by Paul R. Spitzzeri
The issue of whether it was wiser to continue with the failed Workman and Temple bank’s affairs under assignment or through bankruptcy became one exemplified by a marked difference of opinion between two of Los Angeles’ three major daily newspapers, the Express and the Herald, as discussed here in recent posts.
The matter continued with a Herald article on 25 February 1876 titled “A Comparative Statement.” The paper began its piece by claiming that “special pleading has been done in favor of leaving the estate of Temple & Workman, for settlement, in the hands of the assignees selected by the firm.” This was done “by those who are indebted to the creditors of the bank, and made for the sole purpose of avoiding settlement.”
Criticizing the work of assignees Edward F. Spence and Daniel Freeman as mired in “peculation and unfair dealing”, the Herald argued that “the assignee process was far more expensive and protracted than that of the bankruptcy court.” To prove its point, the paper offered “a comparative statement of the cost of the two methods of settling an estate.”
It began by listing fees allowed under bankruptcy laws for the serving of processes and other costs and also observed that bankrupt estates involve the selection of an assignee to “collect the debts, sell the property and pay dividends to the creditors.” This person was required to give a secured bond and be subject to court oversight. Property sales were to be at public auction, because private ones “would often be productive of fraud and injury to creditors.”
Under bankruptcy, the assignee could have “at reasonable compensation” the services of a lawyer to assist in the process of filing suits and defending claims for and against the estate “but in no case would the Court permit him to employ eight or ten lawyers to eat out the heart of the estate and leave the shell for the creditors,” a point hammered home by the Herald in the past.
As to assignment process, “the one by which it is sought to melt away the estate of Temple & Workman, and leave the deceived and wronged creditors as poor as if the bank had been without a shadow of assets,” there was no court oversight. Assignees could sell property in any way they wanted and “have free and full liberty to do with the estate just as they please.” Creditors unhappy with the work of the assignees would have to file grievances in court at their own expense, while the former could use the assets of the estate to defend themselves.
Moreover, the fees provided by law to assignees were much higher than that under bankruptcy, including some 400% higher for all sums over $10,000, which was the case with the bank. In addition, there were general expenses for the management of the estate. This was illustrated through two charts with figures calculated for the bank’s estate at a stated asset level of $800,000.
For assignment, the Herald calculated the costs as being over $110,000, while under bankruptcy the expenses would entail a tad over $20,000. The paper stated “these figures are worth the study of the creditors of the bank of Temple and Workman” especially given that assignment was a “process insisted upon by the Express and other debtors of the concern.”
The following day, the 24th, the Express issued its response in an editorial titled “The Bankruptcy Law.” The paper quoted at length from an article in the St. Louis Republican, in which it was stated that “the processes of the law are too expensive” and that there were “dishonest men to employ it in forcing their creditors to accept compromises.”
Additionally, it was observed that bankruptcy processes “were so expensive that large proportions of an estate—sometimes one-third and sometimes one-half— were consumed in fees and charges, leaving little to creditors.” Cases were said to have existed in which an entire estate was lost to such expenses. Such results were “why so strong a feeling in favor of its repeal has grown up in the North and East.”
The Express went on to day that “the experience in this State of the operation of the bankrupt law has been very discouraging.” It said that “the average expenses of winding up large estates in bankruptcy in this State has been something over 40 per cent.” Using the same $800,000 figure for the Temple and Workman estate as the Herald, the paper noted that only $480,000 would remain.
In fact, the Express reported on a statement said to have been uttered by Elias J. “Lucky” Baldwin, who held much of the estate in mortgage for his large loan to the bank, in which
speaking of the Temple & Workman affair, he is reported to have said that if the estate is thrown into bankruptcy no one would receive a dollar out of it but himself.
With this in mind, the paper noted that, because “all sales in bankruptcy must be for cash and at auction, such a sale for the estate “encumbered as it is with the Baldwin mortgage,” led to the rhetorical question: “does any one suppose it would bring one-tenth of its value?”
Consequently, the Express had its own charts, showing what it calculated to be the realized amounts of the Temple and Workman estate’s prime properties at a bankruptcy auction as opposed to the assignees’ sales. Looking at Workman’s share of Rancho La Puente, their shared ownership of the ranchos La Merced, Potrero Grande and Potrero de Felipe Lugo, and F.P.F. Temple’s ownership of the Temple Block and the postoffice block on Spring Street, the differences would be considerable. Under bankruptcy that estimate was $485,000 and under the assignees, $970,000.
The paper tallied achievements of the assignees in collecting monies, filing suits, and other actions as evidence of successful management by Spence and Freeman. It claimed “we have no other interest in the matter than that of the public good, and a natural desire not to see a fine estate wasted by means of a law which has proven everywhere in the Unired States on effective as an instrument of evil.”
Freeman and Spence, aided by a committee of creditors, were lauded as “good business men,” familiar with the estate and the value of its property. It went on to suggest that “if there is any way in which the estate can be made to yield a fair return they are the men to take advantage of it.” If, however, bankruptcy was pursued “there is the not the shadow of a hope—in the light of the history of bankruptcy estates—that a dollar will ever be realized from it by the general creditor.”
More soon on the assignment matter in coming days!