In re Hargrove
| Decision Date | 17 December 1945 |
| Docket Number | No. 5970.,5970. |
| Citation | 64 F. Supp. 103 |
| Parties | In re HARGROVE. |
| Court | U.S. District Court — Southern District of Alabama |
A. J. Kearley, of Mobile, Ala., for Trustee.
C. M. A. Rogers, of McCorvey, Turner & Rogers, all of Mobile, Ala., for Morgan Plan Company, Inc., claimant.
This cause is before the Court on the petition of claimant, Morgan Plan Company, Inc., for review of the decision of the Special Referee upon the objections of the Trustee to the claim of Morgan Plan Company, Inc., as amended.
The Court has carefully reviewed the testimony taken before the Referee in this cause and the findings of the Referee and finds the pertinent facts to be as follows:
Under date of November 13, 1942, Morgan Plan Company, Inc., loaned to the bankrupt the sum of $2,300 taking his note therefor endorsed by his father in amount of $2,346, payable one month from date. This transaction will be referred to as Loan No. 1.
Under date of December 4, 1942, Morgan Plan Company, Inc., loaned to the bankrupt the sum of $2,000 taking from him a contract whereby the bankrupt promised to pay to the claimant the sum of $4,080 one month after date. This transaction took the form of the execution by the bankrupt to claimant of a bill of sale form covering a large quantity of equipment, reciting a consideration of $4,000, the execution by the parties of a conditional sale contract form purporting to convey the property from claimant to the bankrupt, same reciting a consideration of $4,080 payable one month after date, and a form headed "Contract for Recording," being a very short paper reciting that the bankrupt acknowledged and agreed to pay his indebtedness to claimant in amount of $4,080 in connection with the purchase of the property and reciting that the title to the property remained in the Morgan Plan Company, Inc., until the debt was paid. There was no change of possession, the bankrupt remaining in actual possession of the property throughout. These documents were executed on the same day and from the evidence of James L. May, the Manager of the Morgan Plan Company, Inc., the transaction began as a loan and such a transaction was claimant's method of handling a loan to the bankrupt in that amount; also that instead of the bankrupt receiving $4,000 at the time of the execution of these papers he received only $2,000 and the balance of $2,000 was put in what claimant called a reserve account on its books. None of these papers were recorded except the form headed "Contract for Recording" which was recorded in the Probate Court of Mobile County, Alabama, on December 22, 1943. This transaction will be referred to as Loan No. 2.
Under date of July 12, 1943, Morgan Plan Company, Inc., loaned to the bankrupt the additional sum of $3,000 taking his promissory note therefor in amount of $3,150, payable 30 days after date. This loan was secured by a contract between the bankrupt and Higgins Industries under which the invoices rendered to Higgins by the bankrupt were to have been assigned to claimant. This transaction will be referred to as Loan No. 3.
According to the testimony of claimant, cash payments, sometimes credited by them to interest and sometimes to principal, were made as follows:
12-28-42 $ 92.00
2- 9-43 50.00
2-27-43 110.00
3-24-43 92.00
4-16-43 580.00
4-16-43 92.00
5- 7-43 71.20
6-28-43 1679.60
6-28-43 46.00
7-20-43 1114.20
7-20-43 39.00
9-24-43 1784.80
________
Total $5750.80
In addition, claimant's evidence shows that on June 29, 1943, claimant paid $4 exchange for the account of the bankrupt and on the 12th day of July, 1943, claimant paid to Mr. Sidney J. Gray, for the account of the bankrupt, $2.05, making a total of $6.05 which should be deducted, making total credits of $5,744.75 instead of $5,750.80. The sum of $2,529.80 of these cash payments by the bankrupt was credited by claimant to its Loan No. C 3647 dated December 4, 1942, heretofore referred to as Loan No. 2.
The Morgan Plan Company, Inc., has claimed in this cause the sum of $3,006.15 and claims a lien against the proceeds of said property for the payment of same, contending in order to establish a lien, that the transaction of December 4, 1942, Loan No. 2, was a sale by the bankrupt of the property therein described and a sale back to the bankrupt.
Some of the creditors whose claims have been approved and established in the bankruptcy proceeding had no notice of the execution by the bankrupt to the claimant, Morgan Plan Company, Inc., of any of the instruments executed in connection with Loan No. 2, that dated December 4, 1942, and it appears that the Government has established in the proceeding claims totaling $4,014.24, covering taxes assessed and unpaid against the bankrupt.
Since the adjudication of the bankrupt the property listed in the form of bill of sale and other papers executed in connection with Loan No. 2 has been sold by the Trustee under direction of the Special Referee and the proceeds of the sale are in his possession.
The loans totaled $7,300. Total credits in amount of $5,744.75, sometimes credited by the claimant to principal and sometimes to interest, as shown by the foregoing statement, have been made in cash to the claimant, leaving a difference, crediting all payments to principal, of $1555.25.
The Supreme Court of Alabama has held as follows:
"If the parties to an instrument, at the time of its execution, intend it as a security, whatever may be its form, equity will consider it a mortgage; and no terms or words used in it will be allowed to change its character and cut off the right of redemption." Robinson v. Farrelly 16 Ala. 472; Harris v. Miller, 30 Ala. 221, at page 224; Swift v. Swift, 36 Ala. 147, at page 154; Baldwin v. Hatchett, 56 Ala. 461, 466; Haynie v. Robertson, 58 Ala. 37, at page 40; Smith v. Murphy, 58 Ala. 630, 635; Mobile Building & Loan Ass'n v. Robertson, 65 Ala. 382, at page 388; Turner v. Wilkinson, 72 Ala. 361, at page 366; Adams v. Pilcher, 92 Ala. 474, at page 475, 476, 8 So. 757; Jacoby v. Funkhouser, 147 Ala. 254, 40 So. 291, at page 292.
In the Alabama Court of Appeals case of the Bank of Mobile v. Lewis, 16 Ala.App. 605, 80 So. 179, the court held that where an automobile was shipped to a dealer, a sight draft attached, the amount of the draft being $710, of which amount the automobile company obtained $500 from the bank which "took two instruments of writing, one a promissory note for $500, with a pledge agreement contained in it, but did not take possession of the pledged property, and the other was a bill of sale, conveying on its face absolute title" to the bank, this was a mortgage.
And the Alabama Supreme Court held in the case of Davis v. Hubbard, 38 Ala. 185, 187, that where a bill of sale was executed by the complainant to the defendant and the defeasance executed by the defendant on the same day, they
Section 60 of Title 9 of the 1940 Code of Alabama provides as follows:
"The rate of interest...
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