In re Steele-Smith Dry Goods Co.

• Citation: 298 F. 812
• Decision Date: 23 May 1924
• Docket Number: 20731.
• Parties: In re STEELE-SMITH DRY GOODS CO.
• Court: United States District Courts. 11th Circuit. United States District Court of Northern District of Alabama

298 F. 812

In re STEELE-SMITH DRY GOODS CO.

No. 20731.

United States District Court, N.D. Alabama, Southern Division.

May 23, 1924

Leader & Ullman, of Birmingham, Ala., for Steele-Smith Cloak department, inc.

Ritter Wynn & Carmichael, of Birmingham, Ala., for Emporium World Millinery Co.

Coleman Coleman, Spain & Stewart, of Birmingham, Ala., for Steele-Smith Bootery, Inc.

Tillman Bradley & Baldwin, of Birmingham, Ala., for Birmingham Trust & Savings Co.

R Dupont Thompson, of Birmingham, Ala., for Trustee.

GRUBB District Judge.

Statement of the facts necessary to an understanding of the decree is briefly set out as follows:

Steele-Smith Dry Goods Company was engaged in business in Birmingham, Ala., operating a department store. Some time prior to bankruptcy, it made contracts, which are so far as necessary for the purposes of this case similar, with the Steele-Smith Cloak Department, Inc., the Emporium World Millinery Company, and Steele-Smith Bootery, Inc., respectively. Under these contracts, the above-mentioned petitioners were granted the right to engage in and carry on business in the department store of the above-named bankrupt; one of the petitioners conducting the ready to wear department, another a millinery department, another a shoe department. The petitioners furnished their own merchandise and sales people and from time to time daily, the proceeds of the sales made by them were taken charge of by the cashier of the bankrupt under agreement to account to the petitioners for the net proceeds of the sales at the end of each week, or two weeks. The bankrupt had the right to deduct from the gross proceeds of such sales a percentage amounting to 10 per cent. In one case, and 13 per cent, in another, and 12 per cent. in another; also to deduct a proportionate part of the advertising and all cash expended by the bankrupt for the benefit and upon the order of the petitioners for salaries, express charges, freight, and other expenses. The bankrupt undertook to furnish the selling space, window space, light, heat, water, cashier service, bookkeeping service, boxes, paper, wrapping, and delivery. All advertising was incorporated in the general advertising scheme of the bankrupt, but to be paid for by the petitioners at pro rata rates.

The testimony discloses that each day the bankrupt furnished a cashier in the several departments, who received the proceeds of each sale as made, and at the end of the day the total sales in each department were turned over to the head cashier of the bankrupt, and by such cashier the funds from all of the departments, leased as well as those operated by the bankrupt itself, were commingled and placed in a safe in the bankrupt's store, and on the following morning turned over to the office manager, who made the proper entries in the books and deposited the entire proceeds of the day's sales in the general checking account of the bankrupt in the Birmingham Trust & Savings Company. The bankrupt drew checks upon said account indiscriminately to pay its own obligations, as well as to pay to the petitioners from time to time the net amounts found to be due to petitioners under the contract.

The bankrupt was largely indebted to said bank for borrowed money, which indebtedness had existed for some months prior to bankruptcy; the last loan having been made by the bank in August, 1923. All payments due to the petitioners by the bankrupt were made in due course up to January 1, 1924. A petition in bankruptcy was filed against the Steele-Smith Dry Goods Company on January 19, 1924, and a receiver appointed on the same day, who immediately took charge of the store. At the time the petition in bankruptcy was filed, the bankrupt had on deposit to its credit in the Birmingham Trust & Savings Company $2,800. The receiver, on taking charge, found approximately $1,000 in the safe in the storehouse of the bankrupt, of which he took possession. The Birmingham Trust & Savings Company applied the $2,800 on hand at the time of bankruptcy as a set-off or credit upon the antecedent debt of the bankrupt to itself.

The receiver in due time was elected and appointed as trustee of the bankrupt estate, whereupon the Steele-Smith Cloak Department, Emporium World Millinery Company, and Steele-Smith Bootery, severally, filed petitions before the referee, setting up the above facts and seeking to establish a trust in the moneys seized by the receiver and in the $2,800 remaining to the credit of the bankrupt on the day of bankruptcy in the Birmingham Trust & Savings Company. The trustee, John S. Coxe, and the Birmingham Trust & Savings Company were made parties to these petitions. Rules nisi were issued by the referee to the bank and trustee, requiring them to show cause why the prayer of these petitions should not be granted. The trustee appeared and filed an answer, and the bank likewise appeared, waiving the question of jurisdiction in a summary proceeding, and filed an answer to the merits, after filing a motion to dismiss the petition, which was overruled.

The testimony, without conflict, shows that the money seized by the receiver and which came into the hands of the trustee, which moneys were found in the safe of the bankrupt on the morning of January 19, 1924, were the proceeds of the sales made in the bankrupt's store and in the several leased departments on the 18th of January, which had not been deposited in bank, and the testimony, without conflict, shows specifically the amount of the sales of each of said departments. The total net amount of the proceeds of the sales of the three petitioners for the period beginning January 1 and ending with the close of business on January 17, and remaining unpaid at the time of bankruptcy, amounted to approximately $5,200. The testimony discloses further that all of the proceeds of the sales during the period beginning January 1 down to the date of the bankruptcy, except January 18, were deposited in bank to the general credit of the bankrupt, and that the account fluctuated from day to day, as deposits were made and checks were paid.

Several days prior to bankruptcy, the fund in the hands of bank had been partially depleted, so that only $1,247 remained in the fund, and this was the lowest amount to which the fund was depleted during the period beginning January 1. Following this, the proceeds of sales made in the departments operated by the petitioners were traced into the fund, with the effect of building it up again to the amount of $2,051.40. The referee held that petitioners were not entitled to relief against the bank. He also held that the petitioners were entitled to relief against the trustee to the extent of the proceeds of their sales of January 18, and decreed accordingly; the testimony furnishing the data upon which the amount was fixed. From this decree reviews were taken by all the parties except the bank.

The trustee and the bank contend that the relationship existing between the bankrupt and the petitioners was simply that of debtor and creditor, while the petitioners contend that the relationship existing between the...