Lynchburg Motor Co. v. Thomasson

Sims, P., after making the foregoing statement, delivered the following opinion of the court: The questions presented for decision by the assignments of error will be disposed of in their order as stated below. 1. Was there sufficient evidence before the jury to support the finding of fact that the defendant, at the time it took repossession of the automobile, was acting as a trustee in execution of a trust, upon which .theory instruction “B” given by the trial court was manifestly predicated? The question must be answered in the affirmative. Upon the decision of this question depends the right, or lack of right, of set-off claimed by the defendant, and it involves the proper construction of the following provisions of the bankrupt act, §68 (U. S. Comp. St. §9652); namely: “In all eases of mutual debts or mutual credits between the estate of a bankrupt and a creditor, the account shall be stated and one debt shall be set-off against the other, and the balance only shall be allowed or paid * That is to say: 2. Is the instant case one of “mutual debts or mutual credits,” within the meaning of this statute? That question must be answered in the negative. — 162 — It is settled, and is uneontroverted before us, that the right of set-off as against the demand of a trustee in bankruptcy, in an action such as that before us, is to be determined upon consideration of whether the respective claims and liabilities were held in the same right or in inconsistent relations of the parties as of the date of the filing of the petition in bankruptcy. The inquiry is, were the respective debts and credits “mutual” as of that date? Now the evidence shows, without conflict, that the relationship of the parties was the same at .the date just mentioned that it was at the time the defendant took repossession of the automobile. Therefore, whether the respective debts and credits were “mutual” in the instant ease depends upon what was the relationship or capacity, in which the defendant was acting when it took repossession of the automobile. That the resale of the automobile was made after the filing of the petition in bankruptcy is immaterial. It appears from the evidence that the defendant took repossession of the automobile, on the demand of the assignee, the Maryland corporation, under the provisions of the conditional sale contract, upon default having been made in the payment of certain unpaid notes secured by that contract, and that the primary object for which such repossession was taken, and on which alone the right to take such repossession rested, was the resale of the automobile by the defendant under the provisions of the contract in order to pay the amount of the unpaid notes; the defraying of the expenses mentioned in the contract, and the paying over of the surplus left in hand to the bankrupt being merely incidental to the aforesaid primary object. The relationship of the defendant to the transaction was, in substance, the same as if he had been acting under — 163 — precisely the same powers conferred upon him by a deed of trust, instead of by the conditional sale contract. And since at the time of the repossession of the automobile, and up to the date of the filing of the petition in bankruptcy, the notes had not been paid to the Maryland corporation, there is no escape from the conclusion that the defendant, at the time of the filing of the petition in bankruptcy, was acting in the premises as trustee for the benefit of the Maryland corporation. The circumstance that the defendant may have been also, at the same time, acting for the benefit of itself, because of its obligation as endorser upon the notes, cannot alter the fact that it was then acting as trustee, as aforesaid. And, whether also acting for its own benefit or not, it was acting as trustee for the bankrupt. It seems plain, therefore, that the relationship of the defendant in the premises was that of a trustee, acting in execution of a trust, and that it held whatever was the surplus in its hands, after defraying the expenses and the payment of the unpaid notes aforesaid, in the relationship or capacity of a trustee. The repeated holding of the Supreme Court, which, of course, is the final arbiter upon the subject, is that, under section 68 of the bankrupt act, aforesaid, where one who stands in the relationship of a trustee has a fund in hand payable to a bankrupt, he cannot set-off against his indebtedness therefor an individual debt of the bankrupt to him, because in such case the respective debts and credits are held in inconsistent relations, i. e., are not “mutual.” Western Tie & Timber Co. v. Brown, 196 U. S. 502, 25 S. Ct. 339, 49 L. Ed. 571, 574; Libby v. Hopkins, 104 U. S. 303, 26 L. Ed. 769. See also Morris v. Windsor Trust Co., 213 N. Y. 27, 106 N. E. 753, 755, Ann. Cas. 1916C, 972. — 164 — In the Western Tie, etc., Co. Case, the defendant company, in an action against it by the trustee in bankruptcy, sought to set-off an individual debt of the bankrupt to it, as against its liability to the bankrupt for certain money (referred to in the opinion as “deductions”) which was received by it subject to certain prescribed conditions. The Supreme Court denied the allowance of the set-off, and in the opinion said this: “* * as to such deductions, the tie company stood towards Harrison (the bankrupt) in