Dudley v. Dickie

• Decision Date: 13 July 1960
• Docket Number: No. 16504.,16504.
• Citation: 281 F.2d 360
• Parties: Frank A. DUDLEY, as Trustee of the Estate of Merle K. Branch and Wanda B. Branch, Copartners d/b/a Riddle General Stores, Bankrupts, Appellant, v. Clifford E. DICKIE and Marion E. Dickie, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

281 F.2d 360 (1960)

Frank A. DUDLEY, as Trustee of the Estate of Merle K. Branch and Wanda B. Branch, Copartners d/b/a Riddle General Stores, Bankrupts, Appellant, v. Clifford E. DICKIE and Marion E. Dickie, Appellees.

No. 16504.

United States Court of Appeals Ninth Circuit.

July 13, 1960.

Boyrie & Miller, F. Brock Miller, Wayne Annala, Portland, Or., for appellant.

Moe M. Tonkon, Leo Levenson, Portland, Or., for appellees.

Before BONE, BARNES and HAMLIN, Circuit Judges.

BONE, Circuit Judge.

This is an appeal from a judgment of the District Court for the District of Oregon denying appellant recovery of an alleged preference within the scope of § 60, sub. a of the Bankruptcy Act, as amended, 11 U.S.C.A. § 96, sub. a.

In April, 1955, Merle and Wanda Branch, the bankrupts-to-be, purchased from appellees under a contract of conditional sale the business of the Riddle General Store, including fixtures and inventory. Pertinent provisions of the conditional sales contract are as follows:

"Purchasers agree that they will pay for said property the sum of Thirty Thousand Dollars ($30,000.00), lawful money of the United States, payable as follows: $8,000.00 heretofore paid directly to the Sellers as of the 15th day of April, 1955, receipt whereof is hereby acknowledged by Sellers.

"Five per cent (5%) of the gross income arising out of the operation of the business being purchased by Purchasers herein, namely, the Riddle General Store, payable on the 15th day of each and every month hereafter, commencing with the 15th day of May, 1955. * * *

"Purchasers agree that they will at all times keep up the inventory of said business to the full sum of $22,000.00 and will at all times keep said stock of merchandise insured against loss by fire, damage by smoke or water, in the sum of $22,000.00 and said fixtures in the sum of $2,000.00. All policies of insurance to be so written as to set forth the interest of the Sellers and the Purchasers.

"Notwithstanding the fact that the Purchasers shall have the right to sell merchandise from the stock on hand and continue to operate said business in a regular and general manner, the title to said fixtures and inventory shall in the event of default, as well as at all times herein mentioned, shall remain in the Sellers until the full balance of purchase price and interest as herein provided has been fully paid.

"Purchasers agree that they will pay for all merchandise delivered to said business as the same is received to the end that all such merchandise shall become a part and parcel of the stock and inventory and the title immediately vested in the Sellers, subject only to right of the Purchasers as in this contract provided. * * *

"If purchasers default in any of the payments when due, or breach any of the provisions of this contract, or the lease herein referred to, or if said within property is attached or levied upon under any writ or process of any court, or if Purchasers are declared bankrupts, or upon any unusual or unreasonable depreciation in the value of the property, or if the Sellers feel insecure, of which the Sellers shall be the sole judges, Sellers may, at their option, without previous demand or notice, exercise any one of the following three options.

"1. Retake possession of said within property with or without process of law; and all payments theretofore made hereunder shall thereupon be forfeited to Sellers and this contract shall thereupon terminate and all rights of Purchasers in this contract and said within described property shall thereupon cease and are hereby waived; or

"2. Sellers may declare the whole of the sums then remaining unpaid to be immediately due and payable and sue therefor, or

"3. Sellers may retake possession of the said herein described property, with or without process of law and cause said within described property to be sold either at public auction or private or Sellers may foreclose this contract in strict foreclosure in the manner provided by law. * * *"

In June, 1957, the Branches were in default under the contract, and appellees brought suit in a state court seeking an adjudication which would name them sole owners of the furniture, fixtures and merchandise of the Riddle General Store and obtain for them immediate possession thereof. On July 1, 1957, upon a stipulation of the parties — the Branches having been joined as defendants — the decree prayed for was granted. Appellees took possession of the store and all that was in it. The Branches were declared bankrupts on July 11, and appellant was subsequently named trustee of their estate.

Appellant seeks to void as a preference the transfer of title to that merchandise, in the Store on the date appellees took possession, which was bought by the bankrupts from sellers other than appellees after the contract of conditional sale had been executed. Appellant claims that under Oregon law the contractual provision transferring title to the after-acquired inventory must be viewed as a chattel mortgage; and since there was no effective recordation of the mortgage, the transfer of title was perfected for purposes of § 60, sub. a(2) of the Bankruptcy Act, as amended, 11 U.S.C.A. § 96, sub. a(2), only upon appellees' taking possession, see 1 Ore.Rev.Stats. § 86.420, at which time the transfer was a preference. Appellees, on the other hand, claim that the transfer to them of the after-acquired merchandise should be viewed as part of the conditional sale of the fixtures and inventory in 1955. Since under Oregon law a conditional sale need not be recorded and is perfected against subsequent creditors as of the date the sale is made (in this case in April, 1955), the transfer of title to the after-acquired merchandise was effectuated prior to four months before bankruptcy and does not fall within the statutory definition of a preference. See Washburn v. Inter-Mountain Mining Co., 1910, 56 Or. 578, 585, 109 P. 382. In addition, appellees claim that the Oregon State Court's decision declaring them sole owners and entitling them to possession of the after-acquired merchandise binds appellant and precludes him from urging, as he does here, the existence of a preference. The court below held for appellees as to both contentions.

We think the lower court has misapplied the doctrine of res judicata. Because he represents creditors as well as succeeding to the bankrupt's estate, a trustee in bankruptcy obtains statutory rights which the bankrupt himself can never realize. See Saper v. Wood, 9 Cir., 1957, 249 F.2d 401, 404; Meier & Frank Co. v. Sabin, 9 Cir., 1914, 214 F. 231, 233. One such right, granted the trustee by § 60, sub. b of the Bankruptcy Act, as amended, 11 U.S.C.A. § 96, sub. b, is the power to set aside a transfer falling within the statutory definition of a preference. When litigation against the bankrupt necessary to perfect the transfer precedes bankruptcy, the bankrupt cannot of course defend on the grounds of a preference, for the obvious prerequisite, bankruptcy, would not yet have occurred. The same can be said when a...