Goldie v. Cox

period includes all of A. The first Minneapolis, Deinard, Benedict of Minn. 185, $20,- aggregating 32 items of No. Minn., (Oscar Brecke, Minneapolis, A. of 212.84, No. 37 items of claim and the first appellee. on the brief), for 184, $15,140.49, they are aggregating as STONE, WOODROUGH, Before in evidence on-tabulations introduced listed JOHNSEN, Judges. Circuit 1, 185 Exh. and Goldie as Goldie Claim Qaim A., $35,353.- 184, Exh. total of STONE, Circuit Judge. 185 are the items of claim No. 33. All of Appellant general filed two amended journal ledger reflected on the bankrupt- (Nos. 185) in the 184 No. bankrupt; of the 37 items of claim cy proceeding Beach Club Calhoun 9, 19, 1, 2, 4 except 17 all items to to Company. hearing, full After Holding to 31 and are credited Goldie on review, entirely. referee denied both On ledger. the trial court the referee affirmed period 38 items B. The second includes as to one item claim being No. 184, aggregating $4859.- 183 claim No. to $8,000.00 $1,000.00 eight based on bonds items are reflected None these 51. issued by Mr. pledged bankrupt produced.” the books of purchased collateral to a note as C. R. af- Shefveland. From this order of concluded, A, Period the referee As to firmance, appeals. corpo- Three Mr. Goldie showing the account books be, brevity, rations as will referred to entitled to bankrupt, Mr. Goldie was follows: The Beach Club Hold- Calhoun account,” credit, ledger as “shown on ing Company bankrupt, as the the Calhoun advances December amount of for net Beach Holding as the $25,637.84; and 31, 1928, must Company, and Beach debit, Calhoun Club ledger on the “shown charged with the Club. net account,” $25,525.08—leaving a cred- disposed of all him of it due $156.76. Claim No. 184 is claimed advance- No. and of items items on claim ments and is evidenced left checks, claim No. 184. This items July 1 from October fell to 183 of claim These checks are in various sums 1933. period B.1 $20,378.48 plus and amount interest above custody 1 Concerning had the actual herein Goldie books referee, bankrupt, of the records of the bank- control all found as follows. appointment rupt. September Malmberg resigned After of Harold “In herein, secretary-treasurer ap- as Trustee W. Oox April 28, pointment made on and Goldie became his At said successor. August Malmberg and on deliv- time turned over to Goldie corporate the Trustee certain books and all ered to books and records bankrupt, including possession [he] records of the in his includ- journal payable ledger and a accounts the minute book. In October year City Minneapolis; Malmberg Trustee for the thereaft- left tliereaftei’, er delivered these books records to office turned over to Goldie his counsel, therewith; Brecke, Mr. one who re- in connection at files least possession bankruptcy the fall thereof until tained since said time until B, As to above may Period there were the on what we designate mathe- (38 items which amounted phase is, matical problem, claim- referee what $4859.51. found referee deemed the evidence to ant any “has failed establish sat- show as to existence of advancements isfactory payments evidence that said opposing as to debit items request made short, claimant—in whether the bank- benefit, rupt claimant, and, its use or has failed was in fact indebted produce so, reflecting However, account books if what amount. the find- payments any ings has stop failed to disclose of the referee did not with these payments may which he received from mathematics. any the bankrupt during period that or He considered other issues found: charges against during period. him that that all advancements in these claims should president being the manag- capital be treated as contributions to the occupied bankrupt, officer of the repaid; a fidu- and not as loans to be ciary it, any any relation to pre- claim that amount due on these claims should by against sented him be (27 estate subordinated to the claims claims subjected must be to close and for rigid $29,500.00) scru- of holders of which bonds tiny, allowed, and to be Goldie; must personally satisfac- were guaranteed by Mr. torily proof. established Such se- joined this claimant with others rious doubt exists as the propriety false and fraudulent “with an transactions any of said items that the court feels con- intent groundless enforce claims and strained to disallow them.” thereby deceive and defraud stockholders and creditors of the above estate” to their In addition to the above claims for ad- and, damage estopped “is now therefore vancements, there was an item $300.00 asserting any against claim the above “services”, per for day for 15 $20.00 estate, attempting and from share days July between and October good faith creditors of the above es such, 1932. As to the referee found thereof.”; tate in distribution an that no evidence was support offered to subject assignment of the matter of these item; and, addition”, “in pay- Shapiro (or partner to L. claims M. to a any ment director, salaries officer or up ship made of him and his brother Sam profits from “net arising from the Shapiro) ineffective because the debt operations of property said Club under assignment was made had operating agreement” was a condition and, paid; item in claim 184 (by for issuance of license Securi- $8,000.00, represented by bonds of the ties Minnesota) Commission of to sell stock bankrupt pledged as collateral to a note and written waiver to Shefveland, owned C. R. was not all that effect purpose and for that was execut- owable.2 ed claimant and there had never been any profits.” such “net certificate, In his the referee stated the questions presented for review were: The net result of the findings above is the referee there was due “(1) claims, claim- Whether said unsecured if on ant claim 184 nothing any amount, $156.76 on post- allowed should be findings These were based up- poned and subordinated rights of subsequent year at which pro- Goldie took all time 1928 were purpose although of said books and records for repeatedly duced the Trustee preparing claims, production, his amended specifically and ever demanded their pos- production since said Goldie Book, time has retained of the Minute Stock- Dpon hearing Book, Ledger session thereof. Certificate check- journal produced ledger journal Goldie books and for 1929. It contained entries the minute book corporation of its business or of its financial trans- was never delivered to the up Trustee, actions to December 1928. Said and that the Trustee and his ledger attorneys was received in possession evidence as have never had journal Claim Exhibit and said thereof.” was received in evidence as identify Goldie Claim We have not been able fragmen- Exhibit 4. Certain other (Exh. bond item of the detailed schedule tary produced by appeal 12,001) records also A in No. the referee G, (Trustee’s parties Exh. and Goldie Claim being and the seem to treat it as reflecting any part is, G. but no further books claim. The matter how- bankrupt’s important ever, appeal of financial transactions not on this since (1) bank- Fraud Point. holding ‘A’ Bonds creditors rupt guaranteed by Goldie. or point the existence hinges duty claim- of bad faith or breach of ac- guilty of “(2) Whether Goldie stock- of creditors prejudice ant to the duty whereby bad breach tual faith and faith bankrupt. By bad such holders es- good faith creditors of above conduct duty meant breach of deceived, whereby es- he now tate were for claimant inequitable would make topped any asserting allowed, or, if claims allowed have his the above estate. the es- share, in distribution of have them fact “(3) bankrupt was in Whether the tate, unsecured cred- equality with other Goldie, and if so in what indebted to Litton, Pepper 308 U.S. itor claims. v. amount. Determination 84 L.Ed. 281. 60 S.Ct. “ (4) made Gol- Whether the advances legal of certain required here consideration be treated as die should application of those principles and then capital contributions the fact situation. principles to loans. are stated legal principles “(5) performed Whether Goldie Litton, Pepper v. Douglas Mr. Justice 1932 services for 281. 84 L.Ed. 308 60 S.Ct. U.S. compensation. is to he entitled or disallowance principles Those are: that Shefveland, “(6) Whether R. as sub- C. “in determined of claim is subordination a rogee of entitled to allow- is (308 U.S. light equitable considerations” of $8,000 upon ance a claim of ‘B’ bonds of 244); this that page 60 S.Ct. page included in claim of Goldie’s officer, by an director or applies to claims No. 184. (308 bankrupt corporation of a stockholder 306, 307, 60 84 L.Ed. pages S.Ct. U.S. “(7) in the a Whether event Goldie has ; that, such or director because officer claim, Shapiro, Hennepin L. M. or Trans- fiduciary, with the bank dealings their is a Hennepin Transportation fer or scrutiny” subjected rigorous to rupt “are Company, Inc., assignee thereof.” is “not is on them to and the burden The states as to certificate but of the transaction prove good faith of these seriatim. each its fairness from the to show inherent also particular corporation matters in up viewpoint take and those We now of the by appellant. Logically, urged being we test “whether here terested therein”—the points which, de- first those if the circumstances the consider not all or under appellant, complete- an against would carries earmarks of termined transaction dispose (308 page ly of the claims in their U.S. largely length bargain” or arm’s entirety. duty points There are three this that it is the of page 245); 60 S.Ct. point (1) circum bankruptcy this concerns court “to sift the character: guilty claimant was actual to finding surrounding claim see that stances duty whereby good faith and breach not done ad injustice bad unfairness is or faith creditors deceived because estate” and ministration estopped asserting any especially which he is clear duty “is when the this the estate—if the ben seeking claims this be de- allowance accrues to claim claimant, director, adversely officer, termined both or claims an stockholder” efit of point entirely; page (2) page 246); fail concerns S.Ct. (308 U.S. may the advancements be sim finding that be consideration should “a sufficient capital play contributions treated as of rules of fair ply not the violation claimant; adversely this be determined a loans—if breach good conscience fiduciary appellant, items of conduct therefor standards corporation, item fail but the claim for services is not owes the stockholders he thereby; point (3) (308 pages concluded con- creditors.” U.S. is Therefore, item page 247).3 ques- claim cerned with services. 60 S.Ct. mistakenly included item and not court allowed this and no here was trial action here. allowable. attack Therefore, 3 Appellant question longer cites Crowder Allen-West is no v. Co., Court, F. Commission the case. (No. 10) more rule an item which states restrictive there is guilty $1,500.00, must have “a creditor been which claimant concedes has is, referee, so this whether this claimant basis set tion here is stated play good fair forth in the footnote 4.4 violated the “rules claims either should conscience” may To the statements the footnote be be subordinated disallowed or should that, prior to undisputed be facts added the claims. unsecured creditor applications Securities Commis^ sion, memberships referee by the a in the Club found number of fact situation Also, procured. on had of stock of these claims that sale justify disallowance bankruptcy turpitude breach court. or some function of the some moral Co., duty by creditors were Crowder v. Commission of deceived, which other Allen-West damage, Sampsell Cir., Im constitute 213 F. v. their estop perial Paper supra; Corp., shar- cf. him from & such a fraud as will Color Cir., Scheibel, 546.” Moise with them the distribution v. F. n ordinary proceeds may his debtor estate However it rigid bankruptcy. claimants, deceive A intent willful if the creditor we doubt gross negligence quotation as is tantamount or such to be in this limitations placed upon general element thereto is essential announced rule estoppel”. page Pepper applicable is not an necessary 213 F. It v. Litton as fiduciary wheth- for us determine here who relation claimants contrary Pepper officer, director, er v. Litton in a or stockholder bankrupt corporation. doctrine whether limits this stated Much the rule Crowder case. is divid of the referee This statement special Pepper parts. Litton has v. his above ed is a into two first fiduciary gen applicable of a situation reference to torical account which is director, officer, erally is an creditor who to consideration the claims corporation. grasp stockholder which must be understood to case, meaning par In expressly it and is the Crowder full fact situation the (213 page ticularly applicable present F. stated to this is simply particular the claimant creditor there was second sue. The recited fiduciary. and not a fact The historical statement situation. Appellant & Sales also Bird Sons cites is as follows: Corporation 371, Tobin, history bankrupt corpora- 78 F.2d 100 v. “The 654, appears fully That is of A.L.R. Court. case tion and from the files rec- merely distinguishes it interest here facts essential to a ords herein. The (78 page 374) Crowder the ease F.2d consid- determination of the claims now the before one there it. ered are these: may connection, corporations attention In this were “Three associated in called to a statement Geist Pru- v. involved Calhoun Beach en- Club Corporation, Cir., terprise dence Realization 2 : (decided citing 122 Holding F.2d 503 since and “1. Calhoun Beach Club The Litton), page 505, Pepper Inc., corporation, Company, as fol- v. at a Delaware brevity lows: for called ‘bank- hereinafter Bankruptcy “Similarly, Act, 65, rupt’ ; § sub. 105, requires, a, a, Holding 11 sub. § U.S.C.A. “2. The Calhoun Beach Com- liquidation, pany, corporation, the distribution of ‘dividends a Minnesota herein- per equal brevity ‘Holding Compa- of an centum’ ‘on all allowed after for ny’ ; called claims, priority such as have Bay, 4, non-profit are secured.’ Moore v. Club, 284 U.S. “3. Calhoun Beach corporation, 52 76 S.Ct. L.Ed. 76 A.L.R. Minnesota hereinafter for Martin, brevity Globe Bank & Trust Co. v. 236 called the ‘Club’. prior U.S. 583; Sampsell 35 S.Ct. 59 L.Ed. at all “Goldie times to the bank- Imperial Paper ruptcy managing v. & Color was the officer and di- Corp. 215], recting bankrupt [313 U.S. 61 S.Ct. head of the and the only departures Holding Company moving spirit 1293. 85 L.Ed. The and ordinary equality dominating made from the rule of and character in the enter- very equity, prise. majority are based on some definite was He stockholder Pepper fraud, Litton, bankrupt; such as v. 308 U.S. and co- associates bankrupt 84 S.Ct. mis L.Ed. stockholders were Ernest management parent attorney Malmberg, Minneapolis, the debtor an Taylor corporation, Harry Minneap- v. Foote, Standard and Gas & G. then of Co., [618], Electric U.S. olis. S. His and associates co-stockholders Holding Company Ct. 83 L.Ed. or concealment in the were one J. R. prejudice of a claim to the of another Mendelsohn and Leonard Sutterman I. creditor, Chicago, re In Bowman Hardware & Illinois. Co., Cir., Electric Company 67 F.2d “In 1926 the equity, registered an premises absence of such subordination fee owner of the create, preserve ing Company purported to limited, Commis- order of the sion, [tile], and lien and claims members. enforce Club quoted bankrupt property and estate on this findings the referee its fraudulent, falsely by the referee: stated and were thus false and fact situation exe- fraudulently done and caused to he instru- aforesaid “Each and all associates, an with and his whereby cuted Goldie Hold- and transactions ments any bankrupt employees to have nor West Boulevard at Dean located Minnesota, [Clug] or ex- Minneapolis, on the services claim penses Lake Street upon campaign Building with the connection later Club which the commission; and or- excess of the In the fall of 15% built. bankrupt withhold authorized ganized construct membership and was fees Beach Club the Calhoun maintain 15% required with balance building trustee the Apartment use exclusive for the Club, Loan and Minnesota Trust which was members Minneapolis. promotion campaign organized time. about also same agreement Ex- in Trustee’s purpose is embodied under- For property purchase hibit ‘L’. took to Holding Company, “Coincidentally the execution [woth] construct and to operate Exhibit en- building Trustee’s ‘L’ an same under agreement arrange- with agreement tered into Club. with the whereby employed in turn Goldie to Club ment between the campaign agreed pay agreement be- conduct said in a written is recorded commission, stipulated Goldie the of March tween them dated as 15% said authorized him to withhold com- Trus- in evidence as which was received required agreement him re- mission to trustee the Company; Exhibit ‘N’. Said tee’s agree- with said Trust balance turn, owns an cites that specific understanding purchase property in- ment might employ persons building [Gildie] other to erect a hotel and tends carry campaign purposes equip on the at his own ex- and to the same at club pense, employee cost, including price nor his neither Goldie an estimated land, approximately on the serv- million one expenses dollars, ices in connection use Club exclusive campaign guests; agree- in excess of the commis- and their members ment, 15% agreement bankrupt agreed carry sion. This rupt between the bank- the to out payment agreement and Goldie is embodied Trus- of said the terms possible ‘J’. purchase, Exhibit tee’s of and soon after as as bankrupt “At the same and time the there was turned over to it from the agreement a membership Club entered into trust the of Club out dues collected the Loan $255,000, Minnesota and Co. Trust Club sum the the of or a protection prospective agreed upon, arrangement the the of Club less sum if by and members, required bankrupt bankrupt to the for sufficient additional the deposit membership of funds, fees with to and furnish erect such build- 85% Company, operate Trust there ing, the to remain un- and to maintain and the $255,000, til the trust fund should total same the use of Club members and specific agreement guests; assigned on the the bank- their and the Club to rupt bankrupt no could use more than of the the all of the returns from 15% expense conducting present for the memberships, fees membership campaign of the future Club in- cluding charges, and agreed should make and all fees and charge beyond commission, bankrupt the the should receive all in- 15% provision expiration and with that after come derived from the maintenance and months, operation building event that of 6 $255,000 the the sum of of the and facili- its raised, agreement was then the Trus- ties. Said later as modified upon joint should, provision tee demand of the inclusion of an arbitration re- bankrupt Club, quired regis- and the turn over all the conditional order of agree- to trusteed funds Club. Commission, Said tration of the Securities and August 1928, ment is 7, embodied in contract of Decem- dated was received in 11, ber 1926 contained in as Trustee’s Ex- evidence Trustee’s Exh. S. plan ‘I’. hibit “Pursuant recorded said agreement operating engaged “II. From November until the Club Feb- bankrupt ruary parties 14, agree- membership 1927 the to conduct a to said operated campaign for ments ary thereunder. Febru- commission of fees; represented membership upon of the 1927 Goldie to his associ- 15% specific understanding possible ates it was not for him to might employ carry membership campaign upon others conduct expense, campaign at basis of a neither commission. There- 15% groundless and intent to enforce and above estate were deceived stockholders thereby whereby deceive and defraud damage, defrauded their estate, and con- of the above estopped asserting and creditors now deception estate, attempt- and fraudu- stituted a deliberate the above and from Goldie, and Goldie good lent scheme creditors share with the faith turpitude breach guilty and of actual moral there- the above estate in the distribution duty good faith creditors which the of. agreements Club between the said tion was as Trustee’s received bankrupt, bank- and between and the Exhibit ‘T’. Goldie, rupt bank- application, and between the “Pursuant rupt September Minnesota the Club and about Company, signed, were amend- Trust Loan and executed and the issue delivered enlarge aggregate principal ed to the commission of ‘A’ bonds percent, $825,000 September 21, reduce the trusteed and to amount of dated membership 1928, serially maturing as to funds from 85 to in instalments 80% upon applications including Feb- after received fees from September March 1931 to ruary agreements together mod- Goldie, 1927. Said 1938 and guaranteed Ex- Trustee’s Malmberg, are embodied in ification with Foote and payment ‘K’, ‘M’, principal Feb- contract hibits and interest ruary Trustee’s $250,000 bonds, 1927 contained ‘A’ first agreement guaranty Exhibit T. written upon endorsed membership campaign was con- prior negotia- “Said said bonds to their agreements pursuant ducted tion. February modification, Com- “On October 1928 the found, pany conveyed until hereinafter premises the events the bank- in the sum rupt, [summer] on October certifi- Trustee, premises duly on the demand is- cate title to the being turned over the trusteed fund owner, the Club as sued fee agreement Club and the trust certificate 43862 in No. the office terminated, Registrar Hennepin County, and the Club turned over the of Titles of bankrupt. Minnesota; fund to the and the executed August 1, mortgage deed, September “III. About bank- 1927 the or trust dated rupt began of a club Chicago the construction 1928 to Title and Trust Com- apartment building upon prem- pany Tansley Trustee, and H. J. beginning duly work mortgage registered ises. From the until Engineering the summer Fleisher 1928 the said office on October Doc- mortgage Construction & ument No. given 81079. This general Maguey contractor, bonds, acted as ‘A’ secure not and Tusler acted architect ‘B’ but also the Subordinated bonds. period During “Thereupon par- owner. completed with the excavation, piling, ticipation sold and delivered portion a of the foundation. the issue of ‘A’ bonds H. O. Stone & bankrupt negotiated Company, Company “In 1928 the with and H. O. Stone & Company Chicago, thereupon proceeded H. O. & Il- Stone of with advertise- the linois, mortgage to secure loan a on the ment and sale of ‘A’ the bonds to the purpose financing premises, authority public, for the of the with the the bank- of completion building. August rupt Goldie; particularly of the On and of more application Company 1928 an for this loan & H. O. Stone issued the accepted by Company. public & circular-offering H. O. Stone its ‘A’ of the general (a specimen that At ager time Goldie man- was the bonds of which was re- bankrupt ‘H’) of the in and ar- fact in ceived evidence as Trustee’s Exh. ranged negotiated mortgage represented public for and the wherein it to the mortgage payment principal loan. The loan was for the ‘The of the and inter- $1,075,000 $250,000.00 $825,- sum of secured bonds of est the first of of the bankrupt personal- the and a trust deed mort- or 000.00 bonds therein offered is gage property; bonds, ly by’ guaranteed on the Foote and designated $825,000 Malmberg; were as First Mort- and filed circular with gage bonds, $250,000 ‘A’ and were des- the State Securities Commission ignated support ap- Subordinated General of Minnesota in of State its Mortgage applica- plication register ‘B’ bonds. loan the to Minnesota; the of sale said bankrupt agreed principal the tion in and bonds H. O. Stone $250,000 Company registration procured of and interest the first of & the of said guar- ‘A’ bonds to become due should be in bonds the State of Minnesota on the associates, circular; addition, Goldie and anteed faith of bankrupt in the Malmberg. applica- copy appli- and loan Foote a of filed said loan up, which bankrupt financing set enterprise the scheme of the of “The entire of ownership the of necessarily the this included upon financing the of was founded stock, bankrupt; said and property in fee the through registration its project the of representation upon the is- relied mortgages, and the creditors placing the of said purchase all, bankrupt paid entire bonds, had the many, if of the its and not suance of excepting the bond price property, filed of said claims have been creditors whose thereof, fee issue, in ex- was the owner proceeding and in the above and allowed encumbrances, excepting upon clear the faith free and of credit tended par- rights circular, cation, of Vot- tate to accord with the a certain said and by Goldie, Agreement ties.” Trust executed ap- particularly July 30, Malmberg, statement of facts and dated Foote plicable guaranty (which is as follows: was re- issue said to secure ‘J’), July 6, its filed in Exh. “On ceived evidence Trustee’s Division, register application support application with Securities in of its Department stock, Commerce, procured li- of the State of of sale its registration of its of Minnesota for the on the faith of cense to sell the same representations application was received documents. stock. made in said Said large At as Trustee’s Exh. ‘A’. of ‘A’ bonds “A number time, public represented the Com- fact sold to of members already including Company, had mission that -the paid & H. O. Stone large Holding bonds, guaranteed $8500.00 number of purchase price many guaranteed its on property. bonds said public hands members of the unpaid. application outstanding De- “Pursuant said partment is- into a of Commerce of State “In 1928 the entered Joseph Holpuch registra- contract with A. & Com- sued its conditional order July whereby contracting Chicago, pany, a tion on it licensed firm of completion the construction of to sell 1000 shares Class proceeded par building, and work on the ‘A’ stock of value of common per par building share, $100 until the fall of 1929. When shares stock, units, upon stopped building, ‘B’ work was common Class superstructure compliance specified with had been erected and the certain condi- enclosed, among building tions, in- but work on the others that the fee owners completed [with], premises, terior of the structure agreement building Company, un- stands in should enter into an still property finished state. After that time bank- deed the rupt engaged excepting it, ‘free and clear of all no business encumbranc- attempts litigation, following es for consideration: The to revive promotion project. payable $40,000 sum cash as follows: through “In me- thereof which has heretofore $8500 foreclosure of $10,500 September mortgaged prop- paid, payable liens been 1928, chanics prior $15,000 payable erty, mortgage, lion to said October security payment $35,000 par ‘A’ value of for the Clas3 Com- said bonds wholly extinguished, mon lost stock’ copy guaranteed of such contract filed bonds have certified holders security pay- opinion no ment, collateral with said Commission with their attorney showing guaranty. good of an factory holders satis- Holding Company aggregating [guarantied] ‘A’ title bonds subject duly principal $29,500 have filed claims to said contract for deed: Said proceeding, in was received in thereon which have conditional order evi- duly allowed; of said as Trustee’s ‘B’. none claim- dence Exhibit any payment purported compli- “In and ants have received on ac- ostensible principal order, said bonds for in- ance with said conditional count of the bankrupt, participation thereof, with the and said remain terest wholly unpaid; bonds of payable Goldie, filed with said the dividend to Commission two deed, for contracts as claimants on account of their certain follows: said claims August 6, “(1) in Contract dated the above estate will event 1928 be- out of no Holding Company tween the as of allowed amount of vendor exceed 6% claims, vendee, and said and the