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IN RE MID-COLUMBIA PUBLRS.

December 16, 1954

In the Matter of MID-COLUMBIA PUBLISHERS, Inc., a corporation, Bankrupt


The opinion of the court was delivered by: LINDBERG

The following is the opinion of Michael J. Kerley, Referee in bankruptcy.

On July 27, 1949, an involuntary petition in bankruptcy was filed against the Mid-Columbia Publishers, Inc., and, consent to bankruptcy having been filed by the alleged bankrupt in the meantime, Mid-Columbia was adjudicated a bankrupt on September 20, 1949. Mid-Columbia's business had been that of a print shop and conducting a newspaper at Kennewick, Washington. In due course, Ernest R. Crutcher was elected trustee of the bankrupt estate and acted as such during the state court conversion action with which we are here concerned.

 Soon after his election and qualification, the trustee brought an action against the Scott Publishing Company for the alleged conversion by the Scott Company, on or about June 12, 1949, of the bankrupt's newspaper plant and equipment, which equipment included a Mergenthaler linotype machine, on which, at the time of the alleged conversion, there was still due the Mergenthaler Company $ 8,550 as the balance on the purchase mortgage.

 This conversion action was originally commenced by the trustee in the United States District Court for the Eastern District of Washington, but the Scott Company procured removal of it to the State Superior Court, where all subsequent litigation on the conversion took place. The case was tried to a jury in the Franklin County, Washington, Superior Court, and a verdict was rendered in favor of the trustee in the amount of $ 22,033. The Scott Publishing Company appealed from the verdict and the trustee cross-appealed because, under an instruction of the trial court, the Scott Company was allowed to set off the $ 8,550 balance due on the purchase mortgage to the Mergenthaler people. It should be mentioned that there was also a special verdict with eight interrogatories and answers thereto on various items of damage comprising the $ 22,033 plaintiff's verdict returned. The State Supreme Court affirmed the judgment on appeal and, on the trustee's cross-appeal, increased the judgment by $ 8,550. See Crutcher v. Scott Publishing Co., 42 Wash.2d 89, 253 P.2d 925.

 A petition by Scott Publishing Co. for a rehearing was denied in 42 Wash.2d 104, 253 P.2d 925. Scott Publishing Co. has since paid in full to the trustee the amended judgment of $ 30,583. After payment of the judgment the Scott Publishing Co. filed herein a petition asking that the trustee be ordered to repay $ 8,550 to the Scott Publishing Co., which petition is based upon the ground that the trustee, by receiving the $ 8,550, has been unjustly enriched. Thereupon, the Referee issued an order directing the trustee to show cause in response to the petition. The trustee then served and filed a motion to dismiss the petition, consideration of which motion was deferred until a hearing was had on the merits; the trustee also served and filed an answer. The Scott Publishing Co. will henceforth be referred to as petitioner.

 The petition and answer are mostly undisputed narratives of steps in the state court litigation and inferences drawn from the pleadings. A hearing was had on the merits and the reporter made a transcript of the proceedings. At the inception of the hearing the trustee renewed his motion to dismiss the petition upon the ground that it does not state any grounds for relief against the bankrupt estate, and a ruling on the petition was deferred until completion of the evidence. Petitioner offered in evidence copies of the pleadings and record on appeal in the state court action, which were objected to by the trustee except for the purpose of proving res judicata, and these exhibits were admitted in evidence, subject to the objection. These exhibits include the statement of fact and briefs of the parties on appeal, as well as the writings which were admitted over objection of the trustee. It should be said that a ruling on the trustee's motion to dismiss was deferred so it could be learned to what extent the question of the $ 8,550 sought by petitioner had been touched upon in the state court action, and this, of course, for the reason that the trustee's defense to the petition is the doctrine of res judicata. The only oral testimony adduced at the hearing was that from Glenn Lee, secretary-treasurer of petitioner, and from Thomas Malott, attorney for the trustee. Mr. Lee's testimony, objected to by the trustee, was to the effect, that, as of the date of the hearing, July 23, 1953, because of payments on the linotype mortgage by petitioner, the balance due on the mortgage was $ 2,850. Mr. Malott's testimony had to do with events between the adjudication in bankruptcy and trial of the conversion action.

 The petitioner's position is fairly put in its first memorandum of authorities, page 1, as follows:

 'The petitioner takes the position that it has assumed and agreed to pay that mortgage indebtedness and is saving the bankrupt estate harmless from any liability therefor, and has been paying and will pay off the mortgage indebtedness. The effect of so doing and the opinion in the Crutcher Case, supra, will be, unless a court of equity intervenes, that Scott Publishing Company will pay the mortgagor the full mortgage indebtedness and likewise pay the same amount to the Trustee of this bankruptcy. In short, it will constitute a double payment and unjustly enrich the bankrupt estate to the extent of $ 8,550.00 that the estate would not otherwise have received.

 'Under these circumstances the petitioner asserts that it is entitled to restitution.'

 Petitioner frankly concedes in its opening brief that it has found no case factually close in point, and the writer of this opinion makes a similar confession. Petitioner's opening brief (memo points, etc. dated July 21, 1953) is replete with general expressions pertaining to the doctrine of unjust enrichment, many of which are from the Restatement 'Restitution'. Eight Washington cases are cited and principles therefrom extracted with the general theme that one ought not to unjustly enrich himself at the expense of another, where it is contrary to equity, natural justice, etc. The case of Cone v. Ariss, 13 Wash.2d 650, 126 P.2d 591, is construed to the effect that although the action for money had and received is an action at law, yet it is equitable in its nature and determinable by the application of equitable principles. This case, however, upon examination, discloses that this expression of a rule specifically deals with a void contract, the original conversion theory having been rejected by the trial court.

 The required elements for making a matter res judicata are stated in Northern Pacific Railway Co. v. Snohomish County, 101 Wash. 686, 172 P. 878, and in Johnson v. National Bank of Commerce, 152 Wash. 47, 277 P. 79 as follows:

 'To make a judgment res judicata * * * there must be * * * identity in four respects: (1) Of subject-matter; (2) of cause of action; (3) of persons and parties; and (4) in the quality of the persons for or against whom the claim is made.' (101 Wash. 686, 172 P. 879.)

 Interrogatory No. 6 of the special verdict submitted to the jury reads as follows:

 'How much have you allowed by way of set-off, if any, in your general award by reason of the fact that there was owing the sum of $ -- - on the chattel mortgage on the Model 34 ...


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