Linstroth Wagon Co. v. Ballew

• Decision Date: 09 January 1907
• Docket Number: 1,572.
• Citation: 149 F. 960
• Parties: LINSTROTH WAGON CO. v. BALLEW. [1]
• Court: U.S. Court of Appeals — Fifth Circuit

149 F. 960

LINSTROTH WAGON CO. v. BALLEW. ^[1]

No. 1,572.

United States Court of Appeals, Fifth Circuit.

January 9, 1907

On July 12, 1904, one W. M. Morgan, who resides and does business in Corsicana, Navarro county, Tex., made his application to the Linstroth Wagon Company, the appellant, at its place of business, in St. Louis, Mo., to buy a lot of its wagons on a credit of four, six, and eight months. Before accepting Morgan's orders, the appellant investigated his commercial standing, and ascertained, from his report and statement made to R. G. Dun & Co.'s Commercial Agency that he claimed to have assets amounting to $62,604.33, with liabilities amounting to only $23,432.74, and showing that his assets included cash value of stock on hand of $27,980.15, cash value of stock in transit, $6,000; accounts and bills receivable considered good, $26,732, and real estate of the value of $4,000, over and above exemptions. His liabilities consisted of amounts due upon open accounts $200.38; for merchandise closed by notes, $22,632.36; loans from bank, $600. Thereupon, and relying on the said statement so made by Morgan, his orders for 50 wagons on the terms proposed were accepted and the goods were shipped to him to Corsicana, Tex., and to Ennis, Tex. On August 10, 1904, he executed and delivered to appellant his notes for the specified payments. On or about October 27, 1904, the appellant received an invitation from Morgan to attend a creditors' meeting at Corsicana on the 8th of November following. Appellant then began investigations, which satisfied it that the statements made by Morgan to R. G Dun's Commercial Agency were false, and fraudulently made for the purpose, and with the intention of establishing a false basis of credit, and were made with the fraudulent intent to deceive the commercial world generally, and the appellant in particular, and that Morgan, at the time said statements were made, was insolvent and his liabilities largely exceeded his assets. As soon as appellant discovered the fraud perpetrated upon it, it elected to rescind the contract of sale, and on November 7, 1904, brought suit in the proper state court against Morgan, and obtained writs of sequestration for the seizure of the goods to be held subject to the order of the court, and prayed judgment for the wagons, for costs and for general relief. One of these writs of sequestration was executed immediately by seizing the wagons found in Navarro county. Two days after the bringing of the suit by the appellant in the state court, as just recited, certain creditors of Morgan presented an involuntary petition in bankruptcy against him in the bankruptcy court for the district which embraced Morgan's residence, and on the following day, to wit, November 10th, made an application to the referee for the appointment of a receiver to take possession of the property belonging to the bankrupt's estate until a trustee could be appointed and had qualified. Such receiver was immediately appointed, and took possession of the bankrupt's estate, including the goods claimed in the appellant's suit and on some of which the writ of sequestration to the sheriff of Navarro county had been levied. On December 13th the receiver returned an inventory of all the property belonging to the bankrupt estate, as far as the same had then come to his knowledge, including therein the goods claimed by the appellant, and on January 4, 1905, the receiver applied for an order to sell all of the property free from incumbrances, of which application notice was duly given to all the known creditors and parties in interest to show cause, if any there be, why the sale should not be made. On December 31, 1904, W. M. Morgan & Bro. were duly adjudicated bankrupts. Pending the giving of the notice of the application for sale, the first creditors' meeting was held on January 23, 1905, at which meeting the appellee, who resided in Corsicana, Tex., was appointed trustee, and on the same day was, as such trustee, ordered to sell all of the property which had been so inventoried by the receiver. On February 11, 1905, the appellant, on leave, amended its petition in the state court, by showing to the court what had been done under the sequestration writs and adding the following averment: 'Plaintiff is informed and believes and here charges that subsequent to the levy and seizure of the wagons by the sheriff of this county (Navarro) and subsequent to the time when the writ to Ellis county should have been levied, certain of the creditors of defendant W. M. Morgan filed a petition in the United States District Court at Dallas, Tex., to have him adjudged a bankrupt, and that thereafter said Morgan was adjudged a bankrupt by said court, and the defendant, Ballew, has been appointed trustee for his estate, and is now as such trustee in the possession of all of said wagons here sued for, claiming same as a part of the said Morgan's estate. Plaintiff now aks that said Ballew, trustee in bankruptcy, be made a party hereto, and that on trial it have judgment for its said wagons against both Morgan and Ballew. It further prays for costs and general relief. ' On this amended petition there is indorsed: 'I hereby accept service of the above petition, waive issuance of citation and enter my appearance at March term, February 11, 1905. (Signed) W. W. Ballew, Trustee of W. M. Morgan.'

