could not operate to revive a Delaware corporation whose
charter had been forfeited. (See Rule 17, par. (b) of
Fed. Rules of Civ. Proc.; Fidelity Metals Corp. v. Risley,
72 Cal. App. 2d 377, 381.)
No California franchise taxes were paid after the
Trustee filed his petition for an order of liquidation. This
petition was filed April 14, 1952. [R. 604, D 86.] On
May 26, 1952, the Referee ordered the Trustee to pro-
ceed with all due diligence with the sale of the assets, sub-
ject to confirmation by the court “to the end that the
assets of said estate may be speedily converted into money,
the expenses of administration paid and the residue paid to
the creditors as required by law.” [R. 605-606. ]
The bankrupt and certain creditors filed a petition to
review that order [D106]. Upon the hearing thereof,
after argument, and after calling attention to the fact
that this was a “protracted” bankruptcy proceeding Judge
a
McCormick in his order of November 28, 1952, stated that
he had believed
“that if decision on the Referee’s order of liquida-
tion were deferred for a reasonable period, some other
lawfully authorized equitable method of settlement
would be forthcoming and duly proposed. Such other
proceeding now seems to be unavailable. According-
ly, the Referee’s order of liquidation dated May 26,
1952, is confirmed.” [D 116.]
This review was regularly heard and argued on July
24, 1952, and the foregoing ruling thereon was not made
until November 28, 1952. [R. 606-607.]
No appeal was taken from the court’s order of con-
firmation, and said order is final. [R. 606.]
On November 19, 1953, bankrupt and its former presi-
dent Fred P. Newport, filed with the Referee a petition
entitled “PETITION FOR AN ORDER APPOINTING A Dis-
BURSEMENT AGENT; D1reEcTING SAID AGENT TO RECEIVE
From Escrow Ho.per AND TRUSTEE SuMS TOTALING
$438,000.00 anp To DisBuRSE SAME TO PERSONS FouND
BY THE CourT TO BE ENTITLED TO SAME; STAYING ALL
OTHER PROCEEDINGS AND DISMISSING THE BANKRUPTCY
Proceepincs Herein.” [R. 607.] Said petition set forth
an alleged offer of Earl P. Snyder (who was one of the
bidders on the sale to Colter and wife). [R. 607, 118,
D 291.]
On December 18, 1953, the Trustee filed with the
Referee a motion to dismiss said petitiion on the grounds:
“1. That the Court has no jurisdiction over the subject
matter of said petition.
“2. That said petition is a sham and is groundless, ficti-
tious, vexatious and constitutes an imposition on the
a
Court and an unjust burden on the Trustee and
said Bankrupt Estate; and that a dismissal of said
petition would be in the furtherance of justice.”
[R. 607-608; D 298.]
On a hearing regularly had before the Referee on De-
cember 30, 1953, the Referee made an order granting the
Trustee’s motion on all grounds above stated. [R. 608; D
301.]
Said petitioners filed a petition to review said last men-
tioned order. [R. 608; D 303.] The order of the Referee
was affirmed, and the petition for review was dismissed
on January 19, 1954. [D 312.]
On March 15, 1954, following the receipt of an amended
bid by Mr. and Mrs. Colter, the Trustee filed an Amended
and Supplemental Petition for Authority to Sell and for
Confirmation of Sale of Real and Personal Property to R.
T. and Robbie E. Colter. [D 366.] Objections thereto
were filed by the bankrupt and certain creditors. [D 380.]
After due notice [D 378], a hearing of said amended
and supplemental petition and said objections thereto was
had on April 6, 1954, at which time, after spirited bidding
at public auction, the property was sold to Mr. and Mrs.
Colter. Thereafter on May 3, 1954, the Referee made
an order vacating the Referee’s prior order of Decem-
ber 9, 1953 (confirming the original bid of R. T. Colter )
confirming the sale to Mr. and Mrs. Colter for the sum of
$407,000.00, taxing costs against the objecting creditors,
and directing the Trustee, upon receipt of said sum, to
convey the property to the Colters. [D 433.]
The bankrupt and certain creditors petitioned for a
review of this order. [D 416.] This review was regular-
ly had before Chief Judge Yankwich of the District Court.
Pree
LAP TEAS SDSS NI eNO eS
—
Judge Yankwich, in his opinion [R. 617-627] affirming
the order of the Referee confirming the sale of the assets
to R. T. and Robbie E. Colter [D 433], calls attention
to the facts (1) that the bankruptcy estate had been pend-
ing for over nineteen years; (2) that Judge McCormick
of the District Court had previously referred to the mat-
ter as a “ ‘protracted’ administration”; (3) that at all
times it had been the contention of the bankrupt that mat-
ters could have been worked out differently; (4) that the _
Referee had correctly stated: “A bankrupt case is a lot |
different than where the property is in private hands. If
the man has property in his own hands not subject to
legal process or creditors’ claims, he can wait indefinitely.
But a bankrupt estate can’t. It is the creditors’ funds and
they are entitled to get paid sometime. The only question
here is haven’t we come to the end of the trail? How
much longer are we going to put the creditors off, how
much longer are they going to be put off before they get
their money? If I had any evidence before me to show
that you could within a reasonably short time—any definite
evidence—get a better buyer, that would be an entirely dif-
ferent situation”; (5) that the two most recent acts in
the bankruptcy proceeding, which occurred before the
present Order of Sale, were opposed upon the same nebu-
lous ground that, as the condition of the estate is improv-
ing, additional time might bring better results; (6) that
Judge McCormick had appended to his order of October
22, 1951, a note to the effect that he had delayed his de-
cision for almost four months to accord to all interested
parties an opportunity “to submit for consideration a
plan or method that is more beneficial and equitable to
the estate than the compromise under review. None such
has been presented or offered”; (7) that on review of the
a ee
Referee’s order of sale of December 9, 1953, the District
Court had referred the matter back to the Referee “for the
purposes of conducting a hearing and if possible obtain-
ing a definite and positive and certain bid for the property;
and if the present bidder desires to withdraw his deposit
within ten days, he may do so, and if he does not, his bid
may be considered when further proceedings are had be-
fore the referee”; (8) that an amended and supplemental
petition for authority to sell had been filed on March 15,
1954, and new notices were given; (9) that petitioners
(consisting of bankrupt and certain creditors) [D 380]
filed objections thereto; and (10) that at the conclusion
of the hearing of said amended and supplemental peti-
tion and said objections thereto the Referee, after bidding
in open court, had confirmed the sale to the Colters, and
had set forth in a 37-page opinion his reasons for so doing.
(See Judge Yankwich’s opinion in 123 Fed. Supp. 95.)
General Order in Bankruptcy 18 requires sales to be
made at public auction. U. S. C., Title 11, Chapter
6, Sec. 94(a) (4), requires notice of sales to be given to
creditors by mail. There is no requirement for advertis-
ing in any newspaper. However, on the sale here in-
volved to Mr. and Mrs. Colter, there was one advertise-
ment by newspaper. In addition thereto, the Trustee per-
sistently endeavored to find a purchaser. [R. 24-45, 50.]
There was spirited bidding at the sale on behalf of Mr.
and Mrs. Colter by their agent, Mr. Zeller, on behalf of
Mr. William Berk by attorney Jerome Weber, and by Mr.
Earl P. Snyder in person. [R. 54-119; 118-119.]
Before the filing by the Trustee of said amended and
supplemental petition, to wit, on March 9, 1954, R. T.
Colter and his wife, Robbie E. Colter, filed an amended
LESSING RS I gE Ak OR OLR TE TET URE ete SARE Rt
LEMON
= a
bid wherein it was stated to be the “intention to make it
conform to the order of the Hon. Paul J. McCormick
United States District Judge, entered February 9, 1954.”
Then follows in detail the amended bid. [D 366.]
In said objection to said last mentioned petition, the ob-
jectors prayed as follows:
“WHEREFORE, your objectors pray that the trustee
be granted no relief as prayed for by him in para-
graphs ‘3’, ‘4’ and ‘6’ of his said amended and sup-
plemental petition; that the offer described in said
petition be rejected; that the assets described therein
be not sold enmasse, or in any manner, or at all; and
that under the direction and guidance of the Court
that the 100% rehabilitation of the bankrupt corpo-
ration be accomplished through one of the reorgani-
zation plans hereinbefore described that will be found
by the Court and the parties interested the best for
the accomplishment of the purposes hereinbefore out-
lined and the dismissal of the bankruptcy proceedings
herein.” [R. 611-612; D 380.]
Mr. Fred P. Newport, who was the president of the
bankrupt at the time its charter was forfeited, has signed
the name of the bankrupt, by him as president, to the
Opposition to Motion to Dismiss the Purported Appeal
to the Court of Appeals.
Throughout those objections, as well as throughout the
bankruptcy, Mr. Newport appears to have considered him-
self as the guiding hand of the bankrupt corporation, and
the administrator of its assets. [R. 656-675.] Prior to
the attempted appeal herein, he always joined with him
certain creditors of the corporation who possessed the
LE ORAE MERE HE AGRE ILI BNL ROR BIG SE SE SENET EN TORN SS METI NS IEA RE SEIS NRE TS ARS ha
_
right to question the acts of the Trustee and the orders
by the Referee and District Court Judges. However, on
the bankrupt’s attempted appeal its prior companions aban-
doned it, and for the first time the bankrupt was left
to stand alone. Since on previous reviews and appeals it
was necessary to determine the matter on the merits, the
right of the bankrupt to participate therein was not ques-
tioned. The attorney who signed the purported notice of q
appeal [R. 593], had never before appeared for the bank- :
rupt. [R. 614.] The purported resolution of the bank-
rupt [R. 594], recites the holding of a special meeting of
the bankrupt corporation on August 10, 1954, and the
passage of a resolution authorizing Milton B. Safier, who
signed the purported notice of appeal, to take said pur-
ported appeal. Between pages 676 and 67 7 of the Record
appears a purported waiver of notice signed by all of the
purported directors of the defunct bankrupt corporation,
purporting to consent to the holding of a “Special Meeting
of the Board of Directors of said corporation” for the
purpose of adopting said purported resolution and another
resolution thereto attached.
If such a meeting was held, it clearly constituted a cor-
porate act, and if valid, would operate to create a new obli-
gation against the defunct corporation for attorney’s fees
and costs and expenses incurred in carrying out the em-
ployment.
