196 F. 247 | D.N.J. | 1912
The bankrupt is a corporation organized under the laws of California. Fred C. Keeney is the assignee of Thomas J. McCarthy’s claim against the bankrupt for $12,600. The proof of claim is made by Keeney, and he swears that the claim is for money loaned by McCarthy to the bankrupt. An itemized statement of debts and credits is annexed to such proof showing a running account covering the period beginning September 30, 1905, and ending March 14, 1907, with a balance of $12,600.95 in favor of McCarthy. The assignment to Keeney is dated March 15, 1907, and is said to be in consideration of $1 andi other good and valuable consideration. On the cr'edit side of the statement 10 items under different dates are for pay rolls aggregating $12,636.14, slightly more than the balance shown in such statement. The referee allowed claimant the sum of $10,180, of which $7,600 was compensation to McCarthy for services rendered “at the rate of $500.00 per month for the period during which such services were rendered.” This allowance for compensation is alone challenged on this review. The referee did not determine in what capacity McCarthy rendered such services, but concluded that they “were well worth the amount of compensation claimed by him,” viz., $500 per month. The proof of claim does not specifically allege any money was due McCarthy as compensation for services rendered, and the statement annexed thereto makes no reference to such compensation. The items “pay rolls” in such statement are said to include such compensation and the referee 60 considered it in making such- allowance. The form and substance of the proof of claim and the consideration for, and character of, the assignment to Keeney, a.s well as the right of McCarthy to compensation, are attacked by the trustee. However, the conclusion I
The bankrupt was incorporated on April 16, 1904. Its board of directors consisted of five members, of which McCarthy was one. On September 28, 1905, at an adjourned meeting of such board, at which only three members, including McCarthy, were present, he was elected president, and continued as such to the time of the institution of the bankruptcy proceedings. From the minutes of such meeting, the following resolution appears to have been adopted:
‘■<)n motion of Director Canfield, seconded l>y Director Chanslor and unanimously carried, it was ordered that the compensation of the president of the company be fixed at the sum of five hundred dollars per month, said compensation to be paid out of the funds of the said corporation, and to commence on the first day of October, 1905.”
McCarthy, so far as this resolution is concerned, occupied a dual relation. He had a personal as well as an official interest — individual as well as corporate.
The bulk (almost all) of the stock was sold at 10 cents a share. Such moneys were not paid over to the treasurer of the company, and they were expended without specific authorization of the board of directors indiscriminately for his individual and the company’s account. Credits were frequently made in the books without voucher at the direction of McCarthy. The referee in passing upon these expenditures disallowed a great many for lack of proof.
The first entry on the books as compensation to McCarthy appears under date of July 12, 1906. In the statement annexed to the proof of claim it appears under the head of “Pay Rolls” $4,500. This and the subsequent credits under that head are said to be for salary, and are so charged on the company’s journal. The first item is said to cover the period from October 1, 1905, to July 1, 1906. These entries were made at the direction of McCarthy on the authority of the void resolution of September 29, 1905. The company had no bank account; McCarthy furnishing the money when needs were pressing. He issued the company’s notes at will, and used their proceeds without advising the bookkeeper. On March 14, 1907, notes aggregating more than $22,000 theretofore issued by McCarthy were for the first time charged upon the books of the company, at the direction of McCarthy, who, at that time, was preparing for the inevitable insolvency proceedings. The bookkeeper was thus kept in ignorance of the greater part of the company’s liabilities until just before the bankruptcy proceedings were begun.
McCarthy, during the period for which he has been allowed $500 per month, did not employ his whole time in the perfecting and commercializing of such patented device. A good part of his time and efforts were devoted to experimenting with an automobile wheel which he hoped to patent, and in which the company had no interest. The patented portable elevator device of which the company held the American letters patent was patented in Germany, Denmark, Norway, and Sweden, in which patents the company had no interest, and which were owned by McCarthy and his associates. The work done by him
In the facts of this case — the purpose of the company’s incorporation, its dotninancy by McCarthy, its exploitation by him and in his interest — no legal basis for an implied assumpsit to pay him for services rendered exists. The legal entity of the corporation thus formed and exploited (which corporation, so far as McCarthy was concerned, was a self-serving device) will be treated as a fiction as between him and the creditors of the company; and, as against the latter, no compensation will be allowed ’McCarthy for such services.
The referee’s allowance of $7,600 as compensation is reversed.