Opinion
July 31, 1928.
Harris, Harris Popper and Martin, Martin Snow, all of Macon, Ga., for creditors.
C.L. Shepard, of Ft. Valley, Ga., and Ellis Glawson and Smith Smith, all of Macon, Ga., for bankrupt.
In Bankruptcy. Involuntary petition in bankruptcy by the Florida National Bank and others against A.J. Evans, tried to the court. Adjudication granted.
On August 12, 1927, an involuntary petition in bankruptcy was filed against A.J. Evans. The defendant by answer contends that he is chiefly engaged in farming or the tillage of the soil, and is therefore not subject to be adjudicated. The case was referred to a special master, "with direction to take and hear the evidence on said issue and report the same to the court, together with his findings of fact and rulings on the admissibility of evidence, but with no recommendation as to whether or not the said A.J. Evans should be adjudicated bankrupt." After the master filed his report, the case was argued before the court, both orally and by brief.
Defendant was a man of large and varied activities, connected with numerous individual, partnership, and corporate enterprises.
1. Individual Farms.
Individually defendant owned and operated farms aggregating approximately 3,000 acres.
2. Partnership Farms.
Defendant was a member of several farming partnerships, each partnership being composed of himself and one other partner equally interested. These partnerships operated farms aggregating about 9,000 acres.
3. Corporation Farms.
Ten corporations, in which defendant was an officer and a large stockholder, owned and operated farms aggregating approximately 18,000 acres. The defendant, either directly or indirectly, was in control of the management and operation of these farms.
4. The Evans Marketing Agency.
Prior to April, 1927, Evans individually built up a marketing business, handling farm products for producers generally and products from the individual, partnership, and corporation farms of Evans. In April, 1927, the marketing business was incorporated under the name of A.J. Evans Marketing Agency, Incorporated, and was carried on by the corporation, just as it had been by Evans individually. Evans owned most of the stock. The marketing agency was formed because Evans could not operate longer in his own name on account of judgments, suits, garnishments, etc.
Besides marketing the produce from the farming enterprises of the defendant, the agency handled peaches, grain, peas, corn, asparagus, cattle, hogs, and other products for various other producers. In 1927 this corporation handled 55 cars of peaches from Evans' individual farms, 48 cars from his partnership farms, 202 cars from his corporation farms; 70 cars bought by the partnership of Evans Strother from Wilson; 807 cars from various other growers. It also marketed 7 cars of melons from the Evans farms and 37 cars for other producers. The marketing agency bought the fertilizer, farm supplies, implements, machinery, crate material, etc., for the individual, partnership, and corporation farms, and furnished some merchandise supplies to other growers.
The produce of the individual, partnership, and corporation farms was marketed by the marketing agency at cost and without profit. Supplies were also furnished by the agency to these farming enterprises at cost. Commissions for marketing and profits on supplies were made only from outside producers. Income from such sources from April to November was about $40,000, besides accounts receivable of $59,000 and notes receivable of $18,000. The net profit is not ascertainable. It was through the marketing agency that the farms were financed. Evans placed the money indiscriminately upon the individual, partnership, and corporation farms as it was needed.
5. Other Interests.
The Southern Brokerage Company was a corporation in which Evans owned stock of $24,000. It handled farm implements, spray material, insecticides, crate material, and other farm accessories. Evans was president and received a salary of $3,600 per year. It sold at cost to the Evans enterprises, but not at cost to others.Evans Strother was a partnership, formed to buy peaches from J.A.L. Wilson and to resell them through the marketing agency. Seventy cars were so handled in 1927.
The Citizens' Bank of Ft. Valley. Evans was president and owned stock of $21,842. He was not regularly active, but received a salary of $1,350 per year.
Ft. Valley Cotton Mill. Evans was general manager and treasurer, and owned 283 shares of stock booked at $18,395. His salary was $5,000 per year.
Ft. Valley Knitting Mill. Evans was general manager and treasurer; owned 95 shares of stock, booked at $9,400. His salary was $3,400 per year.
Huntsville Wholesale Nursery. Evans owned the majority of the stock and received a salary of $15,000 per year. He acted in effect as manager, through superintendents and overseers. The nursery grew out of Evans' desire to have a reliable nursery from which to stock the individual, partnership, and corporation farms. The corporation produced also general farm crops.
