Canright v. General Finance Corporation

• Decision Date: 11 December 1940
• Docket Number: Civil No. 69-D.
• Citation: 35 F. Supp. 841
• Parties: CANRIGHT v. GENERAL FINANCE CORPORATION.
• Court: U.S. District Court — Eastern District of Illinois

35 F. Supp. 841

CANRIGHT v. GENERAL FINANCE CORPORATION.

Civil No. 69-D.

District Court, E. D. Illinois.

December 11, 1940.

H. H. Whittemore, of Kankakee, Ill., for plaintiff.

Green & Palmer, of Urbana, Ill., for defendant.

LINDLEY, District Judge.

Plaintiff brought this suit as trustee of the Estate of Edward Wennerholm, Bankrupt, against the General Finance Corporation, alleging that on or about March 25, 1939, Wennerholm was indebted to defendant in the sum of $5,177.64, unsecured; that on various days between March 25, 1939, and April 21, 1939, Wennerholm paid all of said indebtedness to defendant; that on each of said dates Wennerholm was insolvent and defendant knew or had reasonable cause to believe that the payments effectuated preferences voidable and recoverable under the Bankruptcy Act.

Defendant answering admitted the payments, denied that it lacked security, averred that the moneys paid it were in fact those of defendant, denied that Wennerholm was insolvent at any of the times mentioned; or that defendant knew or had reasonable cause to believe that he was insolvent or that any of the payments were preferences.

Upon trial it appeared that Wennerholm had been a retail automobile dealer at Momence from March 1, 1938, to May 2, 1939, on which latter date he was adjudicated bankrupt upon his voluntary petition. His assets from March until late April consisted of from six to eight new cars, on the floor, incumbered for their full cost value, some twenty-five to thirty used cars, likewise incumbered, livestock taken in trade, mortgaged for its full value, automobile parts, tools and equipment, likewise mortgaged, and accounts receivable amounting to some $6,000 in face value. He owed, besides his secured indebtedness, to his bank, some $4,000; unpaid taxes, $1,500; and, to other creditors, some $11,000 besides $10,000 on fictitious contracts sold to finance companies and $5,000 to an uncle for wrongfully hypothecated securities. The unsecured claims filed and allowed against his estate aggregated $19,341.50. He owned during this period, as unincumbered assets, accounts receivable of doubtful value and some few items of personal property, all of which was of a fair value of far less than $5,000. He had financed all of his purchases through finance companies by socalled "Floor Plan" and sold his cars upon conditional contracts of sale, financing them likewise through different companies of which defendant was one.

He first began to sell contracts to defendant late in 1938, and, beginning with January, 1939, he prepared and sold to defendant fictitious contracts of sale which defendant purchased without knowledge of their invalid character. In March, 1939, defendant, in checking up the contracts it had purchased from Wennerholm, learned that one of such contracts purported to be made with one P. H. Evans. An agent of defendant went to Evans' house and talked to Mrs. Evans about nine o'clock in the evening of March 23, 1939. She told him that she knew nothing of any car belonging to her husband. He then talked to Evans at a garage and learned that he did not have the car. The same night the agent questioned Wennerholm, who told him that the car had been resold, that the money collected was due defendant and that he would pay the amount due. On March 25, he gave a check to defendant in the sum of $579.42.

Early in April, the same agent checked another contract, that of Reynolds, talking to a relative of the latter. He found no car in Reynolds' possession and so advised Wennerholm, who again said that he owed the money and would pay. Subsequently, on April 14, 1939, he gave defendant a check for the amount of this contract, $589.16. On the same day the agent checked another contract, that of R. E. Murphy, and was unable to locate the automobile.

Directly following this series of events, on April 17 Wonderlin, the manager of the Champaign District Office, together with Evans, the agent who had investigated the three contracts, in possession of records of all deals which defendant had had with Wennerholm, went to Momence, accompanied by another representative of defendant, McCormick, from Kankakee. These three men met the bankrupt at his garage at Momence. They advised him that there was doubt in their minds as to the possession of the automobiles covered by the respective conditional contracts of sale as represented therein. Each deal was covered by an account card and all these were discussed and finally divided into two groups. In one pile were placed, according to Wennerholm, those contracts which were bonafide. The other pile contained eight contracts, three of which were the Evans, Reynolds and Murphy deals above mentioned. The total of these contracts was $5,177.64. Wennerholm testified that the three men said to him that a check of the contracts had convinced them that some of them were fictitious; that he then said "yes, how much do I owe you, — I will pay it"; that they answered "around $6000." According to his testimony, he advised them that none of the eight contracts was bona fide and that the customers did not have and had not had the cars covered thereby. All the parties agree that Wennerholm said that he did not have the money but that he would try to pay in full.

The next day the manager of defendant's Chicago Office, Mr. Oldberg, together with Le Gof, its auditor and financial adviser, came to Momence. Later Mr. Jamieson, general counsel for defendant also arrived. The six representatives of defendant were in the city over the three days, some of them leaving for a portion of the time, some of them coming and going but one or more of them being present at all time. During this period, Wennerholm paid, on April 18, 1939, $588.16 and $746.30. On April 20, $2,404; on April 21, $1,184.76. He had previously paid on March 25, 1939, on the Evans contract $579.42. The total payments were $5,502.64. Of this amount the payment made on one contract, that of J. W. Kalka, $325 represented a legitimate transaction. The difference $5,177.64 is the sum paid to defendant upon contracts which were fictitious and represented in fact no sale.

During the three days the representatives of defendant were frequently in Wennerholm's garage. They could see how many cars, new and used, were on the floor. They knew that Wennerholm "floor planned" his automobiles. They were frequently in the bank and had opportunity to make inquiry of merchants and others concerning the financial responsibility of Wennerholm. Each of them asserts that on no occasion was any question put to Wennerholm by any of them as to how much money he owed and what property he had. But Wennerholm testified that they asked him and were fully advised by him as to his financial condition, disclosing that he was badly insolvent and that he had no free assets of substantial value.

Defendant knew at that time that Wennerholm had prior thereto issued checks which had been dishonored. It knew that in October, 1938, Wennerholm had financed one car with defendant in Chicago and also with its Champaign Office. As soon as defendant learned...