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Updike v. Oakland Motor Car Co.

August 4, 1931

UPDIKE ET AL.
v.
OAKLAND MOTOR CAR CO.



Appeal from the District Court of the United States for the Southern District of New York.

Author: Hand

Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

The decree from which this appeal has been taken was rendered in a suit by the trustees in bankruptcy of H. L. Stratton, Inc., to recover preferences alleged to have been received by Oakland Motor Car Company from H. L. Stratton, Inc., at a time when the Oakland Company had reasonable cause to believe that the Stratton Company was insolvent and that an unlawful preference would be effected. The transfers were made within four months of the voluntary adjudication in bankruptcy of Stratton Company, which occurred December 30, 1926. The District Court held that Stratton Company was solvent at the times when the transfers were made and that in any event Oakland Company had no reason to suppose that this was not the case. It accordingly dismissed the bill.

Stratton Company was a dealer in automobiles under a contract with Oakland Company as seller. The latter engaged to sell motor cars and accessories to Stratton as its exclusive dealer in a certain territory in which Stratton operated many agencies. The method of handling the sale of cars under the above contract was somewhat complicated, but requires no particular consideration here. Stratton ordinarily purchased the cars by making a 10 per cent. deposit on account of the purchase price and giving a trust receipt to the General Motors Acceptance Corporation to secure notes for the balance of the purchase money. In 1926, Stratton did a large and greatly increased business, making sales of cars and accessories in the first ten months of the year to the extent of nearly $4,000,000. This business was especially active in July and August, but in September there was a serious recession which caused Stratton to apprehend that it would be without adequate capital to go through the slack fall and winter season and be ready for the spring business. Accordingly, in November, 1926, the president, Mr. Stratton, requested Oakland to take over such portion of the stock of cars as seemed to be unduly large in view of the poor business outlook. Any unnecessary stock, of course, increased the amount of interest Stratton had to pay on its notes given for the purchase of cars and secured by trust receipts and also tied up capital invested in cars which it had entirely paid for. Stratton requested Oakland to take over these surplus cars, whether owned outright or held on trust receipts, and to pay it for the cars which it completely owned and also for what is described as the "equity" in the others. Oakland did this. It took over the cars owned by Stratton at the dates, in the numbers and stipulated values below:

1926

Nov. 18, 64 cars at $44,798.37

Nov. 30, 69 cars at 52,304.79

$97,103.16

Oakland took over the following cars upon which 10 per cent. of the purchase price had been deposited by paying off General Motors Acceptance Corporation which held notes secured by trust receipts for the remainder, and purchased Stratton's equity by crediting the latter with the amount thereof on its books:

1926

Nov. 18, 139 cars at. $12,553.43

Nov. 30, 23 cars at ...


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