In re Missco Homestead Ass'n

• Decision Date: 20 September 1949
• Docket Number: No. 2131.,2131.
• Parties: In re MISSCO HOMESTEAD ASS'N, Inc.
• Court: U.S. District Court — Eastern District of Arkansas

86 F. Supp. 511

In re MISSCO HOMESTEAD ASS'N, Inc.

No. 2131.

United States District Court E. D. Arkansas, Jonesboro Division.

September 20, 1949.

Bruce Ivy, Osceola, Ark., and Max B. Reid, Reid & Roy, Blytheville, Ark., for the alleged bankrupt.

James T. Gooch, U. S. Atty., G. D. Walker, Asst. U.S. Atty., Dan P. Chisholm, Regional Attorney, Office of the Solicitor, U. S. Department of Agriculture, and Sidney

D. Williams, Attorney Office of the Solicitor, U.S. Department of Agriculture, Little Rock, Ark., for the petitioning creditors.

TRIMBLE, Chief Judge.

The alleged Bankrupt, The Missco Homestead Association, Inc., was incorporated by an order of the Circuit Court of Mississippi County, Arkansas, entered on January 10, 1939. The petition was signed by five persons, all being tenant farmers or share-croppers of that vicinity. Along with the petition there was filed articles of incorporation and by-laws, with all other proper documents. These disclose that the board of directors elected included two of the incorporators and three employees of the U. S. Department of Agriculture.

The proposed articles of incorporation or association set forth in great detail the purpose of the organization, and the powers it might exercise in the carrying out of its purpose. The purpose of the association is stated: "The purpose of this association is to rehabilitate and render self-supporting the families of its members (rural families of low income) by assisting or participating in the establishment, leasing, development and maintenance of farms, homes and other facilities, including necessary or appropriate co-operative and community facilities and enterprises, for such families on the lands now or hereafter leased or owned by the Association; and to do and perform all acts and things necessary, convenient, useful or incidental to the accomplishment of this purpose.

The powers conferred are stated as follows: "In furtherance of such purpose and of the general powers conferred by the laws of the State of Arkansas, but not in limitation thereof, this Association shall have the power to do any and all of the following enumerated things:

Here there follows under thirteen subheads a list of the powers to be exercised, many of them things which are usually and customarily performed by any business association or corporation, including:

To carry on any lawful agricultural, dairy, mercantile, mining, manufacturing, or mechanical business; to acquire or assist in acquiring in any manner, dispose of or assist in disposing of in any manner, construct, build, establish, own, equip, operate, maintain, improve, administer and supervise any buildings, plants, mills, gins, warehouse, dairies, restaurants, gardens, factories, industries, commercial establishments, farms, pasturages, homesteads, community and cooperative enterprises or activities of any kind, and power, light, gas and water plants or telephone systems for the purpose of manufacturing for and furnishing to its members, power, gas, water and telephone service, and to perform any other necessary or desirable operations or functions in connection therewith; and many other things as set out in the footnote.¹

A short history of the relief set-up, of which this association was the final outcome, will be found in the footnotes.

The order of the court incorporating the Association in part reads as follows:

"Upon examination of the petition it is found that said petition prays that the court enter an order incorporating the Missco Homestead Association, Incorporated, in accordance with the statutes referred to above. (2252-2261, Pope's Digest of Arkansas, 1937).

"It is, therefore, ordered and adjudged that the said petition be granted as prayed for in said petition."

These sections of the statutes of Arkansas are found in Pope's Digest, in a subchapter headed "Benevolent Associations."

On March 9, 1945, an involuntary petition in bankruptcy was filed in the office of the Clerk of this Court at Little Rock, Arkansas, in the Western Division of this District. The petition alleged that the principal place of business of the alleged bankrupt, and all its assets practically, was at Wilson, Arkansas, which is in the Jonesboro Division of this District. The Clerk of the court at Little Rock marked the petition filed as of March 9, 1945, immediately mailed it to the office of the Clerk at Jonesboro, where it was received on March 12, 1945, and the deputy clerk in that division issued a subpoenae on March 12, 1945, and placed the same in the hands of the United States Marshal for service.

