Gillespie v. J.C. Piles & Co.

• Decision Date: 18 April 1910
• Docket Number: 3,124.,102
• Citation: 178 F. 886
• Parties: GILLESPIE v. J. C. PILES & CO. et al. In re PILES et al.
• Court: U.S. Court of Appeals — Eighth Circuit

178 F. 886

GILLESPIE v. J. C. PILES & CO. et al.

In re PILES et al.

Nos. 102, 3,124.

United States Court of Appeals, Eighth Circuit.

April 18, 1910

Syllabus by the Court.

An insolvent buyer, who knows at the time of his purchase that his financial condition is such that it is and will be impossible for him to pay, is conclusively presumed to have bought the goods with an intention not to pay for them.

A presumption to that effect arises from the fact that such a purchaser's affairs were in such a condition at the time of the purchase of the property that he could have had no reasonable expectation of paying for them.

But insolvency is insufficient to establish such an intent.

A court of equity, and a court of bankruptcy is a court of equity may not take out of a fund or property in its custody and pay compensation for the services of an attorney or of any other party rendered to recover or retain the fund or property from its equitable owner.

It is only when such services have had the effect to recover or preserve the property for its true owner that a court may pay compensation therefor out of the property. Services injurious to the rightful owner may not be thus compensated at his expense.

Property which comes to the possession of the trustee in bankruptcy through the fraud of the bankrupt and is adjudged to be returned to the victim of the fraud is not a part of the estate of the bankrupt, and the referee and trustee may not be allowed their statutory percentages out of it.

An insolvent bought property at a time when he knew it was impossible for him to pay for it. He was adjudged bankrupt and a receiver was appointed, who took the property and sold it as perishable under the order of the court. The vendors rescinded the sales to the insolvent and demanded the proceeds of the property. The trial court found that the sales were fraudulent, and ordered the trustee to pay out of the proceeds of the property $300 to his attorneys, the percentages of these proceeds allowed by the bankruptcy law to referees and trustees and trustees on estates administered in bankruptcy, and unpaid freight charges for the transportation of the property before the adjudication, and to return the balance of the proceeds to the vendors.

Held (1) The vendors were entitled to recover the proceeds of the property from the trustee in bankruptcy, because the insolvent did not intend to pay for the property when he bought it.

(2) Neither the trustee nor his attorney had any legal or equitable claim for compensation out of these proceeds for services rendered to bring them into or to retain them in the estate of the bankrupt, because their services were not beneficial, but were deleterious, to the equitable owners of the property and its proceeds.

(3) Neither the referee nor the trustee had any legal or equitable claim to payment out of these proceeds of the percentages allowed them by the bankruptcy law on estates administered in bankruptcy, because these proceeds were no part of any such estate.

(4) The order that the trustee pay out of these proceeds to railroad companies the unpaid freight charges upon the property was erroneous, because no claim or proof of any lien thereon for such charges was proved or presented, no railroad companies to which such charges were due were specified, and no amounts were found due in the order.

Clinton L. Nourse (Robert J. Bannister, on the briefs), for appellant.

J. B. Rockafellow (A. C. Parker, Howard J. Clark, J. B. Sullivan, C. A. Dudley, and N. E. Coffin, on the briefs), for appellees.

Before SANBORN, Circuit Judge, and RINER and WILLIAM H. MUNGER, District Judges.

SANBORN Circuit Judge.

Louis R. Hough entered upon the business of buying and selling hogs at Des Moines, Iowa, in the spring of 1905, with a capital of $100 and a debt of $2,000, and continued in this business until on June 26, 1908, he had accumulated property worth $20,000 and debts exceeding $100,000, when he was adjudged a bankrupt on an involuntary petition filed during the afternoon of that day.