Club as Holding wherein the claimants have their Company purported remedy payment of to sell the balance except by property $75,- may, to the Club for of as this court the sum thereof precise equitable adjudi- powers, 000 on the terms stated in said exercise of its equities order. said claimants conditional cate the between August guarantors upon bonds, “(2) said A contract likewise dated and the 6, Club as vendor and the distribution of between the and conform the es- bonds, there- findings said From these securing the trust its and facts deed and on, of enterprise nor it main bases gone that the would not forward thus by which findings extended credit instruments would said creditors have are the by claim- Company bankrupt purchased (dominated to the its ex- the bonds cept ant) replaced conveyance title to representations; and the at- of for such contract; tempt bankrupt claimant’s consti- Goldie hereinbefore found a sales hinder, delay of attempt tutes a deliberate to endeavors to secure amendment and bankrupt.” (Mendelson and defraud the creditors of the of associates his bankrupt, bankrupt vendee, wherein the tion of the stock of the as prop- bankrupt reconveyed purported premises Club in to sell said said turn erty warranty deed, bankrupt Holding Company by vendee for the to the as upon precise again 9, $75,000, sum of dated November 1928. “(b) registered order. terms stated in conditional on Jan- said Said deed was uary 4, in title Said for deed received a new of contracts certificate premises ‘L’ and Hold- evidence Trustee’s Exhibits said was issued as ing Company fee, date ‘L-l’. under as owner par- January “Thereupon bankrupt, 4, 1929, being No. with the of Certificate ticipation Goldie, represented said fully complied Holding Company “(c) exe- Commission had then The order, back to with the of said conditional for deed terms cuted a new contract 1928, purchase price 9, bankrupt, that payable the balance dated November January 1929, acknowledged 18, in form under said contracts on Holding Company stock and cash had in fact been as vendor wherein the paid, bankrupt again agreed said and that was the own- deliver to sell and property premises vendee, er of said free and clear of mortgage pur- bankrupt purported agree encumbrances dated September 1, securing $1,- property the issue chase said for the sum property, 135,000 $10,500 prom- bonds all as evi- follows: conveyance issory by assuming note, $1,075,000 denced of October Holding Company issue; agreeing pay 1928 from the bond the aforesaid bankrupt, $49,500 the certificate of title to the in install- the balance of 15, 1928, $5,000 of October No. ments follows: each on policy day April, February, March, of title insurance issued 15th Chicago $7,500 May, 1929, Title and Trust for the each on the day July June, August, on October 1928 which was 15th $7,000 day September, received evidence as Trustee’s Exh. on the 15th 1929, together with interest at ‘V’. the rate per copy “On representations, photostat the faith of said A annum. 6% regis- the Commission issued its order of said contract for deed was received in whereby tration on November evidence as Claimant’s Exhibit 1. “(d) it licensed the sale of the aforesaid stock issued a note Holding Company, and on November dated as of Novem- registered principal the sale of the ‘A’ bonds ber in the amount bankrupt upon application purporting $10,500, represent Company. payment H. O. Stone & Said order of down contract for deed. registration Holding Company “(e) August of November 1928 was received as Trustee’s Exh. issued notice of cancellation of authority regis- ‘D’. Under the of said said contract deed November alleged (Trus- trations bankrupt’s a considerable amount of the default therein W). securities were sold to mem- tee’s Exh. public, par- “(f) schedules, bers of the with the active In its verified ticipation February of Goldie. listed representations Syndi- “V. In violation of the Main-East Prairie Road Gardens Commission, attempt- assignee made to the and in cate as the of the vendor’s in- unpaid ed fraud of all of the creditors terest balance bankrupt, Goldie, together deed, thereby as- said contract - Holding Company sociates and in unsecured creditor of the bankrupt, following $49,500, together caused the the amount of con- the with veyances and transactions to be executed interest at the rate of from Novem- 6% and ber recorded: conveyance “(a) “(g) the After from R. Mendelsohn Said J. Sutterman, and the Leon- Holding Company bankrupt, to the and ard I. the associates of Goldie Holding Company, claiming certificate of the issuance of bankrupt, title said to be assignees Holding Company, and the execution of the the mort- gage registra- participation trust, Goldie, of and or deed the with the active of ; Sutterman) Holding application and the the suit of the was made to the Commis- Company large ($49,- to cover sion, amounts Holding Company the relin- had not part created 500.00) as con- of the sales quished was under title contract to con- bankrupt. tract the of land to vey. evident, It is the order of original arrangement Commission, the land as to the title understood seems to have been that there was a con- was when it not in the considered Company tract Holding between the and application and made a “conditional whereby convey to former was was July order” on 1928.5 that order payment the land to $75,000. on of requirement: time, At the same was an- there following owner of the “That the fee other contract and the between city property described located of whereby convey Club former was to County, Hennepin Minnesota: Minneapolis, sum, the Club for the payable same one description [property omitted enter here] dollar in cash and the balance when applicant deed with agreement an into $300,- dues Club collections should reach applicant free clear property to said subsequent 000.00. There were alterations following (not for of all encumbrances material) here in these contracts. important consideration: that, the time consideration is Holding assigned April presented Com- the same to on pany.” against 148, in said No. 103 and estate. subparagraph petition $12,000 each, recited the amount “Said on brought hearing $10,500 (g) supra, on for Y by was $1500 of said note and another 4, 1938; bankrupt; on on October note of the Trustee and on November pursuant day to continuances the return in the name of Main-East actively requested by Syndicate, who was as- Prairie Road Gardens said sisting petitioners propounding co-partnership consisting be a said presenting same, Mendelsohn, petitioned was the matter Sutterman brought amending continued was thereafter on court for an their order partially by hearing claims to include an heard additional amount 21, 1938; $49,500, allowing undersigned upon of proof October for an order petition by hearing pro claim to said said be filed tunc [nun] subject undersigned denied, $49,500, together in the amount to a motion Syndicate interest, amend, on the claim that said amount said unpaid undersigned an motion was thereafter balance due on said con- petition denied. tract deed November No review said or- that said contract for der denial was ever filed and said deed had been as- order signed Syndicate. to said final and has become conclusive. “(h) Holding Said No. “Said claims recited caused said Company subparagraph in signed the under- commence said action 30, 1938, disallowed; the Trustee herein on on November December petition Hennepin District review said order of Court of dis- Coun- ty, Minnesota, ever State allowance was filed and said order Fourth Judicial District, entitled final and conclusive. ‘Calhoun has become Beach Hold- ing Company, respect Plaintiff, to the action recited in [E.] vs. Harold “With Cox, subparagraph supra, Bankruptcy (h) as Y Trustee in the above January peti- Holding Company, Calhoun Beach Club court on on the Bankrupt, summary Defendant’, Trustee issued tion of the all the recover proceeds recovery order, Holding Company, directed made January 24, Trustee on the and ings entered contractor’s bond Find- written Fidelity Casualty Fact, Company Law, & Conclusions of Or- surety Joseph York New wherein as der and Decree the court found A. Holpueh recovery Company, & the claim asserted said con- the Hold- stituting ing Company false, sham, all of and fraud- assets into that came exception the above estate ulent with the creditors Holding Company estopped $20 recovered from other Said sources. maintaining action; said action was based and re- contract Company deed of November strained the taining from main- [Hold] and the purported same, that said ordered the dis- deferred balance of away $49,500 thereof, unpaid, remained missal cleared proceeds recovery belonged the bond claim of the false Holding Company; the Trustee.” cloud on the [tile] and that said Syndi- (August 7, Main-East Prairie This order was amended Road Gardens assignee cate in a manner here had re- contract material. Seventy-five ($1,075,- $40,000 payable as Thousand Dollars cash “The sum of 000.00)”—which trust se- has here- was the $8,500 deed thereof follows: Septem- was not $16,500 curing This deed payable the bond issue. paid, tofore been 1, 1928, By sales January 1, 1928,$15,000 1929. payable October recorded until ber but not A $35,000 par (dated Class Common contract November value of and, 18, 1929, January con- copy acknowledged of such until certified stock. And that together Holding Com- department apparently, recorded) the tract be filed this with showing attorney pany reconvey land to opinion agreed of an with “pur- upon payment fee own- it of a satisfactory title in said good and full $1,135,000.00 the manner price” contract deed.” subject er said chase following: times was not order requirement bankrupt but contract deed Dollars “Ten Hundred Thousand Five convey and a show- the terms set forth on delivering to by executing ($10,500) conveyor had fee ing contracting promissory note party part, its of the first such contract. title clear amount, receipt which note said August hereby Million By acknowledged; dated One sales contracts two August), the Seventy-five ($1,075,000) later in Dollars (acknowledged Thousand pay Company obligated covenanting con- hereby itself to Holding assuming and terms, prin- terms set vey on the the land the Club their with accordance existing the Com- cipal upon conditional order of the now out and interest mission; convey ag- premises and the Club encumbrances said amount; It does not principal on the same terms. gregating said appear were recorded these contracts Forty-nine balance Thousand “And the they presented to the seems in install- ($49,500), Hundred Five Dollars Commission. Five Thousand following ments to-wit: 11, 1928, Holding Com- October On 15th ($5000) each before Dollars on or bankrupt by conveyed pany the land to March, February, days respectively of deed, “the same are warranty stating that May, 1929, Thousand Five April, and Seven Novem- all encumbrances.” On free from ($7,500) Dollars each on before Hundred secretary) (by its ber June, July, and days respectively 15th it stated: wherein wrote the Commission6 Dol- Thousand August, and Seven day satis- [proff] ($7,000) “With reference to the 15th on or before lars title, herewith a carbon factory September, I enclose 1929. Chicago Title & copy of a letter from pay part party the second shall “The Company, Company Stone & Trust to H. O. per per cent the rate of six interest at money furnishing the the bankers who are said this date on annum from and issue, mortgage showing the first bond on Forty-nine Thous- installments deferred is clear in Calhoun Beach Club that the title ($49,500). Dollars Said and Five Hundred Inc., bankrupt] Company, sub- [the computed install- interest shall be on said Deed issued Chi- ject only to the Trust principal the balances of ment due dates on Company covering cago Title and Trust unpaid, remaining and shall in each case mortgage second loans the first and both paid together with and in addition to $1,075,000.00, Chicago aggregating principal.” installments of has, will, Company issue Trust Title and in- contended these Thereafter claimant Company & Trust Chicago Title prior to the bonds created a lien struments policy guaranteeing this Trust insurance the deed of trust. issued under prerm mortgage first to be a Deed (as ises.” August, stated Either September, (as referee), or_early in order made its definite The Commission comparison statements shown registration November allowing on signed unsecured creditors notices to 9, 1928), days (November later Four Sep- August 30 and and Maslon Brill reconveyed the land to the Hold- cancellation, 1929), notice of warranty tember deed for free payments, of this last default because of subject only incumbrances now “to title given. contract was above sales aggregating One Million premises However, request. compliance find in record “In with states letter letter, may infer, September 6, 1928, from this that a request We your as to part request had to do license to before the conditions certain satisfactory proof beg issued, title to land. I will be sell stock our following.” unable to We are submit bankrupt’s by The (verified schedules or who caused financial or have loss dam- February age claimant on Main- 1933) corporation by any listed to this illegal acts Syndicate East Prairie Road as or deeds.” Gardens assignee (Holding Com- vendor’s 24, 1938, Holding On December Com- pany) interest contract the above sales pany (dominated by claimant) filed an ac- and, thereby, an unsecured creditor tion in the against State court the trustee. $49,500.00 November with interest from petition recited the above sales con- Syndicate 9, 1928. seems to been tract and that unpaid was an there balance composed a partnership of Sutterman and $49,500.00; thereon of the contract Mendelson, who were associ- claimant’s assigned had been Syndicate to the above Company. ates in the Holding by re-assigned Holding to the Com- pany; April Holding Company On and Men- Sutterman was the (as