Harrison v. Merchants Nat. Bank, 11989.

Citation124 F.2d 871
Decision Date19 January 1942
Docket NumberNo. 11989.,11989.
PartiesHARRISON v. MERCHANTS NAT. BANK OF FORT SMITH, ARK. In re HAYNES' ESTATE.
CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)

J. M. Smallwood, of Russellville, Ark., for appellant.

Harry P. Daily, of Fort Smith, Ark. (John P. Woods and J. S. Daily, both of Fort Smith, Ark., on the brief), for appellee.

Before SANBORN and JOHNSEN, Circuit Judges, and NORDBYE, District Judge.

NORDBYE, District Judge.

This is an appeal from a judgment entered for the appellee bank in a suit brought by the Trustee in Bankruptcy to set aside, as preferential, certain pledges to the bank of frozen poultry, including the amounts received by the bank from the sale of these pledged assets. The parties will be referred to as the Trustee and the Bank.

The transactions which gave rise to this controversy are essentially these: S. L. Haynes, the bankrupt, was engaged in the poultry business at Fort Smith, Arkansas. At first he confined his operations to the buying and selling of live poultry. Later, he decided to handle frozen poultry and obtained an outlet for such business with the Campbell Soup Company, of Camden, New Jersey. He had very little capital and made arrangements with the Bank to carry his account on an overdraft basis. This arrangement continued for about a year, when it appeared that Haynes' business had steadily grown, requiring more satisfactory financing. Thereupon, on February 25, 1939, Haynes entered into a written contract with the Bank, by the terms of which the Bank agreed to extend to him a line of credit on an overdraft basis, but not to exceed $20,000 at any one time. Haynes agreed that all warehouse receipts issued by the Ward Ice Industries, where the poultry was to be frozen and stored, should be issued in the name of the Bank and delivered to it, and that the warehouse, in holding and storing the poultry delivered to it from time to time by Haynes, should hold possession of the poultry for the Bank as security for the indebtedness and subsequent advances made by it.

The contract further provided that, in order to facilitate the shipments to the Campbell Company, Haynes would promptly load and ship the poultry to this company with a draft drawn on it in favor of the Bank, with bills of lading attached. The Ward Ice Industries was a party to this agreement. Later, on or about April 4, 1939, by an arrangement agreeable to all parties, the sales of poultry to the Campbell Company were accomplished in the following manner: Purchase orders were sent to Haynes by the Campbell Company, and thereupon invoices for such carload shipments would be prepared. Haynes would then take these invoices to the Bank and the Bank would draw a sight draft for eighty per cent of the amount of the invoices and attach a draft to the shippers' order bill of lading. Upon taking up the bill of lading, the Campbell Company remitted the amount of the sight draft direct to the Bank. After the receipt of the car, the balance of twenty per cent was remitted by the Campbell Company to the Bank by a check payable to Haynes and the Bank jointly. From May 28, 1939, to June 5, 1939, 250 barrels of dressed poultry had been pledged pursuant to this contract. Shipments of this poultry were all made prior to July 25, 1939, when Haynes was adjudicated a voluntary bankrupt. The Trustee claims that the pledge of this poultry constituted a preference, and seeks to recover the proceeds of the sale of the poultry which the Bank has received.

The assignment of errors by the Trustee presents but two issues: (1) Did the trial court err in finding that the Bank had no reasonable cause to believe that Haynes was insolvent prior to June 5, 1939; and (2) did the trial court err in holding that the Bank did not lose its right as pledgee of the poultry by reason of the sale to the Campbell Company?

