In re Independent Distillers of Kentucky

• Decision Date: 11 September 1940
• Docket Number: No. 12646.,12646.
• Citation: 34 F. Supp. 708
• Parties: In re INDEPENDENT DISTILLERS OF KENTUCKY.
• Court: U.S. District Court — Western District of Kentucky

34 F. Supp. 708

In re INDEPENDENT DISTILLERS OF KENTUCKY.

No. 12646.

District Court, W. D. Kentucky, at Louisville.

September 11, 1940.

COPYRIGHT MATERIAL OMITTED

J. Smith Barlow, Jr., of Bardstown, Ky., for trustee.

Victor L. Kelley and Ernest Fulton, both of Bardstown, Ky., for petitioning creditors.

D. A. Sachs, Jr., and Frank A. Garlove, both of Louisville, Ky., for bankrupt.

Dodd & Dodd, of Louisville, Ky., for Abbott and Kurth Malting Co.

MILLER, District Judge.

This matter is before the court on separate petitions for review by claimants Leslie V. Abbott and Kurth Malting Company of the order of the referee in bankruptcy rejecting their claims against Independent Distillers of Kentucky, bankrupt, and on applications for allowances by the receiver-trustee and attorneys.

Claim of Leslie V. Abbott — No. 99.

Leslie V. Abbott claims a lien against a cooling plant installed by him in the distillery superior to the claims of certain general creditors. The referee rejected the claim as a secured one.

The claimant Abbott installed in the distillery at its request an Ingersoll-Rand cooling plant, which the claimant purchased from the Brandeis Machinery & Supply Company, in an independent transaction between the claimant and the Brandeis Company. This installation was pursuant to a written proposal dated April 10, 1936, from the distillery to Abbott. The installation was completed in June, 1936. Partial payments were made by the distillery from time to time, until on September 22, 1937, there was an unpaid balance of $2,283.75. On that date this balance was consolidated with other indebtedness to the claimant and the distillery executed its note to the claimant for $5,733.75, representing the total indebtedness. This note carried an endorsement providing for retention of title to the cooling plant by Abbott until the note was paid. No writing evidencing the contract for the cooling plant was recorded. The proof shows that only a few of the numerous creditors who have filed claims against the bankrupt estate extended credit to the bankrupt after June, 1936, without notice of Abbott's claim to the cooling plant. The referee sustained the objections of the trustee to Abbott's claim to the cooling plant free of claims of creditors, and allowed the claim of $5,733.75 as a general unsecured claim, which action is now before the court for review.

Whether or not claimant retained title to the cooling plant depends upon the contract entered into in April, 1936, and completed in June, 1936. The endorsement on the note of September 22, 1937, does not change that contract to the prejudice of intervening creditors, but it can be considered as evidence of the terms of the then existing contract. The court construes the contract of April, 1936, as an oral conditional sales contract. Such a contract must be recorded in order to be valid against certain creditors. Kentucky Statutes, Sections 496, 1908; Munz v. National Bond & Investment Co., 243 Ky. 293, 47 S.W.2d 1055; In re Selman's Incorporated, D.C., 58 F.2d 681. In order for a creditor to prevail over the conditional sales vendor who has not recorded his instrument, he must be either an antecedent creditor who at some time prior to the recording of the mortgage has secured some equity in the property, or a subsequent creditor without notice of the vendor's claim. Mason & Moody v. Scruggs, 207 Ky. 66, 268 S.W. 833; In re Gibson, 6 Cir., 65 F.2d 921; National Bond & Investment Co. v. Jones, 6 Cir., 78 F.2d 601. The burden is on the creditor to prove that he comes within the necessary classification. Sears, Sheriff v. Cain, 242 Ky. 702, 47 S.W.2d 513; Calloway v. Howard, 247 Ky. 730, 736, 57 S.W. 2d 677.