individuals) owner of separate delson filed the land that both it and the (Nos. 148). Each of these had lost title reason of the claims was foreclosure of for the same two debts—one mechanics’ liens against the property; $10,500.00,being which was note there was contractor’s given by “to indemnify bond under above sales and save harmless the ** * owners of contract of November 1928. This claim- the land against loss participated thereon”, ant actively therein. reason of lien filed which bond “for plaintiff was the benefit of this On November Sutterman and owner of the property fee title to said Mendelson, Syn- name the above plaintiff save this loss of its title [to] dicate, petition (based allegations filed a on foreclosures”; reason of lien papers claim lost sent to Mr. Goldie bankruptcy receiver in $30,- had recovered attention) (Nos. amend their claims bond, on money 543.74 was held 148) 103 and adding the indebtedness trustee; and that “in equity and $49,500.00 unpaid representing balance good belonged plaintiff; conscience” this (above $10,500.00) the note for sales wherefore, judgment prayed was for said ; opposed by contract. This was the trustee Early January, sum. the trustee and, failure of Sutterman or Mendel- petition filed restrain this action. A appear (after notice), peti- son decree granting resulted such restraint. tion was denied the referee on Octo- finding Included the decree was a petition ber There to re- (above the contract of deed sales con- view order. and, tract) was “fictitious” decretal special On October there was a portion, it is decreed “That the claim of meeting of the board of directors of Calhoun Company Beach asserted Holding- Company. reported The “officers” petitioner against in the aforesaid action trustee in bankruptcy ap- “had against him, false, sham, fraudulent, parently disallowing succeeded in the claim right, without color and constitutes approximately fifty thousand dollars petitioner a false cloud title of ($50,000) corporation due under the assets the above estate.” Deed, of a terms Contract for and which assigned had foregoing history Main-East and transactions Syndicate Prairie Road Gardens for mon- outline as follows. The claimant eys corporation.” due them from this dominating A force the Holding resulting resolution authorized the originally board of owned the land. He was through directors, officers, “proceed majority stockholder and dominant legal may bankrupt. action moving with whatever neces- He force in sary aggressively promotion enforce and plan collect entire involving corporation moneys corporations. per- due this under this three He was the active They sonality for Deed. authorized movements Contract are to finance the may plan, memberships to commence whatever lawsuit be nec- Club and ar- including against essary rangements the Trustee his at- to secure bond issues and to and/or torneys, Surety Company bankrupt. who issued stock in the The deed sell Bond, recovery (of the Lien from whom November placed against prop- liens made for sales contract of that date unrecorded corporation. steps erty They required of this evade fur- were deliberate imposed by ther authorized to commence suit conditions Commission persons, person, partnerships prerequisites registration of the stock cor- porations moneys requirement of the to recover the due this for sale. The Deed, corporation for a contract show- under this Contract Commission was sales ing only $31,500.00 payable suit, unpaid and to straining be so of it exceeded much as $16,500.00 $15,- 1, 1928, September $31,500.00 clearly seems be fictitious. to 1, 000.00 on October 1928. The contract 9, This 1928, $60,000.00 outline reveals consistent of November for called persistent to $10,500.00 of efforts the claimant represented which a was reduce the $49,500.00 monthly dividends to other unsecured by eight note and in- and, therein, creditors to 15, having failed payments stalment beginning February absorb of bankrupt’s the assets to his From the estate—both the filing advantage—and upon 1933, such based February, in efforts schedules to the denial which, least, ques claims say the of amendment of the Sutterman and Men- tionable. It is not difficult understand this delson on October anxiety the of this claimant when faced prove attempts claimant was in active development plans of his failure $60,000.00 this claims unsecured loss to resultant himself. Nor it blame is attempts the estate. When were un- worthy steps proper that he should take all successful, Holding Company (in the protect However, the himself from loss. personality) endeav- he was the dominant duty of (and a where the bank deprive ored, early in the of estate rupt corporation, is officers) a is to of its through all an action practically its assets aid the honest the estate administration of upon resting this same sales contract. aspects. highly improper in its It the action was to recover from trus- attempt for such officer to or to reduce proceeds contractor’s bond tee the the of deny the estate creditors. We honest recovery the suit suit. bond think rules this conduct is in “violation of August, 1935. This the trustee good fair play of conscience with that thoroughly claimant was familiar claimant; fiduciary a breach stand until De- proceeding and results. Not corpora ards of conduct which owes the he cember, 1938, only after it be- and then tion, Pep its stockholders and creditors.” payments clear that under the came per Litton, 60 S.Ct. in the bank- v. U.S. disallowed sales contract were this, L.Ed. 281. Because of ruptcy proceeding, this suit for the participate with these claims not begun. These should efforts of the estate assets these other unsecured creditors. Since proceeding, if success- bankruptcy particularly ful, harmful conduct here is only more have had an adverse effect could might we be directed at the creditors upon unsecured claims all other allowed disposed postpone disallow rather than unsecured claims amount of because However, ground. these claims increased than this have been more would is no chance of the other unsecured $50,000.00 ($49,500.00) there since those per receiving a than small the suit for assets creditors more interest. bore Had centage postpone successful, of their claims so been ment and there instead disallowance would gotten all the assets would have claimant; the other no benefit to referee nothing left for would have been the trial the claims creditors. Whether or court have disallowed bond unsecured or fictitious, $60,000.00 Therefore, we this think not entire reason. above re- by the court action should be affirmed.7 found trial argument containing specified a have contract terms. We overlooked deception appellee would a statement of there have been title While only subject to the bonds Commission had the status of the changed (contained in above let- the order of trust title been deed yet change registration, if the Com- had been of November ter solely bankrupt) controlling simply to a sales contract com- mission deception. plying requirements view statement with the of the con- We as to part Commission, ditional as a an entire situation order rather related situation here would been includes all of the above have modified change However, time this statement the better. At transactions. very made, made here was it was true. There to a contract much existed placing more onerous on the title de- valid' reason requirements the deed Com- so that it could execute fiance securing mission. It be assumed that trust the bonds. The Com- cannot required would issued had not title Commission its order mission registration registration had condition this sort contract presented stock but sales it. contract. requirement However, was of such 1034; Bradley, 26 L.Ed. Capital Point. Contribution U.S. (2) The Marbury, Twin-Lick Oil Co. 91 U.S. v. as to hereafter stated The view 587, 588-590, 23 L.Ed. v. Jackman majority writer, point is that Newbold, 28 F.2d A.L.R. concurring expressed in the being view Court; 223, Larson, Stuart v. 298 F. opinion by Judge JOHNSEN. 225, 79, 38 this Court. And collec A.L.R. by (approved finding of the referee The tion of such an honest indebtedness may court) upon point as fol- the trial be allowed in receivership bankruptcy lows : proceedings. Smith, Cir., Wheeler 9 v. the relation of Goldie to “In view of 30 Larson, F.2d and see Stuart v. facts particularly the bankrupt, and more 298 F. 38 A.L.R. this Court. he its stockholder majority was does, But the issue now being considered officer, controlled its managing entirely not “turn on the existence or non-existence affairs, capital except the it had no of the debt” rather “simply involves the sale of member- money obtained from question payment” order of (Pepper by ships money furnished him and the Litton, v. 308 U.S. 60 S.Ct. memberships, purpose procuring such 247, 84 L.Ed. 281) “and so-called loans or advances Goldie’s included by advances the dominant or controlling purpose, of solely were made for the claims stockholder will subordinated be to claims enterprise getting of other creditors and thus treated effect purpose of and for the further way under enabling capital contributions by the stockholder” with Holding Company, (308 pages 309, 310, U.S. page 60 S.Ct. dispose affiliated, to 246) in certain situations. Some of such together with advantage, real estate to its situations are Pepper adverted to v. fact that the com- further initial 20% Litton, supra, pages 308 U.S. 309-311, 60 to in the amount mission credited 238, 84 S.Ct. L.Ed. 281. But whatever be $36,820.00 also entered on the situation, obviously it is to be tested capital as a debit by “rules plajr good of fair conscience.” stock, capital represented Pepper Litton, supra, v. 308 S. U.S. as- Securities Commission deferred be Ct. question L.Ed. 281. The is then bankrupt (See set O, Report Exh. Trustee’s rules, whether such on the fact situation Commission, filed Securities here, require justify or treatment of these 1929), and was so shown in said June loans and capital advances as contributions. report (see audit December Exh. H), Trustee’s court has concluded fact situation here as follows. that, disregarding mere matters of form Claimant was the in, majority stockholder ascertaining the ultimate relation a director and officer and the dominating parties, advances, all of including these personality in the bankrupt. He was the by by those now evidenced signed find no such “rules of fair violation of Audit. (4) The Hendrickson play good and toward the cred- conscience” consideration, itors which warrant these advances would For convenience being capital and loans held to be con- in two time these claims referee considered periods. and, such, tributions to be subordinat- this method of The reasons for ed to the claims of unsecured creditors. the referee consideration are stated 9, We think trial the referee and court were period (October the first that for holding. 1926, 31, error so 1928) “the books of to December complete.” bankrupt reasonably are (3) Claim for Services. 1, (after January period For the second there were no such 1929), the referee stated (in 184) This is an item claim the first falling The items within books. period alleged for services to have been $300.00 first 37 items of included the July rendered to between 18 $15,140.49) and all (aggregating No. 184 12, charge 1932—the October $20.00 $20,- (aggregating items of claim No. day days. per finding for fifteen $35,353.33. The second 212.84)—a total of (approved by the the referee trial court) 183) (Nos. 38 to period 146 items covered item two was disallowance of this on $4,859.51. aggregating grounds: evidence, (1) supporting (2) allowance would be violation of made period, the referee As to the first registration the conditional or resulting condition in in an allowance findings extended (July 31, being der of the Commission Securities of net both claims'—this on $156.76 1928) paid “that no salaries be debit in the balance of credit found applicant directors of the officers and for and credit in the transactions between rendered, findings out services save These are and claimant. profits operations net arising of set 9.9 The forth in footnote being payable including ledger lowed items advancements or loans accounts [he] 31, 1928, journal year $300.00 after December item and a for the 1929. The services, and two or three other items Trustee delivered these books thereafter general Brecke, of advancement. statement and records to Mr. one of his purely possession counsel, is made convenience deter- who retained thereof mining “capital 1935, issue of contribu- until fall at which time tions”. Goldie took all said books and records findings purpose preparing These are as follows: for the his amended September Malmberg resigned claims, “In ever since said time Goldie secretary-treasurer Upon possession has retained thereof. produced hearing journal his successor. Goldie became Malmberg At said time Goldie ledger bankrupt, which turned over to Goldie all of the of the con- corporate books and records the bank- tained entries of its business or of rupt possession including up in his financial the min- transactions December 31, ledger 1929, Malmberg ute book. October 1928. Said was received left City 185, Minneapolis; thereafter, evidence as Goldie Claim Exhibit journal and said received office turned over to Goldie in con- in evi- files therewith; dence Claim nection at as Goldie Exhibit 4. least since said time fragmentary bankruptcy Certain other and until herein records were Goldie produced by custody (Trustee’s also had the actual and control of all Goldie Exh. G, bankrupt. records Goldie Claim G. but no of the After the reflecting any appointment further books of Harold Cox the bank- W. as Trus- rupt’s appointment subsequent herein, financial transactions tee made year produced although April August 15, 1928 were and on repeatedly the Trustee Goldie delivered demanded their Trustee cer- production, specifically production bankrupt, and records of the tain books

