Commercial State Bank & Trust Co. v. Bates
| Decision Date | 28 February 1910 |
| Docket Number | 13,902 |
| Citation | 51 So. 599,96 Miss. 386 |
| Parties | COMMERCIAL STATE BANK & TRUST COMPANY v. JAMES L. BATES, TRUSTEE IN BANKRUPTCY |
| Court | Mississippi Supreme Court |
FROM the chancery court of Yazoo county, HON. G. GARLAND LYELL chancellor.
Bates trustee in bankruptcy, appellee, was complainant in the court below; the Commercial State Bank & Trust Company, appellant was defendant there. From a decree in complainant's favor defendant appealed to the supreme court.
On November 24, 1906, the New Lumber Company sold all of its assets, except its accounts, to one Harlow for $ 8,258.81 the purchase price being evidenced by three notes payable six, nine, and twelve months after date. The bill of sale was signed by the attorney in fact for the vendor, and recited a cash consideration, and the notes given as the purchase price were made payable to the Commercial State Bank & Trust Company. These notes were immediately delivered to the bank and the account of the New Lumber Company with it was credited with the face value of the notes. The New Lumber Company before the giving of the credit was indebted to the bank on account of overdrafts in the unsecured sum of $ 8,409.24. At the same time the lumber company placed in the hands of its attorney for collection all of its open accounts, and as they were collected by him the proceeds were deposited in said bank; a part of said collections going to cover the balance of the overdraft, and the remainder being paid to creditors of the lumber company living in Yazoo City, the domicile of said company; the collections on the accounts practically settled in full all the claims of local creditors. At the time the sale was made to Harlow, the lumber company was indebted to foreign creditors to an amount of about $ 8,500, and they received nothing. The New Lumber Company was a partnership composed of S. R. Berry and A. B. Brooks; Berry being, as well, the president of the Commercial State Bank & Trust Company and in active charge of its affairs at the time said lumber company was sold out. The attorney who executed the bill of sale for the New Lumber Company was also the attorney for the bank. Berry, the president of the bank, was interested in other business enterprises, and he and the firms in which he was interested were largely indebted to the bank, and owed also a number of other debts. The directors of the bank instructed Berry to collect or secure these overdrafts, and accordingly he advised Brooks that it was necessary to sell the assets of the New Lumber Company; Brooks testified that it was his understanding that the proceeds of the sale were to be prorated among all creditors, the bank included, and that he did not learn that the bank had applied the Harlow notes to its overdraft until some time in April, after bankruptcy proceedings had been instituted by nonresident creditors. The non-resident creditors were kept in ignorance of the fact that the notes had been collected by the bank. On November 23, 1906, the day before the sale to Harlow, Berry, acting for the New Lumber Company, wrote to the nonresident creditors, telling them that collections were poor and business bad, and that the firm was embarrassed for ready money, and asking them to accept notes due in four months in settlement of their accounts. After some correspondence the creditors agreed to do this. These creditors did not learn that the Harlow notes had been applied to the payment of the overdraft of the bank until their notes became due and unpaid; this being more than four months after the application of the Harlow notes to the account of the bank. At the time of the sale to Harlow the New Lumber Company and Berry and Brooks were hopelessly insolvent, and the bank had taken over all of Berry's property in payment of the large sums due it. On April 8, 1907, the nonresident creditors began proceedings to have the New Lumber Company declared a bankrupt. Bates, appellee, was appointed trustee, and this suit was instituted by him against the Commercial State Bank & Trust Company to recover the value of the Harlow notes. The court below decreed for the trustee, holding that the transfer of said notes was an unlawful preference and that the bank was liable to surrender them or account for their proceeds.
The chancellor's finding is as follows: "That the manifest purpose of the said Commercial State Bank & Trust Company and the said New Lumber Company, in making the said Harlow notes payable to the said Commercial State Bank & Trust Company and the transfer of all other assets of said New Lumber Company, was in fraud of said national bankruptcy acts, and to prevent the other creditors of the said New Lumber Company from sharing in the distribution of the assets of said New Lumber Company, and to unlawfully appropriate the entire proceeds of said Harlow notes to said overdraft of said bank; that the fact that said notes had been taken in the name of the said Commercial State Bank & Trust Company, and had been indorsed to the said Commercial State Bank & Trust Company by said New Lumber Company, and the further fact that said notes had been applied by said Commercial State Bank & Trust Company in settlement of the overdraft aforesaid, were purposely and fraudulently concealed from the other creditors of the said New Lumber Company, by the said Commercial State Bank & Trust Company and by the said New Lumber Company, S. R. Berry, a member of the partnership of the New Lumber Company, acting for the New Lumber Company throughout the entire transaction as a member thereof, and acting at the same time throughout the entire transaction in procuring an extension from creditors for the said Commercial Bank & Trust Company, as its president, he, the said S. R. Berry, being duly authorized so to act by both the said New Lumber Company and the said Commercial State Bank & Trust Company; that the acts of said Berry, he acting at the time both for the said New Lumber Company and the said Commercial State Bank & Trust Company, in procuring from the creditors of said New Lumber Company an extension of their indebtedness, were committed in furtherance of a fraudulent scheme, being with the intent and for the purpose of fraudulently inducing the said creditors of the said New Lumber Company to forego their rights under the acts of Congress of the United States relating to bankruptcy, and with the intent and purpose of evading the provisions of said acts fixing a period of four months within which preferential payments could be set aside; that in furtherance of their said fraudulent scheme to defeat the provisions of said bankruptcy acts the said creditors of the said New Lumber Company were deceived and misled by the said Commercial State Bank & Trust Company and the said New Lumber Company, and by the said S. R. Berry, acting as a member of the firm of said New Lumber Company, and as president for the said Commercial State Bank & Trust Company, and thereby induced to forego, and did by reason of such acts forego, their rights under the said bankruptcy act to have said preferential payment to said Commercial State Bank & Trust Company set aside within said four months, and the said right of said creditors to so act under said bankruptcy act was fraudulently evaded by the said scheme of the said New Lumber Company and said Commercial State Bank & Trust Company; that said creditors did not learn of said fraudulent scheme and said unlawful preference until four months had elapsed after the said 24th day of November, 1906, and that promptly after the discovery of said fraud and of said unlawful preference by said creditors the petitioning...
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