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March 18, 1942


The opinion of the court was delivered by: BYERS

BYERS, District Judge.

Motions made by Sterling National Bank & Trust Company for orders to reopen the bankrupt estates and for the appointment of a trustee, for the alleged reason that the bankrupts concealed property which should have been administered for the benefit of creditors.

The motions are factually identical with one exception, and can be disposed of together.

 Each petition asserts that on November 18, 1930, the bankrupt entered into a conspiracy with his copartners to personally enrich themselves, to defraud their creditors and to avoid the payment of just debts and obligations, "by incorporating the printing business conducted by them and by issuing the stock of the corporation to be formed, to their respective wives and to thereafter at a future date discharge themselves of their obligations by filing petitions in bankruptcy in which they would not list their ownership of the assets transferred".

 The petition asserts that, in furtherance of the said conspiracy, and on or about the 18th of November, 1930, which was prior to the due date of a note held by the petitioner bank upon which the various partners were endorsers, there was such a transfer of the property and assets of the printing business in which they were partners, and that the respective bankrupts became and have continued to be secretary as to Kweit, and president as to Perrusi, and directors of the corporation so formed; and on that date each bankrupt and his partners were indebted in the approximate total of $697,020.75 as to Kweit, and $1,027,076.32 as to Perrusi, being the total of the liabilities enumerated in his schedules in bankruptcy filed January 22, 1934.

 It is alleged that the transfer of stock by the bankrupt to his wife rendered him insolvent, and that, pursuant to the said conspiracy, he omitted from his schedules in bankruptcy "his beneficial ownership of 30% of the stock" of the said corporation; and that, in furtherance of the conspiracy, this bankrupt and his copartners on January 22, 1934, filed petitions in bankruptcy (as to Kweit and Perrusi the proceedings were in this court), and that the bankrupts asserted that each had no assets, and failed to disclose the said beneficial stock ownership.

 The petition asserts that the testimony given by these bankrupts in their respective proceedings misled the petitioner "and only recently has your petitioner ascertained and discovered the true facts herein as herein set forth, and until such time your petitioner had no knowledge of the facts".

 The respective affidavits in opposition contained such factual recitals concerning the relevant circumstances and the probable familiarity on the part of the bank therewith, that it was deemed necessary, as a preliminary step to the disposition of this motion, to refer to a special master the specific question as to the knowledge on the part of the bank in 1934 of the facts upon which it presently relies, in order that the court might be advised as to whether the application to reopen could be regarded as timely.

 The special master's report in each case has now been received, and is before the court presently for confirmation.

 In that connection, it has been necessary to read the testimony and to consult the files of the court in the bankruptcy proceedings, with the result that the following state of facts has been revealed:

 In 1929 and 1930, these bankrupts and two others by the name of Boyajian and Cassen were conducting a printing business as a partnership known as "Advertising Agencies Service Co. Inc.", which seems to have been a profitable enterprise, but, not being content with the rewards of such efforts, they embarked upon real estate ventures conducted by Central Zone Building, Inc., and Magoba Construction Co. Inc., in both of which companies they seem to have held stock.

 Those ventures were financed in part by the Sterling National Bank & Trust Company and the Marine Midland Trust Company.

 In the month of November, 1930, those banks held notes made by the partners in the sum of $17,500.00 as to the Sterling, and $20,000.00 as to the Marine Midland, and the liquidation of those loans was insisted upon by the banks, acting together.

 In order to raise the money, the partners had to borrow extensively, and to pledge their accounts receivable, and to place chattel mortgages upon their plant and equipment; this required the incorporation of the business, because a higher rate of interest was exacted and could be agreed to by a corporation, than ...

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