In re Markham

• Citation: 254 F. Supp. 948
• Decision Date: 19 April 1966
• Docket Number: No. 64-BK-43-C.,64-BK-43-C.
• Parties: In the Matter of Harold Cole MARKHAM.
• Court: U.S. District Court — Western District of Virginia

254 F. Supp. 948

In the Matter of Harold Cole MARKHAM.

No. 64-BK-43-C.

United States District Court W. D. Virginia, Charlottesville Division.

April 19, 1966.

COPYRIGHT MATERIAL OMITTED

David M. Clark, Stern, Rendleman & Clark, Greensboro, N. C., for petitioner.

Charles R. Haugh, Gordon & Haugh, Charlottesville, Va., for trustee.

OPINION

MICHIE, District Judge.

On December 31, 1964 petitioner, Jewel Box of Charlottesville, Inc., t/a Lowe's Jewelers (hereinafter referred to as Lowe's) petitioned this court for review of an order of the Referee in Bankruptcy of December 22, 1964. Thereafter on March 12, 1965 counsel for the trustee moved the court to remand this matter to the Referee for the taking of further evidence. After argument it was agreed that the court would hear the case de novo in lieu of a remand. On April 12, 1965 evidence was presented, at the conclusion of which the court asked counsel to submit briefs on the law, which they have done. Inasmuch as the property in question is in possession of the Bankruptcy Court, I have summary jurisdiction in this matter. Thompson v. Magnolia Petroleum Co., 309 U.S. 478, 60 S.Ct. 628, 84 L.Ed. 876 (1940), cf. Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966).

The controversy involves two diamond rings which the bankrupt, Markham, purchased from Lowe's in the summer of 1964 within four months of bankruptcy. Markham had entered into negotiations with Robert Anderson, the manager of Lowe's Charlottesville store, in April of 1964 regarding the purchase of a diamond engagement ring for his fiancee, Mildred Peake, now his wife, Mildred P. Markham, as well as a man's diamond ring for himself. Sometime in June, 1964—Markham thought it was the first week in June, while Anderson placed it as the last week in June—Anderson delivered the rings to Markham at his office and Markham, in Anderson's presence placed the lady's ring on Miss Peake's finger. After this the negotiations continued and on July 24, 1964 Markham entered into a conditional sales agreement with Lowe's through Anderson whereby Markham agreed to pay for the rings in monthly installments of $500.00. Markham testified as follows regarding the negotiations:

THE COURT: Now you are talking about September. What date are you referring to when you say you purchased the ring?

A I started the discussion with Bob in the latter part of April or May.

THE COURT: You started the discussion but when did you take the ring over and say you bought it?

A We took the rings approximately the first of June, first week in June.

Q Was it understood that you were taking it for good then?

A Yes sir.

Q In other words you had made your purchase then?

A As far as I was concerned yes sir.

Q Did you sign any kind of contract?

A I don't recall signing any contract until the date that was signed which was on July 24th. We weren't in trouble financially at that point. We were still drawing income from insurance companies up to that point. I had no reason to even suspect I couldn't pay for it.

Q Was there some negotiating back and forth about the tax—who was going to pay the tax on the ring?

A I asked Bob if the corporation could give the ring to Mildred and his final advice was that it would be better if I paid the tax on it which I believe he included the tax in the price.

Q Now when did this discussion take place—in June?

A Sir?

Q Was this before you took possession of the rings?

A That was before we signed the contract.

Q Is that the reason you waited to sign the contract?

A No sir. Whenever he brought them I signed them.

Q You may have answered this question but when did you say you actually took possession of the rings?

A The best I recall it was sometime around the first part of June. I could be wrong on that because so much has happened since then. It was either the latter part of May or the first week in June, I am not quite sure.

Q Actually this dealing back and forth with Mr. Anderson you really hadn't come to any fixed terms about what you were going to do and how you were going to pay for it until you put it in his contract, is that not true Mr. Markham?

A That's about the truth because we hadn't signed anything and we hadn't agreed on anything. Bob and I were such good friends that we just— he knew at that time that I was making money and I was making money and the amount that was to be paid on the rings wasn't agreed upon until the day before or probably that day.

Q After you got all the tax matters squared away and he brought the contract around to be signed and that represented the agreement on what you were going to pay?

A That's right. We didn't talk about how much I was going to pay when I negotiated to buy.

