In re Marengo County Mercantile Co.

• Decision Date: 05 October 1912
• Docket Number: 929.
• Citation: 199 F. 474
• Parties: In re MARENGO COUNTY MERCANTILE CO.
• Court: U.S. District Court — Southern District of Alabama

199 F. 474

In re MARENGO COUNTY MERCANTILE CO.

No. 929.

United States District Court, S.D. Alabama, Northern Division.

October 5, 1912

Mallory & Mallory, of Selma, Ala. (Charles L. Robertson, of Adrian Mich., of counsel), for petitioner.

Pettus Fuller & Lapsley, of Selma, Ala., for trustee.

TOULMIN District Judge.

This is a reclamation proceeding brought by the Page Woven Wire Fence Company, a corporation, against the trustee of said bankrupts on a petition praying that the petitioners may have a lien upon the funds of said bankrupt estate to the amount and value of certain goods, consisting of woven wire fencing, purchased by the bankrupts from the petitioners, and that said trustee be directed to pay the same to the petitioners; they claiming said goods as belonging to them. The petitioners base their claim on the ground that the bankrupt was insolvent at the time of the purchase of such goods, wares, and merchandise, and that this insolvency was known to it at the time of the purchase. Petitioners allege that said Marengo County Mercantile Company, the bankrupt, upon false and fraudulent representations, induced petitioners to sell and deliver to it the said goods mentioned, and wrongfully, fraudulently and with intent to deceive and defraud petitioners, and knowing that petitioners relied upon the truth of the representations so made, induced them to sell and deliver said goods and merchandise to the said bankrupt, with the intent and design not to pay for them. This petition is, in substance and effect, a proceeding brought to rescind and set aside the sale of the goods to said bankrupt, and to recover the proceeds of their sale made by the trustee in bankruptcy. The referee dismissed the petition, and the case is here on a petition to review such action of the referee.

'It is well settled that representations as to the financial status of a buyer made as a basis of credit, and known by the party making them to be false, and but for which the sale would not have been made, are fraudulent, and entitle the seller to reclaim the goods so obtained by fraud. ' In re J. S. Patterson & Co. (D.C.) 125 F. 564.

In Donaldson v. Farwell, 93 U.S. 631, 23 L.Ed. 993, it was held to be established that what entitles a vendor to disaffirm a contract of sale and recover his goods consists in the vendee's inducing the vendor 'to sell him goods on credit' when he was (a) insolvent, (b) concealed his insolvency, and (c) did not intend to pay for what he bought. In re Levi & Picard (D.C.) 148 F. 655.

But 'to entitle a seller of goods to rescind the sale for fraud, there must have been an undisclosed knowledge of insolvency and an intention not to pay for them on the part of the purchaser when the goods were bought. ' In re Levi & Picard (D.C.) 148 F. 654.

In the absence of fraud in making the statement reclamation should not be allowed. In re Levi & Picard (D.C.) 148 F. 654; Ellet-Kendall Shoe Co. v. Ward, 26 Am.Bankr.R. 114, 187 F. 982, 110 C.C.A. 320.

'The representations must be willfully false, or must have been such that the buyer did not believe to be true, or had no reasonable grounds to believe to be true, and by means whereby the seller was deceived, and thereby induced to consummate a sale he otherwise would not have made. ' In re Roalswick (D.C.) 110 F. 639.

And it has been held that:

'A known condition of insolvency at the time of the purchase, and the failure of the bankrupt to disclose such condition to the claimant, cannot be regarded as fraudulent. The law, having in view the ordinary conduct of business affairs, draws a distinction in matters of this kind between withholding information and making false statements for the purpose of deceit. ' In re Davis (D.C.) 112 F. 296.

The real question presented by the petition and in the brief of counsel for petitioners is:

'Does the evidence show that the Marengo County Mercantile Company, by false and fraudulent representations of material facts, obtained from the petitioners the goods, wares, and merchandise, the proceeds of the sale of which are claimed?'

Under the allegations of their petition, the petitioners must establish these several propositions to entitle them to rescind the sale in question, and to obtain an order for the payment of the sum of money claimed by them therein: (1) That the bankrupt was insolvent at the time of the purchase of the goods, wares, and merchandise; (2) that the bankrupt concealed its insolvency from the petitioners, which insolvency was known to the said bankrupt at the time of said purchase; (3) that false and fraudulent representations were made by it with the intent to deceive and defraud petitioners, and were so made to induce the petitioners to sell and deliver to said purchaser the goods in question, with the intent and design not to pay for them.

The referee has failed to certify to the judge the question presented for review, except as to whether or not the order made by him, disallowing the petition, was correct. And there is no summary of the evidence relating thereto. 'Both of these provisions are important and required, and should be carefully observed. The summary of the evidence is required in order to save the judge the labor of examining what is often a mass of testimony on many different questions, and of extracting so much as may be relevant to the point immediately in hand. The summary may also be valuable as showing what evidence has been considered by the referee before coming to a conclusion. ' In re Kurtz (D.C.) 125 F. 992; Crim v. Woodford, 136 F. 38, 68 C.C.A. 584; General Order, or Rule 27 (18 S.Ct. viii), in Bankruptcy.

However, the case is before me, and I have carefully examined and considered it.

The referee expresses the opinion that the evidence is sufficient to find that at the time of the sale the bankrupt was insolvent. He has furnished no summary of the evidence relating thereto. Assuming that the petitioners have established that proposition, and that the referee's finding on it is correct, as I do, it does not follow that the bankrupt concealed its insolvency from the petitioners or had knowledge of its insolvency at that time. George F. Conant, the president of the bankrupt company, and who purchased the goods from one Edwards, the agent and traveling salesman of the petitioner, was called as a witness by the petitioners. He testified that on September 22, 1910, the date of the purchase of the goods, his company was 'in good shape'; that its assets were greater than its liabilities. He also testified that business was good, prospects and collections also good, in September, 1910, and at the time these goods were bought. He also testified that he made no special representation of any kind in reference to the solvency or financial condition of the Marengo County Mercantile Company to Edwards, the salesman of petitioners, at the time he placed the order for the goods with him on September 22, 1910; that he was not asked for a statement on the subject, and he made none. Edwards, the salesman of petitioners, who procured the order for the goods from Conant, corroborates in substance the latter's evidence in regard to what occurred at the time the order was given. He, as a witness for petitioners, testified that Conant did not tell him that his company had any special amount of assets or was solvent, in terms, but gave him to understand that it was financially in good shape; that he told him he was an officer in a bank there, and in that way gave him to understand that the sale was a good one. He testified no statement was made by Conant in reference to the solvency of his company, and he requested none. But it was his understanding from...