Bassett v. Evans

• Decision Date: 14 October 1918
• Docket Number: 4991.,192
• Citation: 253 F. 532
• Parties: BASSETT v. EVANS et al. (two cases). In re PHILLIPS.
• Court: U.S. Court of Appeals — Eighth Circuit

253 F. 532

BASSETT v. EVANS et al. (two cases).

In re PHILLIPS.

Nos. 192, 4991.

United States Court of Appeals, Eighth Circuit.

October 14, 1918

E. L Foulke, of Wichita, Kan. (Jesse D. Wall, of Wichita, Kan., on the brief), for appellant and petitioner.

George Gardner, of Wichita, Kan. (T. A. Noftzger and George W. Cox both of Wichita, Kan., on the brief), for appellees and respondents.

Before HOOK and CARLAND, Circuit Judges, and AMIDON, District Judge.

AMIDON District Judge.

This was a proceeding brought by Bassett, as trustee in bankruptcy of Dave Phillips, to set aside a mortgage as a preference. The referee and the trial court denied the petition and sustained the mortgage. The trustee brings the case into this court both by petition and appeal. As he seeks a review of the facts, appeal is the proper remedy, and the petition is dismissed.

The controlling facts are as follows:

In 1910 Phillips, the bankrupt, purchased a stock of drugs and fixtures at Coldwater, Kan., for $4,000, all of which was secured by a chattel mortgage back on the property. He ran the business until January, 1913, when he had reduced the mortgage debt to $1,800, but had built up a large indebtedness to the trade. His principal creditors were C. E Potts Drug Company, $2,271.26, the Southwestern Drug Company $533.11, and C. A. Tanner & Co., $838.87. These concerns were wholesalers at Wichita who had acted together for many years in matters affecting retail merchants. In January, 1913, they felt dissatisfied with Phillips' condition, and sent Mr. Wintle, credit manager of the Potts Drug Company, to Coldwater to make an investigation. He not only talked with Phillips personally, but made a careful examination of his books, and ascertained the course and state of his business, and what he was owing to other creditors. What he ascertained is, in our judgment, indicated fully as well by what he did as by what he says he discovered. He took notes for the Potts Drug Company account for $200 each, payable monthly, and for the other accounts notes for $100 each, payable at like periods. The accounts were closed, and a new arrangement made by which Phillips, instead of having the usual commercial credit, was required to settle by cash for all new goods supplied him by these parties twice a month, and certainly not to exceed 30 days. Phillips went forward with his business. At the end of the year he had paid on the notes, so that the indebtedness stood C. E. Potts Drug Company, $1,490.40; Southwestern Drug Company, $347.62; C. A. Tanner & Co., $521.16. It is manifest, therefore, that he was badly in default on his notes. During this time he kited checks in paying debts for new purchases, and allowed some of them to go to protest, but finally made them good. At the close of the year 1913, Phillips had made no further payment on the purchase-price mortgage on his stock. He owed unsecured debts, in addition to what he was owing appellees, amounting to $2,731.80. He must have known that he was near the road's end.

Early in January, 1914, he agreed with one Dykes to exchange his stock and fixtures for a lot and store building valued for purposes of the trade at $6,000, Dykes to pay the boot in cash. To these negotiations appellees were parties, and, we think, were fully informed. They canvassed the whole transaction with Dykes personally, and discussed it by phone with Phillips. Notes for the amounts due them, and a mortgage upon the store property which Dykes was to deed to Phillips in the trade, were prepared by counsel for appellees, and delivered to Mr. Fisher, an employe of the Potts Drug Company, to take to Coldwater for execution by Phillips. Fisher had talked with Dykes about the property, and was employed by him as his representative in taking an inventory of the stock of drugs. He was engaged in that work for about three days. When the inventory was completed, and before it was footed up, he had Phillips sign the notes and mortgage, and sent them to appellees. The footings of the inventory showed the stock to be worth $7,475. This was $325 less than the $6,000 at which the store building was valued, and the $1,800 which was still due on the mortgage for the purchase price against the stock. Dykes was to have a clear title. He had only $1,000 cash to put into the deal. The Potts Drug Company loaned him $500 with which to make up the sum needed to pay off the mortgage on the stock. The holders of the mortgage accepted Dykes' note for $325 for the balance.

Appellees insist that at the time they accepted the notes and mortgage they believed that Phillips would get enough in the trade to pay all other creditors. They were very careful, however, not to wait for the inventory to be footed up, so they could ascertain as a fact whether this would prove to be the case. Notwithstanding their testimony, we do not believe they really entertained any such expectation. They themselves loaned Dykes $500 with which to pay off the mortgage. Their man, Fisher, had participated in making the inventory. He had a very good chance, as the result of that work, to make a close estimate as to what the stock would foot up, and although he was not appellees' employe for purposes of taking the inventory, the knowledge which he acquired in view of the fact that he held the notes and mortgage as their agent, and was sent to Coldwater to close up the deal by taking the notes and mortgage, can fairly be imputed to appellees. It is also true that appellees must have been thoroughly familiar with Phillips' business during the year 1913. They were urging him all the time to pay his notes and to take care of his protested checks. Their traveling salesman visited his place of business twice a month to collect...