"Statement
"A petition was filed in this cause by creditors on November 20, 1953, praying an adjudication of Robert E. Carroll as bankrupt. Carroll was apparently absent from the state, and no service of the subpoena was effected. Motion to dismiss the petition was filed January 2, 1954, on behalf of Betty Carroll, a creditor. Response to this petition was filed on behalf of the creditors, and that issue was set for a hearing on February 18, 1954. Prior to the hearing, service upon the debtor by publication was commenced, and after due notice by publication, and no response having been filed, Robert E. Carroll was adjudicated bankrupt on March 9, 1954.
"On November 23, 1953, Betty Carroll filed in this case proof of claim for $9700.00, plus interest, alleged to be secured by the lien of chattel mortgages. The proof of claim was accompanied by a petition to proceed with a sale of the mortgaged chattels which had been commenced under the power of sale reserved in the mortgages. Creditors who had initiated the involuntary petition on which the proceeding is based, filed objections to the claim, which objections were adopted by the Trustee after his election. The matter came on for hearing on April 20, 1954, upon due notice, Betty Carroll appearing in person, and by her attorneys, W. S. Atkins and Albert Graves; the creditors appeared by their attorney, John Vesey, and the Trustee appeared pro se. The Court having heard the testimony of the witnesses, considered the exhibits and arguments of counsel, took the matter under advisement, and granted the attorneys for Betty Carroll time in which to obtain the deposition of the bankrupt, which time was extended, but the deposition has never been obtained. The Court, being well and sufficiently advised in the premises, now makes and files the following Findings of Fact and Conclusions of Law, separately stated.
"Findings of Fact
"(1) The claimant, Betty Carroll, twenty-three years of age, is the daughter-in-law of the bankrupt, having married his son in 1948, and obtained a divorce in July of 1953. Betty Carroll came to Hope, Arkansas, with the bankrupt's son in March, 1953, and resided with the bankrupt and his wife. Her husband left her about April 15, 1953, at which time she commenced working as a waitress in the Diamond Cafe which was owned and operated by Robert E. Carroll, at a salary of $35.00 per week. She continued at this salary until August, 1953, when she was paid $50.00 per week. She had had no previous experience in this business before she commenced work in April, 1953. She continued to reside with Robert E. Carroll until the latter separated from his wife in June 1953, and thereafter continued to reside with the wife of the bankrupt, Minnie Lou Carroll. Minnie Lou Carroll also worked in the cafe. Neither of the Carroll women had any managerial duties in connection with the cafe business. Minnie Lou Carroll obtained a divorce from the bankrupt on November 10, 1953, upon a Complaint filed September 12, 1953. During these domestic difficulties, Minnie Lou Carroll and Betty Carroll continued to work in the cafe which was not closed until November 10, 1953, although Robert E. Carroll seems to have left Hope, Arkansas, finally on or about November 1, 1953, and to have been absent a considerable amount of the time prior to that date.
"(2) The claim filed by Betty Carroll is based upon the balance due on four promissory notes executed by Robert E. Carroll to Citizens National Bank of Hope, Arkansas, one dated June 19, 1953, in the amount of $8000.00; one dated July 17, 1953, for $400.00; one dated July 17, 1953 for $1800.00; and one dated September 11, 1953, for $1000.00. Partial payments of principal and accrued interest by Robert E. Carroll left a principal balance due of $9700.00.
"(3) On June 23, 1953, Robert E. Carroll executed and delivered to Citizens National Bank of Hope, Arkansas, a chattel mortgage covering substantially all of the fixtures and equipment of the cafe to secure payment of the amounts then owing the bank, as well as any future advances, which mortgage was filed of record June 24, 1953. On September 23, 1953, the bankrupt executed and delivered to Citizens National Bank of Hope, Arkansas, a chattel mortgage covering the stock of goods owned by the bankrupt in connection with the cafe, to further secure the indebtedness.