We think this was criminal offense under Title 8, Chap-
ter 5, Section 513 of the New Delaware Code which be-
came effective February 12, 1953, elsewhere herein quoted
— oe
The Delaware Statutes Do Not Confer on a Bank-
rupt Corporation Whose Charter Has Become
Void, the Right to Appeal From an Order Author-
izing and Confirming the Sale of the Remaining
Unliquidated Assets of the Bankrupt Corporation
Made Pursuant to a Final Order of Liquidation.
The sections of the Delaware Corporation Franchise
Tax Law, so far as applicable, are Sections 510, 511, 512
and 513 of Title 8, Chapter 5, of the New Delaware Code,
which became effective February 12, 1953. Our examina-
tion of these sections, to the extent quoted below, indicates
that they stand at the present time as they stood (but
numbered differently) in the Revised Code of Delaware
of 1935.
“Section 510. Failure to pay tax for two years;
charter void; extension of time.
“If any corporation, accepting the provisions of
the Constitution of this State and coming under the
provisions of chapter 1 of this title, or any corpora-
tion which has heretofore filed or may hereafter file
a certificate of incorporation under the provisions
of said chapter, neglects or refuses for two consecu-
tive years to pay the State any franchise tax or taxes,
which has or have been, or shall be assessed against
it, or which it is required to pay under the provisions
of this chapter, the charter of the corporation shall be
void, and all powers conferred by law upon the corpo-
ration are declared inoperative, unless the State Tax
Board, for good cause shown to it, gives further time
for the payment of the tax or taxes, in which case a
certificate thereof shall be filed by the Board in the
office of the State Tax Department stating the rea-
son therefor.” (Revised Code of Delaware of 1935,
Ch. 6, Sec. 105, Franchise Tax Law, Sec. 71.)
Ree NCIAS SELENN USI IRE REL NPE, MSDE OPNAN SCTE NYOMI EE RON RAE OANA MIP PROSE READ _
=a
“Sec, 511. Repeal of charters of delinquent corpo-
rations; report to Governor and proclamation.
“On or before the first Tuesday of January in each
year, the State Tax Department shall report to the
Governor a list of all the corporations, which for two
years next preceding such report, have failed, neg-
lected or refused to pay the franchise taxes assessed
against them or due by them, under the laws of this
State, and the Governor shall forthwith issue his proc-
lamation declaring that the charters of these corpora-
tions are repealed.” (Revised Code of Delaware of
1935, Ch. 6, Sec. 106, Franchise Tax Law, Sec. 72.)
“Sec. 512, Filing and publication of proclamation;
noting repeal in recorder’s office.
“The proclamtion of the Governor shall be filed in
the office of the Secretary of State and advertised in
at least one, and not more than three, newspapers
published within this State. Upon the filing of the
proclamation, the Secretary of State shall transmit
forthwith to the recorder of each county of this State
a certified copy of the proclamation, and each recorder
shall, upon receipt of such certified copy, forthwith
mark in brief upon the margin of the record of the
certificate of incorporation of the corporation named
in the proclamation, which is of record in his office,
the fact that the charter of the corporation is re-
pealed, and the date of the repeal.” (Revised Code of
Delaware of 1935, Ch. 6, Sec. 107, Franchise Tax
Law, Sec. 73.)
“See, 513. Acting under proclaimed charter; pen-
alty.
“Whoever exercises or attempts to exercise any pow-
ers under the certificate of incorporation of any cor-
poration which has been proclaimed by the Governor,
after the issuance of the proclamation, shall be fined
—
not more than $1,000 or imprisoned not more than
one year, or both.” (Revised Code of Delaware of
1935, Ch. 6, Sec. 108, Franchise Tax Law, Sec. 74.)
The sections of the Delaware General Corporation Law,
so far as applicable, are Sections 278, 279, 280, 281 and
282 of Subchapter X, and Sections 312 and 314 of Sub-
chapter XII, of Title 8, Chapter 1, of the New Delaware
Code which became effective February 12, 1953. Our
examination of these sections, to the extent quoted below,
indicates that they stand at the present time substantially
as they stood (but numbered differently), in the Revised
Code of Delaware of 1935.
“Sec. 278. Continuation of corporation after dis-
solution for purposes of suit and winding up affairs.
“All corporations,: whether they expire by their
own limitation or otherwise dissolved, shall never-
theless be continued, for the term of three years from
such expiration or dissolution, bodies corporate for
the purpose of prosecuting and defending suits by or
against them, and of enabling them gradually to settle
and close their business, to dispose of and convey their
property, and to divide their capital stock, but not for
the purpose of continuing the business for which the
corporation shall have been established. With re-
spect to any action, suit, or proceeding begun or com-
menced by or against the corporation prior to the ex-
piration or dissolution and with respect to any action,
suit or proceeding begun or commenced by or against
the corporation within three years after the date of
the expiration or dissolution, the corporation shall,
only for the purpose of such actions, suits or proceed-
ings so begun or commenced, be continued bodies cor-
porate beyond the three-year period and until any
judgments, orders, or decrees therein shall be fully
Nag EATER PERE LEA ERLE ES TTS RAN EN EAS ws. Mey ae PAINE SRR RAL ROE Ente a Oe
DADO OPA n iO CR Ae wa: Aste et hat ee re
= =
executed.” (Revised Code of Delaware of 1935, Ch.
65, Sec. 2074, General Corporation Law. Sec. 42,
Laws of Delaware of 1941, Vol. 43, Ch. 132.)
“Sec, 279, Trustees or receivers for dissolved cor-
porations; appointment; powers.
“When any corporation organized under this chap-
ter shall be dissolved in any manner whatever the
Court of Chancery on application of any creditor
or stockholder of the corporation, at any time, may
either appoint one or more of the irectors thereof
trustees, or appoint one or more person to be receiv-
ers, of and for the corporation, to take charge of
the estate and effects thereof, and to collect the debts
and property due and belonging to the corporation,
with power to prosecute and defend, in the name of
the corporation, or otherwise, all such suits as may
be necessary or proper for the purposes aforesaid,
and to appoint an agent or agents under them, and to
do all other acts which might be done by the corpora-
tion, if in being, that may be necessary for the final
settlement of the unfinished business of the corpora-
tion. The powers of the trustees or receivers may be
continued as long as the Court of Chancery shall
think necessary for the purposes aforesaid.” (Re-
vised Code of Delaware of 1935, Ch. 65, Sec. 2075,
General Corporation Law, Sec. 43. Laws of Dela-
ware of 1951, Vol. 48, Ch. 353.)
“Sec, 280. Jurisdiction of court.
“The Court of Chancery shall have jurisdiction of
the application prescribed in section 279 of this title
and of all questions arising in the proceedings there-
on, and may make such ordef's and decrees and issue
injunctions therein as justice and equity shall require.”
(Revised Code of Delaware of 1935, Ch. 65, Sec.
2076, General Corporation Law, Sec. 44.)
“Sec. 281. Duties of trustees or receivers; payment
and distribution to creditors and stockholders.
“The trustees or receivers of a dissolved corpora-
tion, after payment of all allowances, expenses and
costs, and the satisfaction of all special and general
liens upon the funds of the corporation to the extent
of their lawful priority, shall pay the other debts
due from the corporation, if the funds in their hands
shall be sufficient therefor, and if not, they shall
distribute the sarne ratably among all the creditors
who shall prove their debts in the manner that shall
be directed by an order or decree of the court for
that purpose. If there shall be any balance remain-
ing after the payment of the debts and necessary ex-
penses, they shall distribute and pay the same to and
among those who shall be justly entitled thereto, as
having been stockholders of the corporation, or their
legal representatives.” (Revised Code of Delaware
of 1935, Ch. 65, Sec. 2077, General Corporation Law,
Sec. 45.)
“Sec. 282. Abatement of pending actions; sub-
stitution of dissolution trustees or receivers.
“If any corporation organized under this chapter
becomes dissolved by the expiration of its charter or
otherwise, before final judgment obtained in any
action pending or commenced in any court of rec-
ord of this State against the corporation, the action
shall not abate by reason thereof, but the dissolution
of the corporation being suggested upon the record,
and the names of the trustees or receivers of the
corporation being entered upon the record, and notice
thereof served upon the trustees or receivers, or if
such service be impracticable upon the counsel of
record in such case, the action shall proceed to final
judgment against the trustees or receivers by the
name of the corporation.” (Revised Code of Dela-
ware of 1935, Ch. 65, Sec. 2078, General Corpora-
tion Law, Sec. 46.)
“Sec, 312. Renewal, revival, extension and restor-
ation of charter.
“(a) Any corporation existing under the laws of
this State, may, at any time before the expiration of
the time limited for its existence and any corporation
existing under the laws of this State whose charter
has become inoperative by law for non-payment of
taxes and any corportion existing under the laws of
this State whose charter has expired by reason of
failure to renew the same or whose charter has been
renewed, but, through failure to comply strictly with
the provisions of this chapter, the validity of whose
renewal has been brought into question, may at any
time procure an extension, restoration, renewal or re-
vival of its charter, together with all the rights, fran-
chises, privileges and immunities and subject to all
of its duties, debts and liabilities which had been se-
cured or imposed by its original character and all
amendments thereto.
“(b) The extension, restoration, renewal or re-
vival of the charter may be procured by filing with
the Secretary of State a certificate of any two of its
last acting officers or other officers to be elected as
provided in subsection (h) of this section, duly sworn
or affirmed to by such officers before any person au-
thorized by the laws of this State to administer oaths
or affirmations. The certificates shall not be executed
by any officer and his assistant officer, as for in-
stance a secretary and an assistant secretary, and the
two officers executing the certificate shall not be one
and the same person.
