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March 3, 1955


The opinion of the court was delivered by: John E. Miller, District Judge.


This case is before the Court upon a petition for review of the order of the Referee in Bankruptcy entered December 31, 1954, disallowing the claim of the petitioner, Betty Carroll.

Petitioner contends that the Referee's findings of fact were and are erroneous. It would be extremely difficult to effectively summarize the Referee's findings of fact, and for that reason the Court is of the opinion that said findings should be set out in full.

Referee's Findings of Fact


"A petition was filed in this cause by creditors on November 20, 1953, praying an adjudication of Robert E. Carroll as bankrupt. Carroll was apparently absent from the state, and no service of the subpoena was effected. Motion to dismiss the petition was filed January 2, 1954, on behalf of Betty Carroll, a creditor. Response to this petition was filed on behalf of the creditors, and that issue was set for a hearing on February 18, 1954. Prior to the hearing, service upon the debtor by publication was commenced, and after due notice by publication, and no response having been filed, Robert E. Carroll was adjudicated bankrupt on March 9, 1954.

"On November 23, 1953, Betty Carroll filed in this case proof of claim for $9700.00, plus interest, alleged to be secured by the lien of chattel mortgages. The proof of claim was accompanied by a petition to proceed with a sale of the mortgaged chattels which had been commenced under the power of sale reserved in the mortgages. Creditors who had initiated the involuntary petition on which the proceeding is based, filed objections to the claim, which objections were adopted by the Trustee after his election. The matter came on for hearing on April 20, 1954, upon due notice, Betty Carroll appearing in person, and by her attorneys, W.S. Atkins and Albert Graves; the creditors appeared by their attorney, John Vesey, and the Trustee appeared pro se. The Court having heard the testimony of the witnesses, considered the exhibits and arguments of counsel, took the matter under advisement, and granted the attorneys for Betty Carroll time in which to obtain the deposition of the bankrupt, which time was extended, but the deposition has never been obtained. The Court, being well and sufficiently advised in the premises, now makes and files the following Findings of Fact and Conclusions of Law, separately stated.

"Findings of Fact

"(2) The claim filed by Betty Carroll is based upon the balance due on four promissory notes executed by Robert E. Carroll to Citizens National Bank of Hope, Arkansas, one dated June 19, 1953, in the amount of $8000.00; one dated July 17, 1953, for $400.00; one dated July 17, 1953 for $1800.00; and one dated September 11, 1953, for $1000.00. Partial payments of principal and accrued interest by Robert E. Carroll left a principal balance due of $9700.00.

"(3) On June 23, 1953, Robert E. Carroll executed and delivered to Citizens National Bank of Hope, Arkansas, a chattel mortgage covering substantially all of the fixtures and equipment of the cafe to secure payment of the amounts then owing the bank, as well as any future advances, which mortgage was filed of record June 24, 1953. On September 23, 1953, the bankrupt executed and delivered to Citizens National Bank of Hope, Arkansas, a chattel mortgage covering the stock of goods owned by the bankrupt in connection with the cafe, to further secure the indebtedness.

"(4) A payment of $500.00, and accrued interest, was made on the $8000.00 note on August 13, 1953, and a like payment of $500.00, plus interest, was made September 11, 1953. On September 13, 1953, there was a payment of $300.00, plus interest, on the $1800.00 note, and on September 11, 1953, $200.00 was paid on the $400.00 note.

"(5) On October 23 and 24, 1953, Robert E. Carroll, Betty Carroll, W.S. Atkins, attorney for Betty Carroll, appeared at the Citizens National Bank and advised that it was desired to pay the notes of Robert E. Carroll then due the bank, and have them assigned to Betty Carroll, along with the chattel mortgages which secured their payment. In payment of the notes the bank received a cashier's check for $4000.00 which had been purchased on October 21, 1953 from Worthen's Bank of Little Rock, Arkansas by Robert E. Carroll in the assumed name of J.R. Richards, and made payable to Betty Carroll; $1700.00 in cash; and Robert E. Carroll released to the bank four $1000.00 negotiable bearer bonds issued by the United States of America which the bank had been holding in trust for him. The statement was made at the time that Betty Carroll had that morning given Robert E. Carroll $4000.00 in cash in lieu of the bonds which were released. The bank endorsed the four notes to Betty Carroll without recourse, and executed and delivered to her an assignment of the chattel mortgages. Her claim in this proceeding is founded upon these notes and the assigned chattel mortgages.

"(6) There is no evidence or claim that Betty Carroll personally furnished the funds which were used to purchase the notes from the bank. Her testimony is that in July or August of 1953, Robert E. Carroll suggested that she buy the cafe. About September 1, Robert E. Carroll agreed to sell and she agreed to buy the cafe for $12,000.00 upon the condition that it be cleared of debt, and that Carroll effect an assignment of the lease to Betty Carroll. There was no written agreement, but she stated that she did have an unsigned Bill of Sale which was not offered in evidence. Carroll did not clear the debts or effect assignment of the lease, and nothing further seems to have been done until about the middle of October. At that time Betty Carroll states that Robert Carroll discussed with her the $9700.00 debt to the bank, advised that the bank was pressing for payment, and that unless something was done, the mortgage would be foreclosed. He suggested that she buy the debt since it was secured. She agreed to this, and, after allegedly consulting her attorney, gave Robert E. Carroll $9700.00 in cash which he was to take to the bank to purchase the notes in her behalf. No receipt or other evidence appears to have been taken from Robert E. Carroll when this $9700.00 in cash was placed in his hands. Carroll did not go to the bank immediately, but Betty Carroll does not appear to have been concerned about his failure to produce the notes forthwith or otherwise account for the $9700.00 cash. She next heard from him on October 23rd when he asked her to come to his room to discuss the mortgage. At that time he suggested that she get her attorney ...

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