Kent-Reese Enterprises, Inc., Raymond Douglass and Robert Reese v. Walter Hempy, Trustee of Big Boy Markets, Inc., Bankrupt

378 F.2d 910 KENT-REESE ENTERPRISES, INC., Raymond Douglass and Robert Reese, Appellants, v. Walter HEMPY, Trustee of Big Boy Markets, Inc., Bankrupt, Appellee. No. 20845. United States Court of Appeals Ninth Circuit. May 29, 1967. C. Wadsworth White, Oakland, Cal., for appellants. Gerald N. Hill, William Kelly, Rothschild & Phelan, San Francisco, Cal., for appellee. Before JONES, Senior Judge, United States Court of Claims, 1 and DUNIWAY and ELY, Circuit Judges. JONES, Senior Judge: 1 This is an appeal from a judgment of the United States District Court for the Northern District of California which held that certain transactions between appellants Douglass, Reese, and Kent-Reese Enterprises, Inc. (Kent-Reese); and Big Boy Markets, Inc. (Big Boy), now bankrupt, were preferential transfers in violation of Section 60 of the Bankruptcy Act, 30 Stat. 562 (1898), (amended by 64 Stat. 24 (1950)), 11 U.S.C. 96 (1964). The suit was brought by Walter Hempy, Trustee of Big Boy. 2 Jurisdiction was conferred on the district court by 28 U.S.C. 1331 and 1334; jurisdiction is conferred on this court by 28 U.S.C. 1291 and 1294. 3 The facts as found by the district court are not in dispute.…

This is an appeal from a judgment of the United States District Court for the *911 Northern District of California which held that certain transactions between appellants Douglass, Reese, and Kent-Reese Enterprises, Inc. (Kent-Reese); and Big Boy Markets, Inc. (Big Boy), now bankrupt, were preferential transfers in violation of Section 60 of the Bankruptcy Act, 30 Stat. 562 (1898), (amended by 64 Stat. 24 (1950)), 11 TJ.S.C. § 96 (1964). The suit was “brought by Walter Hempy, Trustee of Big Boy.

Jurisdiction was conferred on the district court by 28 U.S.C. §§ 1331 and 1334; jurisdiction is conferred on this court by 28 U.S.C. §§ 1291 and 1294.

The facts as found by the district court are not in dispute. The contest is over the conclusions of law reached by the trial judge.

The findings of the district court are set out in detail in the record. In brief they are as follows:

Douglass and Reese were the principal owners of Kent-Reese and Big Boy. Douglass was President and a director of Kent-Reese and Big Boy. Reese was Vice President and a director of the former and Secretary-Treasurer and a director of the latter.

At some time prior to November 1, 1959, Douglass and Reese…

(concurring):

While I am compelled to agree with the result that is reached, I discount the force of some of the considerations which my Brothers have emphasized.

The fact that Douglass and Reese were officers of both Kent-Reese and Big Boy L irrelevant. There is no suggestion that either was guilty of actual fraud and, as noted in the principal opinion, “Neither side has questioned their good faith.” With others involved, and pursuant to competent legal advice, they entered into an open, good faith arrangement by which there was an attempt to create a secured, immediately effective right.

The agreement was not recorded, and in none of its provisions can there be seen any indication of intention to assign the obligation itself. Rather it was the note evidencing the obligation of Kent-Reese to Big Boy which was the intended security. For this reason I cannot agree with my Brother Duniway that paragraph 3 of the agreement is the “pertinent provision.” Under the language of that paragraph nothing was assigned to the individual appellants. There was only the “assignment” to Kent-Reese of the right to offset, against its obligation to Big Boy, any amounts which it might be required-…

(concurring) :

I concur. The agreement does not assign a present interest in the note or the obligation that it represents. The pertinent provision is paragraph 3 of the three-way agreement. 1 The assignment is only of “such amounts payable under said obligation as Kent-Reese Enterprises, Inc. may become obligated to pay,” and the purported assignment of this uncertain and contingent amount is “subject to the condition subsequent that any such loss or liability occur, the assignment then to become finally effective and in force.” The phrase “condition subsequent” is obviously erroneous. The legal effect of the language of the paragraph is to impose a condition precedent, because it is expressly stated as a condition that “such loss or liability occur,” and the assignment is “then to become finally effective and in force.” The ascertainment of the amount, as well as the occurrence, of the loss or liability, and therefore the effectiveness of the assignment, were within four months of the bankruptcy.

. “BIG BOY MARKETS, INC., in consideration of the foregoing, agrees to hold KENT-REESE ENTERPRISES, INC., free and harmless from any loss or liability under the above agreement and as…