EME DSEIT SNe TASTES ES PSII ENON
“(c) The certificate prescribed in subsection (b) of
this section shall state—
(1) The name of the corporation, which name
shall be the existing name of the corporation or
the name it bore when its charter expired, except
as otherwise provided in subsection (f) of this
section ;
(2) The name of the city, town or place
within the county in which its principal office or
place of business is located in this State and the
name of its resident agent and, in towns or
cities of over 6000 inhabitants, the street and
number of its principal office or place of business
and its resident agent;
(3) Whether or not the renewal, restoration
or revival is to be perpetual and if not perpetual
the time for which the renewal, restoration or re-
vival is to continue and, in case of renewal before
the expiration of the time limited for its exist-
ence, the date when the renewal is to commence,
which shall be prior to the date of the expiration
of the old charter which it is desired to renew;
(4) That the corporation desiring to be re-
newed or revived and so renewing or reviving its
charter was duly organized under the laws of
this State;
(5) The date when the charter of the corpo-
ration would expire, if such is the case, or such
other facts as may show that the charter has
become inoperative or void or that the validity
of any renewal has been brought into question;
(6) That the certificate for renewal or re-
vival is filed by authority of those who were
directors or managers of the corporation at the
PTR NG HETIL IRE OE EO ERROR, GF STEIN EMEC I Ws CEM PI VENETN ABO Y “ELON AT —
nets HNC Sle Bia Ed th
=
time its charter expired or who were elected direc-
tors or managers of the corporation as provided
in subsection (h) of this section.
“(d) The certificate shall be filed in the office of
the Secretary of State, who shall furnish a certified
copy of the same under his hand and seal of office.
The certified copy shall be recorded in the office of
the recorder of the county in which the principal
office of the corporation is located in this State, in a
book kept for the purpose. The certificate or a certi-
fied copy thereof duly certified under the hand of the
Secretary of State and his seal of office accompanied
with the certificate of the recorder of the county
wherein the same is recorded under his hand and seal
of office, stating that it has been recorded, the record
of the same in the office of the recorder, or a copy
of the record duly certified by the recorder, or the
record of the certified copy recorded in the recorder’s
office, shall be evidence in all courts of this State.
“(e) Upon the recording of the certificate the cor-
poration shall be renewed and revived with the same
force and effect as if its charter had not become in-
operative and void or had not expired by limitation.
Such reinstatement shall validate all contracts, acts,
matters and things made, done and performed within
the scope of its charter by the corporation, its officers
and agents during the time when its charter was in-
operative or void or after its expiration by limitation,
with the same force and effect and to all intents and
purposes as if the charter had at all times remained
in full force and effect. All real and personal prop-
erty, rights and credits, which belonged to the corpo-
ration at the time its charter became inoperative or
void, or expired by limitation and which were not
disposed of prior to the time of its revival or re-
newal shall be vested in the corporation, after its re-
si a a ae ae
revival and renewal, as fully and amply as they
were held by the corporation at and before the time
its charter became inoperative or void or expired by
limitation, and the corporation after its renewal and
revival shall be as exclusively liable for all contracts,
acts, matters and things made, done or performed in
its name and on its behalf by its officers and agents
prior to its reinstatement, as if its charter had at all
times remained in full force and effort.
—22—
“(f) If, since the charter became inoperative or
void for nonpayment of taxes or expired by limita-
tions, any other corporation organized under the
laws of this State shall have adopted the same name
as the corporation sought to be renewed or revived
or shall have adopted a name so nearly similar there-
to as not to distinguish it from the corporation re-
newed or revived under the provisions of this sec-
tion, then, in such case the renewed or revived corpo-
ration shall not be renewed under the same name
which it bore when its charter became inoperative
or void or expired but shall adopt and be renewed
under some other name which, under existing law,
could be adopted by a corporation formed and organ-
ized under the provisions of this chapter and in
such case the certificate to be filed under the provi-
sions of this section shall set forth the name borne
by the corporation at the time its charter became in-
operative or void or expired and the new name under
which the corporation is to be renewed or revived.
“(g) Any corporation seeking to renew or revive
its charter under the provisions of this chapter shall
pay to this State, in lieu of and in full satisfaction of
all franchise taxes and penalties thereon due this State,
a sum equal to all franchise taxes and penalties there-
on due at the time its charter became inoperative
and void for nonpayment of taxes, or expired by limi-
Re ortN —
PSR ERAL TE LAINE TRL SME GET OME LM OORT RY AE Lo PO RAEN BATA
aad
tation or otherwise and shall present to the Secretary
of State, together with its certificate of renewal or
revival, proof of the payment to the Tax Department
of this State.
“(h) If only one or none of the last acting officers
of any corporation desiring to renew or revive its
charter is available by reason of death, unknown ad-
dress or refusal or neglect to act at the time of its
renewal, the directors of the corporation, or those re-
maining on the board if not less than three, may
elect a successor to the officer or officers who are dead
or whose addresses are unknown or who refuse or
neglect to act. In any case where there shall be less
than three directors of the corporation available for
the purposes aforesaid, by reason of death, unknown
address or refusal or neglect to act, the stockholders
of the corporation may elect as many directors as
may be necessary, together with the directors who
are ready and willing to act, to constitute a board
of three directors or they may elect a full board of
directors, as provided by the by-laws of the corpo-
ration, and the board may elect successors to the
officers who are deceased or whose addresses are un-
«nown or who refuse or neglect to act. A meeting
of the directors of the corporation for the election of
officers may be called by any officer or any director
upon ten days’ written notice delivered personally or
mailed to the last known post office address of each
director. A meeting of the stockholders for the pur-
pose of electing directors may be called by any of-
ficer, director or stockholder upon ten days’ written
notice delivered or mailed to the last known post office
address of each stockholder. Any two of the officers
may then take all steps and do all things necessary
and proper to be done for the renewal or revival of
the existence of the corporation as provided in this
section.
ene
_
“(i) After a renewal or revival of the charter of
the corporation shall have been effected, the two of-
ficers who signed the certificate of renewal or re-
vival shall, jointly, forthwith call a meeting of the
stockholders of the corporation upon not less than
ten days’ written notice, and at the meeting the stock-
holders shall elect a full board of directors, which
board shall then elect such officers as are provided
by law, by the charter or the by-laws to conduct and
carry on the business and affairs of the corporation.
* * *” (Revised Code of Delaware of 1935, Ch.
65, Secs. 2106 and 2107, General Corporation Law,
Secs. 74 and 75, Laws of Delaware of 1945, Vol. 45,
Ch. 158.)
“Sec. 314. Status of corporation.
“Any corporation desiring to renew, extend and
continue its corporate existence, shall upon comply-
ing with the provisions of sections 312 or 313 of
this title, and with the provisions of section 2 of
Article IX of the Constitution of this State, be and
continue for the time stated in its certificate of re-
newal, a corporation and shall, in addition to the
rights, privileges and immunities conferred by its
original charter, possess and enjoy all the benefits
of this chapter, which are applicable to the nature of
its business, and shall be subject to the restrictions
and liabilities by this chapter imposed on such cor-
porations.” (Revised Code of Delaware of 1935,
Ch. 65, Sec. 2109, General Corporation Law, Sec. 77.)
We have shown by Exhibit E attached following R.
638 that the bankrupt became inoperative and void on
April 1, 1937, for nonpayment of taxes, that it was pro-
claimed by the Governor on January 24, 1938, and that
no reinstatement proceeding had been instituted on August
PENIS EIS LEER LOTTO IT SLI HE IST 9 ie
=
19, 1954, a date subsequent to the purported appeal to
the Court of Appeals. Petitioner inferentially freely ad-
mits that no such proceeding has been had or initiated.
Said Section 510, supra, provides that if a Delaware cor-
poration “neglects or refuses for two consecutive years to
pay the State any franchise tax or taxes, +s ee
charter of the corporation shall be void, and all powers
conferred by law upon the corporation are declared in-
operative, * * *.”
Section 511, supra, provides for a declaration by the
Governor declaring that the charter of all such corpora-
tions are repealed.
Section 512, supra, provides for the filing of such procla-
mation with the Secretary of State, and for the transmittal
of a certified copy thereof to each county in the state and
a recordation thereof by the recorder of each county.
Section 513, supra, provides that whoever exercises or
attempts to exercise any powers under a certificate of
incorporation, after the issuance of such proclamation by
the Governor, shall be fined or imprisoned, or both.
Section 278, supra, when read in connection with the
sections following it, shows quite clearly that the litiga-
tion therein referred to is litigation in the courts of
Delaware. That section provides that dissolved corpora-
tions continue for three years after “dissolution, bodies
corporate for the purpose of prosecuting and defending
suits by or against them, and of enabling them gradually
to settle and close their business, to dispose of and convey
their property, and to divide their capital stock, but not
for the purpose of continuing the business for which the
corporation was formed.” This section makes further pro-
visions to the effect that such dissolved corporations, as to
a ae ee ae
= =
actions, suits or proceedings commenced against the corpo-
ration before or within three years after dissolution, shall,
only for the purpose of such actions, suits or proceedings,
be continued corporate bodies until any judgments, orders
or decrees therein shall be fully executed. (Emphasis
added. )
Section 279, supra, provides that as to any such dis-
solved corporation, the Court of Chancery, on application
of any creditor or stockholder of the corporation “may
either appoint one or more of the directors thereof trustees,
or appoint one or more persons to be receivers, of and
for the corporation, to take charge of the estate and effects
thereof, and to collect the debts and property due and be-
longing to the corporation” with power to defend and
prosecute suits “in the name of the corporation, or other-
wise. * * * that may be necessary for the final set-
tlement of the unfinished business of the corporation.”
Section 280, supra, provides that the Court of Chancery
shall have jurisdiction of the application under said Sec-
tion 279.
Section 281, supra, prescribes the duties of trustees and
receivers of dissolved corporations, and the use by them
of the funds of the corporation, after the payment of prior
charges, with which to “pay the other debts due from
the corporation, if the funds in their hands shall be suf-
ficient therefor, and if not, they shall distribute the same
ratably among all the creditors who shall prove their debts
in the manner that shall be directed by an order or decree
of the court for that purpose. If there shall be any bal-
ance remaining * * *, they shall distribute and pay the
same to * * * (the) stockholders of the corporation
* * *” (not to the corporation). (Emphasis added. )
ENN AMAL ORISA LEG PETES LESTE INE ara RONG ENON GROEN RR RENIN. CNNSI CIARRT a ~
-_
The capital of a corporation upon dissolution becomes a
fund for the payment of creditors and stockholders.
At common law, a corporation not holding meetings of
stockholders became not legally dead but dormant, capable
of being revived but incapable of corporate action without
such revival. (Higgins to Use of Wil. & Reading R. R.
Co. v. Downward & Sons, 8 Houst. 227, 14 Atl. 720, 32
Atl. 133 (1888).)