The trustee presented a plea in abatement to the jurisdiction of the state court, in which he set up, in substance: 'That the suit of the Linstroth Wagon Company was instituted against W. M. Morgan within less than four months prior to the bankrupt proceedings instituted against W. M. Morgan by Jos. W. Moon Buggy Company et al., in the United States District Court for the Northern District of Texas; that at the time of the filing of this suit against W. M. Morgan by plaintiff herein, the said Morgan was in possession of the goods sued for, under valid contract and purchase, and that the title to said goods had passed to Morgan long prior to the filing of the suit herein, and that when Morgan was adjudicated a bankrupt the title to said goods vested in said W. W. Ballew, immediately upon his election as trustee, and that no action in this court can defeat the jurisdiction of the bankruptcy court in the administration of all the assets that were in the possession of Morgan at the time of the filing of the petition in bankruptcy, and for four months prior thereto; that this suit was instituted only a few days before bankrupt proceedings were filed, and that the right of the bankruptcy court over the property is not only superior to that of the state court, but is exclusive, regardless of any action taken in the state court whose jurisdiction in such cases is divested by the bankruptcy proceedings, and this court has no right to further proceed herein. ' The same matter substantially was presented in exceptions to the plaintiff's petition, and not waiving the plea to the jurisdiction or the exceptions to the petition, the trustee answered with a general denial, and plead specially that the appellant had not relied upon the report made by Morgan to Dun's Mercantile Agency, but was specifically notified that the agency did not accept that report as correct, and had informed the plaintiff that the property statement of Morgan in his report to that agency was greatly exaggerated and that as a matter of fact he was, in all probability, insolvent, and that thus, with full and timely notice of the insolvency of Morgan, the plaintiff made an absolute sale of the goods to Morgan and accepted his notes therefor without making further inquiry. He plead further that if it should be held that the plaintiff is entitled to recover the goods by reason of the avowed false and fraudulent statements, the goods have in fact been in the possession of Morgan and the trustee for more than six months under claim of title and the goods have been stored in the warehouse of Morgan, and he and the trustee have been compelled to pay rent upon the warehouse and insurance upon the goods, and that plaintiff is liable for the storage of the goods and for the freight paid from St. Louis to Corsicana and Ennis, and for insurance upon the goods; that the freight, storage, and insurance are reasonably worth $1,200, which is a lien upon the property which the trustee is entitled to have foreclosed and the property sold to satisfy the same, concluding with appropriate prayers.

On April 25, 1905, the case in the state court came on for trial. Plaintiff appeared by its attorney, Morgan made default, W. W. Ballew, trustee, appeared in person, and both the parties present announced ready for trial. A jury was waived, and all questions of fact, as well as of law, were submitted to the court, which, having heard the pleadings read, and the evidence adduced, and the argument of counsel was of the opinion that the property sued for, to wit, 50 complete Linstroth wagons, were obtained from the plaintiff by W. M. Morgan through false representations, and that therefore plaintiff is entitled to recover the same, and entered judgment accordingly. The decree further recites that it appeared to the court that on the 7th of November a writ of sequestration was issued in the cause at the instance of the plaintiff, and went into the hands of the sheriff of Navarro county, by virtue of which he seized and took into his possession certain wagons situated in Navarro county, Tex., described as follows (giving particular description), which wagons were afterwards delivered by the sheriff to L. Carpenter, the receiver appointed by the referee, and that the sheriff took the receiver's receipt for the same, and that the defendant, Ballew, trustee, as such trustee, is in the possession of, and claiming...