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October 21, 1960

In the Matter of GIBRALTOR AMUSEMENTS, LTD., Bankrupt

The opinion of the court was delivered by: BARTELS

This is a petition by Gibraltor Amusements, Ltd. for review under Section 39 sub. c, of the Bankruptcy Act, 11 U.S.C.A. § 67, sub. c, of the Referee's Order of August 19, 1960, adjudicating Gibraltor a bankrupt. The Order was based upon the Referee's well reasoned decision dated August 15, 1960, in which after careful consideration of the qualifications of the petitioning creditors, he concluded that:

'I find that on March 18, 1960, the four petitioning creditors had provable claims against the alleged bankrupt for the amount set forth above, which claims were and are liquidated as to amount, and are not contingent as to liability, which aggregated in excess of the value of securities held by Wurlitzer and WAC in a sum far in excess of the statutory amount of $ 500.; and that at the time of the bankruptcy the alleged bankrupt was insolvent, had committed the acts of bankruptcy as alleged in the amended petition, and had debts owing to creditors far in excess of the statutory amount of $ 1000.

 'Upon the pleadings herein, the record of the trial and the foregoing findings of fact, I am of the opinion that the petitioning creditors are entitled to an order and decree adjudging the alleged bankrupt as a bankrupt. (Section 18 Bankruptcy Act, Title 11 U.S.C. 41).'

 Gibraltor claims error in the Referee's determination in that (a) the petitioning creditor, The Wurlitzer Company ('Wurlitzer') and the intervening creditors failed to sustain the burden of proof cast upon them by law, and (b) Wurlitzer and the intervening creditors were not qualified to act as petitioning creditors under the Bankruptcy Act.

 Upon such a review this Court is subjected to the restraint of General Order 47 (11 U.S.C.A., following section 53) which provides that 'The judge shall accept his (the Referee's) findings of fact unless clearly erroneous.' Margolis v. Nazareth Fair Grounds & Farmers Mkt. Inc., 2 Cir., 1957, 249 F.2d 221, 223. The involuntary petition against Gibraltor was filed on March 18, 1960, to which Gibraltor filed its answer on March 29, 1960; leave was granted to Wurlitzer to file an amended petition on May 6, 1960, and on May 5 and May 6, 1960 the intervening creditors were permitted to intervene upon separate petitions, and thereafter on May 13, 1960 Gibraltor filed its answer to the amended petition. In his decision the Referee set forth the history of the case and outlined Gibraltor's contentions and the facts upon which his decision rested, all of which is unnecessary for this Court to repeat. The real issues before the Referee were the qualification of Wurlitzer as a petitioning creditor and the qualifications of Wurlitzer Acceptance Corporation ('WAC'), William F. Wadsworth and Joseph Rae as intervening petitioning creditors. The petitions will be considered seriatim. In reaching his conclusion the Referee correctly decided certain peripheral issues which it is unnecessary to discuss upon this review.


 Gibraltor claims that Wurlitzer filed a sham petition in that it was prepared on the basis that Gibraltor had less than twelve creditors when, as a matter of fact, Wurlitzer knew otherwise and so prepared the petition with a view of later supporting the same by intervention of other creditors. It further claims that Wurlitzer received a fraudulent and voidable preference which it failed to surrender and for these reasons it was disqualified.

 The Referee did not specifically rule on the claim of sham because it was not raised before him. However, all the evidence was before him and implicit in his finding that Wurlitzer had a provable claim is the fact that the petition was not based upon sham. While it was subsequently established that Gibraltor had twelve or more creditors at the time the petition was filed, there is nothing in the record indicating that Wurlitzer knew that Gibraltor had that number of creditors at that time. In fact, on September 11, 1959, a vice-president of Gibraltor (Alexander Goldberg) certified that as of that date Gibraltor had no creditors except Wurlitzer. Although Gibraltor raises the question whether Wurlitzer had a right to rely on this statement either at that time or subsequently, such statement nevertheless cannot be used as a basis for charging Wurlitzer with fraud as alleged by Gibraltor. Wurlitzer was not guilty of planned sham in filing its petition and the Court finds that there is no substance in this claim.

