Securities Investment Co. of St. Louis v. Williams

• Decision Date: 30 December 1960
• Docket Number: No. LR-60-C-75.,LR-60-C-75.
• Citation: 190 F. Supp. 261
• Parties: SECURITIES INVESTMENT CO. OF ST. LOUIS, Plaintiff, v. S. A. WILLIAMS, Sr., and Associates Discount Corporation, Defendants.
• Court: U.S. District Court — Eastern District of Arkansas

190 F. Supp. 261

SECURITIES INVESTMENT CO. OF ST. LOUIS, Plaintiff, v. S. A. WILLIAMS, Sr., and Associates Discount Corporation, Defendants.

No. LR-60-C-75.

United States District Court E. D. Arkansas, W. D.

December 30, 1960

Abner McGehee of Cockrill, Laser & McGehee, Little Rock, Ark., for plaintiff.

Jay Dickey, Pine Bluff, Ark., for defendant H. A. Williams, Sr.

A. L. Barber, of Barber, Henry, Thurman & McCaskill, Little Rock, Ark., for defendant Associates Discount Corporation.

HENLEY, Chief Judge.

This is a replevin suit brought by plaintiff, a Missouri corporation, against S. A. Williams, Sr., a citizen of Arkansas, and Associates Discount Corporation, an Indiana corporation, hereinafter called Discount, to recover possession of a 1959 model Insley Dragline, worth substantially more than $10,000, which was purchased by Williams from the now bankrupt Kern-Limerick, Inc., of Little Rock, Arkansas, on December 1, 1959. Discount is the assignee of a conditional sale contract covering the machine in question and of a promissory note, both of which instruments were executed by Williams in favor of Kern-Limerick, evidencing and securing the unpaid portion of the purchase price of the machine.

The basis of plaintiff's claim is that on September 15, 1959, Kern-Limerick had sold the machine to Consek, Inc., which corporation executed a conditional sale contract and promissory note in favor of Kern-Limerick, evidencing and securing the unpaid portion of the purchase price of the dragline, and that on the same day Kern-Limerick assigned said instruments to plaintiff for a valuable consideration. Plaintiff contends that by virtue of these instruments its claim to the machine is prior to the claims of the defendants. The defendants take the position that for reasons hereinafter stated their claims are superior to that of the plaintiff.

The case has been tried to the Court, and has been submitted on the pleadings, oral testimony, documentary evidence, and written briefs. This memorandum incorporates the Court's findings of fact and conclusions of law.

The evidence produced by the respective parties is substantially undisputed, and the facts which it discloses may be summarized as follows:

Prior to its bankruptcy in May 1960, Kern-Limerick, Inc., was a large and established dealer in heavy machinery and implements, such as draglines, tractors, and bulldozers. The dominating personality in Kern-Limerick's management was R. C. Limerick, Jr., its manager. The business of Kern-Limerick was the retail sale of machinery of the types mentioned, and it also leased or rented machinery for hire. Typically the retail sale involved a cash down payment or a side note for a down payment, with the balance of the purchase price being evidenced by a conditional sale contract and promissory note in favor of Kern-Limerick signed by the purchaser and payable in monthly installments. It was the custom of Kern-Limerick to discount this type of commercial paper with finance companies such as the plaintiff and Discount. Payments on the notes would be made by the purchasers of the machines directly to the finance companies. The conditional sale contracts reserved title to the machine in Kern-Limerick, and when such contracts would be assigned, the reserved title passed to the respective assignees to be held until the machines covered by the contracts were paid for.

On August 11, 1959, R. C. Limerick, Jr., caused to be formed an Arkansas corporation known as Consek, Inc. Three hundred shares of common stock were issued as follows: 298 to R. D. Webb, the vice-president of Kern-Limerick; one share to C. B. Brooks, the Kern-Limerick office manager; and one share to Griffin Smith, the attorney for Kern-Limerick. All of those shares, according to the evidence, were soon transferred to Mr. Limerick, and he was in fact the owner of Consek.

Consek was organized for the ostensible purpose of engaging in the business of renting and leasing equipment for hire. It appears that Consek did in fact rent or lease some equipment during the period with which the Court is concerned, but it derived no substantial income from that activity. Consek had no separate place of business, no warehouse or parking lot, and no employees. Mr. Webb was president of Consek and Mr. Brooks was secretary. Mr. Limerick and Mr. Webb were on the board of directors, but according to Mr. Brooks's testimony no meeting of the directors was ever held.

