Wilkinson v. Livingston, 8960.

• Decision Date: 25 November 1930
• Docket Number: No. 8960.,8960.
• Citation: 45 F.2d 465
• Parties: WILKINSON et al. v. LIVINGSTON.
• Court: U.S. Court of Appeals — Eighth Circuit

45 F.2d 465 (1930)

WILKINSON et al. v. LIVINGSTON.

No. 8960.

Circuit Court of Appeals, Eighth Circuit.

November 25, 1930.

James R. Claiborne, of St. Louis, Mo., for appellants.

Alfred C. Wilson, of St. Louis, Mo. (Charles R. Hamilton and Alva C. True-blood, both of St. Louis, Mo., on the brief), for appellee.

Before KENYON, BOOTH, and GARDNER, Circuit Judges.

BOOTH, Circuit Judge.

This is an appeal from a decree in favor of the trustee in bankruptcy of Wilkinson Clothing & Furnishing Goods Company in a suit brought by him under section 70e of the Bankruptcy Act (11 USCA § 110(e), against the appellants and others, to set aside an assignment of a lease alleged to have been made by the bankrupt company in fraud of creditors, more than four months prior to bankruptcy proceedings.

There was substantial evidence tending to prove the following facts: the Wilkinson Clothing & Furnishing Goods Company (hereinafter called the company) was a corporation which for several years prior to 1924 had operated a store at the premises known as 707-709 Olive street, St. Louis, Mo. Drane Wilkinson, one of the appellants, was president, general manager, and owner of the majority of the stock of the company. Appellant J. E. Bishop was vice president of the company, owned one share of stock, and was attorney for the company. The third stockholder was a brother of Wilkinson. These three men constituted the board of directors.

The company held a lease on the premises, dated October 14, 1922, running from March 1, 1923, to March 1, 1931. The rental was $18,000 for the first year; $20,000 for the second year; $22,000 for the third year; and $25,000 for the last five years.

The business of the company for the year 1923 had not been successful. There had been a loss of about $21,000. Creditors were pressing for payment. December 15, 1923, Drane Wilkinson wrote to the largest creditor, to whom was owing about $19,000, setting out the situation and promising to make piece-meal payments.

A meeting of the stockholders was held February 1, 1924, the three stockholders being present. The business of the company was discussed. Drane Wilkinson advocated liquidating the business and starting over again in a new store. His brother advocated that there should be no interruption in carrying on the business. A resolution was passed that the company should assign its lease to Drane Wilkinson. The consideration mentioned in the resolution was: (1) Moneys advanced up to February 1, 1924, to operate the business; (2) continuing to act as indorser on the company's paper "now in bank and in the future"; (3) continuing in charge of the business in the future whether or not the earnings were sufficient to pay his salary regularly.

February 5, 1924, the lease was formally assigned. The assignment made no mention of any consideration.

It may be noted that, though the books of the company showed that it owed Drane Wilkinson on February 1, 1924, $2,282.45, yet no cancellation of any part of this amount is shown as having been made as consideration for the amount of the lease. Drane Wilkinson testified, however, that $1,700 which he had advanced was additional to the amount shown on the books.

It may be noted, further, that there is no showing on the books of the company of any notes for new loans being made by the company and indorsed by Drane Wilkinson after February 1, 1924. Drane Wilkinson testified that he thought he indorsed new notes after February 1, 1924.

It may be noted still further that Drane Wilkinson did not serve without salary after February 1, 1924, but drew his salary up to July 1, 1924, though the business was closed out by June 10, 1924.

Shortly after February 5, 1924, through the efforts of J. E. Bishop and Drane Wilkinson, an agreement was made with the creditors of the company whereby the creditors accepted 60 per cent. of the amounts due them, payable 25 per cent. in cash March 10, 1924, and the balance by three promissory notes: One for 15 per cent., and two for 10 per cent. each, payable respectively June 10, September 10, and December 10, 1924. The cash payment was made; none of the notes was paid.

A "going out of business" sale was put on, commencing in March, 1924, and by June 10, 1924, the stock of goods had been closed out. The company continued in possession of the premises and paid the rent up to July, 1924.

By June 10, 1924, there was nothing left but about $1,200 balance in the bank, and accounts receivable having a face value of $6,000. Some of these had been written off the books; $3,400 of them were in attorneys' hands for collection. On June 10, 1924, the bank applied the balance in its hands upon notes of the company.

