McElvain v. Hardesty

• Decision Date: 24 March 1909
• Docket Number: 2,783.
• Citation: 169 F. 31
• Parties: McELVAIN v. HARDESTY.
• Court: U.S. Court of Appeals — Eighth Circuit

169 F. 31

McELVAIN v. HARDESTY.

No. 2,783.

United States Court of Appeals, Eighth Circuit.

March 24, 1909

[Copyrighted Material Omitted]

A. L Oliver (R. B. Oliver, R. B. Oliver, Jr., and Charles B Faris, on the brief), for appellant.

Benson C. Hardesty (Sterling H. McCarty, on the brief), for appellee.

Before SANBORN and ADAMS, Circuit Judges, and RINER, District Judge.

ADAMS Circuit Judge.

The trustee of the partnership estate of Crawford & Carter in bankruptcy brought this action in equity to annul the transfer by the firm of its stock of liquors and other saloon property to the defendant, McElvain, and to recover their value on the ground, among other things, that the transfer constituted a voidable preference within the meaning of Bankr. Act July 1, 1898, c. 541, Secs. 60a, 60b, 30 Stat. 562 (U.S. Comp. St. 1901, p. 3445), as amended by Act Feb. 5, 1903, c. 487, Sec. 13, 32 Stat. 799 (U.S. Comp. St. Supp. 1907, p. 1031). The learned trial court sustained the contention of the trustee and rendered a judgment against the defendant for the value of the property transferred including $600 for the supposed value of the good will of the business. Hence this appeal.

Many of the material facts are uncontroverted. All the parties to the original transaction were saloon men familiar with the business as carried on in Caruthersville, Mo., the scene of the present controversy. In December, 1904, McElvain owned the saloon and sold it, with an unexpired license to carry on the business, to Crawford & Carter for $3,900. They had little money but apparently much confidence. They paid $500 in cash, which constituted all their means, executed and delivered to McElvain their eight promissory notes each for $100 payable monthly, and assumed and agreed to pay McElvain's maturing obligations for supplies which he had purchased while owning and operating the saloon, amounting to about $2,600. McElvain continued to carry on the saloon business in two other places in the same town. Simultaneously the following agreement was executed and delivered:

'This agreement made and entered into this 9th day of December, 1904, by and between J. M. McElvain, party of the first part, and H. C. Carter and G. C. Crawford, of Caruthersville, Missouri, parties of the second part, witnesseth: That whereas, the said party of the first part has this day sold and delivered to the said parties of the second part the Climax saloon, in the city of Caruthersville, Missouri, upon the following terms and conditions: Conditioned, that the said parties of the second part assume all indebtedness of the said Climax saloon, and fully pay off and discharge same as fast as said indebtedness matures, and that the said party of the first part own and collect all debts due said Climax saloon up to this date, and that all sales of said Climax saloon be deposited in the Bank of Caruthersville, in the city of Caruthersville, Missouri, to the account of the Climax saloon, and no part of said sales to be used, by the said parties of the second part for any other purpose, other than the payment of the indebtedness of said saloon and the necessary running expenses of the same, together with eight promissory notes given the said party of the first part, for one hundred dollars each, one due every thirty days from date, being the purchase money of said saloon, and in case of a failure on the part of the said parties of the second part to well and truly comply with the conditions of the agreement, fully pay off and discharge all of said indebtedness as the same matures, then the contract to be void, and the said saloon herein sold to become the property of the said party of the first part together with any and all moneys belonging to said saloon, either in the Bank of Caruthersville or elsewhere. Witness whereof that the said parties have hereunto set their hands the day and year aforesaid.

'(Signed)

J. M. McElvain, 'G. C. Crawford, 'H. C. Carter.'

The firm took possession and operated the saloon for about seven months until July 13, 1905. During that period they paid between $2,400 and $2,500 of the vendor's debts and also two or three of the purchase-money notes. The balance of those maturing were dishonored. In the seven months they had so reduced their total indebtedness to the vendor of $3,400 that only $730 remained unpaid.