It is conceded that, on June 5, 1939, the Bank knew, or had reasonable cause to believe, that Haynes was insolvent. It was on this day that the Bank refused to honor Haynes' checks and refused to accept any further pledged security to reduce its overdraft. The Trustee strenuously urges that, on May 8, 1939, when an audit was furnished to the Bank of Haynes' affairs, the Bank knew or had reasonable cause to believe that Haynes was insolvent. This audit showed a net worth of only $1,662.94, but it reflected a net loss of $3,523.77 since January 1, 1939. It is recognized that, in considering this audit, the president of the Bank was not only disappointed at the progress which Haynes had made in connection with his affairs, but stated in substance, after considering the audit, that he did not see how the Bank could go along any further with him. However, it appears that, during this conference, a dispute arose as to the correctness of the audit which had been submitted. Haynes attempted to point out that the audit was incorrect in certain particulars and specifically with reference to the amount of vouchers outstanding for poultry purchased. It may be gathered from the testimony that Haynes was able to convince the Bank that the audit was not a fair test and did not reflect a true condition of his affairs, primarily on account of the way in which the books had been kept by a former bookkeeper. The accountant who made the audit conceded at the time of this conference that he could not say that the position taken by Haynes with respect to certain phases of the audit in controversy was not correct. In any event, the Bank was apparently of the opinion that Haynes should be given a further trial, and it was agreed that the Bank should "go along with him" for another thirty days. It may be noted that, on May 8th, the Bank was fully secured to the extent of Haynes' overdrafts, which at that time aggregated approximately $17,000. After the conference on May 8th, the business transactions between Haynes and the Bank proceeded as theretofore. His checks were honored, and on June 5th his overdraft totaled $20,725.73. In the meantime, however, a second audit had been completed as of May 31st, which was delivered to the Bank on June 5th, and this audit showed an indisputable loss during the month of May in the sum of $1,017.31. Thereupon, the Bank refused further credit and proceeded to foreclose its pledge.

Every claim of preference necessarily turns upon its own facts. That Haynes was actually insolvent some time prior to June 5th is not controverted. One may deduce from the audit of May 8th that the status of Haynes' affairs was not particularly encouraging. Undoubtedly, he was required to do business on a rather tenuous basis. The Bank may have known at that time that it was questionable how long he would be able to continue. That it was not too sanguine as to Haynes' ability to surmount his financial difficulties may be a fair assumption. However, Haynes apparently was confident that he would be able to survive, and it was due to his assurance in this regard that the Bank went along with him. It is not made to appear that the Bank was motivated by the hope of any appreciable profit or personal benefit in consenting to continue the arrangement for another thirty days. The impelling fact is that, although the Bank was fully secured on May 8th, it agreed to extend Haynes further credit, and the overdraft from May 8th to June 5th was increased from approximately $17,000 to...

To continue reading

Request your trial
21 cases
  • Miller v. Wells Fargo Bank International Corp.
    • United States
    • U.S. District Court — Southern District of New York
    • December 22, 1975
    ...... here since it is based upon an agency relationship between pledgee and pledgor, See Harrison v. Merchants National Bank, 124 F.2d 871 (8th Cir. 1942); Israel v. Woodruff, 299 F. 454 (2d ... County Nat"'l Bank v. Inter-County Farmers Coop. Assoc., 65 Misc. 2d 446, 317 N.Y.S.2d 790 (Sup.Ct. 1970). . \xC2"......
  • In re Camp Rockhill, Inc.
    • United States
    • United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania
    • July 17, 1981
    ......989, 991 (E.D. Pa.1937); Grant v. National Bank of Auburn, 232 F. 201, 205 (N.D.N.Y.1916); In re Tupper, 163 F. 766 ...1978); American Nat'l. Bank, 333 F.2d at 984; Mizell, 240 F.2d at 738; Interstate National ...Harrison v. Merchants National Bank, 124 F.2d at 873; Engelkes v. Farmers ......
  • In re Gruber Bottling Works, Inc.
    • United States
    • United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania
    • January 5, 1982
    ......Harrison v. Merchants National Bank, 124 F.2d at 873; Engelkes v. Farmers ...274, 275 (Bkrtcy.,N.D.Ala.1980). See also, American Nat'l Bank & Trust Co. v. Bone, 333 F.2d 984, 987 (8th Cir. 1964); Mizell v. ......
  • Engelkes v. Farmers Co-Operative Company
    • United States
    • U.S. District Court — Northern District of Iowa
    • May 22, 1961
    ...... personal check drawn on the bankrupt's account at the Farmers Savings Bank of Grundy Center, Iowa. Although Conrad, Dike, and Grundy Center are all ...See Harrison v. Merchants National Bank, 8 Cir., 1942, 124 F.2d 871, 873. However, some ......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT