Cumberland Portland C. Co. v. Reconstruction F. Corp.

Decision Date17 November 1953
Docket NumberCiv. No. 1798.
PartiesCUMBERLAND PORTLAND CEMENT COMPANY, a Tennessee corporation, v. RECONSTRUCTION FINANCE CORPORATION, a corporation chartered by acts of Congress.
CourtU.S. District Court — Eastern District of Tennessee

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COPYRIGHT MATERIAL OMITTED

Spears, Reynolds, Moore & Rebman, Chattanooga, Tenn., Roy A. Miles, Nashville, Tenn., for plaintiff.

Noone, Tanner & Noone, Chattanooga, Tenn., for Trustee in Bankruptcy.

Hugh C. Gracey, Nashville, Tenn., for Ralph Rogers & Co.

DARR, Chief Judge.

This is an action to recover the sum of $14,767.23 for cement furnished by plaintiff for the account of Tullahoma Continuous Mix Company for which it is claimed the defendant agreed, in writing, to pay. An intervening petition has been filed by Ralph Rogers & Company, Inc., seeking a recovery of $13,897.37, and there is an intervention by the Trustee in bankruptcy seeking recovery for the amount paid into the registry of the court and funds paid to plaintiff and Rogers within four months of bankruptcy. All of these issues will be later discussed and determined.

The plaintiff claims that the defendant is personally liable to it by reason of its direct obligation to pay said indebtedness which was the basis upon which the cement was sold. And while defendant's obligation was only to pay out of certain assigned funds, the plaintiff says that the defendant had more than ample funds assigned to it which it actually received; and that instead of paying the plaintiff's debt as it agreed to do, it wrongfully diverted said funds to other purposes and to the payment of other creditors with respect to whom no such obligation existed.

Plaintiff says that payments from time to time made to it, and which the Trustee in bankruptcy seeks to recover back as preferential, as hereinafter shown, were made by the defendant out of funds, contracts or accounts receivable assigned by Tullahoma Continuous Mix Company to the defendant for the plaintiff's use and benefit at or prior to the respective shipments of cement; and that the shipments of cement constituted a present and adequate consideration for the assigments. Plaintiff further says that the assets of the Tullahoma Continuous Mix Company were not diminished by said assignments.

Plaintiff also claims that after May 11, 1951, the assigned funds in defendant's hands were impressed with a trust in favor of plaintiff from the time they came into defendant's possession, to the extent of plaintiff's debt. The plaintiff says that the defendant, in effect, guaranteed payment of the debt for the cement.

The answer admits in effect the sending of the telegrams of commitment above referred to, but it denies that they constituted a guaranty, or that it, as a governmental agency, had authority to make guaranty. It relies on plaintiff's letter of June 26, 1951 as authority for disbursement of the assigned funds to other creditors; and insists that said letter relieved it of the obligation of its telegrams. It says the plaintiff has thus agreed to an equitable distribution of the assigned funds; that defendant was merely a disbursing agent for the funds belonging to the Tullahoma Continuous Mix Company, and that the two creditors of that Company, Cumberland Cement Company and Rogers, to whom the balance of assigned funds have been obligated, are entitled to distribution pro rata.

Defendant further says that Rogers is asserting a claim against the balance of funds in its possession substantially on the same basis as the claims of plaintiff; and that there are other smaller creditors of the Tullahoma Continuous Mix Company who claim a right to a proportionate distribution of said funds. And the defendant says that by reason of the conflicting claims of creditors of the Tullahoma Continuous Mix Company, it is in doubt as to whom the balance of assigned funds in its hands should be paid. The balance of such funds is $12,234.91, which it has paid into the registry of the court, and it asks that this be treated as an interpleader and that other creditors be required to interplead their respective claims.

In the meantime, on August 28, 1951, the Tullahoma Continuous Mix Company filed a petition in bankruptcy in the Winchester Division of this court and J. Davis Wooten was duly elected Trustee. On March 28, 1952, the Trustee filed an intervening petition and answer herein asserting his rights to the funds which the defendant paid into the registry of the court. The Trustee denies that the plaintiff or Rogers obtained any valid rights, title, interest or lien against said funds as against the general creditors of the bankrupt; and asserts that there were no valid assignments of said funds and that defendant was only a disbursing agent for the bankrupt, without authority to allocate or make any agreement to allocate or encumber the funds in any particular way or to any particular creditor. The Trustee asserts that the materials for which the various creditors present claims were furnished to the bankrupt on open account, and not on a current basis for cash; and the Trustee claims the right to all of the funds paid into court by the defendant and says also that payments made to the plaintiff and other creditors within four months of bankruptcy, as set out in the intervening petition and the answer of the defendant, were preferential and recoverable for the benefit of general creditors. Arrangements and agreements claimed by the plaintiff and Rogers for priority are challenged on the grounds that they were made with knowledge of the bankrupt's insolvency and with the purpose of obtaining an illegal preference; and it is also claimed that the assignment of funds by the bankrupt to the defendant, to the extent of the 90 percent made available for the bankrupt's operating expense, was ineffectual and voidable as to general creditors because the bankrupt retained control of said funds.

