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September 5, 1947

IVEY et al.

The opinion of the court was delivered by: MURPHY

The problem before us arises from a suit by plaintiff, citizens of North Carolina, against defendants, citizens of Pennsylvania, the Housing Foundation of America, Inc., a corporation (hereafter called Foundation), and O. C. Westfield, an individual. Jurisdiction is based upon diversity of citizenship and averment of the required jurisdictional amount.

The question for decision at this time is plaintiffs' request for the appointment of a receiver pendente lite of defendants' property. Plaintiffs join a prayer for an accounting and an injunction restraining defendants from further engaging in the business of selling distributorships and prefabricated houses, and from dissipating or transferring their assets. The prayers for relief in equity are ancillary to plaintiffs' primary claim for damages for breach of contract, although the complaint does not contain a prayer for judgment on the legal cause.

 Basically plaintiffs' claim may be stated as follows:

 (a) Plaintiffs relying on Foundation's representations as to its plans, experience, assets and manufacturing facilities and acting in good faith paid Foundation $ 7200 for a contract giving them the right to act as distributor of Foundation's product -- Westco Homes.

 (b) Westfield as promoter and organizer of Foundation had neither the means, facilities or experience to manufacture and deliver prefabricated houses, nor did he have any reasonable expectation that Foundation would do so. On the contrary, Westfield created and intended Foundation to be a 'corporate pocket' for his own aggrandizement.

 (c) Foundation falsely represented to plaintiffs and other that it was able to fulfill its undertakings to manufacture and deliver prefabricated houses whereas in truth and in fact it was never able to do so.

 Wherefore there was a breach of contract and plaintiffs are entitled to relief.

 Defendants dispute plaintiffs' allegation. They admit receipt of plaintiffs' money; that it was paid by plaintiffs in good faith. Defendants claim that the representations to plaintiffs were made relying upon commitments of a third party (the Bethlehem Engineering Company of New York -- hereafter called Bethlehem), that a factory, manufacturing facilities and working capital would be furnished in return for Foundation notes; that no distributorships were sold or contracts for the sale of houses entered into until the building of the factory was commenced at Dallas, Pennsylvania, in this district; that when Bethlehem commitments were not forthcoming a factory was obtained and production started at Elmira, New York; that results by way of production were not as expected -- only several houses were manufactured and delivered -- and thereafter no other contracts were entered into for distributorships or the selling of houses.

 Plaintiffs contend that as a result of Westfield's activities in organizing Foundation and Foundation's false representations to the public 'Foundation or Westfield or both obtained * * * in excess of $ 300,000.' Defendants admit Foundation received $ 180,000 of which $ 28,000 was refunded when contracts could not be met as promised and the company was running into financial difficulties; that since manufacturing operations ceased Foundation's sole function has been to sell its land and timber to raise funds to pay all creditors in full.

 Plaintiffs charge Foundation at one time contemplated transferring some of its assets to some of its creditors without receiving fair consideration and this without the knowledge and consent of other creditors and against their interests.

 Defendants answer that the plan was abandoned; that what was done was to attempt to raise sufficient money to pay off all claims with a considerable surplus remaining but that plan was not carried out.

 Finally plaintiffs contend that if a creditors' race for assets develops and if defendants are not restrained from doing further business and dissipating their assets, the damage to plaintiffs and others similarly situated will be irreparable.

 Defendants deny that the corporation has been dissipating its assets; contend that it has been trying to conserve them for the benefit of its creditors. Defendants aver that the corporation is solvent; that its assets consist of the factory site at Dallas, 65,500 acres of land and timber in Tennessee, and some inventory items; that it is trying to obtain a purchaser for the land and timber, the value of which is in excess of $ 1,000,000 and more than enough to pay all claims of creditors in full and allow for a surplus.

 Finally defendants' answer objects to the naming of a receiver for the property of the corporation, and a general request is made that all of ...

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