Merchants' Bank of Grenada v. Thomas

• Decision Date: 31 March 1903
• Docket Number: 1,221.
• Citation: 121 F. 306
• Parties: MERCHANT'S BANK OF GRENADA, MISS., v. THOMAS. In re WRIGHT & BERRYHILL.
• Court: U.S. Court of Appeals — Fifth Circuit

121 F. 306

MERCHANT'S BANK OF GRENADA, MISS., v. THOMAS.

In re WRIGHT & BERRYHILL.

No. 1,221.

United States Court of Appeals, Fifth Circuit.

March 31, 1903

W. C McLean, for appellant.

S. A Morrison (Robertson Horton, on the brief), for appellee.

The following is the evidence referred to in opinion:

'Q. Were you never dissatisfied with the manner in which the business was run? A. Yes, sir. Q. Did you not frequently make complaints to the officers of the Merchants' Bank? A. Yes, sir. Q. What did they tell you in regard to it? A. They would see Mr. Berryhill, and get him to make out a statement, and it seemed to satisfy them all right. I insisted that they would see Mr. Berryhill, and ask him, because he kept on buying so many goods, and if he did not stop I though we would be ruined. Q. This was of frequent occurrence with you within the last year of your connection with the firm of Wright & Berryhill, was it not? A. Yes, sir. * * * Q. The fact is, you had been paying all other creditors something, had you not? A. Yes, sir. Q. Then on the date of this assignment, on the 4th day of June, 1901, all of your indebtedness practically was paid that was then due, except the bank debt, was it not? A. Yes, sir; the majority of it. Q. You paid everybody else but the bank? A. Yes. Q. You paid all other creditors as your debts fell due? A. Yes, sir. Q. Now, the consideration that moved from the bank to you and to the firm of Wright & Berryhill when you executed those notes on the 15th of January, 1901, was it not the extension of the debts then due to the bank? A. Yes, sir. Q. All the debts owing by you and by the firm of Wright & Berryhill were past due on the 15th of January, 1901, were they not? A. Yes, sir.'

Before PARDEE and SHELBY, Circuit Judges.

SHELBY Circuit Judge.

This is a contest as to the validity of a claim against a bankrupt partnership. To make clear the questions involved, it is necessary to make a condensed statement of the facts.

Berryhill Bros., a firm composed of Walter Berryhill and S. N. Berryhill, were engaged in mercantile business. They had a stock of goods worth about $3,900. W. B. T. Wright was also engaged in mercantile business. He had assets worth about $4,500. Berryhill Bros. were indebted to the Merchants' Bank of Grenada, Miss., in the sum of about $4,300, and W. B. T. Wright was indebted to the bank in the sum of about $1,767.42. The Berryhills dissolved their partnership, S. N. Berryhill withdrawing, and Walter Berryhill assuming all the liabilities and taking all the assets of the firm. At the same time, April 1, 1898, W. B. T. Wright and Walter Berryhill formed a partnership under the firm name of Wright & Berryhill. The two stocks of goods-- the one formerly belonging to Wright and the one formerly belonging to Berryhill Bros.-- were put together as the property of the new firm of Wright & Berryhill. It was agreed between the members of the new firm that they owned the partnership assets in the proportion of $3,900, contributed by Walter Berryhill, to $4,500, contributed by Wright. The two debts to the Merchants' Bank remained unpaid, and constitute the beginning of the debt involved in this litigation.

On April 2, 1898, the Merchants' Bank, by its cashier, J. W. McLeod, made an agreement with W. B. T. Wright and Walter Berryhill, which recited that it was the purpose of the bank to put the debts which Berryhill Bros. owed the bank in 'proper shape to follow said merchandise,' referring to the merchandise which Walter Berryhill had contributed to the firm of Wright & Berryhill, 'in order that said bank shall not lose all rights against the same,' and reciting, also, that Wright was willing to execute firm paper to the amount of $3,000 for the purposes aforesaid, but only on certain conditions, which were stated. The conditions were for the protection of Wright, making the proceeds of the merchandise which Walter Berryhill had contributed to the new firm especially liable for the $3,000 note. On the same day another agreement was made by the same parties, which recited that Berryhill Bros. and Walter Berryhill had executed another note to the bank for $1,000, and that Wright had indorsed the same, but 'only as a stimulant to and persuasion of said first-named parties to pay same'; it being agreed that Wright should not be liable on the note except in the event that when the note for $3,000, referred to in the first contract 'is paid, if there be a surplus interest of Berryhill Bros. or Walter Berryhill in the business, this note for $1,000 is to be good to the extent of the surplus.'

