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November 20, 1964


The opinion of the court was delivered by: Robson, District Judge.

Third party supplementary proceedings have been filed in this action by plaintiff, Clinton B. Snyder, to recover from former preferred stockholders (one of whom also held common stock) funds theretofore distributed to them by defendant State-Wide Properties, Inc. These stockholders filed motions for summary judgment and plaintiff filed a countermotion against them for summary judgment. The stockholders who filed the motions and the dates of filing are as follows:

  (1) American National Bank and Trust Company, the
      transfer agent for State-Wide, filed on January
      30, 1963.
  (2) Irving Nathan, auditor for State-Wide, filed on
      January 30, 1963.
  (4) James E. Glynn, a director of State-Wide who held
      40 shares of preferred and two shares of common
      stock, filed on February 15, 1963.

All motions assert that under Rule 56 there is no genuine issue of fact to be resolved.

Plaintiff, in his effort to satisfy his July, 1962, $152,800 judgment against State-Wide, moved for and procured judgments against these third party defendants in these amounts:

American National Bank and Trust Company    $2,500.00
Sonnenschein group                          20,000.00
Irving Nathan                                7,000.00
James E. Glynn                               4,107.89

The Glynn judgment represents $4,000 covering the 40 shares of preferred stock and two shares of common stock distributions.

The court concludes that:

(1) There is no genuine issue of fact, only a question of the proper inferences to be drawn from the facts below outlined; therefore it is proper for the court to pass upon the respective motions for summary judgment;

(2) Those facts disclose a company with a single large asset, the real estate which it was contemplated would be sold and the company dissolved;

(3) The events hereinafter stated transpired over many months pending the sale of the building and the distribution of the company's assets;

(4) The payment of the preferred stockholders was a part of the dissolution and did not constitute a purchase of the stock, but a retirement;

(5) Plaintiff, as a creditor with a suit pending at the time of the dissolution, has a superior right to payment over the preferred stockholders in the distribution of the liquidating company's assets, and

(6) Plaintiff's motion for summary judgment should be granted and the several motions of the preferred stockholders for summary judgment denied.

The crux of this controversy seems to be the proper inference to be drawn from the fact that the preferred stock held by these third parties was turned in to the company in January of 1959, following the June 20, 1958, resolution covering the company's plan of liquidation, but months prior to the actual cancellation of the preferred stock certificates and legal dissolution of the company at the end of June, 1959.

These preferred stockholders maintain that the turning in of the stock, and its much later cancellation, constituted two transactions, the January one being a purchase of the stock, as authorized by the company's Articles of Incorporation, Article Fourth, and 8 Del.C. Sections 160 and 243 of the Delaware Corporation Law, and not a redemption. Therefore, inasmuch as the company was solvent at the time of the purchase, having sufficient assets to pay plaintiff and all other debts, the corporate assets cannot be considered a trust fund so as to make the preferred stockholders liable many years later from the judgment of plaintiff creditor. Defendants contend the purchased preferred stock became treasury stock.

On the other hand, plaintiff maintains that the January and February, 1959, transactions were all a part of the company's liquidation and the corporate assets did constitute a trust fund for the creditors. He further points to evidence that there was no preferred stock in the treasury according to the auditor's report.

The American National Bank and Trust Company additionally contends it held its 25 shares of preferred stock pursuant to oral agreement, from 1955 to February, 1959, as security only for its services for those years as Registered Indenture Trustee. It denied having received payment on these shares either as dividends or in liquidation but said payments were made pursuant to agreement, upon the company's accrued debt, and credits were made upon that debt to the bank. It had received previous payment of $782.95, and the amount due it as of February 9, 1959, was $5,198.97, for which it agreed in early February to accept $5,000 in full payment. This is corroborated, it claims, by writings dated November 7, 1958, February 3, 1959, February 6, 1959, and February 9, 1959. It also points out that the fact that ownership was not designated as qualified is legally immaterial. (Burgess v. Seligman, 107 U.S. 20, 2 S.Ct. 10, 27 L.Ed. 359; Tierney v. Ledden, 143 Iowa 286, 121 N.W. 1050; Colonial Trust Co. v. McMillan, 188 Mo. 547, 87 S.W. 933; Duke v. Madill, 131 Wn. 493, 230 P. 631) Certificate No. 7 for 25 shares was returned by the bank to the company about February 13, 1959.

The stock was never carried as an asset of the bank and the certificate had been kept in an envelope in the trust cage. The bank's legal contention is that it must be deemed to have priority over an unsecured creditor who years later procures a judgment, and that even though a debtor be in failing or insolvent circumstances he may validly prefer creditors (Gruenwald v. Moir Hotel Co., 96 F.2d 932 (7th Cir. 1938); Rice v. United Mercantile Agencies, 395 Ill. 512, 70 N.E.2d 618 (1947); Nelson & Co. v. Leiter, 190 Ill. 414, 60 N.E. 851 (1901); Pliley v. Phifer, 1 Ill.App.2d 398, 117 N.E.2d 678 (1954)), even if the transfer is to relatives (Albers v. Zimmerman, 376 Ill. 306, 33 N.E.2d 452 (1941)). And, where a payment is made to a creditor it is presumed to be honest and not fraudulent (Wood v. Clark, 121 Ill. 359, 12 N.E. 271 (1887)). Plaintiff disputes these facts. He contends that the stock being registered on the books of State-Wide as owner, the bank must legally be so considered, and that it did receive dividends.

The bank admits receiving $201.03 on December 4, 1956, as partial payment of fees which it applied to TC 11081 on which $1,946.10 was then owing. However, a letter from State-Wide, dictated by Kamm, dated November 28, 1956, states the sum represented "dividends" on preferred stock issued the bank. The bank vigorously denies recollection of ever having received such a letter. It points to a letter of November 7, 1958, covering a payment of $114.59 which stated:

    "Pursuant to the understanding we previously had,
  payments of interest on the preferred stock are to be
  applied toward ...

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