711' Goldie, Mr. periods (introduced testimony by both hear- ters Mr. and oral ing) Deinard, Malmberg documentary consisted of mat- Ernest various Amos Mr. Book, Book, A, in Pol. B and C Minute are recorded Stock-Certificate journal journal. Ledger the 20, Under date of November check-books minute account of It Goldie 1929. bankrupt’s corporation books was credited book of amount, Trustee, and said account is now evi- never delivered attorneys have denced said note. and his Trustee possession “Note to 32 inclusive evidence thereof. items never had following books transactions: Between view of fact “In complete reasonably January 3, 1927 and November up Holding Company, period and the December for the thereafter, Mortgage Continental Finance & Com- books and there are no pany, these consider a concern in which convenience will court for financially interested, periods: issued 28 checks in two period October either to the or to Goldie who “A. The in turn endorsed them to the 1928. to December January journal entries, period together “B. The aggregate period $14,925, representing includes all advances The first “A. money 185, aggregating bankrupt, and ac- of claim No. 32 items $20,212.84, 37 items count is now evidenced and the first said notes. aggregating $15,140.49, 184, individually as The 32 are claim No. items as listed they on tabulations introduced are listed 75 106 Items to on Goldie Claim 185 1, 1, Exh. as Goldie Claim 185 in evidence Exh. and listed in were the schedules 184, A., bankrupt. a to- Claim Exh. and Goldie of the $35,353.33. tal of All of the items “VIII. jour- 185 on claim No. are reflected A “Period ledger bankrupt; of the nal of the and 184, of claim No. all period, 37 items “Within this Claim No. 184 1, 2, 19, 9, 28, 4 to 31 17 to items 36, items of includes 37 claimed advances ledger. credited Goldie on are to listed as 1 37 Items period A, The second includes items 184, “B. Goldie Claim inclusive on Exh. 184, aggregating $15,140.49. claim aggregating supporting 38 183 of No. The None of are re- $4859.51. these items these checks for items are included pro- bankrupt 184, the books of the flected on Exh. B. Goldie Claim These checks by Goldie, duced. were issued pany, Com- “VII. and the Continental & Finance Mortgage Company, to the order of the “Period A bankrupt persons. and other comprises No. 185 “Claim 32 notes $1500, 10, represent “Item does not an signed bankrupt, aggregating repay- advance to the but mere principal $20,212.84, payable amount all July 25, ment Goldie 1927 of bearing 6%, on demand interest temporary loan from the together notes, of which a list with a 13, him of 1929, $1500 June as made supporting schedule checks and entries 72 recorded in Fol. and 82 of Goldie was received evidence as Claim Goldie 3, separate Claim 185 Exh. in a 185, Exh. 1. The 13 notes from dated account and the Accounts Receivable 20, April 20, November 1936 [1926] to ledger. signed bankrupt by 1928 are “IX. Goldie; remaining 19 dated notes Ledger A “Period Record May 4, 15, 1828 to November 1928 Payable signed bankrupt by Malmberg. ledger “The Accounts are 31, notes down to following The 32 were received in December evidence as 1928 185, shows Claim Goldie Exb. 2. account with Goldie: 1, 20, $34,062.84, Total item dated credits “Note November 1936 total debits principal $8,425, [1926], $5287.84, and a amount balance due evi- Goldie following 31, 1928, $25,637.84. dences the of December account: Between 9, 20, include October 1926 The credits November 1926 Holding Company principal “(a) of all of issued 74 checks to the notes persons, together 185, various which Claim with four “(b) 19, entries of Claim memoranda of October items 184 20 and down to De- [1926], aggregate 21, 31, 1928, $5,287.84, in an 1936 cember amount in ex- promotion $13,000 with in connection cess membership campaign. approximates Club The 78 first 37 items of individually excepting 1-6, 184, listed items as Items item No. 10. The 7-74, on Goldie Claim Exh. include checks to debits Goldie dated Malmberg. other by Mr. only oral tion of that apparently others. some the cer- up in testimony, por- as summed oral record in this testimony appearing $26,006.91 account’, item wherein said to December from November among an ac- journal assets amounting $8225, is included Q). (Trustee’s Exh. amounting $200, receivable. admit- count and are items bookkeeper “(3) comprise cer- An affidavit of its charge, tedly proper tifying commis- of a to the accrual statement 20% his credit allowed Goldie membership sales, and sion for the Club of claim No. proceeds balance sales “X- bankrupt. (Trustee’s were left for the Debit A Additional P). “Period Exh. May 31, May June 31, 1928, between “After “As of accounting ac- Goldie an 1928 and and stated October made campaign com- with additional items with reference debited with count expense, bal- said debit him in the member- increased missions earned May $24,294.30. ship campaign, made ance of disbursements trans- were likewise and for additional items order Said to his ledger, campaign. Receivable ferred to the Accounts with said use connection addition, paid-in Novem- mem- items of Club and in two On total that date the 1928, ag- cash) berships (in amounted and December ber gregating upon $25,4S1.08. a as to account tered a credit his bankrupt’s separate page “XI. of the account bankrupt ledger. al- date the On that A “Period Additional Debit membership campaign out to located the 31, 1928 of December the bank- “As general expense and and of sales rupt’s auditor, Hendrickson, the re- by expense sum incurred it the executive quest bankrupt, made exam- of the an Expense $59,973.76, shown of as bankrupt’s and ination of books fur- ledger, Analysis back of the report an nished bankrupt audif thereof ledger sheet, Expense Commission Sales report- Goldie, wherein he drawing ledger ac- of sheets bankrupt to on ed Goldie indebted solicitors, and and his of Goldie counts expenses of account of over excess journal; B and 40 C of the Fol. upon membership commission said 20% to Goldie’s entei’ed the as a debit same campaign, $25,525.08, sum of ledger, leaving a debit bal- on the account represents discrepancy $44 which of a against on account ance campaign expense Goldie of figure $25,481.08, appearing from said of $23,- in the amount of ledger. report on the In said audit said 153.76, D as recorded Fol. 40 of the reported Hendrickson the total of com- journal ledger. date Under memberships in missions on the afore- May 31, of 1928 that debit balance $36,820 charge as a deferred said sum Receivable transferred to the Accounts upon account, the asset be retired to against charge ledger as a Goldie. against surplus charge in accordance with application support “In its to ledger the entries found ac- registration Securities Division count. securities, its filed fol- report, “In said audit Hendrickson also lowing documents: owing Goldie, one item listed application A) “(1) (Trustee’s Its Exh. Payable—Offi- heading, under the ‘Notes containing a statement its assets exactly cers, $23,212.84’, $3000 which is May as of and in said liabilities more the 32 included Claim adopted. The minute book of the bank “ your ‘We also called to attention the rupt produced1 by has not been charged you deficit on the books pro nor [an] has written record been corporation $25,525.08. in the sum of corporate duced of the action claimed corporation The minutes of the Club have been taken at that was time. There February 7, 1927 show it that in- was obligation part no antecedent on the tended that the Calhoun Beach Club liability; to cancel Goldie’s wipe out this deficit. recipient gratuitous as the of this can complete In order to the book record the cellation, the court has concluded that corporation minutes of the latter should voting he was disabled from for wiped show that this deficit is out adopting resolution, of said and without Surely some means or other. Mr. Malm- vote, quorum; his there was no and be berg thoroughly is so familiar with the voting existing cause of the trust between books and records as to be able to July make and Goldie dated Foote difficulty.’ this correction without (which was received evidence as Trus during April ‘J’) It that also tee’s Exh. that Foote was likewise voting adoption a Deinard attended 1929 Amos meeting directors’ disabled from for the bankrupt corporation, at such resolution and said resolution was Malmberg which, testified, nullity. reso- cancelling obligation time, lution Goldie’s “At said much of the indebtedness campaign proved against already ex- this estate had pense proposed, attempted accrued; pow- was to be then had no directors passed appropriate the affirmative vote of Goldie er to poration by releasing assets of the cor- liability and Foote Amos as aforesaid. Deinard Goldie’s is, time, director, at was that still a mem- benefit without Leonard, any consideration, attempted firm of Street ber & and said Deinard, corporate firm of which one of the Trus- action constituted a fraudulent Deinard, was, counsel, tee’s Benedict transfer voidable the Trustee is, also a member. The still Court has estate. bankrupt procured registration these circumstances concluded that are “The proceedings insofar as these immaterial on the faith of the financial its securities 71á referee,