Consek purchased a number of machines from Kern-Limerick, executing conditional sale contracts and promissory notes as security for the purchase price, which contracts and notes were assigned to finance companies. Some of the machines that Consek bought were painted black and displayed Consek's corporate name. Those machines were usually kept together on the Kern-Limerick lot on Asher Avenue in the City of Little Rock. Other machines purchased by Consek were not so distinguished, and were kept on the Kern-Limerick lot and mingled indiscriminately with other machines which Kern-Limerick owned and was offering for sale to the public.

Consek had no resources with which to make payments on the machines purchased by it, and in order to enable it to make its payments each month Kern-Limerick advanced necessary funds against which Consek drew its own checks payable to the finance companies holding its paper.

Both plaintiff and Discount maintain branch offices in Little Rock, and both were familiar with the Kern-Limerick operation and with the organization and corporate purpose of Consek. They also knew that machines sold by Kern-Limerick to Consek were to be kept on the Kern-Limerick lot except when in use by persons who might lease or rent such machines. Both plaintiff and Discount from time to time purchased commercial paper from Kern-Limerick, including conditional sale contracts and notes executed by Consek.

The machine involved in this case was purchased by Kern-Limerick from the Insley Manufacturing Company, was paid for by a Kern-Limerick check, and was delivered to Kern-Limerick on September 3, 1959. Said machine, orange in color with a black trim, was placed on the Kern-Limerick lot and was exposed for sale along with other machines owned by Kern-Limerick.

On September 15, 1959, the machine was sold by Kern-Limerick to Consek for a total price of $25,000. The conditional sale contract executed by Consek shows a cash down payment of $5,000 (probably fictitious), and an unpaid balance of the purchase price plus carrying charges, amounting to $23,079.96, which was to be retired at the rate of $641.11 per month, the first payment falling due on October 15, 1959. The contract and note were assigned with recourse to plaintiff for a consideration of $20,000.

The machine was never physically delivered to Consek, nor was its physical appearance changed in any way after Consek's purchase. It was not segregated from other machines owned by Kern-Limerick, but remained on the lot without anything to distinguish it from other Kern-Limerick machines or to indicate that Kern-Limerick had parted with title. In view of the relationship between Consek and Kern-Limerick, the situation as to the machine was, of course, known to Consek. Plaintiff made no inspection of the machine either before or after it purchased the Consek contract and note. As indicated, plaintiff knew and expected that the machine would be kept on the Kern-Limerick lot except when it was in use by a renter or lessee.

On or about December 1, 1959, defendant Williams, accompanied by his two sons, called on Kern-Limerick with the end in view of purchasing a new dragline. Prior to that visit, Williams had been called upon by one of the Kern-Limerick salesmen, Mr. P. A. Prince. Prince was not at the Kern-Limerick lot when Mr. Williams called, and Mr. Limerick personally showed Williams both the machine in question and a slightly heavier machine, also manufactured by the Insley Manufacturing Company, which was parked next to it. After examining the machines, Mr. Williams decided to purchase the lighter of the two and terms were agreed upon. Mr. Williams then returned to his own place of business in Pine Bluff.

Kern-Limerick notified Prince of the deal that had been made with Williams, and Prince went immediately to Pine Bluff from Warren, Arkansas, where he had been attending to some other business. A conditional sale contract covering the dragline purchased by Williams was prepared at Little Rock, and was carried by messenger to Pine Bluff where it, together with the note incident thereto, was signed by Williams in the presence of Prince and Billy G. Marr, another Kern-Limerick employee, who had carried the papers from Little Rock to Pine Bluff. The machine was delivered to Williams the same day. The price which Williams agreed to pay for the machine was $26,179.48. The contract called for a down payment of $4,600.00, with the balance of $21,579.48 to be paid in monthly installments of $599.43 each, the first falling due on January 10, 1960. That contract and the accompanying note were sold to Discount for $18,698.62. The $4,600.00 down payment was made by means of a side note executed by Williams, which note is now owned by the First National Bank of Little Rock.

When Williams purchased the machine, he had no knowledge or notice whatever of the fact that there had been a prior sale to Consek. He believed, and was fully justified in believing, that the machine was a part of the Kern-Limerick stock in trade, and that Kern-Limerick had a right to sell it.¹ As a matter of fact, Williams had no idea that any person or corporation, other than Discount, was asserting any interest in the machine until this action was commenced and the Marshal executed the order of possession which had been issued by this Court. Similarly, when Discount purchased the Williams paper, it had no notice of the prior sale to Consek.

When the machine was sold to Williams, the Consek payments to p...