Where the charter of a corporation was declared void
for non-payment of franchise taxes, the corporation may
be continued under Section 42 (now Sec. 278 of said Title
8) in order to wind up its affairs. (Big Sespe Oil Co. v.
Cochran, 276 Fed. 216 (C. C. A. 9th, 1921).)
Section 42 (now Sec. 278 of said Title 8), which con-
tinues a corporation’s existence for three years after re-
peal of its charter for the limited purpose of prosecuting
and defending suits and winding up its business, applies
to a corporation whose charter has become inoperative
and void for non-payment of its franchise tax. (United
Automatic Rifle Corp. v. Johnson, 41 Fed. Supp. 86 (D.
C., Mass., 1941).)
Section 282, supra, provides that if any action pending
in the state court has not been reduced to final judgment,
the action is to be continued in “the names of the trustees
or receivers of the corporation * * *.”
In short, Sections 278-282, supra, all fall under Title
8, Chapter 5, Subchapter X of the Delaware Corporation
Franchise Tax Law, effective February 12, 1953, which
Subchapter X is entitled “Sale of Assets; Dissolution and
Winding Up,” and all relate to such actions and proceed-
ings in the State Courts of Delaware.
Be IL HN A, a 5c a a a ee at
aD CS 1 Per ee ar
—
Before those sections could apply, the dissolved bankrupt
corporation would have to be possessed of an estate to be
administered and wound up. In the case at bar the bank-
rupt was adjudicated on January 12, 1937, by consent of
the bankrupt, on an involuntary petition filed on March
19, 1935. On January 12, 1937, the title to all of the
bankrupt’s assets vested in the Trustee, effective as of
March 19, 1935, and ever since adjudication such assets
have been administered. thereunder by the Trustee.
Up until 1952, when the order for liquidation was made,
the estate of the bankrupt was being administered as a go-
ing business, within the meaning of Section 52 of the
Revenue Act of 1938. (See United States v. Metcalf,
131 F. 2d 677.)
Had such operation been carried on by the Trustee under
said Section 278, supra (which provides for continuing
corporate capacity to perform certain specific acts for cer-
tain designated purposes, “but not for the purpose of con-
tinuing the business for which the corporation shall have
been established”), such operation would have been in
excess of the powers granted under said Section 278 and
would have been illegal under Section 513, supra.
The proceeding to have the defunct corporation declared
bankrupt, terminated and became final on January 12,
1937, when the corporation was adjudicated bankrupt
with the consent of the bankrupt. Its charter became in-
operative and void on April 1, 1937. The petition for
liquidation was not filed until April 14, 1952. The order
of liquidation was made on May 26, 1952, was taken up
on review and affirmed on November 28, 1952. No appeal
therefrom was taken and it long since has become and
remains final.
PNR EA a RAT SRE HENNE OH URE REI SRN RARE SABA SF ORR ENS, STE IR NG IGOR PRM HES GNA EN STENT ARES ary : —
— 29
The petition for liquidation was neither “an action,
suit, or proceeding begun or commenced by or against the
corporation prior to * * * dissolution * * * (nor
was it) begun or commenced by or against the corporation
within three years after the date of the * * * dissolu-
tion * * *,” and consequently did not operate to keep
the corporation alive for the purpose of that petition, with-
in the meaning of the last sentence of said Section 278,
supra.
Neither was the petition for approval and confirmation
of sale of the bankrupt’s unliquidated assets, nor the
amended and supplemental petition for sale and confirma-
tion of sale of those assets, an action, suit or proceeding
against the corporation.
In the case of Harned v. Beacon Hill Real Estate Co.,
9 Del. Ch. 411, 84 Atl. 229 (1912), the Supreme Court
of Delaware, at pp. 422-423, explained the purpose of
Section 278, supra, as follows:
“* %* * While a dissolved corporation is not con-
tinued for the purpose of doing the business for which
it was created, it continues in order that, for the period
of three years, the corporation itself may settle and
close its business, and, if it fails so to do, that there-
after its creditors and stockholders may, by applica-
tion to the Court of Chancery, secure the appointment
of trustees or receivers who shall make final settle-
ment of the unfinished business of the corporation.
And any property which may not have been disposed
of by the company before dissolution, or during the
succeeding three years, is not lost, but remains the
property of the corporation, so that it may be sold
and disposed of for the benefit of creditors and stock-
holders.” (Emphasis added.)
=—
The Trustee was simply pursuing his duties under the
Bankruptcy Act and said order for liquidation and dis-
tribution of the assets of the bankrupt estate then owned
and possessed by the Trustee when he proceeded with the
liquidating sale.
The proceeding was in its nature a proceeding in rem
and not in personam, and did not even require notice to the
bankrupt, as distinguished from the creditors. (U.S. C.,
Title 11, Ch. 6, Sec. 94a; 6 Am. Jur. 569, Sec. 26; Local
Loan Co. v. Hunt, 229 U. S. 294, 78 L. Ed. 1230, 93
A. L. R. 195.)
It occurs to us that the question of whether state
statutes and state decisions can be given any effect in
matters involving the assets of a bankrupt estate in the
administration thereof, was put at rest in Gross v. Irving
Trust Co., 289 U. S. 342-345, 77 L. Ed. 1243, at 1244-
1245. In that case a receiver had been appointed for a
corporation which later became bankrupt. The receiver
took over the assets and proceeded with the performance
of iis duties. After adjudication in bankruptcy, the
trustee so'd all of the bankrupt’s assets, including those
involved in the receivership, and the receiver, according
to the state law and decisions, applied to the state court
for an order fixing their fees, which order was granted.
Thereafter the federal district court ordered the receiver
and attorneys to account to it for their fees. The trustee
claimed that the state court order was void and in violation
of the Bankruptcy Act. This claim was upheld by the
District Court and affirmed by the Circuit Court. Certio-
rari was granted by the United States Supreme Court. At
pages 1244-1245 the Supreme Court said:
“The sole question presented for our determination
is: Did the state chancery court have the power to fix
RRL ERSY TRL a
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the compensation of its receivers and their counsel
after bankruptcy had supervened within four months
of the filing of the bill of complaint in, and the ap-
pointment of receivers by, that court?
“The state courts of New Jersey have steadily held
in the affirmative, and that view is not without sup-
port. We deem it unnecessary, however, to review
these decisions. They are not in harmony with the
views expressed by this court or with other decisions,
which in our opinion, state the true rule.
“Upon adjudication of bankruptcy, title to all the
property of the bankrupt, wherever situated, vests in
the trustee as of the date of filing the petition in
bankruptcy. The bankruptcy court has exclusive
jurisdiction, and that court’s possesssion and control
of the estate cannot be affected by proceedings in
other courts, state or federal. Isaacs v. Hobbs Tie
& Timber Co., 282 U. S. 734, 737, 75 L. Ed. 645, 660,
51 S. Ct. 270, and cases cited. Such jurisdiction
having attached, control of the administration of the
estate cannot be surrendered even by the court itself.
Id., 739. ‘The filing of the petition is a caveat to all
the world and in fact an attachment and an injunc-
tion.” May v. Henderson, 268 U. S. 111, 117, 69
L. Ed., 870, 874, 45 S. Ct. 456, and citations. And
see generally Moore v. Scott (C. C. A. 9th) 55 F. 2d
863; Re Diamond (C. C. A. 6th) 259 Fed. 70, 44 Am.
Bankr. Rep. 268.”
Thus it appears that the very things which, under Sec-
tion 278, the dissolved corporation, its receiver or trustee
are allowed to do and perform after dissolution are the
same things which the trustee in bankruptcy is required
to do and perform.
The bankrupt possesses no greater rights in California
than it possesses in Delaware where it was incorporated.
Rp cy
In Fidelity Metals Corp. v. Risley, 77 Cal. App. 2d 377,
at 381, the court concisely stated this principle in the
following language:
“Tt appears to be settled law that the effect of the
dissolution of a corporation, or its expiration other-
wise, depends upon the law of its domicile. (Restate-
ment, Conflict of Laws, pp. 228-229, §158; 20 C. J. S.,
pp. 128-129, §§1899, 1900), and that a defunct
foreign corporation has no greater capacity or higher
standing to commence or maintain an action in the
state of the forum than it would have in the state of
its domicile.” (See also Rule 17(b) F. R. C. P.)
A Dissolved and Defunct Corporation Is Without
Right or Power to Do Any Act Necessary to
Effect a Valid Appeal From an Order Authorizing
and Confirming a Liquidating Sale of Remaining
Assets, Exclusive of Cash, Under a Final Order
of Liquidation; and the Same Rule Should Apply
to Every Bankrupt, Natural or Corporate.
This corporation became bankrupt as of March 19, 1935
(the date of filing of the petition upon which the corpora-
tion, with its consent, was adjudicated a bankrupt on Jan-
uary 12, 1937, and before its dissolution), and on that date
the title to all of its assets passed by operation of law to
the trustee in bankruptcy. (Jn re Sawilowsky, 284 Fed.
975 (U. S. D. C. Fla); Sec. 70a of the Bankruptcy
Act, U. S. C., Title 11, Ch. 7, Sec. 110.)
In the Sawilowsky case, just cited, the court at pages
975-976 said:
“In the instant case if the trade name did pass to
the trustee, there was no abandonment, and the cases
bearing upon that question are not in point. In the
instant case the trade name and good will were ap-
a la i po Tas ae OE eee ee ee ey X
-_— =
propriated and sold for the benefit of the creditors.
As I have had occasion heretofore to point out (284
Fed. 158), the bankrupt, having parted with his
property for the benefit of his creditors, can have no
interest in the method of the disposal of same, and is
not a person interested, who can have a review of
the order of the referee confirming a sale of same.”
The Circuit Court of Appeals, Fifth Circuit, in 288
Fed. 533, refused to disturb the decision of the District
Court last above quoted from.
In re Settem, 118 Fed. Supp. 897 at 898 (1954), the
Sawilowsky case was cited in support of the following text:
“Petitioner’s right to review is somewhat doubt-
ful, for he has parted with his property rights for the
benefit of his creditors, and retains no interest therein.
The property in the bankrupt estate has passed to
petitioner’s trustee.”
The findings, conclusions and order of the referee were
adopted and affirmed.
