In re Shipley Stave & Lumber Co.

• Decision Date: 24 October 1939
• Docket Number: No. 1105.,1105.
• Citation: 29 F. Supp. 746
• Parties: In re SHIPLEY STAVE & LUMBER CO.
• Court: U.S. District Court — Eastern District of Kentucky

29 F. Supp. 746

In re SHIPLEY STAVE & LUMBER CO.

No. 1105.

District Court, E. D. Kentucky.

October 24, 1939.

Grover C. Wilson, of Hazard, Ky., referee in bankruptcy.

J. T. Farmer and C. F. Kelly, both of Lexington, Ky., and Peck, Shaffer, Williams & Gorman, of Cincinnati, Ohio, for W. C. Bartlett Lumber Co.

Craft & Stanfill, of Hazard, Ky., for trustee.

FORD, District Judge.

The case is submitted on the petition of W. C. Bartlett Lumber Company seeking review of an order entered by the referee on October 25, 1938.

The bankrupt, a Kentucky corporation, was engaged in operating a saw mill near Hyden in Leslie County, Kentucky. It purchased logs in the vicinity and sawed them into lumber of various kinds for the market. For several months before bankruptcy, its business was carried on by a receiver under orders of the Circuit Court of Leslie County.

The petitioner is a West Virginia corporation engaged in the business of buying and selling lumber with its principal office in Cincinnati, Ohio. On December 17, 1935, a contract was entered into between the petitioner and the bankrupt which provided for certain advancements to be made to the bankrupt by the petitioner upon the purchase price of "such grades of lumber, sawn timbers or furniture dimensions that may be purchased to be sawn out upon its orders and cutting instructions from time to time." It further provided that upon the acceptance of such orders the bankrupt would saw out the lumber to be applied to the order and place the same in piles upon its mill yard, and upon each pile should be marked the grade, thickness, kind of lumber and estimated footage contained therein, and a card attached showing the pile to be the property of W. C. Bartlett Lumber Company. The contract expressly provided that upon the advancements being made each pile of lumber so identified and marked "becomes the property of the party of the second part." The contract required the lumber to remain thus stacked and marked upon the mill yard during the period of drying and until it should be shipped. The remainder of the purchase price was payable when the lumber was shipped to the buyer or its consignee. The bankrupt agreed to properly care for it during the period it remained in the yard, to keep it covered by insurance sufficient to protect the interest of both parties and to deliver it on board cars when directed. This contract was supplemented by an agreement of December 23, 1936, which made no alteration in the original agreement except to provide for an increase in the rate of advancements, and to set out more clearly the intention of the parties as to when the title to the lumber should pass by adding the following provision: "Upon payment of the sums outlined herein, all lumber upon which payments have been made shall immediately become the property of the party of the second part and title thereto shall immediately vest in party of the second part."

W. C. Bartlett Lumber Company filed an intervening petition asserting title to certain piles of lumber on the mill yard of the bankrupt at the time the trustee in bankruptcy took possession on December 14, 1937. The lumber so claimed by the petitioner was appraised at $3,516.09, and upon executing bond for the forthcoming of this amount if the claim should be denied, the claimant was permitted to take possession of it.

The trustee denied that title to any lumber upon the mill yard passed to the petitioner and relied upon section 1908 of the Kentucky Statutes as a bar to the claim. By counterclaim, the trustee set up a claim against the petitioner for $9,334.30 for lumber which had been shipped to it by the receiver in compliance with the contract under the orders of the State Court and for the further sum of $6,671.68 representing the value of lumber shipped by the bankrupt, under the contract, within four months prior to the filing of the petition in bankruptcy.

Proof was heard by the referee and on October 25, 1938, he denied the claim of W. C. Bartlett Lumber Company to the property on the mill yard. The referee also held that the relationship between W. C. Bartlett Lumber Company and the bankrupt throughout the period of four months prior to bankruptcy was that of debtor and creditor and not that of vendor and vendee; that the delivery of lumber to W. C. Bartlett Lumber Company by the bankrupt and by the receiver for which credit was entered upon the account for advancements constituted merely a payment of indebtedness by a creditor for money loaned; that when these transactions took place, W. C. Bartlett Lumber Company well knew that the bankrupt was in failing circumstances and in receiving satisfaction of its debt in lumber it obtained an unlawful preference over creditors of the same class. An order was entered requiring W. C. Bartlett Lumber Company to account for the appraised value of the lumber delivered to it from the mill yard and to pay to the trustee the sale price of all lumber which had been delivered to it within four months prior to bankruptcy. The petition for review challenges the correctness of these orders.

The evidence shows that at the time the trustee took possession of the mill yard the lumber in question was in piles marked as the property of W. C. Bartlett Lumber Company, as required by the contract; that these piles of lumber had been sawed pursuant to orders placed and accepted, and after being so stacked and marked, the petitioner W. C. Bartlett Lumber Company had made advancements upon the purchase price thereof in accordance with the contract. In fact, due to financial difficulties of the bankrupt, the petitioner had upon numerous occasions advanced more than called for by the contract and at the time of bankruptcy it appears that the balance due for advancements was substantially more than the appraised value of the lumber marked and identified on the...