Claimant contends that the application of the foregoing rules in a bankruptcy proceeding results in the trustee prevailing over the claimant only with respect to such creditors as prove the necessary qualifications and that the claims of other creditors are inferior to claimant's lien against the cooling system. Sections 47, sub. a and 70, Bankruptcy Act; Sections 75, sub. a and 110, Title 11 U.S. C.A. Prior to the 1910 amendment to Section 47, sub. a, the Supreme Court held in York Manufacturing Co. v. Cassell, 201 U.S. 344, 26 S.Ct. 481, 50 L.Ed. 782, that the trustee derived his rights from the bankrupt only and that his status did not arise to the dignity of the status of creditors whom he likewise represented. Claimant contends that the 1910 amendment which vested the trustee with the rights and remedies of a creditor holding a lien by legal or equitable proceedings increased the status of the trustee only to the extent that he thereafter took the dignity of the individual status of each particular creditor with respect to that creditor's rights, and that it did not increase his status to the dignity of a lien creditor as to all creditors generally. Smith-Flynn Commission Co. v. Doyle, 8 Cir., 292 F. 465, 473; In re Stephens, D.C., 1 F.Supp. 681. This construction of the amendment had some early support from the courts, who at first failed to give full effect to the intention of Congress. It was discussed and rejected by the Circuit Court of Appeals for the 8th Circuit in Albert Pick & Co. v. Wilson, 19 F.2d 18. But irrespective of the proper construction to be given to the 1910 amendment as applicable when only one particular claim is under consideration, it appears to have been settled that in cases where the trustee has an undisputed right to avoid the lien by reason of the status of one particular creditor it can be avoided by the trustee acting for that creditor with resulting benefit to all creditors, regardless of the status of the other creditors. The action of the trustee is for the benefit of the estate, even though all creditors benefit by the avoidance. Moore v. Bay, 284 U.S. 4, 52 S.Ct. 3, 76 L.Ed. 133, 76 A.L.R. 1198; Friedman v. Sterling Refrigerator Co., 4 Cir., 104 F.2d 837. The present record discloses the existence of several creditors who extended credit to the bankrupt without notice of claimant's interest in the property. The trustee's objection to the claim as filed is sustained, and its allowance by the referee as a general unsecured claim is approved.

The referee's order of August 5, 1939, with respect to this claim is affirmed.

Claim of the Kurth Malting Company — No. 110.

The Kurth Malting Company filed claim against the bankrupt estate for $3,202.76 as damages caused by alleged breach of contract on the part of the bankrupt. The referee rejected the claim.

By contract of September 22, 1936, the Kurth Malting Company sold to Independent Distillers 20,000 bushels of distiller's bulk malt at $1.59 per bushel for shipment in equal monthly installments between November 26, 1936, and July 1, 1937. The contract provided that the buyer order the malt shipped, and the seller ship the same in carload quantities. On July 1, 1937, there remained a balance of 7,279 bushels to be ordered out and delivered to the Independent Distillers. With the exception of a small shipment on July 15, 1937, no shipping orders were given by the distillery, and no shipments were made or tendered by the malting company. The market price of malt remained $1.59 per bushel from July 1, 1937, to August 12, 1937, but thereafter declined to $1.15 per bushel on April 27, 1938. In April, 1938, the Malting Company received notice of the bankruptcy of the Independent Distillers, considered the contract terminated as of that date and filed this claim for the difference between the contract price and the market price of the undelivered 7,279 bushels. The trustee contends that the contract was breached on July 1, 1937, when the distillery failed to give shipping orders for the balance of the contract, at which time there was no damage to the seller because the market price still equalled the contract price. The referee sustained this contention and disallowed the claim.

It is well settled that where the buyer of goods breaches his contract of purchase by refusing to accept and pay for the goods the seller is entitled to damages in the amount of the difference between the contract price and the then current market price. Kentucky Statutes, § 2651b-64. The real question at issue in this case is when was the contract breached. No right of action in any amount accrued to the seller until that time. The fact that July 1, 1937, arrived and passed without delivery being made of the balance of the contract does not necessarily mean that the contract was breached at that time. Where an agreement is absolute and unconditional the general rule is that no demand for performance is necessary. Failure to perform at the stipulated time is of itself a breach of the contract. However, if the contract calls for concurrent acts by the contracting parties, or where performance has been delayed by mutual consent, demand or tender on the part of one party is necessary before the other party can be put in default. Johnston v. Benjamin, 219 Ky. 169, 292 S.W. 801. See 17 Corpus Juris Secundum, Contracts, §§ 478 and 480. In the present case the contract called for concurrent acts by the contracting parties, viz., the giving of shipping instructions by the purchaser and the compliance with those instructions by the seller. The purchaser did not give any shipping instructions; the seller did not demand any. The...