"(4) A payment of $500.00, and accrued interest, was made on the $8000.00 note on August 13, 1953, and a like payment of $500.00, plus interest, was made September 11, 1953. On September 13, 1953, there was a payment of $300.00, plus interest, on the $1800.00 note, and on September 11, 1953, $200.00 was paid on the $400.00 note.
"(5) On October 23 and 24, 1953, Robert E. Carroll, Betty Carroll, W. S. Atkins, attorney for Betty Carroll, appeared at the Citizens National Bank and advised that it was desired to pay the notes of Robert E. Carroll then due the bank, and have them assigned to Betty Carroll, along with the chattel mortgages which secured their payment. In payment of the notes the bank received a cashier's check for $4000.00 which had been purchased on October 21, 1953 from Worthen's Bank of Little Rock, Arkansas by Robert E. Carroll in the assumed name of J. R. Richards, and made payable to Betty Carroll; $1700.00 in cash; and Robert E. Carroll released to the bank four $1000.00 negotiable bearer bonds issued by the United States of America which the bank had been holding in trust for him. The statement was made at the time that Betty Carroll had that morning given Robert E. Carroll $4000.00 in cash in lieu of the bonds which were released. The bank endorsed the four notes to Betty Carroll without recourse, and executed and delivered to her an assignment of the chattel mortgages. Her claim in this proceeding is founded upon these notes and the assigned chattel mortgages.
"(6) There is no evidence or claim that Betty Carroll personally furnished the funds which were used to purchase the notes from the bank. Her testimony is that in July or August of 1953, Robert E. Carroll suggested that she buy the cafe. About September 1, Robert E. Carroll agreed to sell and she agreed to buy the cafe for $12,000.00 upon the condition that it be cleared of debt, and that Carroll effect an assignment of the lease to Betty Carroll. There was no written agreement, but she stated that she did have an unsigned Bill of Sale which was not offered in evidence. Carroll did not clear the debts or effect assignment of the lease, and nothing further seems to have been done until about the middle of October. At that time Betty Carroll states that Robert Carroll discussed with her the $9700.00 debt to the bank, advised that the bank was pressing for payment, and that unless something was done, the mortgage would be foreclosed. He suggested that she buy the debt since it was secured. She agreed to this, and, after allegedly consulting her attorney, gave Robert E. Carroll $9700.00 in cash which he was to take to the bank to purchase the notes in her behalf. No receipt or other evidence appears to have been taken from Robert E. Carroll when this $9700.00 in cash was placed in his hands. Carroll did not go to the bank immediately, but Betty Carroll does not appear to have been concerned about his failure to produce the notes forthwith or otherwise account for the $9700.00 cash. She next heard from him on October 23rd when he asked her to come to his room to discuss the mortgage. At that time he suggested that she get her attorney and go with him to the bank to work out the transaction, and this was done. However, Robert E. Carroll did not return the cash to her, but gave her the cashier's check for $4,000.00 which had been purchased from Worthen Bank, and, according to her story, she permitted him to retain $4,000.00 of the cash in lieu of the negotiable Government bonds which were being held in trust for him by the Citizens National Bank.
"(7) Betty Carroll had no assets of her own with which to consummate this transaction. Her greatest earnings had been $50.00 per week as a waitress, and there is no evidence or contention that she had other assets or property. Her explanation of the source of funds is that a friend loaned her $11,000.00 upon her note which was to be secured by a mortgage that was never executed; that she was to purchase the business and effect a partnership with her friend who would own a one-half interest, and she would repay half of the loan from the earnings of the business. There was no written partnership agreement, and the alleged note was not offered in evidence. Betty Carroll declined to identify her benefactor when first on the stand, but stated that she would do so after a recess in the hearing. Upon returning to the stand she again declined to name the party who allegedly advanced the $11,000.00 although she was warned in open Court by the Referee that her failure to do so would almost inevitably result in a denial of her claim in the light of other evidence in the case. In the face of this warning, Betty Carroll still declined to disclose the source of funds used to purchase the notes.
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