In Ruckel v. Metropolitan Life Ins. Co., 240 Pac. 409,
at 410, the Supreme Court of Kansas said:
“Once the federal trustee in bankruptcy has taken
charge of an insolvent corporation’s assets, business
and affairs, pursuant to federal law, the corporation’s
officers and board of directors have no further official
concern with it, unless and until it is financially re-
habilitated and surrendered to their custody by order
of the bankruptcy court.” (Emphasis added.)
In Berl v. Crutcher, 60 F. 2d 440, a Delaware corpora-
tion acquired certain oil leases in East Texas. Subsequently
it was adjudged bankrupt. Two years later it became
defunct for failure to pay its Delaware franchise taxes.
baa EPPE NPR AE VEIT BI INE LIT ELI EIS NT PII GENE BELO IGE
The trustee abandoned the leases as worthless. The re-
tained estate was administered and closed and the trustee
was discharged. After several years oil was discovered
on the land. The former stockholders and officers of the
corporation, believing that the abandoned assets had fallen
back to the corporation, revived or caused the corporation’s
charter to be revived by a Mr. Turner, a former stock-
holder and official of the corporation, by paying the de-
linquent taxes. Thereupon, the creditors in the original
bankruptcy proceeding moved in, the bankruptcy was re-
opened, a new receiver or trustee was appointed, and took
possession of the abandoned assets. There were subse-
quent proceedings in the bankruptcy court and the case
went up to the Circuit Court. One of the questions on
appeal was whether there was any validity in the acts of
the officers of the dissolved corporation, which had been
defunct for many years, in taking steps to revive it, and
other corporate action which had a bearing on the pro-
cedure.
The Circuit Court at page 444 of its decision made the
following comment:
“Tt is the general rule in the United States that,
where the charter or by-laws of a corporation pro-
vide for the annual election of officers and directors,
and no election is held, the former officers hold over
until their successors are elected. But this applies
to a going concern, where there is no break in the
exercise of the duties of the officers and directors. In
this case the by-laws provide for annual elections of
officers and directors by the stockholders. Since the
date of bankruptcy, January, 1923, there have been
no meetings of stockholders and no elections. The
corporation was insolvent, and with the adjudication
in bankruptcy all of its property passed out of its con-
se Pd 5 MSE ESN wei syomsins —
PRL TE POR Ne ee Re Te
=v
trol, and the officers and directors ceased to function.
Its charter was repealed two years after bankruptcy.
When that occurred, the corporation might be con-
sidered dissolved by operation of law. * * * We
are not required to determine whether the act of
Turner in having the charter revived again vested
the corporation with legal existence, but it would be
ridiculous to say that the former officers and directors
have any authority at this time to represent the cor-
poration or its stockholders in any disposition of its
property. Any authority they may be given here-
after must come from the stockholders.”
RO hey ne Pe ae ae
BM eT TG EL A I EE
Thus again we have a judicial recognition that after the
dissolution of a Delaware corporation its officers and direc-
tors are without power to act and that any such power
must come from the stockholders.
This brings us to a consideration of whether the officers
or directors of the dissolved bankrupt corporation pos-
sessed any power or authority to adopt the purported reso-
lution of the dissolved bankrupt corporation attached to
the purported notice of appeal filed herein. [R. 593, 594.]
We claim that the purported resolution was a nullity and
that the purported appeal based thereon is also a nullity.
The purported resolution reads as follows:
“Resolution
“At a special meeting of the F. P. Newport Cor-
poration, Ltd., held on August 10th, 1954, the fol-
lowing resolution was adopted:
“ResoLveD, that Milton B. Safier be and he is
hereby employed and designated as counsellor and
attorney-at-law to file notice of appeal from the
judgments and orders of Judge Leon R. Yankwich,
and each of them, as affecting the F. P. Newport
Corporation, Ltd., signed and dated July 13, 1954,
to the United States Court of Appeals for the Ninth
Circuit and he is directed and authorized to file any
and all notices of appeal, cost bonds and other neces-
sary papers in connection with the said appeal.
“He is further authorized to associate with him
on the appeal any attorney or attorneys who he may
thereafter select.
“Dated at Los Angeles, California, this 10th day
of August, 1954.
F. P. Newport
President
(SEAL) F. P. Newport Corporation, Ltd.
J. B. Gribble
Secretary
F. P. Newport Corporation, Ltd.”
It will be noted that this purports to be a resolution of
the dissolved bankrupt corporation passed at a special
meeting of that corporation (not of its stockholders) held
on August 10, 1954. It purports to set forth a corporate
act which the defunct corporation is incapable of per- ©
forming. On its face it purports to be a corporate act
employing an attorney to appeal to the Court of Appeals
from the orders designated in the purported notice of
appeal [R. 593] made by the District Court. It will be
noted from the affidavit of Mr. Norman A. Bailie filed in
support of the motion to dismiss appeal [R. 603, 614]
that Mr. Milton B. Safier who signed the notice of appeal
to the Court of Appeals had never before appeared as
attorney for the bankrupt corporation in any of the bank-
=
ruptcy proceedings, and that Mr. L. M. Cahill had ap-
peared as attorney for the bankrupt (and certain objecting
creditors) in all prior proceedings involved in this bank-
ruptcy.
If such employment were held to be a lawful act of the
defunct corporation, the resolution contains an implied
obligation to pay for the services performed by the at-
torney in the course of such employment, and thus the
contracting of a new obligation not for any purpose of
liquidating any assets of the bankrupt estate, but to pre-
vent such liquidation and thus to delay the Trustee in the
performance of his duties both under the order of liquida-
tion and under the Bankruptcy Act. We think that neither
the defunct corporation, its former officers or directors
possess any such power.
We can see no escape from the conclusions (1) that the
purported resolution is a nullity; (2) that the purported
corporate act is not one which the dissolved bankrupt
corporation is authorized to perform in view of the finality
of the order of liquidation; and (3) that the purported
resolution and the purported appeal based thereon were
designed solely for the purpose of further delaying the
Trustee in the performance of his duties under the Bank-
ruptcy Act and in the execution of the final orders of
the, bankruptcy court designed to accomplish the expedi-
tious liquidation of the assets and the winding up of the
bankrupt estate.
We believe the authorities heretofore cited by us herein
support the foregoing conclusions.
— =
The Remaining Assets of the Bankrupt Estate Are
Insufficient to Discharge the Approved Unsecured
and Unpaid Claims, the Interest Due Thereon,
and the Remaining Costs, Fees and Expenses of
Administration.
The assets of the estate, as shown by the affidavit of
Mr. Norman A. Bailie [R. 603] in support of the Trus-
tee’s motion to dismiss the purported appeal, consist of
$407,000.00 payable under the order appealed from, plus
$17,275.46 in the hands of the Trustee, aggregating the
sum of $424,275.46.
The certificate of Referee Dickson [R. 633] filed in
support of said motion, shows the approved, unsecured and
unpaid claims against this estate amount, in the aggregate,
to the sum of $187,906.84. Interest thereon from the
19th day of March, 1935, to and including the 19th day
of October, 1954, computed at the legal rate of 7% per
annum, aggregates $257,586.96, aggregating, principal
and interest $445,493.80.
With respect to the allowance of this interest, we quote
an excerpt from Judge Yankwich’s memorandum opinion
[R. 617] rendered by him on the review of the Referee’s
order confirming the sale of the assets:
“The Referee was also right in allowing interest to
the unsecured creditors. In all liquidations, whether
under bankruptcy or other statutes, if there be a
surplus in the estate, interest is allowed on unsecured
claims. (See Jn re John Osborn’s Sons & Co., Inc.,
2 Cir., 1910, 177 Fed. 184; Johnson v. Norris, 1911,
5 Cir., 190 Fed. 459, 463-465; American Iron &
Steel Mfg. Co. v. Seaboard Airline Ry., 1914, 233
EL IY SED ES FPR IN TE MIN IEEE MY FO IEA ENLISTED IS AS EN LIENS IS _—
=
U. S. 261; Federal Deposit Ins. Corp. v. Citizens
State Bank of Niangua, 1942, 8 Cir., 130 F. 2d 102;
Ticonic Bank v. Sprague, 1938, 303 U. S. 406, 410-
411; Fujikawa v. Sunrise Soda Water Works, 1946,
9 Cir., 158 F. 2d 490, 494-495; Heightstown Rug Co.
v. National Savings and Trust Co., 1947, U. S. App.
D. C., 162 F. 2d 10.)
“The theory behind the cases is that regardless of
any direct agreement, interest is due the creditor the
moment his debt becomes due and is not paid. If the
estate, whether in bankruptcy, receivership, or sta-
tutory liquidation, is insolvent, the interest, although
it runs during the period when the assets are insuf-
ficient to pay the principal of the claims, will not be
paid. But if there is a surplus, interest will be paid.
And this rule applies whether the liquidation is
brought about by the voluntary act of the debtor or
by the act of creditors or statutory liquidating au-
thorities. The objection to interest reveals once more
the inconsistency in the attitude of the bankrupt in
this case. On the one hand, after it has succeeded
in keeping the estate in court for nearly twenty years,
it still insists that the period should be extended
further and the sale of all the remaining assets be
denied approval by the Court. Yet it would deny
to its unsecured creditors the right to receive interest
during the long period of this administration. One
does not have the right to do business at the expense
of one’s creditors: And where the creditors have
been denied the right to receive their principal debt
when due, and through good management or good
fortune, a surplus exists, it is more consonant with the
equitable principles of bankruptcy that the surplus
be used to pay interest to the creditors rather than
that it be turned over to the bankrupt.”
—
—
In Mr. Bailie’s said affidavit, at Reporter’s Transcript
615, it is pointed out that no fees for the Trustee’s attor-
neys have been applied for or approved (a) for any ser-
vices rendered by said attorneys in connection with the
proceedings for the sale of the assets to Mr. Colter or to
Mr. and Mrs. Colter; or (b) for any services rendered
by said attorneys subsequent to October 31, 1953. There
also remain to be allowed and paid (1) the costs and
expenses of the pending litigation, including attorneys’
fees, and (2) the usual Referee’s and Trustee’s fees, which
have accrued and will continue to accrue until the bank-
rupt estate is fully wound up and finally settled. It is
safe to assume that pending that event fees, costs and
expenses will aggregate many thousands of dollars.