* * * * * * Anderson's testimony regarding the negotiations leading up to the signing of the contract is as follows:

Q And that conditional sales contract would represent then the agreement between you and Mr. Markham concerning the purchase of these rings?

A That is correct.

Q Now Mr. Markham said that he had been negotiating about these rings since May. Is that correct?

A Yes sir.

* * * * * *

Q Between the time you sold the rings under the contract and you recorded it, did any information come to you from any where that Mr. Markham was in financial trouble?

A No sir at the time the ring was delivered to him my recollection is a little different from theirs as to the time of delivery. Mine is based on the fact that I sold it the week prior to our annual meeting in Greensboro which was the last day of June and during that week—the last week in June was when the ring was delivered to Mr. Markham initially. It was to be sold to him, if possible, without tax as a wholesale item to a corporation to be given as a gift, which is done normally through our Ned W. Cohen Associates and I told Mr. Markham I would check this out. This was then checked out and our comptroller said this could be done—anything could be given as a gift but if it were given as a gift the ten percent tax wouldn't be paid but the recipient would have to pay income tax. This would have amounted to at least twice the federal tax. Mr. Markham said then that he had rather pay the federal tax.

Q All that really means is that you hadn't really come to finished terms on how you were going to pay for it until this contract was gotten up?

A No sir other than the fact when it was delivered to him initially he wanted to pay enough down so the payments would be $100.00 a week. This was at the time of delivery the latter part of June. He wanted to make one lump down payment so that the terms then would read $100.00 a week.

Q But that is not the way the contract is drawn?

A No sir.

Q Does that contract not represent what you finally agreed on?

A Yes sir.

* * * * * *

CROSS EXAMINATION

By: Mr. Haugh

Q Just a couple of questions Mr. Anderson. I believe you stated on direct examination something about Mr. Markham wanting $100.00 payments— would you tell us what terms he wanted?

A That was the terms he wanted. At the time we had solved the question of will tax be added or not to make one lump payment at that time which would leave a balance of $5200.00 at $100.00 a week.

Q He wanted to pay $100.00 a week?

A This is correct.

Q When was it changed from $100 a week to $500 a month?

A At the time of the signing on the 24th of July.

Q And $100.00 a week payments was perfectly all right with you?

A This is adequate.

From this testimony it seems to be impossible to determine just when the sale was consummated. But whether it was when the rings were delivered or later when the terms of payment were agreed upon and the conditional sales agreement executed would seem to make no difference in the result. For even if we assume that the purchase was completed at the time of the delivery of the rings thus nullifying the attempted retention of a security interest by the agreement of July 24th, the man's ring would still be an asset of the estate under § 70(a) (5) of the Bankruptcy Act. This would also be the case with the lady's ring since Mrs. Markham voluntarily surrendered it at the first meeting of the creditors to the Trustee who thereafter held it as the property of the bankrupt. In re Consolidated Oil Co., 140 F.Supp. 614 (E.D.Mich.1956). Cf. In re Prokop, 65 F.2d 628 (7th Cir. 1933). See 5A Remington, Bankruptcy, § 2370 (5th ed. 1953). Furthermore, assuming a completed purchase at the time of delivery, Markham's gift of the lady's ring to Mrs. Markham constituted a voluntary transfer under § 55-81 of the Virginia Code and was, as to Markham's existing creditors at that time, a voidable transfer. I shall therefore proceed for the purposes of this opinion on the premise that the sale was not consummated until the execution of the contract on July 24th, a premise which I feel can be reasonably established from the evidence and which was assumed by counsel for both parties throughout the proceeding.

The contract called for monthly installment payments of $500 each to begin August 1, 1964. This agreement was filed in the Albemarle County Clerk's Office at 9:00 A.M. on September 9, 1964. On September 17, 1964 the bankrupt filed his voluntary petition in bankruptcy in this court. Neither the monthly installment for August nor that for September was ever paid.

The rings in question consist of a man's 1.03 carat diamond ring, the price of which appears on the contract to have been $495.00 and a 3 carat lady's solitaire priced at $6,930.00. Including the Federal Tax of $742.50 the total price of both rings came to $8,167.50. At the hearing the Trustee in Bankruptcy testified that, while going through the bankrupt's papers, he found an appraisal of the two rings, fixing the value of the man's ring at $1,500.00 and the lady's solitaire at $10,500.00. This appraisal was dated in July of 1964. It was further brought out that these rings constituted substantially all of the bankrupt's assets.

It appears from the evidence that, upon receiving the rings from...