United States Court of Appeals for the Fifth Circuit
75 F.2d 756 (1935)
In 1922, Arthur Wangemann, the president of Wangemann-Reichardt Company (W-R Co.), sold 500 shares of W-R Co. stock back to W-R Co. Pursuant to a promissory note, Wangemann was to be paid $55,000 plus interest on or before January 1, 1923. At the time of the transaction, W-R Co. was solvent and had sufficient funds to pay Wangemann in cash without becoming insolvent. The note to Wangemann was not paid on its due date, however. Over time, renewal notes were issued and the amount owed to Wangemann was reduced. W-R Co. eventually changed its name to Reichardt-Abbott Company, Inc. (R-A Co.) and entered into bankruptcy proceedings. By that point, R-A Co. had insufficient assets to pay its creditors in full. Several notes to Wangemann, including a $30,000 note due in January 1933 and four notes covering interest payments, were still outstanding. Since Wangemann had passed away, his executrix (plaintiff) filed a claim in the bankruptcy court on behalf of Wangemann’s estate, requesting to participate in the distribution of R-A Co. assets equally with other creditors. The bankruptcy referee allowed the executrix’s claim on the grounds that the transaction between Wangemann and W-R Co. had been made in good faith and would have stood had Wangemann been timely paid. The referee’s order was affirmed; that decision was appealed.
Rule of Law
Holding and Reasoning (Foster, J.)
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