Eads Hide & Wool Company v. Merrill

• Decision Date: 22 January 1958
• Docket Number: No. 5656.,5656.
• Citation: Eads Hide & Wool Company v. Merrill, 252 F.2d 80 (10th Cir. 1958)
• Parties: EADS HIDE & WOOL COMPANY, Appellant, v. L. B. MERRILL, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

252 F.2d 80 (1958)

EADS HIDE & WOOL COMPANY, Appellant, v.L. B. MERRILL, Appellee.

No. 5656.

United States Court of Appeals Tenth Circuit.

January 22, 1958.

A. T. Hannett, Albuquerque, N. M. (Ben P. Monning, Amarillo, Tex., G. W. Hannett and T. G. Cornish, Albuquerque, N. M. on the brief), for appellant.

John D. Robb, Albuquerque, N. M. (Smith & Smith, Clovis, N. M., and Rodey, Dickason, Sloan, Akin & Robb, Albuquerque, N. M., on the brief), for appellee.

Before BRATTON, Chief Judge, and PICKETT and LEWIS, Circuit Judges.

LEWIS, Circuit Judge.

This action was instituted in the United States District Court for the District of New Mexico on the basis of diversity of citizenship by a complaint alleging a right to recover damages for conversion of a shipment of hides or for money had and received wrongfully.It is a final attempt by appellant to recover losses incurred by it upon the bankruptcy of Hubert Chapman, with whom each of the parties to this action formerly dealt in the conduct of their individual hide businesses.The trial court, upon appellee's motion, granted summary judgment against appellant of no cause of action.The factual background, though undisputed, is, as termed by the trial court, "most complex."

On March 12, 1952, L. B. Merrill entered an agreement with Hubert Chapman which described their relationship as "employer-employee" and provided that Merrill would place $50,000 at Chapman's disposal in a bank account to be known as "L. B. Merrill Hide Account" which Chapman should use as necessary for the purchase and sale of hides at his plant in Clovis, New Mexico.Chapman was to furnish warehouse space and insurance for the hides and use his business experience to make the venture profitable, for which he was to receive a commission of one-half of all profits.

Mr. Ernest H. Eads, president of Eads Hide & Wool Company, had bought from, and occasionally sold to, Hubert Chapman for a period of about twenty-five years.Chapman had the power to draw drafts on Eads Hide & Wool Company for hides and wool which he routed in transit to the Eads Warehouse.However, there were a number of instances where, after Chapman had drawn a draft on Eads, he later sent a check to cover the amount drawn instead of shipping the goods promised.According to his testimony Eads protested this practice, but the float transactions continued up to and including the incidents giving rise to the claims now asserted by appellant.

On October 27, 1952, Chapman drew a draft on Eads Hide & Wool Company for $25,000 and October 29, 1952, he drew another draft on the company for $9,000.These drafts were supposedly to cover a prepayment to Globe Packing Company in Los Angeles for hides for Eads account.Such hides were never shipped.Also on October 27th, Chapman sent Eads a check against his account in the amount of $25,025.62, explaining that he had unloaded the hides at Clovis, New Mexico, by mistake and could not ship them on.The check was not honored on presentment.Two other checks in amounts of $10,928.46 and $10,982.70 issued to Eads by Chapman were also dishonored.

Realizing that he could not obtain hides which were supposedly bought for the Eads Company's benefit with these funds, Mr. Eads and his attorney negotiated with Chapman for payment on the dishonored checks.Chapman surrendered a 1950 Packard automobile, for which Eads credited him $4,000, an assignment of an account receivable for $8,804, and a promissory note for $44,000 secured by a second mortgage on Chapman's warehouse.

The two drafts for $25,000 and $9,000 were returned to appellant with an endorsement over to the L. B. Merrill Account, and, upon this fact, and the agreement between Merrill and Chapman, the complaint alleges a partnership as to this account and a conversion of the hides by the partnership or, in the alternative, that the proceeds of these two drafts were received wrongfully by the partnership.The instant suit against Merrill followed the release by Eads, in settlement of a preference suit by the trustee of Chapman's bankrupt estate against him, of the mortgage security given him by Chapman.

Case No. 2022, Bankruptcy of Hubert Chapman.

Chapman filed a voluntary petition in bankruptcy on November 24, 1952.AppellantEads Company and the trustee in bankruptcy filed a petition in that action alleging that L. B. Merrill was a general partner in the Hubert Chapman Hide Company and that he had sequestered and converted to his own use a substantial portion of the bankrupt partnership's assets.L. B. Merrill by motion to dismiss and by answer denied the allegations of general partnership, alleging:

"That if a partnership existed at all, which is specifically denied, that it was at most a separate and distinct undertaking between L. B. Merrill and Hubert Chapman individually and therefore that L. B. Merrill was not a general partner of the Hubert Chapman Hide Company, composed of Hubert Chapman and Letha Chapman, partners.That this court has no jurisdiction over the alleged business undertaking between said L. B. Merrill and Hubert Chapman since neither a voluntary nor involuntary petition complying with the requirements of the Federal Bankruptcy Act has been filed in this court with respect to the alleged separate undertaking between said L. B. Merrill and Hubert Chapman."

Judgment that Merrill was not a general partner of Chapman and his wife in the Hubert Chapman Hide Company was entered on this petition.

L. B. Merrill filed a claim in the bankruptcy action for $149,000 for money or hides belonging to the L. B. Merrill account and allegedly converted by Chapman.Eads Hide & Wool Company filed proof of claim against the bankrupt estate for $45,000.

Case No. 2320, Preference Suit Against Eads Hide & Wool Company.

After bankruptcy proceedings were instituted, the trustee brought a preference suit against the Eads Hide & Wool Company to redeem the payments and security made to that company just prior to bankruptcy.The case was settled by stipulation between the trustee and Eads whereby the Eads Company released its mortgage on the Chapman warehouse and paid $1,000 to the trustee.In this caseEads Hide & Wool Company had joined L. B. Merrill as a third party defendant alleging that he was a partner of Chapman.

Case No. 2285, Preference Suit Against Merrill.

The trustee then instituted a suit seeking a judgment that L. B. Merrill be required to disgorge preference payments in the amount of $76,000.A compromise agreement was reached whereby L. B. Merrill waived his claim to $149,000 in the bankruptcy proceeding and consented to judgment against him in the amount of $17,500.

Meeting of Creditors.

Notice was given to all creditors including Eads Hide & Wool Company of a meeting of creditors and hearing for approval of the proposed settlements, among which were cases Nos. 2320and2285.

After approval of the action in settlement taken by the trustee, moneys in the bankrupt's estate were distributed with Eads Hide & Wool Company participating as a general creditor of the bankrupt.

When Eads Hide & Wool Company attempted to try the issue of whether L. B. Merrill was a partner of Chapman to the extent of the goods and money in the L. B. Merrill account in this action, the trial court held that (1) by entering an agreement with Chapman and accepting the promissory note and security, the automobile and chose in action, Eads Company was estopped to bring this action by reason of merger, accord and satisfaction, and election of remedies; (2) by reason of the trustee's preference suits, Nos. 2320and2295, the matter is res adjudicata; and (3) because the questions here involved should have been raised by objection to the settlement with Merrill, plaintiff is judicially estopped to now raise them.

The common law doctrine of regarding a partnership as an entity for the purpose of distribution of assets in bankruptcy by giving priority to the creditors of either the partnership or the individual according to the method by which the debt was contracted has been recognized in Section 5 of the Bankruptcy Act, 11 U.S.C.A. § 23.If it is an...