Appeal from the Order of the Court of Common Pleas of Dauphin County, Civil at No. 4457 Equity 1985.
David F. O'Leary, Harrisburg, for appellants.
Richard B. Wickersham, Harrisburg, for Speiser, appellee.
Rowley, Popovich and Johnson, JJ.
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This case involves an appeal from the final decree of the Court of Common Pleas of Dauphin County dated May 18, 1987, annulling various purchases, transfers of assets and the proceeds received therefrom by the appellants/J. Bernard Schmidt and Ann Schmidt as violative of the Uniform Fraudulent Conveyance Act (39 Pa.C.S. § 351 et seq.). We affirm.
The record reveals a plethora of loans, guaranties, promissory notes and transfers attendant to the operation and ultimate sale (through Bankruptcy Court) of Capital Bakers, Inc. In 1979, Capital Bakers was experiencing financial difficulty (losing money and in debt to several banks in the amount of roughly 4 million dollars).
For example, First Pennsylvania Bank had loaned some 3 million dollars to Capital Bakers, a transaction collateralized with Capital Baker's assets and 150,000 shares of Rite Aid stock belonging to a Ms. Lois Grass, valued at several million dollars. At this same time, First Pennsylvania Bank
[ 387 Pa. Super. Page 32]
had loaned $800,000.00 to the STN partnership (composed of J. Bernard Schmidt, Herman Timme (a general manager at Capital Bakers) and Norman Shea (an accountant at Capital Bakers and an agent for Ms. Grass)). The partnership was advanced money to purchase Capital Bakers' equipment, and, for tax purposes, had it leased back to the corporation. In return, First Pennsylvania Bank received 30,000 shares of Rite Aid common stock, again belonging to Ms. Grass, an investor in Capital Bakers who had loaned it over 9.3 million dollars since 1979.
When First Pennsylvania Bank made demand on the STN account, the appellant/Schmidt approached Ms. Grass. She declined to make payment on behalf of STN to forestall a default.
Also, in mid-1979, First Pennsylvania Bank was asking that its loan (4.2 million dollars) to Capital Bakers be immediately repaid. Efforts to locate another institution to finance repayment proved futile. It was only on the recommendation of one of the prospective banking lenders that the appellee/Robert N. Speiser was approached by the appellant/Schmidt and Ms. Grass, about November of 1979, to resuscitate an ailing business which he found to be "technically insolvent and under demand for repayment of all of its loans from major lenders." Thus, because Speiser was cognizant of Capital Bakers' precarious financial status, he agreed to take on the job of revitalizing the business and making it a going concern on the "guaranty" of the appellant/Schmidt that his salary of $175 per hour would be paid. As president of Capital Bakers, Schmidt had no inhibitions in doing so.
In 1980, through Speiser's efforts, Capital Bakers was refinanced by City Bank for some 4.5 million dollars.*fn1 The
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appellant/Schmidt executed a guaranty in favor of City Bank on May 30, 1980 for 3 million dollars. A second guaranty was also signed by him in favor of Citicorp Industrial Credit, Incorporated. There was a prior loan from Pennsylvania National Bank to Ms. Grass, who, in turn, loaned it to the corporation for operating capital. Additionally, by October of 1980, Bank Leumi had loaned monies to the corporation totaling approximately $695,000 with the transfer of Ms. Grass' Rite Aid stock used as security for the indebtedness as well as a promissory note executed by the appellant/Schmidt in favor of Bank Leumi for $65,000.*fn2 Lastly, another outstanding debenture on the corporation's books was in the name of Citibank and another of its entities, Citicorp.
In the course of the first few months of 1981, all loans were in default. Speiser, as general manager of Capital Bakers, asked that Ms. Grass' family assist in providing ...