the relation of a trustee; and, therefore, the case was not one of mutual credits and debts within the meaning of the set-off clause of the bankrupt law. Libby v. Hopkins, 104 U. S. 303, 26 L. Ed. 769.” In the Windsor Trust Co. Case, the plaintiff was the trustee in bankruptcy who sued a pledgee of property for the refusal to deliver the subject of the pledge after the payment of the debt it was pledged to secure, and the defendant sought to set-off counter claims against the bankrupt not based on or connected with the pledge contract; and the court, in refusing to allow the set-off, in the opinion delivered by Cardoza, J., said this: “The law is settled that if the defendant held the pledge in trust for the bankrupt, it cannot offset a debt that belongs to it in its own right. I think that, within the meaning of the rule which forbids a set-off of claims and liabilities held in inconsistent relations, a trust existed here. Within the meaning of that rule a trust may exist, though it results by implication of law from the relation between the parties. * * Indeed, the trust that was held to exclude a set-off in Libby v. Hopkins, (and) in Western Tie, etc., Co. v. Brown * * was not a technical or special one. It was rather one implied by law from the receipt of property or money subject to certain prescribed conditions. * * They were trus — 165 — tees within the meaning of the rules of set-off, alike in bankruptcy and in equity.” In the argument in behalf of the defendant the following citation from 1 Loveland on Bankruptcy, page 659, is strongly relied upon, namely: “Where there is a debt on one side and on the other a delivery of property with power to turn it into money, he may turn it into money and the two debts may be set-off one against the other. The test is whether the credit given by the delivery of the property must in its nature terminate in a debt. Thus, a creditor, who at the time of the bankruptcy has in his hands goods or chattels of the bankrupt with a power of sale or choses in action with a power of collection, may sell those goods or collect those claims and set them off against the debt the bankrupt owes him, and this although the power to sell or collect were revocable by the bankrupt before his bankruptcy.” But we do not apprehend that it is here meant that this doctrine is applicable to cases which involve a trust. Several decisions are cited by this learned work to support the text just quoted, but none of them gives any consideration to the question of whether a trust was involved therein. Two of such decisions, namely, Ex parte Whiting, No. 17573 Fed. Cas., 2 Low. 472, and In re McVay (D. C.), 13 Fed. 443, and those two only, involve facts from which a trust might have been implied; but that subject is not mentioned in the opinions in those eases. However, if they could be considered as sustaining such doctrine as applicable to cases which involve a trust, they would be in conflict with the aforesaid later Supreme Court decisions, and therefore could not be followed by us. 2. Was instruction “A” erroneous in that it took from the jury the right to allow the defandant any compensation, such as a commission on the price obtained, — 166 — for its own services in making the resale of the automobile, or in making resale of the Ford coupe taken in exchange in the resale of the automobile? The question must be answered in the negative. The provision of the conditional sale contract, so far as applicable to the question under consideration, allowed the defendant only “expenses incurred in” the resale. The making of a sale is a personal service and is not, according to the ordinary and usual meaning of the term, an expense incurred. Moreover, the grounds of defense claimed no compensation for making the resales. 3. Did instruction “A” refuse to allow the jury to consider and deduct the expense of repairing the Ford coupe? The question must be answered in the negative. It is true that the instruction does not specifically mention the repairs of the Ford coupe; but it allowed the jury to deduct the amount due the defendant for all repairs made after the automobile was taken from Berger, which included the repairs of the Ford coupe. Further: The testimony on the subject gave no information as to what were the items of the repairs on the respective vehicles, or as to the dates thereof, other than that they were “thorough” repairs and made on different dates. When the testimony is read along with the account filed by the defendant, we think the jury were warranted in considering the items thereon of date March 23, 1922, aggregating $7.75, as covering the repairs of the automobile and the items of date April 1, 1922, aggregating $17.25, as covering the repairs of the Ford coupe. And when the amount of the verdict is considered in the light of the evidence, including the account, we are satisfied that the jury deducted both of the sums just mentioned as covering all of the repairs aforesaid, including the repairs of the Ford coupe. — 167 — The last item on the account merely states the amount of $20.95, gives no date and no information as to what it was for. The testimony gives no information as to it. That being true, the jury were fully warranted in disregarding such item entirely, which we are satisfied from the record is what they did. The case will be affirmed. Affirmed.