tificate is as forth set findings 9) From the (footnote footnote lO.10 recital 10), (footnote concerned; $36,820; and that none of the that above the credit arrangement activities of in 1928 and was Amos Deinard with the any way Trustee, 1929 in he receive and that bind the commission 20% any pay ; rights that [ the credi- ] affect the the salesmen 15% engaging proceeding.” tors in sales- commission included 20% carrying men, holding meetings pertinent setting all After forth the campaign; membership documentary exhibits, activities in the this evidence is that covered the salesmen’s 15% follows: 20% expenses man- incidental August, “The that 5% evidence showed aging campaign; all of that not cer- delivered to Trustee membership charged cam- items tain books and records of the paign campaign; some related to the that including payable ledger the accounts of them parts of other were for the conduct journal; books the 1929 that these electricity project, of such as Brecke, were delivered to Mr. who re- required building photostats possession time tained of them until some company, mortgage etc. fall took all of 1935 when Goldie April, “Goldie testified that the books and records from Mr. meetings in there were several directors office; Brecke’s since which time Goldie Malmberg’s office; remem- he did not possession has retained of them. Goldie they indicated, ber the dates but were produced ledger (Goldie claim 185 bill, thought, he he received the fee journal 3), (Goldie Exhibit Deinard; were Amos that there S. fragmentary Exhibit and other rec- meetings; Springer two that could Mr. (Trustee’s G-l) ords Exhibit Exhibit meeting; Amos come to the first that books, although but no Trus- other Malmberg S. Deinard had asked whether repeatedly tee demand for their made prepared a resolution to correct production, calling especially min- for the books records of the so book, book, ute stock certificate possibility that there would of mis- jour- ledger, books, be and checks and other understanding $25,000 had that that nals. that The evidence showed charged campaign expenses minute book was never at time de- charged never intended personally; to Goldie livered to the Trustee. Malmberg asked Amos testified that the office “Goldie prepared Deinard whether he had a res- Building was at 202-4 Lincoln ; olution that Amos Deinard had the until the office was then prepared; [resulution] Building it to 608 Lincoln moved where meeting read at that and was acted was until That the Calhoun Beach adopted ordered; present and so office, never had an Club itself but that meeting Foote, Malmberg, Holding Company had its office with Springer, bankrupt; salary Goldie and Amos Deinard. (Goldie’s) that his “Goldie further week, testified he did not and that he never re- $150 adopt- know penny whether the resolution was ceived a from the Club. That meeting April ed at president first of the Club was Louis L. date; it, on a later occupied year, that as he recalled who for a Collins the office by Foote, resolution was to the effect that H. G. who and was succeeded books by Clyde Weaver, and records should be corrected was who was succeeded by so that there would be no Rolph, indication that who is succeeded H. W. still $25,000 was not president. to be considered as Club had That 1400 mem- against charge Goldie; a Malmberg Kopald, ; that at the time that the salesmen like bers logger- memberships, and Goldie were at club received who sold 15% ; Malmberg finally commission; heads that (Goldie) voted for that he received a resolution; although paid he was obdur- out of which he commission 20% the ; Malmberg ate overriding salesmen, leaving knew that it was a 5% bookkeeping error; that all four direc- for himself. exhibits commission resolution; agreements tors voted for the that at the written for a show earlier percentage. time Amos Deinard said that all knew That the commission lesser any paid there was never intention was checks. When his attention charge against entry ledger make this Goldie. Later called to the meeting $36,820’, Goldie testified that at the first he said he did ‘commissions Springer of the Board could not come received. what he know and that he wired or wrote to that ef- witness Goldie testified that “Later the ; only directors; $23,153.76 (the fect that there were four debit balance an item of May director, 31, 1928) repre- that Mendelsohn had been a him as of expenditures he was not sure whether had he excess of then over sented by Magney onded Mr. the Calhoun place force and made audit Holding Company allowed Beach Club clearly Appellant appears. Hendrickson membership a fee of improperly fee of contends here that the referee 30% membership.” regular $25,525.08 (in the allowed the debit item for the audit) against The reason claimant.11 jurisdic (except Where an issue urged why this debit should item tion) considered be has not been raised or rejected bookkeep- been it a time, presented first low but is here for the fig- ing (a) in that error Hendrickson’s (Helver will not it Court examine ures were based a commission Co., ing v. Tex-Penn Oil 300 U.S. only claimant of mem- of the fees 20% 755; York New 57 S.Ct. L.Ed. claimant, bership in the Club secured Calhoun, 114 F.2d Life Ins. Co. v. whereas, original for such contracts Court, certiorari denied 311 U.S. (successively allowing service a commis- Brew L.Ed. Falstaff S.Ct. altered 20%) sion of and later 15% Co., Corp. Produce v. Iowa Fruit & (November 1, 30%; allow 112 F.2d this Court. (b) to take Hendrickson failed fact emphasized is one of where the matter Chib into a resolution brought to reveal record here fails and the (February 1927) whereby Club was the issue sufficient for a determination of overrunning expense. to absorb by this Court. (a) As to the mention The first 30%. By (b) The Resolution the Club. point have been able we 11, 1926, the Club contract of December by appel- to find is in the brief filed here cam- reveals, employed the to conduct a lant. So as the here far record Thereby paign for members the Club. raised nor deter- is was not considered nor pay agreed to and the the Club mined the referee trial court. or the compensation for services accept full upon to “in bearing We have found party expenses of said except second the resolution the Board of [the cam- bankrupt] connection with (in Governors of the Club the minutes membership Club) paign which is “It was the sum of as follows: 15% fees”; “authorized Mr. and sec- further moved Ekstrum resigned (The books of Mr. Deinard the or not. also submitted to Amos minute ‘H’) (Trustee’s had never turned over audit Exhibit Hendrickson They produced to the Trustee. were not similar audit. during or accounted for Deinard that he “Mr. Amos testified proceeding.) independent Springer recollec- above did attend had now no detailed meeting any per- held board of directors tion of the work that he Malmberg’s April office formed for the Beach sometime Calhoun meeting Company, Mendelsohn, at which the resolution Sutterman unanimously adopted by that he num- directors attended a present. ber of conferences where Goldie his testimony present, “The fall associates were showed one of Malmberg’s of 1928 Goldie Dein- least was at office. He consulted Amos S. trip concerning personal Chicago; holdings also ard remembered oth- interests he could bill the Calhoun Beach enter- erwise refer the fee Sep- prises, and that from statement the work Oth- that time until done. tember, 1929, than had no Mr. Amos advised er this he recollection of Deinard meeting, person- Goldie with formal directors’ Mr. reference to his or whether he just Chicago, and if al to his attended one so relations associates what business- Sutterman, Mendelsohn, and was transacted. re- “Malmberg Springer testified with other lations bankrupt, stockholders of the was not trip present Chicago when and made Amos one to Deinard’s draft of upon. resolution was acted in the summer of 1929 for the Calhoun He also tes- Holding Company against attempt tified that he voted Beach in an the resolu- [testimoney] pay-outs, tion. His release the to advised was transcribed.” dealings This item in his with a' in Mr. Bent- the audit as: ley. work, $25,525.08 connection “Accounts In with this Receivable-Officers n “Thisitem represents submitted the minute book of the excess of ex- the - who, necessary penses bankrupt Amos to Deinard over Mr. rec- commission 20% changes membership it; during campaign by in for ommended certain allowed Harry Mr. Goldie, April Amos the 1929 Mr. Deinard attended S. Vice President of meeting. company membership campaign the a directors- Mr. Goldie testified manager.” book, that addition to the minute he commission; withhold” completed the the bank- that there is re- a deficit as a rupt might employ the carry others to sult campaign of that membership the campaign expense” it “at its own may up deficit ship made member- be from the (italics added.) day, On the same the coming fees collected from members bankrupt and claimant em- contracted for agreement the trust has been ployment of by bankrupt claimant the to completed.” conduct upon the membership campaign face, On its clear. this resolution is not the same terms the as in above contract , testimony Malmberg12 Ernest who of February between bankrupt and the Club. money resolution, introduced the that 7, 1927, a the resolution Board of Gov- of had expenses been charged to campaign ernors of adopted the the Club was “that members entertainments which Club the club holding bankrupt] company [the thought beyond they should stand because allowed membership all fees.” of 20% the inten the campaign; and that it pursuance of this Febru- resolution expenses tion campaign “that whatever the 15, 1927, ary bankrupt the contract between were commis agreed over and above the the Club increase was modified to sion, paid be was never to be day a commission to The same 20%. cause money had used change like be- was made contract out felt was things number which we of tween claimant. Novem- On mem campaign, side of outside of 1,-1927, quoted ber the hereinbefore resolu- should bership campaign, that the Club adopted tion of Gov- Board justify pay testimony would for it.” This increasing commis- ernors of Club mean to construction of the resolution change had been Although sion 30%. Mr. the benefit of it was intended for made first contracts in order cam any excess applied Goldie and of cover the increase to authorized 20% How paign expenses' over commissions. February the above resolution of matter, ever, so im it is strange changes this record is silent claimant, portant covered was not following the contracts November later days eight above contracts made Therefore, situation resolution. 1927), (February changed which bankrupt was to at all times was that rate to matter author commission 20%—a percentage com- receive the Club ized resolution another Club ex- obligated pay all mission and was adopted February same meeting at this penses campaign. The contracts 7, (1) also the 1927. There are situations iden- claimant between continued the books of respect. tical in this expenses against reflect these debit as a claimant, person the managing who was Hen- request At the C. V. ex ality company; such and that “of books drickson made an examination state penses appeared as receivables on De- as of accounts” ment, July, with the Securities filed result this ex- cember 1928. applica its in connection with Commission re- in an audit embodied amination was stock, registration tion copy A January port dated Malmberg application was executed Mr. both to bank- report furnished bankrupt. secretary report That con- rupt and claimant. $25,525.08 item above tained the claimant fullest benefit Giving repre- against claimant receivable resolution, open question necessary expenses “the excess of senting cannot, Club the resolution member- allowed for commission

