Stone v. Eacho

127 F.2d 284 (4th Cir. 1942)

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Nature of the Case

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Facts

Tip Top Tailors operated out of a corporate charter from Delaware. It had non-retail stores and also had one located in Richmond, Virginia. It secured a corporate charter for its Richmond store and caused three shares of stock to issue with the par value of $1 per share. However, the operation in Richmond did not change any of its character, business practices or even contemplated running as a separate corporation. The only impediment to claiming that these were the same companies was the paperwork that indicated it was a separate corporation. By the time the Richmond store was closed, it had debts of about $51,000. On November 20, 1940, the Delaware corporation was adjudged bankrupt in New Jersey, and Stone was appointed as the receiver. Two days later two creditors in Virginia attached the property therein, and in the following day, an involuntary petition for bankruptcy was filed by Stone on the Virginia corporation. The corporation was found bankrupt, and Stone then filed a claim for $39,069.67, that which was due to the bankrupt Delaware corporation. The trustee in Virginia resisted that allowance and asked that other claims be considered first; the Virginia corporation was a mere instrumentality, and that was not the true amounts being owed to the Delaware corporation. A Master agreed with the Virginia trustee; the Virginia Corporation was a mere shell without reality a mere agency or corporate pocket. Stone then filed a motion that the bankruptcies be consolidated and that all creditors split the remaining pie pari passu. The court did not agree, and Stone and three other Delaware creditors appealed.