290 F. 596 | W.D. Tenn. | 1921
K. G. Whitfield & Bro. constituted a partnership firm composed of K. G. Whitfield & J.. H. Whitfield, doing business in Benton county, Tenn. In the course of their business the firm purchased peanuts in the peanut section along the Tennessee river for Lumis & Co., of Chicago, Ill. It was the custom of the firm to draw drafts on Lumis & Co., deposit those drafts with the People’s Bank & Trust Company, of Camden, Benton county, Tenn., where they would be given credit for the amounts thereof; they would then draw checks on this account, payable to the parties from whom the peanuts were purchased. Pursuing this course in the early part of 1920, drafts were drawn which Lumis & Co. declined to honor. Whitfield & Bro. had been credited with the amount of the drafts and had drawn checks on the account thus made. As a result, when the drafts were dishonored, a large overdraft was created in favor of the People’s Bank & Trust Company against Whitfield & Bro.
The Cumberland Valley National Bank, of Nashville, Tenn., was the correspondent of the People’s Bank & Trust Company, and duly organized and chartered under the ñational banking laws of the United States. The People’s Bank & Trust Company was a Tennessee corporation. In February of 1920 the People’s Bank & Trust Company procured the Cumberland Valley National Bank to lend to Whitfield & Bro. the sum of $12,000 for the purpose of enabling them to satisfy the overdraft with the People’s Bank •& Trust Company and continue the peanut business. This loan was negotiated for a period of 30 days, and to secure the same warehouse receipts covering certain peanuts purchased by Whitfield & Bro. were placed as collateral. The originals of these warehouse receipts were held in the vaults of the People’s Bank & Trust Company, and copies thereof sent to the Cumberland Valley National Bank. This was done as a matter of convenience, and in addition the payment of the note was guaranteed by the People’s Bank & Trust Company, or J. M. Lockhart, as its cashier.
It was the contemplation of the parties at the time of the negotiation of this loan that the peanuts would be sold before the expiration of the note, and for this reason the original warehouse receipts were placed with the People’s Bank & Trust Company as stated, so that they might be accessible if the nuts should be sold. However, the nuts were not sold as contemplated, and the note was renewed from time to time until July 12, 1920, when the last renewal was executed. This note was signed by K. G. Whitfield & Bro. as a firm and also by the individual partners. In the meantime the Cumberland Valley National Bank and the American National Bank were regularly consolidated, and the American National Bank took over all the assets of the Cumberland Valley National Bank and succeeded to all its rights, and was a bank likewise duly organized and chartered under the national banking laws of the United States.
Payment not having been made on the last renewal of the note mentioned in February of 1921, the American National-Bank filed its bill in the chancery court at Camden, Tenn., against Whitfield & Bro., the individual partners of the firm, the People’s Bank & Trust Com
On April 18, 1921, K. G. Whitfield & Bro. filed a voluntary petition in bankruptcy and were duly adjudged bankrupts. May 18, 1921, the American National Bank sold the peanuts covered by the deed of trust for the sum of $1,626.39 and applied the same as a credit on the note of March 23, 1921, and on the 11th day of July, 1921, filed with the referee its proof of claim as to the remainder of said note, in the sum of $10,373.61, which claim was allowed.
On December 15, 1921, certain creditors of Whitfield & Bro: filed their petition with the referee, seeking to have said claim of the American National Bank disallowed. The petition states that C. V. Hawley, the trustee in barikrutcy, declined to contest the claim of the American National Bank; so the creditors filed the petition in his name for their use and benefit, as well as the use and benefit of all other creditors having bona fide, provable claims against the estate. Answer was filed to this petition by the American National Bank, and the matter proceeded to a hearing before the referee, where evidence was offered by both parties, and upon consideration of all of which the referee, on the 13th day of June, 1921, entered an order sustaining the petition of the contestants, holding that the transfer of the property mentioned on March 23, 1921, enabled said bank to receive a preference, that the claim should not be allowed until the bank had accounted for such preference, or until the other general creditors should receive a dividend and pro rata equal to the amount received by the bank. The bank was taxed with the costs of that proceeding.