The agreement of December 9th, although signed by the parties, was never acknowledged and was not filed for record or recorded in the recorder's office of Pemiscot county, wherein Caruthersville was situated and the vendors resided, until July 7, 1905. McElvain then upon hearing of the dishonor of one of the firm's checks out of solicitude for the balance of $730 due him on the purchase price caused it to be filed for record. Immediately upon taking this step he demanded payment of his notes then overdue and upon refusal asserted his right alleged to exist under the agreement of December 9th to the possession and ownership of the saloon and contents, and this right seems to have been accorded to him by the firm. An inventory and valuation were then taken, showing stock on hand of the value of $1,072. McElvain took this property which constituted all the assets of the firm as well as of its individual members at that figure, and gave to the firm his promissory note for $342, the excess over his own debt then due. This note was immediately transferred to J. S. Wahl in part payment of a debt due by the firm to William J. Lemp for which Wahl was surety. During these seven months while the firm was paying over $2,600 of McElvain's merchandise debts and some of the purchase-money notes, it purchased new goods to replenish its stock from wholesale houses to the amount of over $3,600, and at the time of cessation of business had paid on account thereof about $1,000, leaving a balance of over $2,600 still unpaid. This sum of money represents the debts now due to the creditors of the estate of the bankrupts, and these debts were all contracted while McElvain withheld his agreement from the record and on the faith of the firm's being the real as they were the ostensible owners of the saloon. The saloon and property therein which the firm transferred and delivered to McElvain constituted all their assets, so that unless a recovery be had in this action the merchandise creditors of the firm with claims amounting to $2,600 will have no participation in the firm's assets. On October 30, 1905, the firm and its individual members were adjudicated bankrupts on a petition filed by their creditors against them on October 2, 1905. The filing of the agreement for record and the transfer to McElvain were therefore within four months before the filing of the petition in bankruptcy.

Whether this agreement measured by the rules laid down by us in Re Columbus Buggy Co., 143 F. 859, 74 C.C.A. 611, and Dunlap v. Mercer, 156 F. 545, 86 C.C.A. 435, be a chattel mortgage or a conditional sale, about which much argument was indulged, we deem it unnecessary to decide. It was clearly one or the other, and in either case the law of Missouri made it invalid and void against creditors of the mortgagors or vendors, until recorded or filed in the recorder's office of the county in which the mortgagors or vendors resided. Sections 3404, 3412, Rev. St. Mo. 1899 (Am. St. 1906, pp. 1936, 1940, 1945). This is particularly true as against subsequent creditors like those represented by the trustee in this case who incurred their debts on the faith of an apparent unencumbered and unconditional ownership by their debtors of their property. Collins v. Wilhoit, 108 Mo. 451, 18 S.W. 839; State, to Use of Mayer, v. O'Neill, 151 Mo. 67, 52 S.W. 240; Oyler v. Renfro, 86 Mo.App. 321; Landis v. McDonald, 88 Mo.App. 335; Harrison & Calhoun v. South Carthage Min. Co., 95 Mo.App. 80, 68 S.W. 963, s.c. 106 Mo.App. 32, 79 S.W. 1160; Gilbert Book Co. v. Sheridan, 114 Mo.App. 332, 89 S.W. 555; First Nat. Bank of Buchanan County v. Connett, 142 F. 33, 73 C.C.A. 219, 5 L.R.A. (N.S.) 148.

From the foregoing it appears that the law of the state of Missouri required a recording or registering of the agreement of December 9th in order to validate it as against the creditors of Crawford & Carter.

Section 60a of the Bankruptcy Act (Act July 1, 1898, c. 541, 30 Stat. 562 (U.S. comp. St. 1901, p. 3445)) provides that if Crawford & Carter were, at the time of the transfer in question, insolvent, and if the effect of the transfer was to enable the transferee to obtain a greater percentage of his debt than any other creditors of the same class, such transfer constituted a preference. The same section provides that the four months' time there referred to shall not expire until four months after the date of the recording or registering of the transfer if by law such recording or registering is required.

In view of the foregoing the effect of the transfer to McElvain is to...