RAWLEIGH, MOSES & COMPANY, INC. v. Martin

• Decision Date: 30 April 1974
• Docket Number: No. 73 C 188(2).,73 C 188(2).
• Citation: 376 F. Supp. 107
• Court: U.S. District Court — Eastern District of Missouri
• Parties: RAWLEIGH, MOSES & COMPANY, INC., a corporation, Plaintiff, v. Herbert MARTIN, Jr. and William Leo McNeil, Defendants.

376 F. Supp. 107

RAWLEIGH, MOSES & COMPANY, INC., a corporation, Plaintiff, v. Herbert MARTIN, Jr. and William Leo McNeil, Defendants.

No. 73 C 188(2).

United States District Court, E. D. Missouri, E. D.

April 30, 1974.

David K. Breed, St. Louis, Mo., for plaintiff.

George E. Murray, St. Charles, Mo., for defendants.

MEMORANDUM AND ORDER

REGAN, District Judge.

This is an action against defendants, citizens of Missouri, as guarantors of a factoring agreement between Imperial Industries, Inc., a Mississippi corporation engaged in the manufacture and sale of carpet padding, and Rawleigh, Moses & Co., Inc. (Factor), a Delaware corporation having the same name and state of incorporation as plaintiff. Plaintiff's principal and only place of business is in Chicago, Illinois, so that there is diversity of citizenship.

By way of background: The factoring agreement was entered into in 1966, and until 1969 was guaranteed by persons other than defendants. For convenience, Factor assigned account number 722 for its transactions with Imperial. In May, 1969, the guarantors terminated their guaranty, and Factor set up another account, number 723, to enter transactions not subject to that guaranty.

By May, 1969, Imperial was in deep financial trouble (having a negative net worth of $300,000) and had virtually ceased operations. Some of its major creditors approached defendants, who had expertise in the production of carpet padding, for the purpose of inducing them to accept employment by Imperial, take charge of its production and sales, and, hopefully, salvage the company. At a meeting held in Imperial's office on June 20, 1969, attended by defendants and representatives of the creditors, including Robert Brew, a vice president of Factor, these creditors agreed to lend to Imperial the aggregate sum of $75,000 for working capital, with Factor to continue the existing factoring arrangement. Initially, the entire $75,000 was to be advanced by Factor, $25,000 on its own account and $50,000 for the other two creditors. Only Factor's personal advance of $25,000 is involved in this action.

At the June 20 meeting, defendants were requested to guarantee factoring transactions thereafter occurring as a result of their management. Because of questions raised concerning whether the guaranty as worded might make defendants liable for past transactions, Brew agreed to clarify the agreement and for that purpose typed at the top thereof the words "This guaranty relates to factoring agreement between Rawleigh, Moses & Co., Inc. and Imperial Industries, Inc., Batesville, Mississippi, from this date forward."

The document as so worded was executed June 23, 1969 and defendants entered the employ of Imperial. Factoring transactions thereafter were recorded in Account No. 723. No new account number was assigned to record transactions to which defendants were a party. The $25,000 loan by Factor was received for the account of Imperial on July 2, 1969. Factor subsequently reimbursed itself for the amount of the loan by crediting it against Imperial's Account No. 722 reserve under the factoring agreement. The result was an ultimate deficiency in the Account No. 722 reserve.

The balance shown on the records of Account No. 723 as of time of trial was $4,365.57, but by reason of an improper debit of $123.70, the actual amount was $4,241.87. This figure does not allow credit for a recovery of $3,000.00 against M & R Plastics Company, nor does it take in account the sum of $7,549.00, the net amount...