A receiver then appointed took possession of nine car loads of hogs which had been shipped to Hough by vendors from different towns in Iowa on the preceding day, and had arrived, been received, and accepted by him in Des Moines on that day. By order of the court the receiver sold the hogs as perishable property on the next day, and realized from five car loads that had been shipped by J. C. piles & Co., a copartnership, $4,926.63, from one car load that had been shipped by Rose & Snider, a copartnership, $787.75, from one car load that had been shipped by Matt Johnson $1,023, and from one car load that had been shipped by David Horsman $980.37. The five vendors intervened in the proceeding in bankruptcy and prayed that the moneys thus obtained by the receiver be paid over to them (1) on the ground that their respective sales of these hogs to Hough were induced by false representations of his financial success and by fraudulent concealment of his insolvency, and (2) because, when he bought the hogs, he intended not to pay for them. J. C. Piles & Co. and Matt Johnson also claim that they never sold to Hough the hogs which they shipped to him. But the referee and the court below both found that they made these sales, and a careful perusal of the evidence has convinced that this finding was right. The referee also found that none of the sales was induced by fraudulent representations or concealment, that Hough was insolvent when he purchased the hogs, but that there was an absence of any intent on his part not to pay for them, and he consequently denied the prayers of the interveners. The District Court reversed this conclusion, and ordered the trustee to pay the proceeds of the sale of the hogs to the respective vendors, less $65 expenses of yardage and feed, the statutory percentages of the referee and trustee upon these proceeds, $300 attorney's fees, and the unpaid charges due to the railroad companies for the transportation of the hogs to Des Moines. From this order the trustee appealed, on the ground that the evidence did not sustain the finding of any fraudulent representation or concealment, or of any intent not to pay for the hogs by Hough; and the vendors challenge the order by a petition for review, because the payment of the freight charges and the fees of the officers and attorneys out of the proceeds of their hogs is unauthorized by law.

A vendor, who sells personal property to an insolvent vendee, who at the time he buys does not intend to pay for it, may rescind the sale and recover the property or its proceeds from any one but an innocent purchaser, and neither a receiver nor a trustee in bankruptcy is such a purchaser. A decisive question in the case therefore is: Did Hough intend not to pay for these hogs when he bought them? They were shipped to him at Des Moines from different stations in Iowa on the afternoon of June 25, 1908, without any agreement that specified the price at which Hough should buy and pay for them because the shippers knew that he was buying hogs and they wanted to send them to him that day. He was out of the city of Des Moines, and there was no one at his office who could specify a price. They were unloaded, watered, and fed at Hough's yards in Des Moines by his employes during the night of June 25 and the morning of June 26, 1908, and they were accepted by Hough, and the price was fixed and entered upon his books, with one or two exceptions, in which it was not named at all, during the forenoon of June 26, 1908.

Hough had then been insolvent, and had been aware of that fact for many months. Between October 1, 1907, and June 26, 1908, he had bought hogs the purchase price of which amounted to $1,556,666; but he had lost money during each month-- in October, $4,864.21; in November, $3,326.31; in December $9,785.35; in January, $8,297.51; in February, $453.65; in March, $11,889.80; in April, $14,298.75; in May, $16,091.43. He knew that he had been and was losing money; but he was trading on a falling market, and he was hoping to retrieve his losses upon a rising one. He had managed to continue in this business by these means. He paid the Century Savings Bank of Des Moines $1 per thousand for exchange. He purchased hogs by the use of the telephone in the country and caused them to be shipped to his yards at Des Moines, where he sorted and graded them, and immediately shipped them to purchasers from him in other states. He generally attached the bills of lading to sight drafts on the purchasers, and deposited them with the bank, which immediately gave him credit for the amounts of these drafts. The money he obtained in this way he did not use to pay the vendors from whom he had purchased the hogs that produced this money; but he used it to pay the most pressing vendors of hogs from whom he had previously purchased. The result of this system was that he was unable to pay promptly for the hogs which he purchased, and his indebtedness to vendors and his delay in payment of them constantly increased. During the spring and summer of 1908 he owed to such vendors from $75,000 to $100,000. He had no way to pay any of them, except by buying more hogs of others and using the money derived from the sales of their hogs for the purpose of paying earlier vendors. He knew this condition of things perfectly, and strove to increase his purchases and his sales in order to get money to use in this way. The bank was not ignorant of his condition, and he owed it only about $1,500 upon a note which he had given to it. On June 25, 1908, he was in Chicago. His clerk and the manager of his business in Des Moines in his absence was H. M. Lanterman. On June 24, 1908, the Des Moines bank refused longer to...