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Pennsylvania Trust Co. v. Billman

September 27, 1932


Appeal from the District Court of the United States for the Eastern District of Pennsylvania; W. H. Kirkpatrick, Judge.

Author: Davis

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

DAVIS, Circuit Judge.

Both parties appealed in this case from a decree of the District Court sustaining in part and overruling in part exceptions to the findings of the special master.

The Schwartz Motor Truck Corporation was in poor financial condition in the summer of 1923, and so on September 30th of that year it stopped its business of assembling motortrucks, and later leased its plant in Reading, Pa., to the Clinton Motors Corporation for five years from November 1, 1923, and thereafter did only a small business of repair jobs.

On December 20, 1923, it made an assignment to the Pennsylvania Trust Company for the benefit of creditors. The trust company accepted the assignment on December 24, 1923, and agreed to act as assignee. Attached to the assignment was a lengthy inventory of the assets of the corporation. The assignee thereupon authorized Mr. George H. Behm, treasurer of the Schwartz Motor Company, to handle the assigned assets, and later permitted him to remove them to his own place of business without any priced inventory thereof. Much of these assets was subsequently sold, but no check of merchandise sold against the unpriced inventory was made. The assignee did not keep a trust account nor proper detailed record, but merely kept a receipt and expenditure account based on slips of paper showing sales and cash receipts which Mr. Behm furnished to it.

These assets were handled and disposed of from December 24, 1923, until October 5, 1925, when the District Court, on the application of Mr. Marry R. Schwartz, appointed receivers in equity who took possession of what assets had not been disposed of and remained in the hands of the trust company.

The receivers appointed expert accountants who examined the records of the Schwartz Corporation and the assignee, but they allege that they found it practically impossible the determine what belonged to the Schwartz Corporation and what belonged to Mr. Behm personally. A bill for an accounting was prepared, but before it was filed an effort was made to secure an adjustment between the receivers and the assignee, but it failed, and the bill containing many charges of negligence against the assignee was then filed. It was referred to a master who held 48 meetings and took voluminous testimony.

He found the assignee guilty of gross negligence in failing to make a priced inventory, in handling trust assets, in delegating its powers to Mr. Behm, in failing to keep proper detailed records, and surcharged it with commissions, conversion of notes receivable, certain expenses, and with about $26,000 on a merchandise account. On exceptions to the master's report, the District Court sustained the master in finding the assignee guilty of gross negligence, in surcharging the assignee with its commissions, conversion of notes and the expenses, but reversed him as to the other items.

The disallowances and surcharges made by the master and affirmed by the District Court were based on the ground that the assignee was guilty of gross negligence in the administration of the assets assigned to it.

This negligence, it is charged, consisted chiefly: (a) In failing to make an inventory and appraisement of the assets delivered to it by the Schwartz Motor Truck Corporation on December 24, 1923, when it accepted the trust; (b) in failing to keep a record of its administration of these assets, and (c) in failing to render a proper account to the receivers in equity.

The receivers, as above stated, made ugly charges against the assignee and the way, if not the only way, by which it could show that these charges were without foundation, and that its management had been free from negligence was by being able to render a full and complete account of the trust which it accepted.

The assignee claims to have been a mere liquidating agent, and as such was not charged with the duties which the receivers are now seeking to impose upon it. The receivers, on the contrary, say that it was a regular assignee for the benefit of creditors under the Pennsylvania Assignment Act of 1901 (39 PS ยง 1 et seq.).

But, assuming that it was a mere liquidating agent, that fact did not relieve it of the necessity of rendering an account to its principal. A liquidating agent must render an account to his principal for all property or funds belonging to his principal which came into his hands by virtue of his agency, and in order to do so it is his duty to keep and preserve and at all proper times be ready to produce true and correct ...

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