Court Opinion

ID: 8830945
Source: CourtListenerOpinion
Date Created: 2022-11-26 16:03:51.32319+00
Date Added: 2024-06-11T17:04:55.423041
License: Public Domain

DONAHUE, Circuit Judge
(after stating the facts as above).  Upon the questions material to the disposition of this case, there is substantially no conflict in the evidence. It is clear that French never was the owner, and never claimed or represented himself to be the owner, of the property covered by the trust mortgage to Brooks. Brooks held this property in trust for the benefit of the creditors of Tompkins, and French succeeded Brooks as trustee of this express trust. The property was at all times the property of Tompkins, subject to the payment of the debts secured by the trust mortgage. These debts were never paid and canceled, nor was the mortgage ever released. It is still in full force and effect as security for the payment of these claims. If, before or after the assignment of this trust mortgage to French, he became the owner by purchase or otherwise of part of the debts secured thereby, or for any reason he is entitled to be subrogated to the rights of any of the creditors, his beneficial interest in the trust does not change his trust relation to the property or business.
*26French did not claim to be in possession of this property as owner, but as trustee. Upon this proposition he testified as follows:
“I supposed that I simply acted for Walter Brooks pending the organization of my corporation. * * * I took possession of the Hermitage property, as I supposed, acting as trustee for Walter Brooks, and so told them down there at the time. * * * I was successor to Walter Brooks, trustee. I operated the business as his successor until the time of my arrest.”
It is equally clear that French was not the owner of the new automobiles described in the bills of sale to the Guarantee Bond & Mortgage Company and the Chattel Loan Company, either at the time the petition in bankruptcy was filed or at the time he was adjudged a bankrupt. When French took possession as trustee, Tompkins turned over to his control the agencies for the sale of the King and Liberty automobiles, which he had been conducting as a separate and distinct enterprise from the Brooks trust. Nothing was paid to Tompkins for these agencies, although French testifies that the King agency was valuable. This agency was merged by French with the trust business conducted by him, and thereafter all transactions in reference to this agency and in reference to the trust property and business were entered in the one set of books that French caused to be. opened when he succeeded Brooks as trustee. French procured the agency for the sale of the Chevrolet automobiles, for which he paid $1,000 of his own money, and this was also merged in the trust business, and no separate accounts were kept in relation thereto. The moneys arising from all sources 'were commingled in one fund and deposited in bank to the credit of the Hermitage Garage & Auto Company.
Tompkins and French did not enter into a contract of partnership, either verbal or written. The failure to make such a contract, or some other contract defining their rights and business relation to each other,is fully explained by the fact that both contemplated an early organization of the proposed corporation to take over the trust property and •business and the automobile sales agencies as a unit. They evidently relied for the protection of their respective rights upon their ai*rangement in reference to a division of the stock in that corporation. In the absence of such a contract, pending the organization of the proposed corporation, their legal relation to each other and to this property and business must be determined by the law applicable to the facts admitted or proven in this case.
Notwithstanding they had merged these sales agencies with the trust property and business of the Brooks trust, they represented themselves as partners, not only directly to those dealing with them, but by bills of sale of public record in the city and county in which they were transacting this business. For the purpose of obtaining large sums of money from the Guarantee Bond & Mortgage Company, they signed bills of sale reciting that Fred W. French'and Claude B. Tompkins were doing business as the Hermitage Garage & Auto Company, and signed and caused these bills to be signed “Hermitage Garage & Auto Company, C. B. Tompkins and F. W. French,” and in some cases by C. B. Tompkins only. Upon this state of the proof, French cannot now be heard as against the Guarantee Bond & Mortgage Company to deny the truth of these statements and representations upon which he secured the *27larger portion of the money with which to purchase the same automobiles now in dispute.
It is true that French testified that he made no such initial representation to the Guarantee Bond & Mortgage Company, but that company, believing that Tompkins was jointly interested in the property and business, insisted upon Tompkins signing these notes and bills of sale. That, however, is wholly unimportant. When French signed these bills of sale, containing these recitals, he admitted the truth of the statements therein written.
French is also estopped to deny that he was acting in his capacity of trustee for the Hermitage Garage & Auto Company in procuring the loans from the Chattel Toan Company. He was then in possession of the property and operating the business of the Hermitage Garage & Auto Company as trustee. Not only had the automobile sales agencies actually been merged with his trust, but French expressly represented in and by these bills of sale that he was borrowing this money for the purposes of his trust and not in his personal capacity. ' The Chattel Toan Company, with knowledge that he was in fact the trustee of the Hermitage Garage & Auto Company, had a right to rely upon his representations that the money it loaned him was to be used for the purposes of the trust. He cannot now claim as against the Chattel Toan Company that these automobiles are his personal property.
If French is estopped to deny the existence of a partnership as against the Guarantee Mortgage and Trust Company and estopped to deny, as against the Chattel Toan Company, that he was acting in a trust capacity, his trustee in bankruptcy is also estopped. The trustee succeeds to no higher rights in the bankrupt estate than the bankrupt possessed, except in so far as the statute authorizes him as such trustee to recover property transferred or assigned in fraud of creditors.
