Updike v. Oakland Motor Car Co.

• Decision Date: 04 August 1931
• Docket Number: No. 250.,250.
• Citation: 53 F.2d 369
• Parties: UPDIKE et al. v. OAKLAND MOTOR CAR CO.
• Court: U.S. Court of Appeals — Second Circuit

53 F.2d 369 (1931)

UPDIKE et al. v. OAKLAND MOTOR CAR CO.

No. 250.

Circuit Court of Appeals, Second Circuit.

August 4, 1931.

Jonas & Neuburger, of New York City (David Haar and Murray L. Jacobs, both of New York City, of counsel), for appellants.

Henry M. Hogan, of New York City (Albert M. Levert and John Thomas Smith, both of New York City, of counsel), for appellee.

Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

The decree from which this appeal has been taken was rendered in a suit by the trustees in bankruptcy of H. L. Stratton, Inc., to recover preferences alleged to have been received by Oakland Motor Car Company from H. L. Stratton, Inc., at a time when the Oakland Company had reasonable cause to believe that the Stratton Company was insolvent and that an unlawful preference would be effected. The transfers were made within four months of the voluntary adjudication in bankruptcy of Stratton Company, which occurred December 30, 1926. The District Court held that Stratton Company was solvent at the times when the transfers were made and that in any event Oakland Company had no reason to suppose that this was not the case. It accordingly dismissed the bill.

Stratton Company was a dealer in automobiles under a contract with Oakland Company as seller. The latter engaged to sell motor cars and accessories to Stratton as its exclusive dealer in a certain territory in which Stratton operated many agencies. The method of handling the sale of cars under the above contract was somewhat complicated, but requires no particular consideration here. Stratton ordinarily purchased the cars by making a 10 per cent. deposit on account of the purchase price and giving a trust receipt to the General Motors Acceptance Corporation to secure notes for the balance of the purchase money. In 1926, Stratton did a large and greatly increased business, making sales of cars and accessories in the first ten months of the year to the extent of nearly $4,000,000. This business was especially active in July and August, but in September there was a serious recession which caused Stratton to apprehend that it would be without adequate capital to go through the slack fall and winter season and be ready for the spring business. Accordingly, in November, 1926, the president, Mr. Stratton, requested Oakland to take over such portion of the stock of cars as seemed to be unduly large in view of the poor business outlook. Any unnecessary stock, of course, increased the amount of interest Stratton had to pay on its notes given for the purchase of cars and secured by trust receipts and also tied up capital invested in cars which it had entirely paid for. Stratton requested Oakland to take over these surplus cars, whether owned outright or held on trust receipts, and to pay it for the cars which it completely owned and also for what is described as the "equity" in the others. Oakland did this. It took over the cars owned by Stratton at the dates, in the numbers and stipulated values below:

                    1926
                  Nov. 18, 64 cars at .... $44,798.37
                  Nov. 30, 69 cars at ....  52,304.79
                                           __________   $97,103.16
                    Oakland took over the following
                  cars upon which 10 per cent
                  of the purchase price had been
                  deposited by paying off General
                  Motors Acceptance Corporation
                  which held notes secured by trust
                  receipts for the remainder, and
                  purchased Stratton's equity by
                  crediting the latter with the
                  amount thereof on its books
                    1926
                  Nov. 18, 139 cars at ... $12,553.43
                  Nov. 30, 23 cars at ....   1,783.05
                                           __________    14,336.48
                                                       ___________
                      Total .........................  $111,439.64
                

The foregoing amounts due from Oakland to Stratton for the purchase of cars and equities in cars were paid by a check from Oakland to Stratton for $50,000 dated December 1, 1926. This left a balance in connection with the foregoing transactions amounting to $61,439.64. Oakland paid that balance by crediting Stratton therewith on its books and setting off these credits against a greater indebtedness to Oakland.

Thirty-two other cars were held on trust receipts by General Motors Acceptance Corporation. These cars were taken back by it on December 22, 1926, and apparently purchased from it thereafter by Oakland. On December 22, 1926, the latter credited Stratton on its books with the equity in the cars amounting to $2,242.26 and offset this sum against the indebtedness of Stratton.

The questions are mainly of fact. We are asked to find that Oakland had reasonable cause to believe that a preference would be effected when the foregoing transfers were made. Of course, no such problem arises unless Stratton was insolvent at the time, and the trial judge has held that Stratton was solvent both in November and December. We think that this was true at the earlier date.

If we take the financial statement of November 30, 1926, and omit the good will as an asset and the capital stock as a liability, there is a balance of assets over liabilities amounting to $276,937.13. We will reduce "Charge Accounts Customers," as the trial judge did, by $28,433.92. We will exclude the items, "Due from Finance Companies," "Pay Roll Advance," "Accrued Shop Labor," "Rebate and Disability Insurance," "Additional Discount," "Rent Prepaid," "Interest and G. M. A. C. Finance Charges," "Advertising" and "Building Improvements." Some of these items, such as the prepaid ones, would seem to be allowable, and some of the others were not altogether valueless. We may also reduce the valuations of "Notes Receivable" from $6,479.51 to $221, as the trial judge did. These various deductions would lower the statement of assets by about $116,630.89.

It is claimed that the valuations for Oakland, Pontiac & Co. cars, carried in the statement at $173,773.12, were too high. They appear in the statement at cost, which was 27 per cent. or 28 per cent. below the selling price of the dealer. Three hundred and twenty-seven of such cars were taken over and repurchased by Oakland at these very figures. Yet appellant wishes to reduce these items because the business of Stratton needed capital and there was a recession in trade and the general situation indicated an inability to realize such prices. But this argument seems dependent on Stratton's large overhead which may not have been necessary. It does not follow that the cars were worth only what would be their net yield to Stratton after charging them with their share of the huge expenses of an expanding business. It seems difficult to suppose that these new cars would not yield the cost price to the dealer. In the complaint the appellant alleged that the market value of the cars repurchased by Oakland was $300,000, whereas the cost price was $261,590.90. The record of sales of such cars for ten months in 1926 showed a profit of $462,446.27. Undoubtedly the overhead more than exhausted this profit, but it cannot be said that this was not due to the expenses of a too rapidly expanding business system. We cannot find that the trial judge reached a wrong conclusion in fixing cost as a fair value for these cars.

The used cars...