over more, slightest have the effect 20% without Harry Goldie.” campaign by S. Mr. ship relations between contract contracts Under such and claimant. aby resolution Appellant contends was liable to the claimant them February Club, minutes “in its Therefore, expenses. for these overrunning “was to absorb 1927,” the Club show bookkeeping error it was no campaign, would expense” bank- upon liability books item claimant this debit eliminate rupt. entire audit. This Hendrickson in entry proof that this debit it is when As “In found further is: case resolution appellant bookkeeping, up cash and notes was a mistake fund trust [made resolution claimed have membership relies has been a fees] received

12 lawyer. Malmberg was Mr. a

717 meeting adopted Malmberg positively been at a of the testified that he had directors’ April, minute voted book the resolution. left Mr. 1929. The by voting the evidence Foote and of the shown claimant for it. It took as referee, pos- adopt last in the vote was and found was of claimant it. He in directly adversely claimant. has never been session of It interested to the bank rupt, custody of the counsel trustee its stockholders and creditors. The npt although bankrupt to him and has been delivered then in bad con was financial production “specifically” has demand- been dition. “Where asserted is produced It at ed him. was not void or because vote of voidable * ** hearing. The sole of existence helped bring interested director testimony the oral being” may (Pepper such resolution is it into it a disallowed 295, 238, Malmberg Litton, 309, was of Mr. that a resolution v. 308 60 S.Ct. U.S. 1929, 246, ; adopted April, when meeting at a 84 and contracts of direc L.Ed. present. attempt He does not tors made own he was with themselves “for their wording of the resolution given remember benefit” not be effect courts. will Ry. only that its was to relieve claim- McGourkey but tenor Toledo & v. Ohio Central Co., liability ant this debit item. It 13 L. U.S. S.Ct. 1079; Green, as is that to a unusual such resolution Ed. Richardson v. 133 U.S. a importance matter of such claimant Wardell L.Ed. S.Ct. majority Co., when was the stockholder and 26 L. he Railroad 103 U.S. v. a dominating personality was 509. where so ob Ed. Even contract years voidable, merely is urged not for more than two tained it is as so adoption bankruptcy the Board trustee in suc of the resolution creditors a February of the of avoidance in rights Governors Club ceeds to such Litton, Pepper v. 308 U.S. creditors. trus 84 L.Ed. 281. This 60 S.Ct. be, adoption may However challenging this release tee is here legal resolution was not act liability item. for this debit bankrupt. April, In the board Also, presence the claim consisted of directors of ant, quorum the if make a necessary to directors members. The four then board, matters Foote, counted claimant, cannot be so Springer Mr. Mr. and Mr. the cor is adverse to wherein his interest Spring testified that Malmberg. Malmberg p. cases Am.Jur., 919 and poration. present. he had been er not Whether was not This record does appear.13 in notes 10-13.14 meeting does not notified which was, here. these er was held a directors’ have call this, a combination meetings ent? for awhile.” ant was then Well, er? A. “Q. “Q. Without “Q. Malmberg) suggested meetings is: notified Well, I don’t know as to that. He Now, questions, A. There were you Well, only testimony necessity April, any No. I was in the say present how at time. (according I Springer, notice to President would when took was Mr. meeting do Goldie and Foote. Mr. for such a four president you explain and there is time.” Mr. place, whenever directors’ possible say you directors. Claim (Malmberg) but without minority Springer? Springer talked about I rule of could testimony do know that was situation meeting Spring Spring- “could there pres- may evi law you call A. —here least terested notified, fied terested. Whereas, found. mean to ing. self) adopting meeting claimant, dence that be ent at olution come Springer rejection place make April, vote and thus constituted There were two to the supports actually the second quorum, we of three directors If to recall director say might claimant up In this if state adopted. first resolution Springer not was matter .fact, Springer the rule quorum was—the his vote connection, meeting” should and the present Springer meeting when the res resolution. possible could Springer notified been a directors’ had been Malmberg whether could have not be deciding have law (including him at a but situation here was not noti tie, evidence, quorum. it is not out “could We do not that an in referee so board, was not he is in called a resulting Springer meetings present, meeting testified allowed factor. meet pres not at the bankrupt produced. of directors were re- show what number Goldie has however, quired quorum, it failed to by any a establish satisfactory to constitute evi- direc- dence usually requires majority payments that were made at the here, request bankrupt, tors. If there was this be true or for its use or benefit, quorum legal acting produce on this resolution. any has failed to reflecting payments books here solely contention that and has failed any payments to disclose “bookkeeping debit error”. This item is a which he may have received from the position stated the brief -as finally period during charges, or any follows: against him period. during that appears foregoing “From the it that the “Goldie, president manag- being error; bookkeeping Hendrickson debit was ing bankrupt, occupied officer of a- part that no factual indebtedness on fiduciary it, any relation claim existed; Goldie ever presented by him discharge attempt there was no or at dis- estate subjected must be rigid to close and charge any factual indebtedness but scrutiny, allowed, and to must be satis- bookkeeping simply a rectification of a factorily by proof. established Such error.” serious propriety doubt exists to the We conclude this debit must of any items court feels improperly item was not included constrained to disallow them. other Among by consideration the referee and trial things appears period that during said court. Goldie came possession into $8000 (5) January Claim Items the ‘B’ bankrupt, bonds which he stated, As above referee divided the included in Claim No. but has failed items, for convenience in considera- any disclose that he gave consideration tion, periods—the first end- into time two for said bonds. It during also ing be- December and the second period conducting own point ginning January 1929. This has business Holding business of the the items fall- do disallowance of Company the same and Club office with, period. All of the items the second bankrupt, he maintained for the period (Nos. items the second are represented many the same overhead as items, 38-183) 184. As to these of claim charges.” of these the referee found: appellant contentions and the “The checks these items supporting argument entire supporting are as fol- are in Goldie Claim likewise included lows : is- Exh. B. These checks were likewise “The books records of the Company and by sued comprise journal a ledger, for 1926- Mortgage Finance & Com- the Continental Anyone end of inclusive. can

pany, to the order and see, these, upon inspection they persons. many other fragmentary more or less preliminary listed, Items 172 the items so “Of nature, just being form and informal represent payments 183 inclusive made repositories by entries made various involuntary petition filing of after the persons from time time—in essence these, herein; in- and of Items 179 to 183 write-ups memorandum following $110.00, clusive, represent pay- aggregating chronology. day-by-day strict Mr. Goldie bankrupt, a note of the ments Goldie on pay- has furnished the best evidence of guarantor him as Mid- endorsed original ment.—-the cancelled checks to es- Trust Bank & land National pay-outs and the tablish his debits and ever Minneapolis; no claim was filed charges against proceeding, either said note in moneys in its necessarily advanced interest holder of the note comparative inspec- A behalf. mere holder. name of the the checks tabulation tion of claims, periods two for the period (Janu- of his under “None items them, appear which the referee considered «dis- first, on) books ary possession given present of claimant and not notice was or whether produced although proven by easily demanded the trus have been him could ; tee) who would know' claimant if it minute book of given. kept (this notice had minute book whether in usual form was1'

