Jones v. H.M. Hobbie Grocery Co.

• Decision Date: 29 October 1917
• Docket Number: 3108.
• Citation: 246 F. 431
• Parties: JONES v. H. M. HOBBIE GROCERY CO. In re COLLINS.
• Court: U.S. Court of Appeals — Fifth Circuit

246 F. 431

JONES v. H. M. HOBBIE GROCERY CO.

In re COLLINS.

No. 3108.

United States Court of Appeals, Fifth Circuit.

October 29, 1917

Byrd G Farmer and William R. Chapman, both of Dothan, Ala., for appellant.

Lee H Weil and Davis F. Stakely, both of Montgomery, Ala. (Martin &amp Williams, of Dothan, Ala., on the brief), for appellee.

Before WALKER and BATTS, Circuit Judges, and FOSTER, District Judge.

WALKER Circuit Judge.

The appellee asserted the right to rescind, on the ground of alleged fraud, a sale of goods made by it to the bankrupt a few days before the latter filed his voluntary petition in bankruptcy, and to reclaim the goods sold, which went into the possession of the trustee in bankruptcy; no part of the purchase price having been paid. The trustee appeals from a decree sustaining the claim asserted.

If one who at the time is insolvent, or in failing circumstances, obtains goods from another on credit, with no intention of paying for them, or at least with no reasonable expectation of being able to pay for them, and the sale was induced by false or fraudulent representations as to his financial condition, on which the seller relied, or would not have been made, but for his fraudulent concealment of his financial condition, or of the fact that he did not intend to pay, or reasonably expect to be able to pay, for the goods, the seller has the right to rescind the sale and recover his property. Maxwell v. Brown Shoe Co., 114 Ala. 304, 21 So. 1009; Donaldson v. Farwell, 93 U.S. 631, 23 L.Ed. 993. The seller's petition in the pending case, and the evidence adduced in support of it, we think sufficiently show that, as against the purchaser, he had the right, under the rule just stated, to rescind the sale and recover the goods sold.

It is contended in behalf of the appellant that this right does not exist against him, the purchaser's trustee in bankruptcy. This contention is sought to be supported by invoking the provision of the Bankruptcy Act that:

'Such trustees, as to all property in the custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings thereon. ' Bankruptcy Act, Sec. 47a(2), as amended by Act June 25, 1910 (9 U.S.Comp.Stat.Ann. 1916, Sec. 9631).

The contention stated cannot prevail, unless under the Alabama law the right conferred on the purchaser's creditor by the acquisition of a lien on the latter's property by legal or equitable proceedings is superior to that of the defrauded seller to rescind the sale and reclaim the goods sold. In our opinion that superiority does not exist under the Alabama law. An Alabama statute makes conveyances of personal property to secure debts, or to provide indemnity inoperative against creditors and purchasers without notice, until recorded. Code of Alabama 1907, Sec. 3386. Another Alabama statute provides that:...