Hardwick Bank & Trust Co. v. McFarland

• Decision Date: 13 October 1930
• Docket Number: No. 5840.,5840.
• Parties: HARDWICK BANK & TRUST CO. v. McFARLAND, Trustee in Bankruptcy.
• Court: U.S. Court of Appeals — Fifth Circuit

43 F.2d 807 (1930)

HARDWICK BANK & TRUST CO. v. McFARLAND, Trustee in Bankruptcy.

No. 5840.

Circuit Court of Appeals, Fifth Circuit.

October 13, 1930.

Sam P. Maddox, of Dalton, Ga., and Arthur G. Powell, of Atlanta, Ga. (Sam P. Maddox, W. M. Sapp, and S. R. Maddox, all of Dalton, Ga., and John D. Little, Arthur G. Powell, Charles S. Reid, and Max F. Goldstein, all of Atlanta, Ga., on the brief), for appellant.

Oliver R. Hardin, of Dalton, Ga. (Oliver R. Hardin and J. A. McFarland, both of Dalton, Ga., on the brief), for appellee.

Before BRYAN, FOSTER, and WALKER, Circuit Judges.

WALKER, Circuit Judge.

The appellant, herein called the bank, asserted a claim against merchandise of the bankrupt which came to the possession of the appellee, the trustee in bankruptcy. That claim was based upon a written bill of sale, dated December 30, 1927, executed by the bankrupt, and recorded prior to the filing of the bankruptcy petition. By that instrument the bankrupt transferred and assigned to the bank:

"My entire stock of merchandise located on the East side of Hamilton street in the City of Dalton, County of Whitfield and State of Georgia, situated in the brick store house belonging to the First National Bank at the corner of Hamilton and Cuyler streets."

That instrument recited that it was given to secure a described promissory note for $9,500, or "any renewal or renewals thereof or any other obligation to said payee, either primary, secondary or contingent, due or to become due, now existing or that hereafter may be contracted"; and contained the following provisions:

"This bill of sale is to attach to goods bought and detach from goods sold and attach to cash or the accounts representing such sale. This bill of sale is to be shifting in its nature. The title to said property is to vest absolutely and fully in said payee, the undersigned agreeing not to trade, sell or remove the same from the place where now located or out of Whitfield County, Georgia, without the written consent of the payee."

On March 19, 1928, a fire destroyed part of the stock of merchandise. The bankrupt sold part of the salvaged goods, and, with the consent of the bank, removed the rest to a nearby warehouse and then to another store, and continued to carry on his business, selling from his stock and replenishing it with purchases of additional goods. He opened three retail stores, supplying those stores from the stock in the main store. The bank continued to advance to the bankrupt money which was used by him in buying merchandise. This was done with the understanding between the bankrupt and the bank that the above-mentioned instrument was to cover the bankrupt's stock of merchandise not only while it was in the store named in the bill of sale, but while it, in whole or in part, was in another place or places, including the retail stores. The above-mentioned claim was disallowed, on the ground that the bill of sale did not cover merchandise located elsewhere than in the store mentioned in the description of the transferred stock of merchandise.

The provision of the Civil Code of Georgia 1910, § 3256, that a mortgage "may embrace all property in possession, or to which the mortgagor has the right of possession at the time, or may cover a stock of goods, or other things in bulk, but changing in specifics, in which case the lien is lost on all articles disposed of by the mortgagor up to the time of foreclosure, and attaches to the purchases made to supply their place," applies to a bill of sale of a stock of merchandise given to secure a debt. Merchants' & Mechanics' Bank v. Beard, 162 Ga. 446, 134 S. E. 107. The effect of the bill of sale in question was to transfer as security for existing and future debts of the transferor to...