MAJOR APPLIANCE COMPANY v. Hupp Corporation

• Decision Date: 08 April 1958
• Docket Number: No. 16459.,16459.
• Citation: 254 F.2d 503
• Parties: MAJOR APPLIANCE COMPANY, Inc., Alleged Bankrupt, Appellant, v. HUPP CORPORATION et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

254 F.2d 503 (1958)

MAJOR APPLIANCE COMPANY, Inc., Alleged Bankrupt, Appellant, v. HUPP CORPORATION et al., Appellees.

No. 16459.

United States Court of Appeals Fifth Circuit.

April 8, 1958.

Fritz Lyne, Lyne, Blanchette & Smith, Robert W. Smith, Dallas Tex., for appellant.

Robert F. Ritchie, J. W. Crosland, Ritchie, Ritchie & Crosland, Dallas, Tex., for appellees, Hupp Corp., Price Supply Co., Ohio Foundry & Mfg. Co., Apex Rotarex Corp., Squire Haskins Studio and Rowland's Furniture & Appliances.

Before CAMERON, JONES and WISDOM, Circuit Judges.

CAMERON, Circuit Judge.

This appeal is from a judgment entered by the court below adjudicating appellant, Major Appliance Company, Inc., a bankrupt upon the petition of appellee, Hupp Corporation, along with six other petitioning or intervening creditors. After hearing the witnesses introduced by the respective parties and considering the voluminous exhibits, the District Court delivered an oral opinion and followed it with findings of fact and conclusions of law.¹ These findings set forth the facts with accuracy and the pertinent portions are copied in the footnote and will be considered as the statement of facts upon which the appeal will be decided.² The question presented is whether the court's findings were clearly erroneous or its legal conclusions without sound basis.

Decision of the case below turned essentially upon the question whether appellant assumed the liabilities of the proprietorship, Major Appliance Company, owned and operated by Lee H. Skillman, when appellant, about April 3, 1956, acquired title to all of the assets of said proprietorship including its name and good will.

Appellant contends that this basic question should be decided from the face of the bill of sale by which it acquired the proprietorship business, and that no assumption of liabilities by the corporation appears on the face of said instrument, and that the law will not imply such an assumption under the circumstances here prevailing.

Appellees claim just as confidently that the bill of sale does carry the necessary implication that the assets of the proprietorship were acquired subject to its liabilities, and that this is particularly true when the instrument is construed in the light of the circumstances surrounding the parties at the time of its execution and in the light of the construction placed upon it by the parties. We agree with the position of appellees, which was adopted by the court below.

It is the court's duty, if it can, to determine the intent of the parties from the writing they executed, construed from the standpoint of the parties, circumstanced as they were, 12 Am. Jur., Contracts, § 227, § 229 and § 247 et seq. Lee H. Skillman had for some time operated a sole proprietorship in the appliance business in Dallas, Texas, under the name "Major Appliance Company." Through an elaborate sales organization he sold air conditioning units, stoves, refrigerators and other products of various national manufacturing concerns, chief among whom was Gibson Refrigerator Company.³ By the spring of 1956, he had come into financial difficulties and his chief creditor was Hupp. Several arrangements for the handling of Hupp's products were made between Skillman and, later, appellant on the one side and Hupp on the other, the details of which it is not necessary to set out. At the time of the transfer by Skillman to appellant, the Hupp merchandise, consisting of refrigerators and like items, had been placed in Lawrence Warehouse (a portion of the Major place of business separated by a chicken-wire partition) subject to withdrawal only upon payment therefor.

In April, 1956, Skillman had an agreement with several individuals to purchase stock in a corporation to be formed by him, and April 3, 1956, a charter was issued by the State of Texas to Major Appliance Company, Inc. The organization meeting of the Board of Directors was held April 9, 1956, which meeting was attended by Skillman, John A. Erhard, the attorney who handled the incorporation and subsequently represented it, and by Frank B. Cole and James K. Wilson, two subscribers to its stock. Skillman was elected president and Erhard secretary-treasurer. After a statement by Mr. Cole, confirmed by Mr. Erhard, that the fair value of the proprietorship properties and business of Skillman was $174,944.70, action was taken by the directors which is reflected in the Minutes in these words: "The Secretary then presented to the Board a bill of sale executed by Lee H. Skillman transferring, assigning and delivering to the corporation all of the assets of Major Appliance Company and its entire net worth including good will and the trade name for a consideration of $174,944.70." (Emphasis supplied.) It was thereupon resolved that the corporation receive the bill of sale executed by Skillman and issue to him 1750 shares of its common stock.⁴ The bill of sale, exclusive of acknowledgment, is set out in the Footnote, and the portions of crucial importance to a decision of the case are italicized.⁵

