In re K.G. Whitfield & Bro.

• Decision Date: 01 January 1921
• Docket Number: 1088.
• Court: U.S. District Court — Western District of Tennessee
• Parties: In re K. G. WHITFIELD & BRO.

290 F. 596

In re K. G. WHITFIELD & BRO.

No. 1088.

United States District Court, W.D. Tennessee, Eastern Division.

January 1, 1921

ROSS District Judge.

K. G Whitfield & Bro. constituted a partnership firm composed of K. G. Whitfield & J. H. Whitfield, doing business in Benton county, Tenn. In the course of their business the firm purchased peanuts in the peanut section along the Tennessee river for Lumis & Co., of Chicago, Ill. It was the custom of the firm to draw drafts on Lumis & Co., deposit those drafts with the People's Bank & Trust Company, of Camden, Benton county, Tenn., where they would be given credit for the amounts thereof; they would then draw checks on this account payable to the parties from whom the peanuts were purchased. Pursuing this course in the early part of 1920, drafts were drawn which Lumis & Co. declined to honor. Whitfield & Bro had been credited with the amount of the drafts and had drawn checks on the account thus made. As a result, when the drafts were dishonored, a large overdraft was created in favor of the People's Bank & Trust Company against Whitfield &amp Bro.

The Cumberland Valley National Bank, of Nashville, Tenn., was the correspondent of the People's Bank & Trust Company, and duly organized and chartered under the national banking laws of the United States. The People's Bank & Trust Company was a Tennessee corporation. In February of 1920 the People's Bank & Trust Company procured the Cumberland Valley National Bank to lend to Whitfield & Bro. the sum of $12,000 for the purpose of enabling them to satisfy the overdraft with the People's Bank & Trust Company and continue the peanut business. This loan was negotiated for a period of 30 days, and to secure the same warehouse receipts covering certain peanuts purchased by Whitfield & Bro. were placed as collateral. The originals of these warehouse receipts were held in the vaults of the People's Bank & Trust Company, and copies thereof sent to the Cumberland Valley National Bank. This was done as a matter of convenience, and in addition the payment of the note was guaranteed by the People's Bank & Trust Company, or J. M. Lockhart, as its cashier.

It was the contemplation of the parties at the time of the negotiation of this loan that the peanuts would be sold before the expiration of the note, and for this reason the original warehouse receipts were placed with the People's Bank & Trust Company as stated, so that they might be accessible if the nuts should be sold. However, the nuts were not sold as contemplated, and the note was renewed from time to time until July 12, 1920, when the last renewal was executed. This note was signed by K. G. Whitfield & Bro. as a firm and also by the individual partners. In the meantime the Cumberland Valley National Bank and the American National Bank were regularly consolidated, and the American National Bank took over all the assets of the Cumberland Valley National Bank and succeeded to all its rights, and was a bank likewise duly organized and chartered under the national banking laws of the United States.

Payment not having been made on the last renewal of the note mentioned in February of 1921, the American National Bank filed its bill in the chancery court at Camden, Tenn., against Whitfield & Bro., the individual partners of the firm, the People's Bank & Trust Company, B. W. Warren, and A. Odle to collect the amount due on the note. Whitfield & Bro. and the individual partners were sued as the makers of the note, People's Bank & Trust Company was sued as the guarantor of the payment of the note, while Warren and Odle were made parties to the suit merely by reason of the fact that the peanuts mentioned were stored in their respective warehouses. Soon after the filing of this bill, and on the 23d day of March, 1921, this suit was compromised. In compliance with the terms of the compromise a note was executed by K. G. Whitfield & Bro. as a firm, by the individual partners, K. G. Whitfield and J. H. Whitfield, and by Delia Whitfield, the wife of J. H. Whitfield, in the sum of $12,000 payable to the American National Bank, due six months from its date, March 23, 1921, and which recites in its face that it was secured by two deeds of trust. Two deeds of trust were executed to secure the note, one of which was made by the Whitfields, covering certain real estate and the peanuts for which the warehouse receipts mentioned had been executed, and the other was made by J. M. Lockhart and wife, covering certain real estate. Both deeds of trust were recorded March 26, 1921.

On April 18, 1921, K. G. Whitfield & Bro. filed a voluntary petition in bankruptcy and were duly adjudged bankrupts. May 18, 1921, the American National Bank sold the peanuts covered by the deed of trust for the sum of $1,626.39 and applied the same as a credit on the note of March 23, 1921, and on the 11th day of July, 1921, filed with the referee its proof of claim as to the remainder of said note, in the sum of $10,373.61, which claim was allowed.

On December 15, 1921, certain creditors of Whitfield & Bro. filed their petition with the referee, seeking to have said claim of the American National Bank disallowed. The petition states that C. V. Hawley, the trustee in bankruptcy, declined to contest the claim of the American National Bank; so the creditors filed the petition in his name for their use and benefit, as well as the use and benefit of all other creditors having bona fide, provable claims against the estate. Answer was filed to this petition by the American National Bank, and the matter proceeded to a hearing before the referee, where evidence was offered by both parties, and upon consideration of all of which the referee, on the 13th day of June, 1921, entered an order sustaining the petition of the contestants, holding that the transfer of the property mentioned on March 23, 1921, enabled said bank to receive a preference, that the claim should not be allowed until the bank had accounted for such preference, or until the other general creditors should receive a dividend and pro rata equal to the amount received by the bank. The bank was taxed with the costs of that proceeding.

The only question presented is whether or not the American National Bank obtained a preference by reason of the transfer to it of the peanuts mentioned in the deed of trust of March 23, 1921. This must be answered in the negative.

The contracts relative to the various notes, loans, and deeds of trust were manifestly Tennessee contracts, and governed by the laws of Tennessee. Sections 3608a42 to 3608a55, inclusive, of Shannon's Code of Tennessee (1917), cover various transfers and negotiations of warehouse receipts such as those in question, and authorize the pledging, depositing, or negotiation of receipts, as was done in this instance in February of 1920. Under the law this amounted to a transfer of the receipts and the peanuts called for therein to the Cumberland Valley National Bank, to be held as security for the loan made by it to Whitfield & Bro. The fact that the originals were held in the vaults of the People's Bank & Trust Company, at Camden, Tenn., would not destroy the validity of the transfer, for in...