In re Talbot Canning Corporation, 9218.

• Decision Date: 11 July 1941
• Docket Number: No. 9218.,9218.
• Citation: 39 F. Supp. 858
• Parties: In re TALBOT CANNING CORPORATION.
• Court: U.S. District Court — District of Maryland

39 F. Supp. 858

In re TALBOT CANNING CORPORATION.

No. 9218.

District Court, D. Maryland.

July 11, 1941.

Z. H. Stafford, of Easton, Md., for bankrupt.

W. Brewster Deen and Wm. J. Rickards, both of Denton, Md., for trustee.

Thomas J. Keating, Jr., of Centreville, Md., for Associated Seed Growers, Inc.

T. Hughlett Henry, of Easton, Md., for objecting creditors.

COLEMAN, District Judge.

This is the second time this matter has been before the Court on petition to review the findings of the referee in bankruptcy. The present proceeding arises upon petitions of certain creditors of the bankrupt who object to the referee's ruling to the effect that another creditor, the Associated Seed Growers, Inc., is entitled to be treated as a preferred creditor in the amount of $8,081.09, less a pro rata share of costs and expenses incident to the bankruptcy proceeding. The full amount of the last-named creditor's claim is $14,638.52, but the net proceeds in the hands of the trustee in bankruptcy out of which creditors' claims must be paid, amounts to only $8,081.09.

The referee had originally refused to allow, as a preferred claim, any part of the claim of the Associated Seed Growers, Inc., after hearing objections to such allowance which had been filed by the trustee in bankruptcy and certain general creditors of the bankrupt. Thereupon, the Associated Seed Growers, Inc., filed a petition asking this Court to review the referee's decision. As a result of the hearing by this Court, it became necessary to refer the case back to the referee for the purpose of taking further testimony upon two questions, upon the answers to which depended a determination of whether the Associated Seed Growers, Inc., could be treated as a preferred creditor; namely, (1) were certain written assignments, two in number, from the bankrupt to the Associated Seed Growers, Inc., given for present consideration or for or on account of an antecedent debt; and (2) did the Associated Seed Growers, Inc., have reasonable cause to believe the bankrupt to be insolvent at the time these assignments were "deemed to have been made" within the meaning of the Bankruptcy Act, namely, immediately before bankruptcy?

The earlier opinion of this Court thus states the purpose of the re-reference to the Referee and the questions submitted for his determination (35 F.Supp. 680, 688): "In addition to the fact that it is impossible to ascertain with certainty, from such testimony as was given before the Referee, whether both the assignments were for present or past consideration, it is likewise impossible to determine from that testimony whether or not, at the time the transfers were `deemed to have been made,' namely, `immediately before bankruptcy,' the Associated Seed Growers, Inc., had reasonable cause to believe that the Talbot Canning Corporation, bankrupt, was insolvent. Accordingly, it becomes necessary for the Court to refer the case back to the Referee for the purpose of taking further testimony bearing upon these two questions. * * * If he shall find, as a result of such additional testimony, that either of the assignments was for present consideration, then, in accordance with this opinion, it will become his duty to rule that to the extent of such assignment, the Associated Seed Growers, Inc., is entitled to priority out of the fund of $8,081.09 in the Trustee's hands. If, however, he should find with respect to either of the assignments that it was not given for present consideration, it shall be declared by him to be void as a preference, provided he shall also find that the Associated Seed Growers, Inc., at the time the transfer, as above defined, was made, had reasonable cause to believe that the bankrupt was insolvent."

Pursuant to the aforegoing direction, the Referee took further testimony and heard argument with respect to the questions referred to him, and has filed his findings of fact and conclusions of law thereon as already explained. It is with respect to these that this second review has been sought.

With respect to the first question as to whether the two assignments to Associated Seed Growers, Inc., were given for present consideration or for or on account of an antecedent debt, the Referee found that the earlier assignment, namely, that dated February 3, 1938, was for a present consideration, but made no finding as to the second assignment dated March 19, 1938, for the reason that the first assignment covered an indebtedness of the bankrupt aggregating $14,150.25 of which there was a balance due at the commencement of the bankruptcy proceedings of $8,777.50, or more than the total of the funds in the hands of the trustee in bankruptcy available for distribution to creditors.

In view of the fact that this Court has covered in detail, in its original opinion, the character of both of these assignments, suffice it to give here merely an abbreviated statement with respect to them.

On December 7, 1937, the Associated Seed Growers, Inc., deeming the financial condition of the bankrupt unsatisfactory, instead of insisting upon strict compliance with the terms of written contracts which it had made with the bankrupt, dated January 12 and February 15, 1937, which entitled it under such circumstances to cash payment in advance of delivery, merely demanded security of the bankrupt, with the result that the two assignments in question were given to the Associated Seed Growers, Inc., one on February 3, 1938, and the other on March 19, 1938, in the form of letters addressed to the bankrupt's brokers, which were accepted in writing. In the first assignment it is stated that on its date, namely, February 3, 1938, the Associated was owed by the bankrupt $14,150.25 as a result of contracts for the growing and delivery to the bankrupt of seed for its 1938 pack. The statement is as follows: "We are indebted to Associated Seed Growers, Inc. of New Haven, Conn. in the aggregate sum of $14,150.25 on account of the purchase of certain lima beans, stringless beans and pea seeds, and it has been agreed between said Associated Seed Growers, Inc. and ourselves that we shall authorize, empower, direct and order you to pay over, from time to time, to said Associated Seed Growers, Inc., or to whomsoever it may direct, toward the payment of said indebtedness of $14,150.25, such sum or sums as shall be equivalent to * * *", and then follows a statement of the various rates at which Associated should be paid by Sisk out of any balances due the bankrupt after its indebtedness to Sisk was liquidated pursuant to the terms of the formal written contract which the bankrupt had with Sisk dated December 31, 1937, whereby the latter was to act as its canned goods broker.

We conclude that this first assignment of February 3, 1938 was "made for or on account of an antecedent debt", and that therefore it is a preference within the definition of the Bankruptcy Act, Sec. 60, sub. a, 11 U.S.C.A. § 96, sub. a. Indeed, we had already so found by our earlier opinion in which we stated (35 F. Supp. 680, at page 682): "The first assignment, it is to be noted, was clearly for an antecedent debt, namely, past due accounts." We, therefore, intended, although may not have made it entirely appear in the closing paragraph of the opinion, that further consideration by the referee of this first assignment was required only in connection with the question whether at the time it was deemed to have been made, Associated had reasonable cause to believe the bankrupt was insolvent.

The referee found that this assignment was not for an antecedent debt on the theory that the taking by Associated of security for the purchase price, instead of demanding payment in advance of shipment of the seed earlier contracted for, amounted to a new contract. But even if there was a new contract in the sense that each party promised to do something that it was not already bound to do, and that, therefore, there was sufficient, new consideration on the part of each to support the promise of the other, — the promise of Associated to demand less than it had a right to do, i.e., security instead of cash before delivery; and the promise of the bankrupt to give security instead of paying cash in advance of delivery, — the fact remains that the bankrupt gave the security for an antecedent debt. The assignment says so. The referee himself admits it when he says in his findings that "it is true that the Associated Seed Growers could have held Talbot Canning Corporation for the purchase price of these seeds and could have compelled acceptance if the matter had come to a question of the liability of the buyer under the contract. This is beside the point however under the circumstances."

The referee appears to...