The Evans Cannery Company was an individual operation of the defendant until some time in 1927, after which it was operated through the marketing agency. Its output was about 36,000 cases.
The Allon Sand Company was a corporation engaged in mining sand. Evans owned a majority of the stock and directed its affairs. Sales of sand in 1926 amounted to $26,000.
Ft. Valley Oil Company. Evans was president. He bought fertilizer for the company and resold it to his farming interests.
Carter Insurance Agency was a partnership, in which Evans owned a one-fourth interest. All of his enterprises were insured through this agency at a somewhat reduced cost. He invested about $1,400 in it, and has drawn from it $9,300, including the original investment.
6. Investments.
The master's report shows investments in 1927 as follows:
Individual farms ..................... $196,751.05 Partnership farms .................... 125,382.50 Corporation farms .................... 332,975.57 Huntsville Wholesale Nursery ......... 99,697.55 Evans Marketing Agency ............... 19,900.00 Allon Sand Company ................... 9,466.60 Citizens' Bank ....................... 21,842.00 Ft. Valley Cotton Mill ............... 18,395.00 Ft. Valley Knitting Mill ............. 9,400.00 Ft. Valley Oil Company ............... 10,000.00 Southern Brokerage Company ........... 24,008.25 Allied Packers ....................... 1,090.50 Bank of Ft. Valley ................... 2,900.00 Bibb Basket Company .................. 2,000.00 Duroc Jersey Association ............. 8.50 Edgerton Manufacturing Company ....... 4,000.00 Fourth National Bank ................. 16,475.53 Georgia Commonwealth ................. 50.00 Houston County Fair .................. 10.00 Ind. Veneer Package Company ........ 5,000.00 Louisville Oil Company ............... 5,000.00 Liberty bonds ........................ 150.00 McRae Hudson Company ................. 500.00 Cotton warehouse (property) .......... 500.00 W.J. Oliver, machinery ............... 1,500.00 W.J. Oliver, hotel and notes ......... 911.00 Walton building ...................... 7,972.39 John Russell estate .................. 400.00 Real estate and buildings, principally in Ft. Valley, less depreciation ($35,083.30) ....................... 64,665.45 Miscellaneous ........................ 4,345.00 Accounts receivable .................. 28,429.20 Allied interests ..................... 179,011.39 Notes receivable ..................... 217,996.60
7. Liabilities.
Accounts payable ..................... $112,294.74 Notes payable ........................ 562,709.50 Taxes ................................ 1,882.88 Reserve for depreciation ............. 75,442.03
The evidence does not show definitely for what particular purposes the money represented by these obligations was used. It is probable that most of it was used in the operation of the three classes of farms, the portions going to the partnership farms and the corporation farms being in the nature of loans, with obligations for repayment.
8. Income.
Defendant's income from the marketing agency and the three classes of farms in 1927 does not appear. He received from both farming and nonfarming corporations the same salaries in 1926 as in 1925. Salaries were paid to him by the farming corporations, notwithstanding most of them lost money in 1926. These losses did not affect the income of Evans.
The character of business engaged in by Evans did not materially change from January 1, 1925, to August 8, 1927, except that from April 1, 1927, to August 8, 1927, the marketing agency, a corporation, took over the marketing activities of Evans. Following is a complete audit for 1925, showing income of Evans for that year:
From Lilly Place, and other individual farms, profit ........................... $ 28,627.53 Partnership farms, some showed a loss and others a profit, the net profit .................................. 6,560.56 Farming corporations, except Huntsville Wholesale Nursery: Salaries ................... $13,200.00 Dividends (of which $6,600 was for 1924) ................. 13,800.00 27,000.00 __________ ___________ Total ............................... $ 62,188.09 Huntsville Wholesale Nursery, salary ...... 15,000.00 ___________ Total ............................... $ 77,188.09 Income from trading and handling fruit and farm products. Total profits, $26,074.56; total losses, $38,737.20; net loss .................... 12,662.64 Individual trades, not connected with any trading business, telephone deal, real estate deal, McNeil land contract, etc. Total profits, $20,627.16; total losses, $38,737.20; net loss .................... 8,738.52 Income from business other than farming to which he devoted time and attention (and in which he had invested $84,446.84) such as Citizens' Bank, oil mill, etc. Salaries and dividends .......................... 18,245.00 Income from investments, such as rents from real estate, etc., not closely connected with farming or trading ............................. 6,472.29 Bad debts reclaimed, profit .............. 10,015.06 Rent concrete mixer ...................... 26.63
Summary Profit 1925.