Section 22 of Article XX of Treadwell’s Constitution
of California, as amended on November 6, 1934, so far
as applicable reads:
“Art. XX, §22. Interest rates. (See preceding
section bearing same number.*) The rate of interest
upon the loan or forbearance of any money, goods
or things in action, or on accounts after demand or
judgment rendered in any court of the State, shall
be seven per cent per annum but it shall be competent
for the parties to any loan or forbearance of anv
money, goods or things in action to contract in writ-
ing for a rate of interest not exceeding ten per cent
per annum.”
*An earlier section of this Article XX, pertaining to “Intoxi-
cating Liquors,” was adopted in 1932, so that there presently ap-
pear under Article XX two Sections 22.
SRS KRG RAE NT ise YY Fae Nee A LG Nahe ee Et ek Ala tee ed ee —
_
The law applicable to the allowance of interest on al-
lowed claims, where there is more than sufficient to pay
the principal of such claims, is concisely set forth in 6
American Jurisprudence, at pages 840-841, Section 494,
as follows:
“Sec, 494.—Surplus of Assets over Claims.—If
it should happen, as it rarely does in bankruptcy,
that the assets are sufficient to leave a surplus after
payment of all claims in full, interest is allowable
on claims duly proved and allowed from the date of
the filing of the petition in bankruptcy to the date
of payment. Interest on claims accruing after the
filing of the petition in bankruptcy is payable before
the distribution of surplus to the bankrupt, although
the contracts upon which the claims are based do
not expressly provide for interest, and no demand for
after-accruing interest was made by claimant. The
trustee is entitled to retain possession of the assets
until he has accumulated funds enough to satisfy such
interest. It has been held further that interest should
be computed according to the ordinary rule for the
computation of interest where partial payments have
been made on an interest-bearing debt—that is, a
payment is first to be applied to discharge the interest
then due on the principal obligation, and the re-
mainder in reduction of the principal indebtedness.
The bankrupt cannot object to the payment of interest
accruing on claims from the time of filing of the pe-
tition, where there is a surplus remaining after the
payment of all claims proved, on the ground of the
discharge granted him in bankruptcy.
“The allowance of a claim in bankruptcy is a judg-
ment within the rule that judgments in the courts of
the United States bear the same rate of interest as
judgments in the courts of the state, respectively,
where they are rendered.”
UES RRARRRIIN ere Pate Oe me RE AMEN DEAE IE oO OOD RCN SONS DA
ATP NIH aI 959 SONAR BPP eR Ce a ORNS ICRI HANNE
a oe
The California case of Greva v. Rainey, 2 Cal. 2d 338,
at 342-343, follows the principles quoted in the above text.
We quote briefly therefrom:
“At common law interest was not recoverable. (See
National Bank of the Commonwealth v. Mechanics’
Nat. Bank, 94 U. S. 437, 24 L. Ed. 176.) In cases
where the special statute involved is silent on the
question of interest, a host of authorities appears to
have settled the question by the application of the
general statutes providing for interest in upholding
the right of the creditors to recover interest on their
claims whenever a surplus of corporate assets re-
mains, before any distribution of such surplus assets
is made to the stockholders of the corporation.
“In the case of State v. Park Bank & Trust Co.,
151 Tenn. 195, 268 S. W. 638, 29 A. L. R. 449,
* * * it was also decided that demand for such
interest is unnecessary, but that the interest was prop-
erly computed from the date of suspension of busi-
ness. That case and the cases cited in the annotation
following the report in 49 A. L. R., at pages 457
et seq., disclose that the general rule that after prop-
erty of an insolvent is in custodia legis interest there-
after accruing will not be allowed, is not applicable
where the assets of the debtor are sufficient to pay
the claims with interest. * * *
“In Johnson v. Norris, 190 Fed. 459, 111 C. C. A.
291, L. R. A. 1915B, 884 (certiorari denied, 232
U.S. 723, 34 Sup. Ct. 479, 58 L. Ed. 815), it is pointed
out that were the rule otherwise the extraordinary
result would follow that a delay in payment brought
about by a proceeding to liquidate assets to satisfy
the claims of creditors would prevent the creditors’
collecting interest from an estate able to pay it, when
the general law is that interest is given for delay
Reyer Doi % ELIE N TREY PE IONE IHRE IGE POA N OS LN LPR IEIBIE IS —
— =
in payment. The remark made by the court in Brown
v. Lamb, 6 Met. (Mass.) 203, that ‘he becomes in
fact a solvent debtor, and his duties and obligations
are the same with those of other solvent debtors’,
becomes pertinent in any case involving a liquidation
proceeding where sufficient assets remain to pay in-
terest on the claims of creditors and there is no ex-
press statutory provision withholding application of
the general laws that interest at the legal rate is
payable.”
Greva v. Rainey, supra, at page 344, discusses the cases
of People v. American Loan & Trust Co., 172 N. Y. 371,
65 N. E. 200, and People v. Merchants’ Trust Co., 187
N. Y. 293, 79 N. E. 1004, as follows:
“In commenting upon the statement in People v.
American Loan & Trust Co., supra, that ‘if the assets
are sufficient to pay all, including interest, it must
be paid, for, as against the corporation itself, interest
should be allowed before the return of any surplus
to the stockholders,’ the court in People v. Merchant’s
Trust Co., supra, said: ‘It may be admitted that these
remarks were unnecessary to the disposition of the
case then under consideration, but the rule thus as-
serted appears to us to be so eminently just and so
well supported by other authority that we now have
no hesitancy in adopting it as the rule that should
be adhered to in disposing of questions of this char.
acter,’ citing other cases.”
Greva v. Rainey, supra, is quoted from and followed by
the Ninth Circuit Court of Appeals in the case of Kiyoi-
choi Fujikawa v. Sunrise Soda Water Wks. Co., 158 F.
2d 490 (1946). In this last case the Supreme Court of the
United States denied an application for a writ of certio-
ari (331 U. S. 832, 91 L. Ed. 1846). On January 12,
— REPEL BLN A
PIS —
Bik AO CO ah AR ARSENE Nd GL NR AS RAE CRIMES. 5 MARSA EN CAH Se AO AAS BRMCT TE IRL tka D8 9
="
1948, the same court denied a motion for leave to file a
second petition for a rehearing. (332 U. S. 853, 92 L. Ed.
422.)
Petitioner appears to urge that the unsecured claims
were not allowed until long after bankruptcy, and should
not in any event bear interest prior to the court order
formally allowing them.
We think petitioner has a false conception respecting
the allowance of such claims. It is our position that a
sworn proof of claim is allowed when filed except to the
extent that objections thereto are subsequently sustained;
that the hearing is on the objections and not on the claim;
and, that the claim, to the extent not affected by the sus-
tained objections stands and bears interest from the date
that the petition in bankruptcy was filed.
In Edward B. Whitney, as Trustee in Bankruptcy of
Dresser & Co. v. Emma B. Dresser, 200 U. S. 532-535,
50 L. Ed. 584-585, it is said:
“The only question warranting the appeal is
whether the sworn proof of claim is prima facie evi-
dence of its allegations in case it is objected to. It
is not a question of the burden of proof in a technical
sense,—a burden which does not change, whatever
the state of the evidence,—but simply whether the
sworn proof is evidence at all.
“The circuit court of appeals observed that the
proof of claim warrants the payment of a dividend
in the absence of objection, and, therefore, must have
some probative force. In reply it is argued that what
is done in default of opposition is no test of what is
evidence when opposition is made; that a judgment
PERT OPE ABN BAS AA, BE A RES ER LOIN SMR CASE RE PLEMENT LYS Sees ayo Bis
melon
may be entered on a declaration for want of an an-
swer, yet a declaration is not evidence; that it is con-
trary to analogy to give effect to an ex parte affidavit,
and that, on general principles, it is the right of
any party against whom a claim is made to have it
proved, not only upon oath, but subject to cross-
examination.
“Notwithstanding these forcible considerations, we
agree with the circuit court of appeals. The pre-
vailing opinion, not only in the second circuit, but
elsewhere, seems to have been that way.” (Citing
cases) . . . “The alternative would be that the
mere interposition of an objection by any party in
interest (§57d) would require the claimant to produce
evidence. For if the formal proof is no evidence, a
denial of the claim must have that effect. If it does
not, then the formal proof is some evidence, even
when there is testimony on the other side. The words
of the statute suggest, if they do not distinctly import,
that the objector is to go forward, and thus that the
formal proof is evidence even when put in issue. The
words are: ‘Objections to claims shall be heard and
determined as soon,’ etc. §57f. It is the objection,
not the claim, which is pointed out for hearing and
determination. . . . We believe that the under-
standing of the profession, the words of the act, and
convenient and just administration, all are on the
side of treating a sworn proof of claim as some
evidence, even when it is denied.”
This decision was followed in Gardner, Trustee v. State
of New Jersey, 329 U. S. 565, 572, 91 L. Ed. 504, 514
(1946).
Another case which shows that if there is a surplus
remaining after the payment of allowed claims, interest
a RD IN WIRES IRR ERR IW Sega Ee ERT AES GLE ECS EMESIS STIR le ROTA 8) We A NN a
: Be BOP AY ei TRIN a
[6 AA SPS Se
—
—
must be paid, is the case of Johnson v. Norris, 190 Fed.
459, where at 462 it is said:
“With the exception of property exempt under state
laws from liability for debts, the bankruptcy act pro-
vides for the distribution of the bankrupt’s entire
estate among his creditors. The only reference in
the act to returning any of the estate to the bankrupt
relates to unclaimed dividends. Dividends that remain
unclaimed for six months after the final dividend
has been declared are to be paid by the trustee into
court; and dividends unclaimed for one year are,
under the direction of the court, to be distributed to
the creditors whose claims have been allowed, but
not paid in full, and after such claims ‘have been paid
in full, the balance shall be paid to the bankrupt.’
(Bankruptcy Act, §66.)”