Meanwhile, on April 18, 1924, Drane Wilkinson had sublet a portion of the premises for a term beginning September 1, 1924, and ending February 28, 1931. The rental under this sublease fell short of the rental under the original lease by about $250 per month.

An arrangement was made by Drane Wilkinson with the defendant American Trust Company by which it advanced the rent due under the original lease for July and August, and the deficiency of rental accruing for several months thereafter. The trust company also advanced about $1,800 for repairs.

The fixtures were sold to the sublessee for $2,700 on April 28, 1924. $500 of this was paid in cash; $2,200 on June 5, 1924. The latter sum was used by the company to pay salaries and the rent for June, 1924.

Drane Wilkinson also sublet the remainder of the premises for a term commencing December 1, 1924, and running to March 1, 1931. The combined rental of the two subleases was more than rental under the original lease. The difference increased until it amounted to nearly $6,000 per annum during the last five years of the leases.

On June 18, 1924, a creditors' petition in bankruptcy was filed against the company, and a receiver was appointed. Adjudication was had July 12, 1924, and a trustee was elected September 10, 1924.

On June 20, 1924, Drane Wilkinson executed an "assignment of rents and power of attorney" to J. H. Farish, as trustee. Farish was to take charge of the premises covered by the two subleases, collect the rents, pay the rent under the original lease, and apply the balance on debts owed by Drane Wilkinson as follows: $5,098.65 to American Trust Company; $2,750 to Martin & Breitt; $2,500 to Bishop & Claiborne. The amount owing to the American Trust Company was on account of indorsement of notes by Drane Wilkinson for the company, which were held by the trust company. The amount owing Martin & Breitt was for commissions for finding a tenant for the portion of the premises first sublet. The amount owing to Bishop & Claiborne was for legal services rendered Drane Wilkinson in connection with the assignment of the original lease to him, the drawing of the first sublease, drawing of the assignment of rents to Farish, and other matters.

Farish continued to collect the rents under the two subleases and to disburse the net balance in accordance with the terms of the trust.

The advancements by the trust company were paid off gradually; the debt to the trust company of $5,098.65 from Drane Wilkinson was paid off; the amount owing Martin & Breitt of $2,750 and interest was paid.

On November 27, 1929, there was a credit balance with the trust company of $3,518.20; but the debt to Bishop & Claiborne had not been paid.

The complaint was filed in the present suit by the trustee on December 14, 1925; the case was tried in December, 1929.

Claims against the bankrupt estate have been allowed in the sum of $26,205. The trustee has collected from the assets of the estate and now holds $1,092.

On the trial, the attorneys for the plaintiff trustee made the following statement: "As far as the defendant, American Trust Company, and the defendants, Arthur S. Martin and Fred C. Breitt, partners, trading as Martin & Breitt, are concerned, plaintiff wishes to announce that so far as these defendants are concerned, the plaintiff is not asking for any affirmative relief except that in the event of a decree for the plaintiff, that the Court find that any claims which these defendants have in the subject matter of this action have been satisfied and that these defendants have no further right, title or interest in the subject matter of this suit."

This statement was made pursuant to an agreement theretofore entered into by the trustee in which it was stipulated: "* * * That no question was to be raised by any parties to the stipulation as to the legal rights of the American Trust Company to such reimbursement of advancements and to the payment of its indebtedness, and further, that out of said balance said bank might pay to Martin & Breitt Real Estate Company the sum of $2750.00, with interest thereon from April 18, 1924, and that the plaintiff would ask no judgment or decree against the American Trust Company or Martin & Breitt Real Estate Company, except that there should be a finding and decree (in the event plaintiff were successful) that such parties' claims had been fully paid and satisfied and that such parties had no further interest in said leasehold."

The foregoing statement and stipulation were made because, as stated by counsel for the trustee: "* * * There was no evidence that on February 1, 1924, when the corporation arranged to assign and transfer the leasehold to Drane Wilkinson individually that either the American Trust Company or Martin & Breitt were present or knew of the circumstances, conditions or considerations under which the transfer was made, nor was there any evidence that information with respect to this subject came to these defendants at any subsequent time. * * *"

The decree entered by the trial court adjudged: That the assignment of the lease by the company to Drane Wilkinson was null and void; that Drane Wilkinson and Farish held the original lease and subleases in trust for the plaintiff trustee in bankruptcy, and...