From farm investments and farming: Individual farms and partnerships $ 35,188.09 Corporation farms ........................ 27,000.00 Huntsville Wholesale Nursery ............. 15,000.00 ___________ Total profits ........................ $ 77,188.09 On investments and business other than farming ........................... 18,738.52 On investments, such as real estate, etc. ................................... 6,472.29 Miscellaneous, bad debts, etc. ........... 10,041.69 ___________ Total profits from interests and business ........................... $111,946.97 Losses on trading investment and business (marketing agency) .......... $12,662.64 Individual trades not connected with trading business, net loss 8,738.52 __________ Net loss ............................. 21,401.16 __________ ___________ Net profit from investments and businesses ..................... $ 90,545.81
9.
Evans' chief accountant estimated that Evans, from January 1st to April 1st, spent 75 per cent. of his time in looking after the farms, including the corporation farms, and 25 per cent. to the other interests; from April 1st to September 15th, 85 per cent. in looking after his speculative and brokerage operations in asparagus and peaches and 15 per cent. to the individual, partnership, and corporation farms; from September 15th to January 1st 50 per cent. in connection with the three classes of farms and 50 per cent. to his speculative and brokerage business. The bookkeeper of Evans estimated that "95 per cent. of his time went to those farming organizations, and 90 per cent. of his investments were in farming enterprises."Several witnesses testified that Evans was one of the biggest farmers and peach growers in the state, and that the business of the marketing agency was one of the two or three largest in the United States. The following is contained in the testimony of the defendant:
"I am 52 years old. My first business was a retail grocery, which I took over when I was 18 years old, and continued for 10 or 12 years. After I had been in the grocery business 2 or 3 years, a Mr. Ellis put up the money to buy a farm of 710 acres. He put up the money, and I did the work. We farmed it for 2 years, and then set it out in peach trees. A few years later I bought the interest of Ellis, and have operated the farm individually ever since. I continued to buy land until I had an acreage, owned directly or indirectly, through partnerships or corporations, of practically 30,000 acres.
"I got Mr. Ellis and others to go in with me and build the Ft. Valley Oil Mill. My idea was that the cotton seed we produced and that which we could buy would be a nucleus which would enable us to run the mill. I also got Ellis, Parker, and Fields to put some money in the Ft. Valley Knitting Mills.
"I had an idea that the reason farms produced at a loss was because they were helpless to get fair prices for their products. I wanted to cut out as far as possible all middleman's profits. I had an idea that I could grow my cotton, put it in the cotton mill, spin it into yarn, put it in the knitting mills, and put the finished product on the consumer's back.
"As to peaches and pecans and canned goods, my idea was to go as near as possible from producer to consumer.
"The Ft. Valley Oil Company produced cotton seed hulls and oil and sold fertilizer. Fertilizers were used on the farms. My idea was to build up an organization of my own and associates that would be as nearly selfsustaining as possible, so that whatever we sold we would sell to the consumer, and whatever we bought we would buy at wholesale.
"In order to get good nursery stock, Mr. Baird and I purchased an interest in the Huntsville Wholesale Nurseries and began budding peach trees. Later I bought the interest of Baird, after which time I drew a salary of $15,000 a year. In addition to the nursery, that corporation raised cotton, corn, oats, and general farm crops. The place contains 1,000 acres.
"As to my object in farming partnerships and corporations, I did my best to pick out here and there excellent farmers and good workers, men who could control labor and knew how to run the places, and who would co-operate with me to the fullest and carry out my ideas and ideals, and have them stay on the farms and look after the work, while I would advise with them, buy fertilizers and necessary implements, crates, baskets, things of that kind, and market the produce. I kept in direct touch with the farms, whether owned by me individually or by the partnerships or corporations.
"Mr. Withoft and I each owned a half interest in the Southern Brokerage Company. He managed it. I used it to buy spray material, crates, backets, farm implements, etc., at lowest prices for use on the farms. Such purchases were turned over to my enterprises without profit to me.
