Sparks v. Marsh

• Decision Date: 04 April 1910
• Docket Number: 490.
• Parties: SPARKS v. MARSH et al.
• Court: U.S. District Court — Eastern District of Arkansas

177 F. 739

SPARKS v. MARSH et al.

No. 490.

United States District Court, E.D. Arkansas, Western Division.

April 4, 1910

The object of the bill is to recover the sum of $1,000 alleged to have been paid by the bankrupt to the defendants, creditors four days before involuntary proceedings in bankruptcy were instituted against him, which payment it is charged was made by the bankrupt to the defendants 'when insolvent and in contemplation of bankruptcy and was received by the defendants with knowledge of the insolvency of the bankrupt and with such information as would put a reasonable person upon notice that the bankrupt was insolvent,' and said payment, it is claimed, constituted an unlawful preference.

The answer of the defendants admits the allegations in the bill except that it denies that 'the payment was an unlawful preference, and that it was received by the defendants with knowledge of the insolvency of said bankrupt or with such information as would put a reasonable person upon notice that said White was insolvent, and that said payment constituted an unlawful preference, or that defendants had reasonable cause to believe that a preference was intended.'

Rose Hemingway, Cantrell & Loughborough, for plaintiff.

Moore Smith & Moore and H. M. Trieber, for defendants.

TRIEBER District Judge.

There is no direct evidence that the defendants had any knowledge of the bankrupt's insolvency, or that the payment was intended as a preference at the time it was made, but it is claimed that the evidence establishes the fact that they had such information as would put a reasonable person upon notice that the debtor was insolvent at the time, and that the payment was intended as a preference within the meaning of the bankruptcy act.

The evidence establishes the following facts: That the defendants are, and have been since 1903, engaged in the liquor business, owning a saloon and having an interest in some other saloons, and are also wholesale dealers in beer in the city of Hot Springs. That up to July, 1908, they were also engaged in a general mercantile business with one Williams as a partner, which was located at Oaklawn, about 1 1/2 miles from Hot Springs. That that business was operated under the name of the Oaklawn Mercantile Company, and was in charge of Williams. That in July, 1908, the partner, Williams, suddenly left, and thereupon the defendants took charge of the business. The stock of merchandise, which consisted of dry goods, groceries, and feed stuffs, invoiced $1,991.50, and the liabilities amounted to about $1,500, of which $1,000 was due the Bunch Grain Company and $500 to Plunkett & Jarrell. That the defendant Marsh on his way to Oaklawn met the bankrupt White, with whom he had had business transactions theretofore, as will be hereinafter set out, and who had had some experience in mercantile business of that nature and employed him to assist in taking an invoice of the goods on hand. The bankrupt and the defendant Wheatley had known each other for a long time, and the bankrupt had also known the defendant Marsh, and had business transactions with him for a number of years. In 1904, when the defendants were in the mercantile business, they bought goods from White. Afterwards White opened a saloon in the city of Hot Springs, and defendants furnished him with the money to pay for his license, and also with some whisky and all the beer he used on credit. White remained in that business for one year, during which time the transactions between him and the defendants were very satisfactory. Thereafter he worked for the defendants for five months as barkeeper in one of their saloons, and afterwards, until July, 1908, White was engaged in other vocations. After the invoice of the Oaklawn Mercantile Company stock had been taken by the defendant Marsh and White, which was found to be of the value of $1,991.50, Marsh proposed to White to sell him the business on credit, as defendants could not give it much attention, and White was familiar with such business. White had no means to pay for it, so it was agreed that he should assume the Bunch Grain Company debt, amounting to $1,000, and execute his note to the defendants for the $991.50 balance, payable on June 1, 1909, with 8 per cent. interest per annum. The Bunch Grain Company was willing to accept the notes of White for the indebtedness if indorsed by the defendants as sureties. Thereupon White executed to the grain company 10 notes for $100 each, which were indorsed by the defendants. The storehouse was rented by defendants to White, and the rent was promptly paid by him monthly. On March 1, 1909, White borrowed $1,000 from the Arkansas National Bank of Hot Springs to be used in his business; defendants indorsing the note as sureties. The Bunch notes were duly paid as they matured, and in April, 1909, only two of them were still unpaid. On that day White sold out his stock of merchandise to one Wheatley, a brother of one of the defendants, but, so far as the evidence shows, he had no connection with the defendants. The price paid for the stock was $2,500 in cash. The stock invoiced from $3,000 to about $3,500, and White had about $3,000 in accounts due him from customers which were not included in the sale, but a part of them had been assigned before to another creditor. The purchase money received by White was used to pay the thousand dollar note held by the Arkansas National Bank and indorsed by the defendants, the $991.50 note due to the defendants, and other debts. Neither of these two notes were due at that time, and upon the solicitation of White, the defendants, although at first they refused to do so, remitted the interest on their note amounting to $55.10. There is no evidence tending to show that the defendants, or either of them, knew at the time that White was insolvent, or that he had sold out his store. Marsh, the member of the firm who attended to this matter, testified positively that he did not know that White was insolvent, but, on the contrary, believed him to be doing a prosperous business; that every month he collected the rent from him, which was paid promptly, and in conversation with White a short time before he told him that he was making about $100 per month over and above all his expenses, including his living expenses; that in speaking...