 Referring to the second portion of Gibraltor's claim, the Court is of the opinion that the Referee's finding is based upon the evidence and the law. A substantial part of the indebtedness owed to Wurlitzer by Gibraltor consisted of promissory notes in default secured by conditional bills of sale and in some instances by chattel mortgages. It is unnecessary to examine the details of Gibraltor's claim that Wurlitzer received preferential payments or transfers. Section 1, subdivision (11) of the Bankruptcy Act, 11 U.S.C.A. § 1(11), sets forth the definition of a creditor, and Section 59, sub. b of the Act, 11 U.S.C.A. § 95, sub. b, sets forth the qualifications of petitioning creditors who have provable claims. Under the latter section three or more creditors with provable claims 'liquidated as to amount and not contingent as to liability against any person which amount in the aggregate in excess of the value of securities held by them, if any, to $ 500 or over' may file a petition to have the debtor adjudicated a bankrupt. Assuming Wurlitzer were a secured creditor, this circuit has made it clear that Wurlitzer would not be disqualified by reason of this fact although its claim might not be allowed until the preference was surrendered. In re Automatic Typewriter & Service Co., 2 Cir., 1921, 271 F. 1, 3; Winkleman v. Ogami, 9 Cir., 1941, 123 F.2d 78. The Referee found that Wurlitzer was an unsecured creditor for a sum far in excess of $ 500 and with this conclusion the Court agrees. Wurlitzer was therefore not disqualified because it was a secured creditor or received a preferential payment. In re Wm. J. Braun Builders, Inc., 6 Cir., 1958, 262 F.2d 107.

 Wurlitzer Acceptance Corporation ('WAC')

 WAC, a Delaware corporation and wholly owned subsidiary of Wurlitzer, was formed for the purpose of financing the sales of Wurlitzer's products sold by the stores owned and operated by Wurlitzer as well as those sold by Wurlitzer's dealers, distributors and operators. According to its balance sheet as of March 31, 1960, it had assets, made profits, was obligated on notes payable to banks and accounts payable to Wurlitzer and paid Federal income taxes.

 WAC's claim against Gibraltor is based upon two notes originally sold by Wurlitzer's New York distributor to Wurlitzer and subsequently assigned by Wurlitzer to WAC without recourse. One of the notes was executed by Phillip G. Hardy, dated April 29, 1958, in the amount of $ 6,238., and the other note was executed by Hewlett Vending Co., dated October 13, 1958, in the amount of $ 10,440. Both notes covered the purchase of Wurlitzer's juke boxes or phonographs from its New York distributor, secured by conditional bills of sale, and both were endorsed by the New York distributor to Wurlitzer which, in turn, assigned them to WAC for cash. On the date the petition was filed both of these notes were in default.

 On May 15, 1959 Gibraltor executed and delivered a written guaranty of payment to Wurlitzer of all obligations of its New York distributor, which included the obligations of the distributor as endorser upon the notes above mentioned. The guaranty extended to Wurlitzer and to 'its successors and assigns'.

 WAC's claim as a creditor has been challenged on a number of grounds, some of which need little discussion. For instance, the objection to the claim upon the ground that the notes were purchased by WAC without recourse is fictitious because there can now be little doubt that such an endorsement transfers title to the note or obligation. Craig v. Parkis, 1869, 40 N.Y. 181, 185; North American Factors Corp. v. Motty Eitingon, Inc., Sup.1951, 105 N.Y.S.2d 250, affirmed 1951, 279 App.Div. 719, 108 N.Y.S.2d 338, affirmed 1953, 304 N.Y. 901, 110 N.E.2d 733. Moreover, based upon the wording of the guaranty, the assignment by Wurlitzer to WAC of the distributor's notes and obligations carried with it the guaranty by Gibraltor to Wurlitzer of the payment of all such notes and obligations, thus placing WAC as assignee in the position to assert a claim against Gibraltor upon such guaranty. General Phoenix Corp. v. Cabot, 1949, 300 N.Y. 87, 89 N.E.2d 238. Similarly, liability on a guaranty is a non-contingent liquidated debt provable in bankruptcy (Maynard v. Elliott, 1931, 283 U.S. 273, 51 S. Ct. 390, 75 L. Ed. 1028; In re Rechtman, D.C.N.Y.1935, 11 F.Supp. 347) and WAC is not disqualified as a petitioning creditor because it holds security for the notes (Winkleman v. Ogami, supra; In re ...

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