719 will in the pay-outs closes that the second assume that three items for those period aggregate and the above used were the same nature were received and of bankrupt the the it. The purpose same end and those of and were beneficial to part first, request may represent, for other 143 items or and were and made at wholly, expenditures the benefit the benefit bankrupt.” bankrupt. beneficial have no Wé argument The seems be an attack first record, way knowing, this whether completeness the form and they any them not. or were or were evidence, journal ledger, introduced period. covering the items in the first Just they supposing But that were this, what this has do with items expended both beneficial to second, If, explained. period is not compel does invite the that this, unexpressed is intended inference they conclusion that items allowable bankrupt that books of the period, against this estate. As first of similar covering period the second ap the referee found the trial court and, therefore, be little would character use, proved finding ag items that claimed way to the best is the answer $35,353.33 gregating should be reduced to have been for have shown would of what the because account books $156.76 let produce books and claimant such bankrupt be showed to the balance speak for themselves. them claimant bank accounts of the Also, $1,500.00 rupt. item found one is that remaining argument The repaid to have been claimant and he admits the actual evidence of checks are the best here that error. There were account books bankrupt and expenditures to or for the 31, kept by the after December inspection of comparative “mere They possession were last in the claims, tabulations checks and claimant; the trustee; have been demanded those periods” discloses two produced. and not Claimant was the same period “were of for the second dominating personality majority purpose as end and the same nature and to bankrupt. stockholder in the The books of first, and were made those of should have shown the trans request benefit of bank- during actions between it and claimant this rupt.” period—as they during second did the first correctly tabulations We that the assume period. They any should have shown cred date, amount, number, check check show claimant and debits him represent- payee checks maker and that a so balance could been struck as the 146 of claim 184. Of items They to this account. would have been being second checks—in items—all very strong evidence items $4,859.51), the tabula- period (aggregating the state of the account. Where relevant (ag- shows three for claimant tion party within the control evidence is $1,070.00) where the gregating naturally it to whose interest would be to where payee—none is shown produce do, it he fails so to without although this is shown in the was endorsee satisfactory explanation,” produces tabulation which re- part evidence, of this preceding or weaker an inference period. The other 143 the first lated to justifiable is would be unfavorable persons or to various cor- Circuit, checks were Inc., to him. v. United Interstate portion of this tabu- porations. 208, earlier 467, States, 306 U.S. 59 83 S.Ct. period) in the first (relating to items 610; lation L.Ed. Local International Broth are to bank- of which 18 checks Teamsters, etc., shows 37 States, v. United erhood endorsee) 19 oth- payee rupt (as 293, 298, 54 291 U.S. S.Ct. 78 L.Ed. payee). these claimant With (in 804; States, 9 ers Mammoth Oil v.Co. United evidence, we are asked supporting other (cid:127)no 48 72 275 S.Ct. L.Ed. U.S. (Nos. items Tod, Bilokumsky determine ex rel. v. United States these. expenditures represent to or for 38—183) 44 S.Ct. 263 U.S. L. simply comparison applied, from a 221. This has Ed. rule Court, possession period to records in the first in this of a items those Missouri, Ry. party. K. & T. v. El period—-both as shown on tabula- Co. Cir., liott, 102 F. result affirmed can allowed No tion. $1,- (aggregating three items S.Ct. L.Ed. 763. U.S. n 070.00) payee. disallowing justified these We referee where time; therefore, as of period items in because of Goldie’s account the second fully naturally assignment drawn date of has been unfavorable inference said paid.” produce books the account failure bankrupt. shoes assignee An stands in the Hennepin equi (6) Company assignor subject Transfer to all Fidelity Assignment. assignor. ties Mutual Clark, 27 Life Ins. Co. v. 203 U.S. 19, 1936, Hennepin On Transfer June 91; p. Am.Jur., 51 4 S.Ct. L.Ed. Company assign- filed with trustee an 95 and cases in notes numerous § reading ment as follows: 18. least (or Unless these claims “January 1935. satisfy assignment) enough of them to “Hennepin Company, Transfer claimant, can assignee be allowed to Street, Avenue North and First “Third would likewise. Since we hold fare “Minneapolis, Minn. allowed, point claims cannot be is no there “Dear Sirs: Besides, examining in this matter. assignee appealed. has not received, “For hereby I transfer value assign my'right all of title and inter- (7) Subordination to Bond Claimants. any est in and all claims filed me to bankruptcy date of the Calhoun “if the found that unsecured referee Company Beach Club now record- any claims of in Goldie be allowed should Court, in Bankruptcy ed the Federal with amount, upon guar- said the claimants then McCune, Bankruptcy, Alexander Referee in equitably to anteed bonds are entitled you, Hennepin or Transfer postponed Goldie’s claims and subordinat- your [assignes]. assignment not to rights; it would work to their ed exceed the sum of Three Thousand Dol- guaranteed fraud said bondholders lars. permit any claims Goldie to assert “Harry S. Goldie.” them, equality competition or in with estopped from therefore Goldie This was (June transmitted a letter equally with as sharing competing or them 18, 1936) assignment stating was filed above protect claimants the distribution of assignee interests of the as “we understand will estate.” a dividend be soon to creditors.” The referee found available Appellant question contends that “the follows: adjustment equities subordination and “It from said books as- [of determined, should be not the order signee] of December 31, appellant’s allowance or disallowance of Shapiro Goldie indebted or said rather the order of distribu- $13,618.72, in the sum firm and that tion of assets.” during year up thereafter 1939 and equities It true that between un hearing, time said Goldie re- creditors, prec may result in ceived additional secured advances in the amount payments However, dividends, may be 3, edence of January of about as of $300. in connection with div assignment, date of determined orders of Abell, payment. Shapiro idend See In re was indebted F. and said firm Court, Kilmer, Cir., $2827.67, 484, this and Keith v. up in the amount of made of an However, does mean 272 F. 643. item of shown Ex- $1332.15 Trustee’s equities priorities be hibit KK an item of cannot shown $1495.52 JJ; Exhibit determined connection with allowance on Trustee’s since that date paid generally has of claims of unsecured creditors. Such on his account thereof, has often been done. Some of cases excess to-wit: sum $2973.53. Bogden, 13 All of the rest are Carter v. F.2d accrued aft- Court; Bros., Cir., January 1935. There In re Morris 293 F. being er no con- 294, 297; Brainard, trary application re Ewald & D.C. made or directed either Iowa, This has been the creditor 135 F. 171. done by Goldie and the ac- based, here, account, precedence constituting running count where obligations of the Claimant af payments has concluded that said contract court equities applied against as to other unsecured the first fecting debits should Cir., Co., In re Bruns 256 F. extinguish according priority them creditors. KIMM al. Searle v. Mechanics’ Loan & Trust et COX et al. v. Cir., Co.,9 942. see F. It is difficult to 12001. No. Thy it makes difference whether Appeals, Eighth Circuit. Circuit Court of precedence is determined in connection with of a claim Sept. 8, connection allowance or in payment of dividends from the estate. thing The essential precedence is that if payment is not involved in allowance claim, of a may it is not foreclosed raised in connection payment div- idends. ap We do not understand that

pellant challenges here the finding of the guar referee on the merits. Since he was property antor on the bonds and since the securing bonds has been lost as such

through foreclosure sale in the mechanics’ suit, postpone lien obvious it is

ment of claimant to such bondholders was properly determined the referee. all the foregoing result of

the order of trial must be and is court affirmed.15 JOHNSEN, Judge (concurring Circuit

specially). Judge I concur in able STONE’S opinion, painstaking as to the portion that holds that the referee and justified district court not in treat were ing equivalent advances Goldie’s as capital contributions other creditors. I believe that the facts warrant part a conclusion on ed such referee and district court for subordina purposes, previously ex

tion have pressed correspond similar views Cir., in Barlow Budge, situations v. Boyum Johnson, 127 F.2d v. Cir., point 127 F.2d 494. The general important here in view reached, I advert to it result consistency. personal a matter of Judge, concurs

WOODROUGH, Circuit Judge opinion JOHNSEN point. counsel, brief, Cox appellant’s reply Mr. brief of At the end reply above briefs thereto.” The up brief and consid- that we sent he asks part of the record on this be no could suit in the on the contrac- er the record transcript appeal. in the parts The files record bond. tor’s sought not, so far record transcript, files, bond suit “(1) the court are part reveals, of the record brief, before us bond Mr. Deinard’s in the Certainly they appeal. appel- suit, (2) below in main brief of the brought part record here pending appeals no appellant. four [our lants request must ap- be denied. and this Nos. answering peal] below, in the court notes figure dominant in the Holding Company capital must deemed to be be which owned the He land. was the real contributions and not loans behind promotion plan force improve bankrupt promised pay; which the by land this building. The financing permit it would be unconscionable to the plan contemplated three methods raising by assets to be diminished buy money to the land and to erect and claims; allowance Goldie’s and that building. furnish the The initial method ground, prove on that Goldie cannot by membership Club fees which were competition outside with creditors of be turned over to the bankrupt when bankrupt.” they reached stated total. The other two Although such will transactions be care- methods were sales of stock (as fully scrutinized, appellant bankrupt is true issues of bonds it. urges) (or that a stockholder officer or di- advancements and loans in these claims rector) (so become were far may creditor of the as we judge can from the corporation—either through incomplete loans or ad- evidence and with excep- small tions) vancements of the character of loans— made forward the enterprise by money where overreaching. supplying there is no fraud or needed the bankrupt, Green, Richardson with project v. 133 U.S. connection of building S.Ct. Phosphate L.Ed. Marine and of financing River or and not available to it from Manufacturing & Min. Co. v. three above sources.8 With general only statements, these we are claims. We have mind iteme those thinking of all of the items of these which were not disallowed. The disai- operating (disallowed property exception Club of the items under dispute agreement,” referee), to be no and the resultant waiver there seems they purposes. salary claim- filed were Commission used have The advancements and loans seem to ant. actually made; been have been made ground. We need examine first overreaching without they so far as we have Counsel pointed have not out concerned; and beneficial to to have been search) diligent been (after unable to find bankrupt. There- any evidence this item. supporting ap- fore, must In the loans the disallowance thereof making of such advances made, actually proved. as found we

Notes

notes charged $184,100. $1186.78 was credited Goldie ledger, Receivable on the Accounts the thereof, books 20% campaign (notwithstand- although $36,820 on the entered to-wit: expense ledger there- It he was sheet. contracts that under said ledger Receivable Accounts fore of member- entitled to fact ships applied 15% February prior debit balance $36,820 sum of 1927), en- was the of December item and said

than notes among included statement the assets $2425 less than the credit No. but $26,- an account receivable the sum appearing Pay- Accounts balance on the comprised aggregate 006.91, ledger of the date. able same due from debit balance Goldie said $23,153.76, ac- sum ot and another “XII. entered in receivable the name of count A Account “Period State of Riding Stables in the Beach Calhoun has concluded that as of “The court $2,653.15. sum May December “(2) sheet of A balance credit, “(1) ‘prepared is entitled Goldie auditor as its certified account, ledger $25,637.- on the figures shown from the books as taken (Tr. Exh. in 1928 filed it statements represents amount the net Q), showing among of the assets date, down to that his advances Goldie charged the indebtedness of “(2) with the Goldie must campaign ex- account, on excess of ledger account of the shown on the debit penses commissions, then over his $25,525.08, excess for the minimum as a $23,153.76, and the amount of securities campaign expense chargeable Goldie pursuant of the were sold allowed commission over and above the partici- registration, active with the him; that, according books so pation Goldie; es- is now and Goldie bankrupt, in- topped to claim said indebtedness on December debted to Goldie was restored to cancelled and that he and no more. in the sum of $156.76 the status of a creditor of the bank- “XIII. rupt. No ever made on the entries were to show “The evidence tends bankrupt’s purport- books to record unspecified April 1929, date an on ed cancellation. meeting April, Board the 16th of “It in the fall of 1928 bankrupt was held of Directors of the Goldie consulted Amos Deinard Malmberg, was then acting in the office of who Deinard, Leonard, firm of & con- Street officer of the cerning personal his Cal- interests attorney. Directors The Board of enterprise, houn Beach and from that members; four of at least then consisted time until fall of 1929 Amos Deinard them, Malmberg, three of Foote advised Goldie from time to time concern- George present, 'one, rights interests; Springer, who was an officer of O. H. minute book of the and other Company, & was absent. At Stone records, were then submitted Amos presented meeting at a resolution was chang- Deinard who recommended certain tempting to cancel Goldie’s indebtedness protection es for the of Goldie’s inter- of the excess February 20, 1929, ests. A letter of campaign expenses over the com 20% Amos Deinard to Goldie was offered in mission and thus him restore to his status claimant, together bankrupt; as a creditor of the Malm subsequent letter written Amos objected berg to such cancellation until Malmberg April 16, Deinard to Ernest building completed, should have been 1929, marked Claimant’s Exhibit ‘AA5’. resolution, and voted Among things, other the letter of Feb- there is evidence show that ruary 20, 1929, addressed to con- it, regarded Foote voted for it as following tains the recommendation:

Case Details

Case Name: Goldie v. Cox

Court Name: Court of Appeals for the Eighth Circuit

Date Published: Sep 8, 1942

Citation: 130 F.2d 695

Docket Number: 12004

Court Abbreviation: 8th Cir.