"Prior to April, 1927, I had an organization to handle the produce of the individual, partnership, and corporation farms, to reduce overhead; also, to reduce overhead, I drifted into handling outside fruit. The expense was prorated to the different farms. I made no profit on stuff handled for those enterprises. Another reason for handling fruit for other parties was to be able to furnish the trade a steady supply of the same class of fruit. I could get better prices by having regular customers.
"Since April 1, 1927, the marketing operations have been conducted by A.J. Evans Marketing Agency, Incorporated. This corporation was organized, because there were a number of judgments out, and I was threatened from a number of different standpoints. They were going to garnish and tie up, close up, levy, and use every method to get money when the stuff was moving. I had made contracts with people to handle fruit. They did not want me to handle it, if their money was going to be tied up. I had to arrange some method by which I could handle this fruit.
"As I made profits, I made investments, and made improvements on the farms. I have sold most of these investments to raise money needed on the farms. My indebtedness is for money or material for farm operations.
"I operated a cannery to preserve fruit which it was deemed inadvisable to ship. In 1927, the cannery was operated by the marketing corporation. About 75 or 80 per cent. of the peaches came from my farms.
"I am nominally president of the Ft. Valley Oil Mill. By my connection with the mill I was enabled to buy fertilizers, cotton seed meal, and hulls to better advantage.
"I owned a one-fourth interest in the Carter Insurance Company. My enterprises got the benefit of the 20 per cent. premium commission.
"Farming is my principal business. I would say 90 per cent. of my time is devoted to the farms and farm interests. The general character of my business has been the same for many years."
The question in this case is whether the defendant is exempt from bankruptcy because engaged chiefly in farming or tillage of the soil. The evidence taken and reported by the master consists of two volumes, containing 661 typewritten pages of oral testimony, besides the documentary evidence. The foregoing statement of facts is only a bare outline of the testimony. It is believed, however, to be sufficient to show that the whole case turns upon a single question of law. That question is whether a natural person, who operates a farm for a corporation, is engaged in farming within the meaning of the Bankruptcy Act. In operating 3,000 acres of individual farms, Evans was engaged in farming; also to the extent of his one-half interest in the farming partnerships, he was engaged in farming within the meaning of the Bankruptcy Act (11 USCA). They farmed 9,000 acres. In that connection, therefore, the extent of his farming was the same as if he had been individually engaged in farming 4,500 acres.
Evans operated several nonfarming corporations, with the double purpose that they should carry on a general business for profit with all their customers, except the Evans individual, partnership, and corporation farms, and that they should aid those farms by marketing their products without profit and by furnishing them supplies at cost. To the extent that he caused these corporations to aid the individual farms, and to one-half the extent that he caused them to aid the partnership farms, he was engaged in farming.
If defendant's activities which are clearly farming are placed on one side, and his activities which are clearly nonfarming on the other, neither can be said to constitute his chief occupation, without reference to his connection with the 10 farming corporations which operated farms containing 18,000 acres. If, in working for the farming corporations, he was himself engaged in farming, then that farming and his other farming hereinbefore referred to constituted together his chief occupation. On the other hand, if, in working for the farming corporations, he was not himself engaged in farming within the meaning of the Bankruptcy Act, then such work and his other nonfarming activities constituted together his chief occupation, and he was not engaged chiefly in farming.
In this view of the case the opinion evidence given by several witnesses, that Evans was engaged chiefly in farming, is not important, because in forming their opinions they considered the farming of 18,000 acres by corporations, and the marketing business done by the marketing agency, a corporation, as constituting a part of the farming operations of Evans as an individual.
