Sullivan v. Myer

• Decision Date: 27 March 1917
• Citation: 193 S.W. 124,137 Tenn. 412
• Parties: SULLIVAN v. MYER.
• Court: Tennessee Supreme Court

193 S.W. 124

137 Tenn. 412

SULLIVAN v. MYER.

Supreme Court of Tennessee.

March 27, 1917

Appeal from Chancery Court, Smith County; A. H. Roberts, Chancellor.

Suit by C. T. Sullivan, trustee in bankruptcy, against W. E. Myer. From a decree for defendant, complainant appeals. Affirmed.

NEIL C.J.

Defendant was formerly a merchant in Carthage, Tenn. Desiring to retire from business, he, in May, 1914, offered to sell his stock of goods to two young men, Messrs. Bradford and Kennedy, at a heavy discount, taking their 48 monthly notes for the consideration, running through a period of about 4 years. The notes aggregated, in round numbers, about $9,116. They were to rent his storehouse at a figure which brought their monthly payments, for goods and rent, up to $240. According to the terms they were to keep the stock insured for Myer's benefit, and so were to protect, or secure, the consideration. These terms were agreed to in writing, the notes were executed, the stock of goods turned over, and policies of insurance taken thereon. These policies were on their face made payable to W. E. Myer "as his interest may appear." The business continued for about 2 years or until February 9, 1916, when a fire occurred, destroying the whole stock. During the 2 years the goods had been retailed in the usual way, and the stock replenished from time to time, so that when the fire occurred they had on hand about $15,000 worth of goods; but the insurance amounted to only $8,000. The insurance companies higgled over the settlement of the loss and the matter was finally compromised by the payment of $7,000. The money was paid over to defendant, Myer, who after deducting the amount due himself, $5,684.14, paid over the residue to Bradford & Kennedy, about $1,500. Soon thereafter a petition in bankruptcy was filed. There was the usual adjudication, complainant was selected as trustee, and he brought the present suit against defendant, charging him with having obtained an unlawful preference; it having turned out that Bradford & Kennedy owned debts largely in excess of the balance of insurance money paid over to them by Myer, after deducting the amount of the indebtedness due him, and it appearing that this payment was made to Myer, on his debt, within four months of the filing of the petition in bankruptcy.

Myer knew nothing of the extent of their debts, believed they were prosperous, that they discounted their bills in the manner customary with solvent and prosperous merchants, and had no knowledge that would lead him to a different conclusion, or to put him on inquiry.

These additional facts should be stated with reference to the policies of insurance: The original policies were executed some 2 years before the fire, but as they expired others were taken, or they were renewed, and the renewal of some of them was within four months of the beginning of the proceedings in bankruptcy. The policies were never delivered manually to defendant, Myer. They were kept in a safe used both by him and by Bradford & Kennedy, to which both had access, Myer using one side, and Bradford & Kennedy the other side; but the policies were placed on that side of the safe which had been appropriated to Bradford & Kennedy. It does not appear that Myer ever had any of these policies in his hands. But it was fully understood between him, and Bradford & Kennedy, and the insurance companies, that the policies had been made payable to him in the manner already stated for his security.

Were the rights of Myer superior to those of the trustee in bankruptcy, notwithstanding the fact that the money was actually paid to him within the four months as stated? We think they were, and on the following grounds:

The issuance of the policies under the circumstances stated, made payable to W. E. Myer, "as his interest may appear," amounted to an assignment pro tanto. Donaldson v. Insurance Company, 95 Tenn. 280, 32 S.W. 251. It was not necessary that he should have any interest in the property itself which was insured. Id. Nor was it necessary that the policies should have been actually delivered to him, to make the assignment perfect. Both he and Bradford & Kennedy were interested in them; the latter, aside from the fact that their debt to Myer was thus secured, because the amount of the policies largely exceeded the amount of debt. They were entitled to retain the policies, and held them for themselves, and in trust for Myer. It is not usual to deliver policies thus made payable where the insured himself, the owner of the property at risk, has an interest over and above the amount secured to a third party. There is no legal difficulty in the way of an agreement between the parties that one shall hold possession both for himself and another. Sexton v. Kessler & Co., 225 U.S. 90, 32 S.Ct. 657, 56 L.Ed. 995. It is true that in the case before us it does not appear there was any such agreement in terms, but the acts of the parties in relation to the policies, and in their dealing with each other at the outset, and in the creation of the security, could mean nothing else; that is, assuming that they were all acting honestly and sincerely. That they were so acting there can be no doubt. Moreover, the facts stated indicate an agreement between Bradford & Kennedy, Myer, and the insurance companies that so much of the policies as would be required to protect Myer should be paid over to him, the assignment thus being perfected by notice to the debtors that it had been made, and to this was added their consent thereto, which, of course, is not usually necessary. McLin & Henry v. Wheeler, 5 Sneed (37 Tenn.) 687; Daniels v. Pratt, 6 Lea (74 Tenn.) 443, 447; Nelson v. Trigg, 7 Lea (75 Tenn.) 69; Hutchins v. Watts, 35 Vt. 360; White v. Kilgore, 77...