The contracts relative to the various notes, loans, and deeds of trust were manifestly Tennessee contracts, and governed by the laws of
The American National Bank lawfully succeeded to ill the rights of the Cumberland Valley National Bank as to. this security, and at the time of the compromise of the suit instituted by it-to recover-On the note it duly held said receipts and was entitled to proceed against the peanuts- called for therein. The taking of the deed of trust -covering said ntits did .not ■ alter the situation of said parties as to- the nuts, nor did it in any wise alter or affect the estate of Whitfield & Bro., so far as other creditors were concerned. In that respect there was neither a lessening nor enlarging of the security of the bank, and certainly where this is true no preference could'have been created by the transfer. This-proposition is well settled. In re Sagor, 121 Fed. 658, 57 C. C. A. 412, 9 Am. Bankr. Rep. 361; In re Dickson, 111 Fed. 726, 49 C. C. A. 574, 55 L. R. A. 349, 7 Am. Bankr. Rep. 186; Newport Nat. Bank v. Nat. Herkimer-County Bank, 225 U. S. 178, 184, 32 Sup. Ct. 633, 56 L. Ed. 1042; N. Y. County Nat. Bank v. Massey, 192 U. S. 138, 24 Sup. Ct. 199, 48 L. Ed. 380; Continental Trust Co. v. Chicago Title, etc., Co., 229 U. S. 435, 33 Sup. Ct. 829, 57 L. Ed. 1268; Root Mfg. Co. v. Johnson, 219 Fed. 397, 135 C. C. A. 139; In re Noel (D. C.) 137 Fed. 694, 14 Am. Bankr. Rep. 715; Chatta. Nat. Bank v. Rome. Iron Co. (C. C.). 102 Fed. 755, 4 Am. Bankr. Rep. 441; Deland v. Miller, etc., Bank, 119 Iowa, 368, 93 N. W. 304, 11 Am. Bankr. Rep, 744; In re Fire Brick Co., 1181 Fed. 641, 104 C. C. A. 371, 25 Am. Bankr. Rep. 323; Holdredge First Nat. Bank v. Johnson, 68 Neb. 641, 94 N. W. 837, 4 Ann. Cas. 485; Bernhisel v. Firman, 89 U. S. (22 Wall.) 170, 22 L. Ed. 766; Sawyer & Frazier v. Turpin, 91 U. S. 114, 23 L. Ed. 235; In re Lynn Camp Coal Co. ,(C. C.) 168 Fed. 999; Sexton v. Kessler, 172 Fed. 539, 97 C. C. A. 161, 40 L. R, A. (N. S.) 639; Black on Bankruptcy (3d Ed.) § 581, p. 1190, and authorities cited in note 127; Id. pp. 1198, 1199, § 586.
“One thing absolutely essential to constitute a voidable preference is-that the debtor should have been insolvent at the time it was given, and the trustee has the burden of proving this fact.”
Many authorities are cited in note 509 to support this text, one of which is In re F. M. & S. Q. Carlile (D. C.) 199 Fed. 612, 29 Am. Bankr. Rep. 373.
Counsel for the creditors filed an elaborate argument in the case, but refer to no authorities to support their contentions. One of two conclusions might be drawn from such failure to cite authorities. They either did not deem it necessary to cite authorities, or they were unable to find authorities to support their arguments. The court is of opinion the latter conclusion would be correct.
In either of the two views above discussed, the claim of the contestants could not be maintained. It therefore follows that the referee was in error in sustaining the petition filed to have the claim of the American National Bank disallowed, in disallowing the claim, and taxing the bank with the costs of that proceeding. A decree will be entered, allowing the claim of the bank, declaring the transfer of the property not to have created a voidable preference, and adjudging the costs against the contestants.