It is not necessary in this case to determine whether "farming" and "tillage of the soil" are synonymous, or whether the latter applies to any natural person engaged chiefly in doing manual labor on a farm in any capacity, whether as owner, overseer, tenant, cropper, or wage hand. Evans was not engaged chiefly or otherwise in that kind of work. Whatever may be the meaning of "tillage of the soil," "farming" includes more than manual farm labor, and the provision in the Bankruptcy Act exempting natural persons engaged chiefly in farming is not limited to persons engaged in such work. Neither is it limited to small farmers or to large farmers. A man may own or rent a small farm and do the work himself, or he may own or rent thousands of acres and operate through overseers and wage hands, without doing any manual labor himself, and in either case he is engaged in farming. So far as the character of the work is concerned, one's farming activity may be physical or mental or financial, just so long as it is work done in operating a farm. It is all farm work. However, whether one is engaged in farming is not determined solely by the kind of work he does. He may be engaged exclusively in doing farm work, and yet not be engaged in farming at all, within the meaning of section 4b of the Bankruptcy Act (11 USCA § 22(b). If he is engaged chiefly in the work of operating a farm, then his exemption depends upon his relation to the business of operating that farm. He must be so related to the farming as to be directly affected by its success or failure. "The intent of Congress to protect men engaged in agriculture, who might fall behind from the failure of crops for one or two seasons, has always been recognized as the basis for this provision in the statute." In re Doroski (D.C.) 271 F. 8, 9.
Section 4b must be given a reasonable construction. A man may be employed at a salary of $5,000 a year to manage a shoe store. He is not directly concerned with the gains or losses of the store. In any event he draws a salary of $5,000. Or the same man may be employed at a salary of $5,000 a year to manage a farm. He is not directly concerned with the gains or losses of the farm. Failure of crops does not affect him. In any event he draws a salary of $5,000. There is no logical reason for protecting him from bankruptcy in the latter position, and not in the former. Congress intended to protect the man who relates himself to the business of farming in such a way that the outcome of the business will directly affect his financial well-being. "The farmer works for himself." Virginia-Carolina Chemical Co. v. Shelhorse (C.C.A.) 228 F. 493, 497.
As is said in Hart-Parr Co. v. Barkley (C.C.A.) 231 F. 913, 915, the threshing of his own grain by a farmer is farming, but threshing grain for others for hire is not farming. In the case of In re Brown (D.C.) 284 F. 899, the defendant owned about 4,000 acres, which was farmed by tenants. The tenants furnished all teams, tools, implements, labor, and one-half of the theshing expenses and feed. The tenants marketed the produce and divided the proceeds of sale equally with the defendant. Defendant consulted and advised with the tenants as to crops to be planted and as to rotation of crops. Defendant did not share losses, nor was his moiety at all contingent upon the making of actual profits. Defendant spent by far the larger part of his time in looking after the tenants. The court said:
"The nature of his activities, so far as the looking after his farms is concerned, does not constitute him a farmer, but merely makes him an investor in farm lands. He had nothing to do with actually tilling the soil. If his tenant was compelled to expend, in teams, labor, tools, and implements, far more than the whole crop produced was worth, nevertheless, Brown took one-half of what was raised on the farm, subject only to a deduction of one-half of the feed and other negligible expenses. He, in effect, took produce as rent, instead of cash, and he was not farming, but only held large investments in farm lands, to which, as one interested would naturally do, he gave much of his attention."
In that case, while the defendant had his money invested in the land and spent most of his time looking after the tenants, yet he did not subject himself to the hazard of farming. He so related himself to the farming that he could not lose and might profit. To come within section 4b the debtor must be so situated as to be affected directly by the result of the farming operations. He must be engaged chiefly in farming on his own account, and not simply doing farm work for another, who takes all the responsibilities and sustains all the losses.
The 10 farming corporations were engaged in farming. Evans owned stock, but he was not by reason of that fact engaged in farming. He worked for the corporations for either a salary or dividends. He says he was paid salary in lieu of dividends. He was not liable for the debts of the corporations. They lost money, but paid his salary notwithstanding. He was not affected by their farming business. By incorporating the 10 farms, the marketing agency, the nursery, the cannery, etc., he could escape all responsibilities. If the corporations failed, and were thrown into bankruptcy, he could say they are separate entities, and disclaim individual liability, and prevent his own property from being administered. But when he fails, in order to escape bankruptcy, he says, all these corporations are just other names for himself, and in fact the farming business is all his. Thus he would operate 10 farming corporations and other corporations, and escape bankruptcy, whether he fails or they fail.
Evans, in working for the 10 farming corporations, was not himself engaged in farming. In causing the marketing agency, the nursery, the cannery, the insurance agency, etc., to aid the farming corporations, he was not himself engaged in farming. It follows that he was not engaged chiefly in farming or the tillage of the soil.
An order will be entered accordingly.