In the same case at page 464, the court continued:
“The facts are not very clearly and fully stated
in Re John Osborn’s Sons & Co., 177 Fed. 184, 100
Cc. C. A. 392, 29 L. R. A. (N. S.) 887; but the
statement is sufficient to show that certain claims
based on accounts had been proved against the bank-
rupt’s estate and paid in full by dividends, and that
the controversy was as to whether a surplus should
be paid to the bankrupt or be used in paying interest
on the claims, including interest which accrued sub-
sequent to the allowance of the claims. The court,
deciding that the proof and allowance of the claims
were, in effect, judgments, held that they were en-
titled to be treated as judgments, and, as such, interest
accruing both before and after their allowance should
be paid on the claims. And National Bank of Com-
monwealth v. Mechanics’ National Bank, 94 U. S.
437, 24 L. Ed. 176, is cited as sustaining this view
by analogy. The Osborn case is the only one to which
_—
—_ =
our attention has been called, involving the distribu-
tion of a surplus, that has arisen under the present
bankruptcy act.”
Certiorari was denied by the United States Supreme
Court in Johnson v. Norris, supra (232 U. S. 723, 58 L.
Ed. 815).
Petitioner in Its Point III, Page 45, of Its Petition
for Writ of Certiorari, Relative to the Dismissal
of Petitioner’s Proposed Plan of Reorganization
Under Chapter X, Is Not Well Taken for Two
Reasons, Namely, (1) the Purported Appeal
Herein Involved Does Not Purport to Be an Ap-
peal Therefrom, and (2) the Order of Dismissal
Has Long Since Become Final.
The petition under Chapter X [D 314] was filed January
19, 1954. The order of dismissal [D 331] was filed on
April 20, 1954. The notice of the purported appeal to
the Court of Appeals [D 560] makes no reference what-
ever to said order of dismissal.
Said order of dismissal was authorized by Bankruptcy
Rule 218, paragraphs (a) and (b) of the United States
District Court for the Southern District of California.
The making of said rule was authorized by General
Order 56, and by Rule 83 of the Federal Rules of Civil
Procedure.
A
'
i
:
—48—
Petitioner’s Contention Under Point VI, Page 55 of
Its Petition for Writ of Certiorari to the Effect
That the District Court Erred in Directing a Sale
in Solido Rather Than in Separate Parcels, Has
No Foundation Upon Which to Rest.
This contention is adequately answered, we think, by
the following from pages 122-123 of the record. [R.
122-123.]
“The Referee: _ What was your last bid?
Mr. Snyder: $406,500.
The Referee: Well, if Mr. Colter should fall
down we might call upon you suddenly. So it is
the old story, while there is life there is hope.
Now, are there any further bids for separate
parcels, for any of this property, to be made? If so
I want it done now. Hearing none, I think the next
order of business is to go ahead with the objections
presented by Mr. Cahill on behalf of certain creditors
and also on behalf of the bankrupt.”
The Bankrupt Was Not in Anywise Injured (1) by
the Fact That Mr. Neblett Represented Mr. and
Mrs. Colter on the Purchase of the Unliquidated
Assets; or (2) by the Fact, if It Be a Fact, That
Mr. and Mrs. Colter Were Acting for Themselves
and as the Undisclosed Agent for One or More
Associates.
Petitioner in its Point XI, page 60 of its petition for
writ of certiorari, insinuates some suspected wrongful or
fraudulent act on the part of Colonel Neblett, but fails
to specifically point out any such act.
Mr. Bailie’s affidavit [R. 603] shows that Colonel Neb-
lett never represented the bankrupt in any of the bank-
ruptcy proceedings. [R. at 614.]
DLS Sao ety —
IMATE ELMAN AT LE A LER IEE SHEE LSE OEY a URL AIIEN NE grr A sage DENY RE
—49—
The fact that he had incorporated the bankrupt, and the
fact that the receiver or trustee employed Mr. Neblett
to complete the defense of certain litigation pending in
the state courts, which he handled successfully [R. 637],
should not be held to bar him from representing the pur-
chasers from the bankrupt’s successor in interest, the
Trustee, who was acting under a final order of liquidation
made by the bankruptcy court.
Petitioner in its Point XII, page 62 of its petition for
writ of certiorari, claims that the Court of Appeals erred
by failing to remand the case for the purpose of taking
further testimony upon the purported allegations of fraud.
There is no allegation that any fact of a confidential
nature was ever communicated to Colonel Neblett, nor
that he made use of any such confidential information in
his representation of the Colters; nor is there any allega-
tion of fact which, if proven, would constitute actionable
fraud.
Fraud is never presumed and it is elementary that one
against whom a charge of fraud is made is entitled to
a specific averment of the facts claimed to constitute the
fraud. This principle is stated in 12 California Juris-
prudence page 800, Section 62 as follows:
“Sec, 62. Necessity of Pleading Facts.—Fraud
is never presumed. Whenever fraud constitutes an
element of a cause of action or defense which is of
an affirmative nature the facts must be alleged. One
against whom charges of fraud are made is entitled
to specific averments of the acts of which he is ac-
cused, so that he may admit or deny them, and thus
present real issues.”
—5O—
Another basic principle is that even if fraud is prop-
erly pleaded, no cause of action exists in the absence of
an allegation of damage. (See Rosenberg v. Lawrence,
10 Cal. 2d 587, 590.) The amended bid was made by
Mr. and Mrs. Colter, they qualified before the Referee,
the sale was made to them after spirited bidding at public
auction, no fraudulent acts have been alleged, and no
damage to the bankrupt estate or to the bankrupt has been
shown.
What we have said respecting clause (1) in the above
title is equally applicable to clause (2) here under discus-
sion.
Conclusion.
While we have not taken up under separate headings all
of the points set forth in petitioner’s petition to this court,
we believe we have adequately covered all points which
merit any discussion.
When all of petitioner’s claims have been considered,
these facts are made clear: (1) That the bankrupt, pur-
porting to act through Mr. Newport, has persistently
sought and is now seeking to prevent any sale of the
assets of the bankrupt estate; (2) that the bankrupt, pur-
porting to so act, has been and is by baseless claims and
in every conceivable manner seeking to prevent the Trustee
from performing the duties resting upon him under (a)
the Bankruptcy Act and (b) the final order for the liquida-
tion of the assets of the bankrupt estate; and (3) that if
the bankrupt be permitted to prosecute successfully its
petition for a writ of certiorari herein, the result will be
to require the Trustee to use a substantial portion of the
assets, which would otherwise be available for the credi-
aisles
tors, with which to pay the costs, expenses, printing
charges, etc., including attorneys’ fees, incident to a hear-
ing of the purported appeal on the merits. This is in-
consistent with the spirit and purpose of the Bankruptcy
Act which requires a prompt liquidation of the assets and
the distribution of the available proceeds among the credi-
tors. (Sec. 47 of Bankruptcy Act of 1938, U.S. C., Title
11, Ch. 5, Sec. 75.) If this claimed right of appeal is
upheld, any bankrupt can review every order confirming
and appeal from every order affirming the sale of any asset,
thus forcing the Trustee to exhaust the assets of the bank-
rupt estate in litigating such reviews and appeals, thereby
depriving the creditors of the rights given them under
the Bankruptcy Act.
Respectfully submitted,
BAILIE, TURNER, LAKE & SPRAGUE,
By Norman A. BAILIE,
NorMAN A. BAILIE,
RicHarp A. TURNER,
Attorneys for Respondent, Paul W. Sampsell,
as Trustee,
weROR
FREELY STEEN Re ENOL LEBER LES
No. 590
SUPREME COURT
OF THE
United States
October Term, 1954
F. P. NEWPORT CORPORATION,
LTD.,
Petitioner,
Pau W. SAMPSELL, Trustee in
the Estate of F. P.
CORPORATION, LTD.,
Respondent.
ANSWER TO RESPONDENT’S BRIEF IN
OPPOSITION TO ION FOR
TOPICAL INDEX
Page
The Opposition Incorrectly Sets Up Matters of
Law and Fact 2
Can the Trustee Defeat an Appeal by His Failure
or Negligence to Act? 5
Appendix A App. 1
Findings of Fact, Conclusions of Law, and Order
Authorizing Sale of Real and Personal Prop-
erty and Confirming Sale of Real and Per-
sonal Property to R. T. Colter and Robbie E.
Colter His Wife, as Joint Tenants... App. 1
Findings of Fact App. 3
Conclusion of Law App. 12
Order ..... App. 13
Appendix B App. 33
Order Affirming Order of Referee Confirming
Sale of Real and Personal Property to R. T.
Colter and Robbie E. Colter His Wife as Joint
Tenants App. 33
Appendix C App. 35
TABLE OF CASES AND AUTHORITIES CITED
Cases
Bahen and Wright v. Commissioner, 176 Fed. (2d)
538, 539 (4th Cir.) 6
New York v. Saper, 336 U. S. 328, 330, 93 L. Ed.
710, 714 9
Powell v. Alabama, 287 U. S. 45, 77 L. Ed. 158............. 5
ii Index
Page
U.S. v. P. F. Collier & Son Corp., 208 Fed. (2d)
936 (7th Cir.) 6
Vanston Bondholders Protect. Com. v. Green, 329
U. S. 156, 163, 91 Li, Hed. 166. eee enenenesemenen ce 9
Watts v. Liberty Royalties Corporation (10th
Circ.), 106 Fred. (2) G41, Dade eneeet scenes 6
- Statutes
Delaware Statutes, Title 8, Section 312... 4,5, 8,9
Delaware Statutes, Title 28, Section 1651... a
Acts
Bankruptey Act, Chapter 1, sub-section 7.0.0.0... 5
Rules
Supreme Court, Rules 19 (b), 21... eee rats deere 2,4
Supreme Court, Rule 3) eeeeneneereeennnrnee &
IN THE
SUPREME COURT
OF THE
United States
October Term, 1954
F. P. NEWPORT CORPORATION,
LTD.,
Petitioner,
Vs.
PAUL W. SAMPSELL, Trustee in ) No. 590
Bankruptcy of the Estate of F. P.
NEWPORT CORPORATION, LTD.,
Bankrupt,
Respondent.
ANSWER TO RESPONDENT’S BRIEF IN
OPPOSITION TO PETITION FOR
WRIT OF CERTIORARI
To the Honorable Chief Justice Earl Warren, and to
the Honorable Associate Justices of the Supreme
Court of the Umted States:
The Opposition to our Petition for Writ of Cer-
tiorari points up the importance of the questions raised
by the petition, never heretofore decided by this Court
and in conflict with decisions of other Court of Ap-
peal and in conflict with the Laws of the State of
Delaware.