Rogers filed an intervening petition and answer. It claims an indebtedness against Tullahoma Continuous Mix Company of $13,897.37 for crushed stone furnished as a necessary ingredient of the concrete which the Tullahoma Continuous Mix Company was producing.

It is insisted that the defendant is liable to it for this indebtedness because it misrepresented, either intentionally or innocently, that there would be ample funds assigned by the Tullahoma Continuous Mix Company to pay it in full; and defendant encouraged and induced Rogers to continue deliveries of materials with oral assurances of payment resulting in the present indebtedness. It claims priority in payment out of the funds paid into court by reason of orders from the Tullahoma Continuous Mix Company to the defendant to pay its invoices; and seeks a personal judgment against the defendant either for the full amount of its debt or for any deficiency as to the amount recoverable from the assigned funds.

The Tullahoma Continuous Mix Company (Mix Company) was a subcontractor on the government project, Arnold Engineering Development Center, near Tullahoma, Tennessee, on which Robert E. Maxey Construction Company (Maxey) and C. F. Rule Construction Company (Rule) were prime contractors.

Over a period commencing in December 1949 and for about one year, the plaintiff had sold cement to said Mix Company on open account, but in November 1950, due to an unfavorable credit experience, plaintiff declined to furnish it except upon terms of sight draft with bill of lading attached. Several carloads were sold on these terms in the early part of 1951.

On April 11, 1951, the Mix Company negotiated a loan with the defendant for $70,000 and as part security therefor executed to defendant assignments of the contracts which the Mix Company had with the prime contractors, Maxey and Rule. Pursuant to these assignments, all funds accruing to the Mix Company were paid direct to the defendant by the prime contractors. Under the assignments, the defendant was fully authorized to receive, receipt for, handle and disburse all of said funds; but contemporaneously therewith the defendant executed a collateral agreement to the effect that 10 percent of said funds be placed on the loan account and the balance of said funds, or 90 percent, might, after 30 days, be available to the Mix Company for operating expense so long as the loan was not in default.

Under the assignments, as of April 11, 1951, all of the proceeds of the Maxey and Rule contracts were paid by them direct to the defendant.

Thereafter the 90 percent of the assigned funds were retained by the defendant and used, managed and disbursed by it for the payment of plaintiff's invoices for cement, as hereinafter shown, and for payment of other operating expenses of the Mix Company and payments on its loan account. This arrangement was in accordance with the directions and instructions of the Mix Company, and was, so far as appears, with the knowledge and consent of all creditors and the Maxey and Rule contractors. The contractors continued to pay the assigned funds direct to the defendant, and the Mix Company did not get possession or control of the 90 percent of the assigned funds or such part thereof as remained.

Early in May 1951, the Mix Company, finding it difficult or inconvenient to make C.O.D. purchases, and desiring to avoid shipments with sight draft with bill of lading attached, as required by plaintiff, requested and authorized the defendant to arrange with the plaintiff to ship cement to be paid for by defendant out of the assigned funds.

The defendant thereupon, on or about May 11, 1951, entered into an agreement with plaintiff whereunder the defendant or the Mix Company would from time to time order carload lots of cement to be shipped to the Mix Company, for which the defendant would pay out of the assigned funds. When each such car was thereafter ordered by the defendant or by the Mix Company, the defendant would send to the plaintiff a telegram of commitment,...

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    ...2 (1979), while in Tennessee and South Carolina intention is a necessary element of a fraud action. See Cumberland Portland Cement Co. v. R.F.C., 140 F.Supp. 739, 750 (E.D.Tenn.1953); Lancaster v. Smithco., Inc., 238 S.C. 15, 119 S.E.2d 145, 145 (1961). In Louisiana, the intention must be e......
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    ...1973); Butts v. Colonial Refrigerated Transportation, Inc., 290 F.2d 221, 222 (6th Cir. 1961); Cumberland Portland Cement Co. v. Reconstruction Finance Corp., 140 F.Supp. 739, 751 (E.D.Tenn.1953), aff'd 232 F.2d 930 (6th Cir. 1956). The representations made by Travelers through its claim re......
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    ...present fact. Haynes v. Cumberland Builders, Inc., supra at 232 [(Tenn.Ct.App.1976)]. See also Cumberland Portland Cement Co. v. Reconstruction Finance Corp., 140 F.Supp. 739, 751 (E.D.Tenn.1953), aff'd. 232 F.2d 930 (6th Cir.1956). Thus, statements of opinion or intention are not actionabl......
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