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October 9, 1957

Murray ROSOF, as Trustee in Bankruptcy of George A. Bell, Inc., Bankrupt, Plaintiff,
Murray ROTH, doing business as Atlas sheet Metal Works, Defendant

The opinion of the court was delivered by: LEVET

This is an action by the trustee in bankruptcy of George A. Bell, Inc. to recover the sum of $ 8,197.56, allegedly paid by the bankrupt corporation to the defendant at a time when the bankrupt corporation was insolvent and within four months before the filing of the petition in bankruptcy. The original complaint was couched in terms of an action at law to recover a preference under Section 60, sub. b of the Bankruptcy Act, 11 U.S.C.A. § 96, sub. b. The trustee was permitted at the trial to amend the complaint so as to include inter alia allegations to the effect that the defendant dominated the bankrupt corporation to the extent that they were one and the same; that although the defendant's wife was nominally a majority stockholder, the defendant was the true stockholder and his wife acted as his dummy; that as a means of facilitating withdrawal by the defendant of moneys from the bankrupt corporation, the defendant arbitrarily overcharged the bankrupt for work rendered, thereby creating a factitious liability; that the defendant caused the payment to himself of the $ 8,197.56 in question out of the bankrupt's funds and that this payment was in effect a capital withdrawal.

The case was tried before the court without a jury, and at the conclusion of the trial the case was taken under advisement pending the submission of briefs by the parties. The court having considered the pleadings, the testimony of the witnesses, exhibits, stipulations and briefs, makes and files herein its Findings of Fact and Conclusions of Law, separately stated.

Findings of Fact

 1. On May 10, 1950, George A. Bell, Inc. filed a petition in this court for relief under Chapter 11 of the Bankruptcy Act, 11 U.S.C.A. § 701 et seq., and on July 8, 1950, it was adjudicated a bankrupt. The plaintiff, Murray Rosof, is the duly appointed and qualified trustee in bankruptcy for the said George A. Bell, Inc., bankrupt, and brings this suit in his capacity as trustee.

 2. George A. Belsky is a mechanical engineer and was president of the bankrupt corporation. During the latter part of 1947 he had certain conversations with the defendant, Murray Roth, who is the owner of Atlas Sheet Metal Works, to the effect that they enter into the business of installing air conditioning systems. At that time the defendant Roth was subcontracting sheet metal work for heating, ventilating and air conditioning contractors. This new business venture contemplated their competing with the general or prime contractors for whom Roth performed work as a subcontractor. Roth was to take care of the financial aspects of the business and Belsky was to furnish the engineering ability.

 3. Belsky and Roth went to the office of the latter's attorney and instructed him to form a corporation for the purpose of entering into the airconditioning business. George A. Bell, Inc. was incorporated under the laws of the State of New York on December 16, 1947, and its office was located at 215 East 37 Street, New York, N.Y.

 4. The total capital investment in the corporation was $ 1,020.40. None of this money was supplied by Belsky. However, he received a salary of $ 125 per week.

 5. Fifty-one shares of capital stock of George A. Bell, Inc. were issued in the name of Elsie Roth, the wife of Murray Roth, and 49 shares were issued in Belsky's name.

 6. The stock certificate book and ledger were kept in Roth's office as was the bankrupt corporation's check book.

 7. Roth's employees on Atlas' payroll kept the financial records of the bankrupt corporation and acted as its secretary. Among them at various times were Florence Solomon, Sylvia Katz and later Irving Klein. None of these people were paid by the bankrupt corporation. Irving Klein became the office manager of Atlas Sheet Metal Works in 1949, at which time he also commenced doing the bookkeeping for the bankrupt corporation. He continued to perform this work until the filing of the bankruptcy petition. In addition to his other duties, Klein, together with Belsky, countersigned the checks of the bankrupt corporation. Roth explained that his office manager's countersignature was required in addition to Belsky's signature on checks because 'He (Belsky) always owed me too much money. I wanted to have something to make sure that eventually, if he gets money, that I should be able to get paid. I just wanted to know what was going on.'

 8. Belsky procured prime contracts for the bankrupt corporation and fixed the prices and terms therefor. He also designated the subcontractors and the compensation to be paid to them. However, all subcontracts that were in the line of work performed by Roth's firm were given to his firm by first requesting bids from other subcontractors and then giving the job to Atlas Sheet Metal Works at the lowest bid price.

 9. Roth never received any salary or dividends from the bankrupt corporation, and while Belsky did receive a salary, he, too, never received any dividends since none was ever declared.

 10. Although Roth testified that he never loaned money to the bankrupt corporation, it appears that on April 30, 1948, a loan was made to the bankrupt corporation by Atlas Sheet Metal Works in the sum of $ 2,300 at a time when checks for more than $ 2,000 issued by the bankrupt corporation would have been dishonored if it were not for this loan, which was repaid in July, 1948. On August 2, 1949, Roth borrowed $ 3,000 from the bankrupt corporation, which he thereafter repaid.

 11. Belsky testified that with respect to certain work which Roth had contracted to perform for the bankrupt corporation, namely, the 'Temple Israel job,' the bankrupt corporation was billed for $ 21,427.23, whereas the original oral contract price was between $ 12,000 and $ 13,000. However, the $ 21,427.23 figure included extras in the sum of at least $ 1,000 not contemplated as part of the original contract price. In addition, the ...

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