The apparent purpose of the two contracts was to give the bank a claim on the goods once belonging to the firm of Berryhill Bros. for the debts which Berryhill Bros. and Walter Berryhill owed the bank. As evidence of part of the indebtedness herein referred to of Berryhill Bros. to the bank, Walter Berryhill on December 30, 1899, made two notes, each for $885, payable to the bank 12 months after date, and these notes were signed also by the firm of Wright & Berryhill; it being, however, expressly agreed that Wright should not be liable on the notes except in the event that when the notes for $3,000 and $1,000 described in the two previous contracts were paid there should be a surplus of the interest of Walter Berryhill in the firm business then these notes were to be 'good to the extent of such surplus. ' Walter Berryhill owed these debts to the bank, and Wright was apparently, from the inception of his partnership with him, willing to assume them as a member of the firm to the extent of the assets of the firm contributed by Walter Berryhill, and to the extent of the interest which the latter might have in the firm property.

Some payments were made on these notes, and they were renewed from time to time, interest being added. Prior to January 15, 1901, there had been renewals of these several debts by notes, all of which were signed by Wright & Berryhill. During this time the firm of Wright & Berryhill overdrew their account at the bank to the amount of $4,606.86. The bank was pressing Wright & Berryhill for a settlement of these several claims, and on January 15, 1901, they were all settled by five notes, which include all of the debts herein referred to, for which Wright & Berryhill had signed other notes, the overdraft for $4,606.86, and also the two notes for $885, for which Wright was only liable to the extent of any surplus which might remain in his hands of the interest of Walter Berryhill in the partnership after the satisfaction of the other two notes, as shown by the agreement of January 2, 1900. These five new notes are the ones contested in this case. They are each dated January 15, 1901, payable to the Merchants' Bank, and signed Wright & Berryhill, W. B. T. Wright and Walter Berryhill-- one for $2,939.02, due February 15, 1901: one for $2,962.32, due March 15, 1901; one for $2,987.60, due April 15, 1901; one for $3,011.89, due May 15, 1901; and one for $3,036.17, due June 15, 1901. On July 15, 1901, Wright & Berryhill, as a partnership, were adjudged involuntary bankrupts. On July 24, 1901, the five notes last above described were by the Merchants' Bank, the appellant, presented and duly proved as claims against the bankrupts.

B. F. Thomas, the appellee here, having been appointed trustee in bankruptcy of the bankrupts, filed before the referee a petition praying a reconsideration of the claim of the Merchants' Bank for two reasons: First, because the bank had received a preference from the bankrupts within four months next preceding the filing of the petition in bankruptcy: and, second, because the claim is not provable against Wright & Berryhill as a firm; that as to Wright the claim is without consideration, and that Berryhill alone, if any one, is responsible on the claim evidenced by the notes; and that, if the claim is allowed at all, it should be allowed against Berryhill individually. The bank answered the petition, denying that they received a preference, and denying that the claim is not provable against the firm of Wright & Berryhill. The claim, as proved, including the attorney's fee embraced in the five notes, amounted to $16,895.88. The referee reduced the claim by disallowing the following amounts, which were embraced by the five notes: One thousand dollars, being the note for that sum referred to in the contract of April 2, 1898; the two notes for $885 each, and interest thereon, referred to in the agreement of January 2, 1900; and the attorney's fee provided for by the notes. The claim, as allowed by the referee, was for $12,134.91.

The case went from the referee to the court of bankruptcy, both the Merchants' Bank and the trustee excepting to the referee's the overdraft $4,606.86 and an item of $741.52, which reduced the claim as allowed to $5,348.38, and, judgment having been entered to that effect, the Merchants' Bank appealed to this court.

By the terms of the bankrupt act, debts of the bankrupt may be proved and allowed against his estate which are fixed liabilities evidenced by a statement in writing absolutely owing at the time of the filing of the petition against him. 30 Stat. 562, Sec. 63 (U.S. Comp. St. 1901, p. 3447). The five promissory notes signed by the bankrupts are prima facie debts provable against them.

There is no evidence in the case tending to show that the appellant received of the bankrupt any preference within four months before the filing of...