This petition is in the usual form, and the petitioning creditors were the United States of America, and six individuals. Upon its face this petition was sufficient in number of petitioning creditors, allegations of insolvency and alleged acts of bankruptcy.

The Association filed an answer, in which it denied that it was a person, or corporation which may be adjudged a bankrupt in involuntary proceedings and denying that it was a moneyed, business or commercial corporation within the purview of the Bankruptcy Act. It alleged affirmatively that it was a benevolent, nonprofit organization, organized under Sec. 2252-2261 of Pope's Digest of the Statutes of Arkansas 1937. It also denied the allegations of indebtedness to the six individual petitioning creditors. While it denied insolvency in this answer, it later stipulated its insolvency.

The answer also sets up the affirmative defense that the individual petitioning creditors, if they were creditors, were induced to join in the petition by agents of the U. S. Department of Agriculture, under such circumstances, and by such representations as amounted to fraud, misrepresentation, or misunderstanding, that they should be permitted to withdraw, or the court should strike their names from the petition. Theretofore these individual petitioners had filed motions to withdraw their names. After the filing of this answer other alleged creditors of the association have filed petitions for leave to intervene as petitioning creditors. The Association has objected to all of these petitions seeking intervention, and some of them have filed motions to withdraw their petitions. The substance of the motions to withdraw will be found in the footnotes.

The Association in its brief states the main question upon which it relies to dismiss the petition, as follows:

(1) Is the alleged bankrupt a money, business or commercial corporation which can be thrown into involuntary bankruptcy?

(2) Have three creditors, necessary to confer jurisdiction, joined in the petition?

(3) If the individuals whose names appear on the petition were creditors, had they been induced to join by fraud or misunderstanding so as to permit them to withdraw, or so as to authorize the court to strike their names from the petition?

In addition to the three propositions above there are in the case other questions which will be noted at the proper place herein.

The parties have entered into two stipulations, and have introduced evidence before the court, and the cause is now submitted upon the question of adjudication. There have been many delays in the prosecution of this petition, most of the time being consumed in an effort to settle the matter by offers and counter-offers in compromise. Also a great deal of time has been spent in efforts to secure information from sources without the jurisdiction of the court.

Immediately upon its incorporation, the association proceeded in an effort to effectuate the purpose of its incorporation. The by-laws provide for the payment of a membership fee of $1.00 and the issuance of membership certificates. They, together with the articles of association, set forth the manner of distributing the income of the association, providing that the net earnings shall be distributed ratably to the patrons of the association's services in proportion to the value of the goods and services purchased during each fiscal year, and providing for payment of a refund to any member whose membership is terminated, in the same manner as payments shall be made to members.

In the operation of the Association it did a very considerable business. It entered into a five year lease for 6191.40 acres of land, at an annual rental of $61,914, and during the term of the lease this rental was paid, amounting to more than $300,000. It borrowed from the United States, at one time $111,120, and at another time $38,500, and evidenced the indebtedness by the execution and delivery of promissory notes, and secured them by chattel mortgage. These sums were not grants but loans. Upon these loans the Association paid $114,655.76, divided between principal and interest. With the rentals paid this makes payments to only two of its creditors of a sum in excess of $414,000. In addition to this sum, the Association had on deposit in a Little Rock bank $22,064.21, and had made other payments, which are alleged to be preferential. It thus appears that in carrying on its business the Association received from its operations large sums of money.

From the evidence it appears that some of the business done by the Association, consisted of leasing lands, as set out, reletting these lands to its members and patrons, operating a blacksmith shop for the public, disposing of crops raised on these lands, buying and selling farm supplies, such as insecticides, seeds, and so forth.

The Association had no cash capital; its members contributed no cash capital to it, as they paid only a membership fee of $1.00, and the Association was insolvent from the outset. It immediately entered into a lease by which it obligated itself to pay a large sum annually as rental upon lands upon which to operate, with no visible assets to meet such an obligation. It borrowed a large sum of money from the United States, and gave a chattel mortgage upon property which it did not yet own, but to be thereafter acquired. The only...