Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.



decided: November 10, 1964.


Appeal from decree of Court of Common Pleas of Erie County, Sept. T., 1962, No. 14, in the matter of Erie Drug Company, an insolvent Pennsylvania corporation.


Warren W. Bentz, with him W. Louis Schlesinger, for exceptants, appellants.

John F. Potter, with him A. Grant Walker, and Gifford, Graham, MacDonald & Illig, for appellee.

Bell, C. J., Musmanno, Jones, Cohen, Eagen, O'Brien and Roberts, JJ. Opinion by Mr. Justice Roberts

Author: Roberts

[ 416 Pa. Page 42]

This appeal is from a decree of the Court of Common Pleas of Erie County dismissing certain exceptions to the first and final account filed by the First National Bank of Erie as receiver for the Erie Drug Company, an insolvent corporation.

The Erie Drug Company is a small corporation which was engaged in the wholesale drug business for

[ 416 Pa. Page 43]

    a substantial number of years in and around the City of Erie. Prior to his death on July 21, 1960, W. P. Webster was the controlling stockholder and thereafter his widow, Gladys S. Webster, succeeded to his stock and became president of the company. On September 6, 1962, the Court of Common Pleas of Erie County, sitting in equity, and acting upon Erie Drug's petition, appointed the First National Bank of Erie as temporary receiver to liquidate the corporation's assets. On September 27, 1962, First National was made permanent receiver. Its first and final account filed on September 13, 1963, showed distributable assets of $105,775.35 and unsecured claims due general creditors in the amount of $247,079.76.

Among the claims allowed were debts due Gladys S. Webster on a series of notes in the face amount of $84,000 and $12,707 in interest on that sum, computed at the rate of 6% to October 1, 1963. Also allowed was a debt due the receiver as a creditor of Erie Drug on a note in the amount of $26,000, plus $1,484.82 in interest computed at 5% to October 1, 1963.

Appellants, a majority of the general creditors, filed several exceptions to the receiver's account. The court below directed the receiver to amend its final account so as to eliminate $5,400 in interest allowed Mrs. Webster on a $60,000 loan for the period August 22, 1961, to September 22, 1963, which interest Mrs. Webster had failed to demand in her proof of claim. All other exceptions were dismissed. Since Mrs. Webster has taken no appeal, the matter before us involves only certain of the exceptions which were dismissed.

[ 416 Pa. Page 44]

Appellants contend that Gladys S. Webster, being the principal stockholder, president, and director of the corporation, is not entitled to share pro rata in the distribution of assets among the general creditors. The general rule is that a corporation is an entity separate and distinct from its shareholders, Green v. Philadelphia Page 44} Inquirer Co., 329 Pa. 169, 175, 196 Atl. 32, 34 (1938), and that a shareholder who in good faith advances money to a corporation for the corporation's benefit is not necessarily precluded from sharing in the distribution of the assets upon the same terms as other unsecured creditors. Hill v. Standard Tel. Mfg. Co., 209 Pa. 231, 58 Atl. 147 (1904); Hooven Mercantile Co. v. Evans Mining Co., 193 Pa. 28, 44 Atl. 277 (1899). Appellants, however, rely on Gordon v. Hartford Sterling Co., 350 Pa. 277, 38 A.2d 229 (1944), where the sole actual shareholder of an insolvent corporation was denied a pro rata share in the distribution of assets among general creditors.

After careful consideration of the record, we must conclude that the chancellor correctly allowed Mrs. Webster's claim for the principal sum due on her notes. The exception to the general rule which the Gordon case embodies is not applicable on the facts of the case presently under consideration. The Gordon holding resulted from a corporate situation readily distinguishable from that which existed in the Erie Drug Company. The corporation in Gordon was a mere form, an instrumentality of the shareholder-creditor. The result was that the loan from the creditor-share-holder to the corporation was a loan to the creditor himself, only in a different form. The Court in Gordon recognized this factor as generating an exception to the usual rule. 350 Pa. at 288, 38 A.2d at 234. There is, furthermore, no evidence whatever of bad faith which would operate to remove the case from the general rule stated above. It is quite evident that the loan by Mrs. Webster was bona fide. The court below, in distinguishing the Gordon case from the instant situation, properly stated the governing considerations and correctly applied them to the instant facts.*fn1

[ 416 Pa. Page 45]

Appellants also contend that the $12,707 of Mrs. Webster's claim which represents interest dating from March 20, 1956, to October 1, 1963, should not be allowed

[ 416 Pa. Page 46]

    on the theory that Mrs. Webster never intended to be repaid in the ordinary course of business, and waived her right to interest. This contention was properly disposed of by the court below which found no waiver in her failure to cash the interest checks in light of the existing circumstances.*fn2

[ 416 Pa. Page 47]

In addition, appellants advance an argument dependent, in part, on alternative theories. They first argue that none of the claimants, including themselves, Mrs. Webster, and the First National Bank of Erie, are entitled to recover interest for the period after the appointment of the receiver. Whatever may be the rule elsewhere, we must agree that, since the estate is insolvent, interest may be allowed to the general creditors only to the date of receivership. Mortgage Bldg. Page 47} & Loan Assn. Case, 334 Pa. 81, 5 A.2d 342 (1939); 16 Fletcher, Cyclopedia of Corporations ยง 7937 (1962 rev. vol.). Interest which has been allowed Mrs. Webster and the bank for the period after that date must be eliminated, and the account of the receiver must, in that respect, be modified.

Appellants have also contended that as merchandise creditors, they are entitled to interest running from the due dates of the corporation's obligations to them. They submit that the due date of these obligations must, at the latest, be considered the date on which the company was placed in receivership, September 6, 1962. As an alternative to their argument recited in the paragraph above, they urge that if interest is to be allowed to anyone after the date of the receivership, they are also entitled to interest. Since we have held that interest terminates with respect to all general creditors as of the date of receivership, we need only consider whether appellants are entitled to interest prior to that date. The court below, while allowing interest claimed by Mrs. Webster and the bank for the period prior to the receivership, denied any interest on appellants' claims, on the ground that, while Mrs. Webster and the bank properly claimed interest, the other creditors failed to do so. The court took the position that the "receiver could not allow an amount in excess of a claim and, even if inclined to do so, was not in possession of sufficient facts upon which to base a judgment as to when the interest period was to begin." In challenging this determination, appellants have made several assertions which were not advanced below, including, among others, allegations that the receiver gave no notice to file proofs of claim, and that no order was ever made by the court fixing a deadline for filing claims. Since it is well settled that this Court will not review questions that were not raised in the court below, Rimpa v. Bell, 413 Pa. 274, 196 A.

[ 416 Pa. Page 482]

    d 738 (1964), we must affirm the denial of interest to appellants.*fn3

Finally appellants contend that the receiver should have secured and accounted for interest on $104,351.47 which it held since about March 22, 1963.*fn4 This argument also must fail because it was not raised in the court below.

The decree, as modified in accordance with this opinion, is affirmed and the case is remanded for further proceedings consistent herewith. Costs to be paid out of corporate assets.


Decree, as modified, affirmed.

Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.