Appellees placed on the stand Mr. Skillman, the president, director and majority stockholder of the corporation, and Mr. Erhard, the secretary-treasurer and a director. By them it was shown that the transfer of the proprietorship assets was consummated upon the basis of a balance sheet furnished by Skillman which showed assets of the value of $678,647.99, and liabilities totaling $503,703.29; and the amount of stock issued to Skillman was determined by subtracting the latter from the former. The item as entered on the balance sheet was "Investment Accounts and Net Worth $174,944.70." That document also showed that, of the total of liabilities shown above $205,355.80 was carried as "Deferred liabilities — Gibson merchandise held in Lawrence Bonded Warehouse which is not due until merchandise is released." The balance sheet also showed that a part of the inventory transferred by the bill of sale was Gibson merchandise of the value of $205,355.80 "held in Lawrence Bonded Warehouse which is subject to withdrawal as needed." An amount of cash which appellant claims to be sixty-three thousand dollars was paid into the corporation by Erhard and five other individuals for shares of its capital stock.

It seems clear from the bill of sale construed in the light of these circumstances, that the parties intended that the transfer made by Skillman to appellant was subject to the debts owed by the business. In other words, as set forth in the Minutes of the corporation, it bought only the "net worth." Skillman limited his liability under his warranty to "the full extent of the Investment Account and Net Worth in said business," — words taken from the balance sheet upon which the deal was consummated. Under appellant's contention, appellant took all of the assets of the proprietorship free of its debts.⁶ Such a contention is not supported by the language of the bill of sale and the only reasonable construction which could be placed upon it, under the circumstances, is the interpretation expressed in the findings of the trial court.

Appellees take the position further that the most appellant can possibly argue is that the language of the bill of sale is not sufficiently clear, definite, explicit and harmonious to require its interpretation without resort to the aids conventionally employed to assist in arriving at the intention of the parties to a written instrument. Cf. Baker v. Nason, 5 Cir., 1956, 236 F.2d 483, 491 et seq., and authorities there cited, and also Petroleum Financial Corporation v. Cockburn, 5 Cir., 1957, 241 F.2d 312, 317 et seq. They invoke the rule laid down in 12 Am.Jur., Contracts, 249, as being expressive of that universally accepted in such a situation: "In the determination of the meaning of an indefinite or ambiguous contract, the interpretation placed upon the contract by the parties themselves is to be considered by the court and is entitled to great, if not controlling, influence in ascertaining their understanding of its terms. In fact the courts will generally follow such practical interpretation of a doubtful contract."

They call attention to several instances of interpretation of this bill of sale by the parties: e. g., appellant entered the liabilities of the proprietorship upon its books exactly as it did its assets, and proceeded to pay some of the proprietorship debts; appellant's president employed a firm of reputable certified public accountants to make an audit of the business as of May 31, 1951, and that audit reflected the debts of the proprietorship as a corporate obligation.⁷ They further point out that they called to the stand the secretary-treasurer and the president of appellant, availing themselves of the rights given by Rule 43(b), F.R.Civ.P., and that both made it clear that they understood that the corporation acquired by the bill of sale the liabilities as well as the assets of the proprietorship.⁸

Viewed from any standpoint, it seems clear that the court below correctly interpreted the legal effect of the transaction and considered the proprietorship debts as liabilities of the corporation in determining whether or not it was insolvent.⁹

The same reasoning disposes of appellant's contention that any obligation on the part of appellant to pay the debts of the proprietorship is unenforceable because it comes within the Texas Statute of Frauds.¹⁰ It is clear, under the facts recited above, that the secretary of the corporation correctly interpreted the transaction when he concluded that it bought the business of the proprietorship embracing both the assets and the liabilities. The obligation appellant assumed, therefore, was an original obligation imposed as a part of the consideration, and was not a collateral obligation to guarantee a debt owed primarily by Skillman.¹¹

Appellant concedes at the outset of its argument that the court below was correct in holding it to be insolvent if there...