Opinion
No. 136240
Decided October 13, 1971.
Receivership — Status of claim — Intent not controlling factor — Fraud — Bad check.
1. The intent or lack of intent of a supplier to become a creditor, is not the controlling factor in determining whether the supplier actually became a creditor.
2. Where a supplier accepted a check as payment for merchandise, it became a creditor the moment the check was dishonored at the bank.
3. A supplier does not have a right to become a preferred creditor, merely because the merchandise it supplied did not appear on the inventory of a company that later went into receivership, and which was presumably sold by the company at a profit.
Mr. Jesse L. Jennings, for plaintiff.
Mr. Jack Pickrel and Mr. Benjamin R. Shaman, for defendant.
This cause came on to be heard upon the motion of the Allied Supply Company, Incorporated, for an order of the court directing that its claim against the May Furniture Company, now in receivership, be allowed as a preferred claim rather than simply being listed among the general, unsecured creditors of said May Furniture Company.
On September 10, 1970, agents of the May Furniture Company purchased certain merchandise from the Allied Supply Company on a C.O.D. basis, giving in payment two checks totalling the purchase price of $945.00. These checks were not honored by the bank for the reason that two signatures were required and only one appeared on the checks.
Fifteen days after the merchandise was purchased, one of the creditors of the May Furniture Company filed a complaint seeking, inter alia, to have a receiver appointed to take charge of all of the assets of the corporation for the reason that the corporation might then be insolvent and unable to pay its debts as they mature. The May Furniture Company consented to the appointment of a receiver and one was appointed that same day.
The Allied Supply Company alleges fraud on the part of the May Furniture Company in that Allied was induced to part with merchandise on the false representation that it had been paid for such merchandise (the payment by check which May Furniture Company knew or should have known was defective since it bore only one of the required two signatures) and that at the time the merchandise was purchased, the defendant was insolvent and unable to pay any obligations incurred. In addition, the Allied Supply Company alleges that their claim should receive preferred status for the reason that Allied never intended to be a creditor of the May Furniture Company and supplied that company with merchandise with the understanding that it would be paid in cash. Finally, Allied Supply Company claims that the May Furniture Company has been benefited by the additional inventory sold to it by Allied; that since such merchandise does not appear in the inventory prepared by the receiver, same was obviously sold at a profit and the May Company's assets increased thereby.
Allied further bases its claim upon the following language: Clark, Law of Receivers, Third Edition (W. H. Anderson Company, 1959):
"The tradition of law in the United States is that, without an enabling statute, a court will refuse to convert a claim of a simple contract creditor into a claim cognizable by a court of equity unless the claimant can show that he has a property interest in the defendant's property by, inter alia, a constructive or ex maleficio trust. If a person enters into an agreement to part with his property, or money, by duress or actual fraudulent representation or other fraud on the part of the recipient and/or the recipient agrees to pay and knows at the time that he is insolvent and cannot pay and/or it will be impossible to pay, then a constructive trust or trust ex maleficio arises." See Section 189.
"There are two important classes of circumstances and facts which will authorize the court of equity to impress upon the property a constructive trust:
"1. When a buyer induces the seller to part with his property by false and fraudulent representations.
"2. An insolvent buyer who knows at the time of his purchase that his financial condition is such that it is and will be impossible for him to pay for his purchases, is conclusively presumed to have bought them with an intention not to pay for them, and a persuasive legal presumption to that effect arises from the fact that such a purchaser's affairs were in such a condition at the time of purchase of the property that he could then have no reasonable expectation of paying for them." See Section 1000.
"If the property has been disposed of (in this case the property is not listed in the receiver's inventory, therefore the presumption arises that it has been sold by the May Furniture Company) and cannot be traced or collected by the court through its search or otherwise (the transferror would normally have the right to recover its property), the wrongdoer must account to those having a beneficial interest in the constructive trust property and the court may make a decree finding that an amount of money is due the owner of the property from the wrongdoer." See Section 189.
"The wrongdoer cannot say that because he no longer has the property, the person who parted with it has only his simple remedy at law." See Section 189.
According to the Allied Supply Company, although they have certain remedies at law (See R. C. 1302, et seq.), the facts are such that equity must step in to transform the creditor from a simple contract creditor to a preferred creditor.
In the case at bar, since the May Furniture Company is in receivership, the court's decree would not be for the return of a specific sum of money, but would be an order decreeing that the claim of Allied have a preferred status among all other creditors.
The motion of the Allied Supply Company, praying for an order of the court listing their claim as a preferred claim is overruled and denied. The claim of Allied Supply Company is ordered to be listed, by the receiver, with that of the other general creditors of the May Furniture Company:
Allied Supply Company is a creditor of the May Furniture Company. See Black's Law Dictionary, Fourth Edition, Pages 441-3 with definitions of creditors stating, inter alia, "a creditor is a person to whom a debt is owing by another person." Wolverton v. Taylor Company, 43 Ill. App. 434; "one to whom money is due in business or financial transactions." State v. Ord State Bank, 179 Neb. 189: "In a wider sense, it means one who has a legal right to demand and recover from another a sum of money on any account whatsoever, and hence may include the owner of any right of action against another, whether a claim or legal right for damages arising out of contract or for a tort." Foster v. Gibson, 120 Ohio App. 235. Regardless of Allied's intent or lack of intention to become a creditor of the May Furniture Company, the fact remains that, in the legal sense, Allied did in fact become a creditor of the May Furniture Company when the checks were dishonored by the bank. At that moment, Allied became possessed of a legal right to demand and recover from the May Furniture Company the $945.00 sum of money due and owing for Allied's merchandise.
The court recognizes the general equitable principles referred to above, which — if applicable to the facts at bar — would cause the court to place the claim of Allied Supply Company in a preferred category. However, these principles are not applicable to the case at bar.
The Allied Supply Company alleges fraud on the part of the May Furniture Company. However, the court feels that the mere fact that the representative of the May Furniture Company gave Allied a check with only one of the two required necessary signatures upon it does not, in and of itself, constitute sufficient evidence of fraud to enable the court to declare the existence of a constructive trust.
Moreover, the court feels that the fact that the May Furniture Company was declared insolvent and a receiver appointed, fifteen days after the transaction, does not prove that the May Furniture Company was insolvent or, if so, acted fraudulently with knowledge of its insolvent condition at the time of this transaction, fifteen days prior to the appointment of the receiver.
Moreover, the court feels that both of these factors together (the tendering of a check with only one of the two authorized signatures required and the fact that the transaction took place fifteen days before the corporation admitted that it was insolvent and unable to pay its debts) are not sufficient to prove, by the required quantum of proof, that the May Furniture Company acted fraudulently in this transaction. Some indication of the May Furniture Company's financial condition as of September 10 (the date of the transaction and some fifteen days prior to the declaration of insolvency) might well have been helpful in proving insolvency and, therefore, fraudulent intent, as of the date of the transaction. However, lacking this evidence, the court can only hold that the moving party has not shown that the May Furniture Company was insolvent at the time of this transaction or that it acted fraudulently, knowing itself to be insolvent.
The claim of the Allied Supply Company therefore must rest upon its remedy at law. The equitable principles of the constructive trust will not be invoked herein.
Wherefore, the motion of the Allied Supply Company to be listed as a preferred creditor is overruled and denied. The claim of the Allied Supply Company will be and is hereby ordered to be listed among the general creditors of the May Furniture Company in the receivership.
Motion of plaintiff denied.