2
Certiorari should therefore be granted in accord-
ance with Rule 19B Rules of the Supreme Court of
the United States.
THE OPPOSITION INCORRECTLY SETS UP
MATTERS OF LAW AND FACT
While it is correct that several grounds of dismissal
were presented in the written Motion to Dismiss the
Appeal, they centered around the proposition that the
franchise tax for the corporation had not been paid to
the State of Delaware since April Ist, 1937, and that
therefore the corporation had no legal capacity to
prosecute the appeal. This was the basis of the en-
tire argument in the United States Court of Appeals
for the Ninth Circuit at the time Motion for Dis-
missal (which argument was not reported) and in
which it was pointed out to the court that the appel-
lant, as cestui que trust, has and had a substantial
financial interest in the outcome of the appeal, espe-
cially if interest was improperly allowed or should not
have been allowed by the Referee and that the appel-
lant corporation would be made whole. After the pay-
ment of $187,000.00 in debts to the unsecured cred-
itors and other expenses, there would still be a sub-
stantial sum left to the appellant.
The opposition fails to point out that all the pro-
ceedings held before the Referee and all proceedings
held in the United States District Court were of a
character in which the appellant herein (the corpora-
tion) proceeded on its merits; that the Referee heard
3
the matter on its merits and also the District Judge,
and that an effort which was made before the District
Judge to deny an extension of time and deny proceed-
ings on appeal were denied by him. Thus, although
two District Judges and the Referee treated the cor-
poration as a going concern and operating under court
permission, and the proceedings on which certiorari is
sought were treated before the Referee and in the Dis-
trict Court as properly before it, the corporation was
nevertheless denied an appeal by the Court of Appeals
by its dismissal of the appeal without ruling on the
merits of the issues raised on the appeal. This is a
very important question in the law of Bankruptcy
which has not been passed upon by this Honorable
Court.
Other grounds for the dismissal which were set out
in its Motion to Dismiss, equally, raised important
questions of Bankruptcy Law.
I
Has Congress deprived the bankrupt of its right to
appeal where the case is heard on its merits in the Dis-
trict Court and before the Referee? Does it have
standing on appeal, the same as it did in the District
Court and before the Referee, to have its issues deter-
mined on appeal, especially where it may be the bene-
ficiary of $200,000 or more if the appeal is decided in
its favor?
Ca ae RPE SIME, ELH RES TE EINER SS OPS SS RPE LEE
4
It
If the Trustee has been negligent, or willful, in
failing to pay the state franchise tax, can this deprive
the appellant of his right to appeal, especially when
the District Court has authorized the corporation to do
business and that corporation has operated as a going
business concern under a state franchise tax from the
State of California—it being a Delaware Corporation?
We may state that we made a demand upon the
Trustee to pay the Delaware State taxes, which demand
was refused and his refusal approved by the Referee
recently, and the District Court March 4th, 1955.
Compliance with that demand, under Delaware
Law, would reinstate the corporation under Title 8,
Section 312 of the Delaware Statutes, and would re-
vive its charter ‘‘together with all the rights, fran-
chises, privileges and immunities and subject to all
of its duties, debts and liabilities which had been se-
cured or imposed by its original charter and all amend-
ments thereto.’’ All that the Trustee would have to do
would be to pay $471.25.
5
CAN THE TRUSTEE DEFEAT AN APPEAL BY
HIS FAILURE OR NEGLIGENCE TO ACT?
A corporation, either de jury or defacto, has au-
thority to secure counsel to handle the appeal—counsel
who are authorized to appear and act in the Supreme
Court of the United States or in the United States Cir-
cuit Court. There is nothing in the Bankruptcy Act
which bars a corporation, even though its charter has
expired, from securing counsel to protect its rights
and reinstate it. Otherwise, Section 312 of Title 8
of the Delaware Statutes would be meaningless. Also
sub-section 7 of Chapter 1 of the Bankruptcy Act
would be meaningless.
Congress has provided that all of the rights of a
bankrupt shall be preserved equally with those of all
of the other parties. That is the spirit and purpose of
the Bankruptcy Act. Even a condemned man, who
has lost his civil rights, is allowed counsel; in fact is
required to be furnished with counsel if he is unable
to secure the same.
Powell v. Alabama, 287 U.S. 45, 77 L. Ed. 158.
The same rule is true with reference to a corporation.
It should have all of its rights preserved in any event.
The respondent has listed nine points as ‘‘ Reasons”’
for denying the writ. Most of them are unsupported
by authority. The first point is: ‘1. The Ninth Cir-
cuit Court of Appeals has not rendered a decision in
conflict with the decisions of another court of appeals
in the same matter.’’ (Res. Br. 2). We cited in our
PROM CORD YF a Te SR re TWN VERO OE LOL 9 9S DA Lado open een aaetn eee ead
Eee Tene ae te eee eee
6
Opening Brief three cases, none of which have been
answered in this Brief in Opposition. These cases
are: Watts v. Liberty Royalties Corporation (10th
Cire.) 106 Fed. (2d) 941, 944; U.S. v. P. F. Collier &
Son Corp., 208 Fed. (2d) 936 (7th Cir.), and Bahen
and Wright v. Commissioner, 176 Fed. (2d) 538, 539
(4th Cir.). And, as to their other numbered ‘‘Rea-
sons’’, we set out:
2.
The United States Court of Appeals for the Ninth
Circuit decided this case contrary to the state law of
the State of Delaware, as well as to the United States
courts. This has not been met with any authority.
See: Watts v. Laberty Royalties Corporation, (10th
Cir.), 106 Fed. (2d) 941, 944; U. S.v. P. F. Collier &
Son Corp., 208 Fed. (2d) 936, (7th Circ.), and Bahen
and Wright v. Commissioner, 176 Fed. (2d) 538, 539
(4th Cir.).
3.
We have pointed out the important questions of
Bankruptcy Law involved in this case, which should
be settled by the United States Supreme Court. No
case in this Court has raised these fundamental ques-
tions.
4, 5.
The right of the bankrupt corporation, which is a
cestui que trust, and may be the beneficiary of $200,-
000.00 or more, to appeal its case is before this Court.
7
The issues have been heard and decided on their merits
in the District Court, without a disqualification on the
part of the corporation to act for want of payment of
the franchise tax. The right of the corporation, which
was given the power to do business by the District
Court, to appeal any adverse decision is also involved,
and other questions of importance in the administra-
tion of bankruptcy as set out in our Opening Brief—
particularly its right to interest in the amount, and
the date from which that interest should apply.
These are important questions of federal law not
heretofore decided by this Court.
On the question of interest, we think that the deci-
sion is contrary to the decisions of this Court. We
also think that the United States Circuit Court of Ap-
peals for the Ninth Circuit has departed from the
accepted usual course of procedure in this matter in
deciding the case on a technical motion and not on its
merits. (Supreme Court Rule 19 (b).)
S %,
We have set out each point with accuracy and clar-
ity and with argument, as required by the New Rules
of the United States Supreme Court (Rule 21), and
we have set out the. matters necessary for the deter-
mination of the points.
8.
Point 8 is a misunderstanding of the law. We did
not apply for an ertraordinary writ under Section 1651
eee eee
of Title 28. We applied for certiorari from the deci-
sion of the United States Court of Appeals for the
Ninth Circuit dismissing the appeal. Therefore, we
do not proceed under Rule 31.
9.
The Petition for Writ has the opinion of the Court
of Appeals dismissing the appeal. The Memorandum
Opinion of the referee; his findings of fact and his
order authorizing and confirming the sale, and the pre-
vious order on review, and the order dismissing the
petition under Chapter X were not heard or deter-
mined by the Court of Appeals. They are attached in
the appendix herewith and show that those courts con-
sidered the rights of the corporation on its merits,
made findings and conclusions against it on the merits.
The Court of Appeals merely determined the Motion
to Dismiss our appeal, which it labelled *‘PUR-
PORTED” without reviewing the merits determined
below.
While we do not understand, under those circum-
stances, that the Rules require us to set up the pre-
vious decisions which do not go to the question of the
dismissal of the appeal and were not heard on those
questions in the appellate court below, they are in
Appendix A and B.
We have raised all of the other questions in our
Petition that we deemed are involved in the appeal so
that all questions might be presented to this Court.
The statement in the Opposition that, ‘‘There is no
Delaware Statute which provides that a defunct cor-
9
poration would be revived if the Trustee were to pay
Delaware’s Claim No. 32 for $471.25 [R. 633-635],
or the Delaware franchise taxes with or without pen-
alties, for which bankrupt’s charter was forfeited on
April 1, 1937”’, is directly contrary to Title 8, Section
312, of the Delaware Statutes and Federal Cases con-
struing the same.
The statement in the Opposition that, ‘‘The appel-
lant has sought to prevent the sale of the assets’’, is not
supported by the record. There is no stay of the pro-
ceedings of the sale below, and the parties have been
at liberty to carry out the agreement, if they were so
advised, at any time. The sale was without strings and
there was and is no stay regarding the sale. If the
respondent wishes to carry out the sale, there is noth-
ing to stop him from it.
Respondent has discussed at length the important
question of allowing interest (approximately 135 per
cent in this case). Congress has not so provided in the
Chandler Act, nor any amendment. It is for Congress
to so determine. The absence of Congressional Com-
mand is a directive that none was intended. Not even
tax claims to the government have been given this pref-
erence.
New York v. Saper, 336 U.S. 328, 330, 93 L. Ed.
710, 714;
Vanston Bondholders Protect. Com. v. Green,
329 U.S. 156, 163, 91 L. Ed. 166.
Elimination of interest would make this success-
fully operated corporation in bankruptcy administra-
10
tion solvent and perform an important function in
bankruptey and entitle the corporation to a dismissal
of the bankruptcy proceeding as a solvent corporation.
The equity of the stockholders require the solicitude
of the Court. The Trustee is not permitted to ravage
the funds of the estate to the exclusion of the corpora-
tion that made it possible by the payment of uncalled
for interest and by huge fees to attorneys and admin-
istrators.
These questions point up the great importance of
this case in the administration of the law of bank-
ruptcy.
We pray for certiorari.
Respectfully submitted,
MORRIS LAVINE
Attorney for Petitioner.
=e PEE EAE TITEL PIE ONY ae TES i MAN as “" —
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