Wholly aside from the question of estoppel, it clearly appears from the uncontradicted evidence .that French was in fact trustee of the agencies for the sale of King and Chevrolet automobiles, which agencies had been merged and consolidated by himself and Tompkins with the garage property and business included in the trust mortgage. In reference to this French testified in substance that he was at all times acting as trustee; that there were three distinct conditions created that were interwoven and dependent upon each other; that he was trustee for “two different bunches of men” — Mr. Nelson and Mr. Tompkins, on the one hand, and the men who had contributed $5,500 as advance payment upon their subscription to the capital stock of the proposed corporation, which money had been placed in the common fund of the Hermitage Garage & Auto Company and used largely in the payment of the purchase price of cars for resale at retail. It is true that French also testified that “the Brooks trust was not mixed up with the other trusts;” but it clearly appears from his further testimony that he was mistaken about this and that this Brooks trust was one of the three conditions to which he referred “as interwoven and dependent upon each other.” He also testified that “the business was merged in such a shape that there was no way of separating profits;” that checks were drawn upon the common fund in payment of the purchase price of new cars; that these checks were taken care of by the money borrowed and *28money put in by men who were going into the. new corporation and from the funds of the garage itself.
It further appears, from the testimony of the bookkeeper, that there was but one set of books in which all transactions were entered; that the funds were all commingled in one account and that the new cars were purchased partly with the money borrowed and partly with the money paid in by men who were going into the new corporation and partly from money of the Hermitage Garage & Auto Company,-received by it for cash sales of automobile parts. It is not controlling that the Brooks mortgage, and therefore French’s title as successor trustee, did not in form cover the new elements of property and business added after French was in substantial control. The parties all treated the existing (Brooks) trusteeship as a convenient agency in which to place temporarily the title to everything which was gathered in for the proposed corporation. “French, Trustee,” or “Hermitage Garage & Auto Company,” were merely names for this anticipated entity. It is, we think, the inevitable inference that all parties intended the maintenance of the Brooks trust for the benefit of all interested parties, until the corporate plans should be perfected, and whether some of the contributing parties were, as between themselves or as to certain interests, partners in the enterprise or creditors of it, or otherwise'interested therein, is not now important. An intent that the legal title to everything should vest in French personally would have been very improbable, and, to say the least, it is not clearly proven.
While French testified that he put about $16,000 into this business, yet it appears by his further testimony that this sum included money borrowed by him and Nelson to purchase claims against Tompkins at 50 cents on the dollar, money he paid upon accommodation paper given ■by Nelson and himself long prior to the time the trust mortgage was assigned to him to pay Tompkins’ debt for King automobiles when Tompkins was operating this agency as a separate and distinct’enterprise and $5,000 paid by him upon tire lease and option to purchase the property in which the business was transacted, which was paid after that contract was assigned to him. It is true that French did advance $1,000 on the Chevrolet sales agency, and perhaps another $1,000 on the purchase of $2,000 worth of Chevrolet parts, but as against these advancements he was indebted to the business in the sum of $485.03 for gasoline, oil, repair, and parts for his personal use.
The claim that French ever made any advancements to Tompkins or to the business of any sum of money whatever as a capital investment is entirely negatived by the fact that he demanded and procured from Tompkins an assignment of this lease and option contract as security for whatever money he had loaned to Tompkins or expended directly in furtherance of their plan to organize a corporation to take over me property and business. In this connection he testified:
“The progress of incorporating the company was not progressing as fast as I would like to have had it, under the financial conditions at that time, and I felt that I was not properly secured for the amount of money X had in, and when I learned what Mr. Tompkins was trying to do in the way of forming a separate organization — I mean not doing the right thing, was that he was trying to form a separate organization to carry the business himself with some ef his friends. I was to be slipped out very quietly, etc., so I put it up to *29him to either pay me what I had coming or give me the only thing he could give me to secure me for the money I had put in, which was his equity in this building, that was all there wap left.”
This lease and option was appraised when French took possession as trustee at $17,100. There was also a pencil memorandum in connection with this item of “$7,500.” French testified that he put that pencil memorandum of $7,500 opposite this item on the appraisement sheet because that amount represented the actual amount that had been paid upon it, but that it was in fact worth much-more. There is. a conflict between the testimony of Tompkins and the testimony of French as to the purposes for which this lease option was assigned to French. French says the assignment to him was absolute and unconditional; that “he .simply purchased the equity.” If he did, then he must have accepted it in payment of the money he had put into the enterprise. Tompkins testified it was assigned to French as security only for money advanced by French upon the agreement and understanding that when French was repaid he would assign the lease option to the proposed corporation. In support of his verbal testimony Tompkins introduced in evidence a letter signed by himself, dated September 7, 1920. The' date of this letter is evidently a mistake, for it refers to the assignment of this lease to French on September 13, 1920. This letter purports to confirm a conversation had-between Tompkins and French on the evening before. It specifically provides the amount and kind of stock to be issued by the proposed corporation that a part of it should be sold for promotion purposes and the residue equally divided between Tompkins and French and that the lease option “shall be turned into the new corporation as soon as F. W. French’s personal claims for money advanced have been satisfied.” French practically admits that he dictated this letter but he can not explain the discrepancy in the date. French also admits that he marked upon a copy of this letter: “O. K. F. W. French.” ,
It is, however, wholly unimportant whether this lease option was assigned to French absolutely in payment of money advanced by him or as security for the repayment of that amount. In either event, it fixed his status as a creditor of Tompkins and the Hermitage Garagg & Auto Company, and not as owner of any part of the property in his possession as trustee for all the interested parties, including the subscribers to the capital stock of the proposed corporation who advanced $5,500 that went into the common fund. It would seem unnecessary to say that French’s trustee in bankruptcy did not succeed to his trust relation to this business and property. If French has any claim not paid and extinguished by the assignment to him of this lease and option, his trustee in bankruptcy has a right to enforce it for the benefit of the’creditors of the bankrupt’s estate, but he has no right to the possession of property held by French as trustee at the time he was adjudged a bankrupt, nor has-he the right to administer that propertv as a part of the bankrupt estate.
For the reasons stated, the judgment of the District Court is reversed, and cause remanded for further proceedings in conformity with this opinion. ,