Case Name: Walter N. Gill, as Trustee of Henry H. Bell's Sons' Company, Bankrupt, Respondent, v. Bell's Knitting Mills, Appellant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1910-03-09
Citations: 137 A.D. 553
Docket Number: 
Parties: Walter N. Gill, as Trustee of Henry H. Bell’s Sons’ Company, Bankrupt, Respondent, v. Bell’s Knitting Mills, Appellant.
Judges: 
Reporter: Appellate Division Reports
Volume: 137
Pages: 553–555

Head Matter:
Walter N. Gill, as Trustee of Henry H. Bell’s Sons’ Company, Bankrupt, Respondent, v. Bell’s Knitting Mills, Appellant.
' Third Department,
March 9, 1910.
Bankruptcy — trust agreement — accounting — rights of trustee in ’ bankruptcy.
Where a corporation, being in financial difficulties, made certain valid agreements with another corporation whereby it transferred to the second corporation all its personal property, the same to be liquidated and applied to the payment of the creditors of the transferor, except the secured creditors and two others named, and leased to it all its real estate upon condition that its plant be operated for the benefit of the creditors, a trust relationship is created between the corporations, and the first having gone into bankruptcy, its trustee is entitled to an accounting and to recover the surplus in the hands of the second corporation after payment in full of the creditors of the bankrupt, except the secured creditors and the two others named.
Appeal by the defendant, Bell’s Knitting Mills, from an interlocutory judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Ulster on the 31st day of July, 1909, upon the decision of the court rendered after a trial at the Ulster Special Term.
Arthur M. Levy, M. S. G-uiterman and G. II. Townsend, for the appellant.
John J. Linson, for the respondent.

Opinion:
Cochrane, J.:
On a former appeal herein (128 App. Div. 691) it was held that the agreements between the bankrupt corporation Henry H. Bell's Sons' Company and the defendant Bell's Knitting Mills, made prior to the bankruptcy of the former corporation were valid and lawful. By those agreements Henry H. Bell's Sons'. Company transferred all of its property except-its real estate to the. defendant, " the same to be liquidated, used and applied for tlie benefit of the creditors of Ilenr-y II. Bell's Sons' Company, except creditors whose claims, are secured, and A. E. Bell and W. M. Bell," and leased to the defendant all its real estate constituting its manufacturing plant for about eight months, upon condition that the said property and plant should be operated and conducted .by the defendant for the benefit of the creditors of Henry H. Bell's Sons' Oompany, except those whose claims were secured and A. E. Bell and W. M. Bell. The agreements were consented to by A. E. Bell and W. M. Bell. A trust relationship was thereby established between the two corporations. The defendant entered upon the trust and took possession of all the property, and sold the personal property a.nd continued the business and operated the plant for the term specified in the lease. It has not' accounted to any one and has refused information to plaintiff concerning the condition of the trust affairs.
If Henry H. Bell's Sons' Company had not gone into bankruptcy, clearly it could require an accounting by the defendant and pay-, ment by the latter of any surplus, in its hands arising from'the proceeds of the property transferred to it and the profits of the business conducted by it under the aforesaid agreements over and above what was necessary for the liquidation of the debts of Henry H. Bell's Sons' Company, except secured debts and debts in favor of A. E. Bell and W. M. Bell in accordance with the terms of the agreements.- The plaintiff, having succeeded to the rights of the latter company, under said agreements, is entitled to the same relief. It was held on" the former appeal that the defendant must account. Even though there be no surplus in the hands of defendant after the complete execution of its trust, the plaintiff is nevertheless entitled to an accounting in order to have the defendant charged with the proper amount so as to minimize the claims it agreed to liquidate, which for any unpaid balances will remain valid claims' against the bankrupt estate in- the hands of the plaintiff.
The complaint is sufficiently broad to permit such relief in this action. There are, it is true, allegations that the agreements were without consideration and were made with intent to create a preference. But, disregarding those allegations, the trust relationship and all the facts necessary to entitle the plaintiff to an accounting herein are alleged, and such relief is demanded in the complaint and is comprehended within the scope of the pleading. ?
The interlocutory judgment directs such' accounting and further provides that tho plaintiff is entitled to recover all the proceeds of the personal property transferred to the defendant and the net jirofits of the business conducted by it. Clearly,-the plaintiff cannot have such relief.' He is justly entitled to an accounting and to have paid to him whatever remains in the hands of the defendant after payment in full of all the creditors of the bankrupt corporation, except its secured creditors and A. E. Bell and W. M. Bell. -That- is ' all which Henry IT. Bell's Sons' Company could require, if it had not become bankrupt, and the plaintiff can require no more.-
Interlocutory judgment modified so as to provide that the defendant shall only be required to pay to the plaintiff such amount as may appear on the accounting herein to remain in its hands after payment in full of all the creditors of the bankrupt corporation except secured creditors and A. E. Bell and W. M. Bell, and the proper expenses and disbursements of the defendant, and as so modified unanimously affirmed, with costs to both parties payable out of the amount, if any, thus found due to plaintiff.