185 F. 442 | 8th Cir. | 1910
The Jackson Brick & Tile Company, a Missouri corporation, was duly adjudged bankrupt upon petition of certain of its creditors filed October 8, 1906, and the defendant in error in due time appointed trustee of its estate. June 28, 19.06, the Brick & Tile Company (which will be called the “bankrupt”) made to Hugh R. Quinn its note for $28,200 and a trust deed of all of its property to secure the same. August 8th following, this deed of trust (which will be called the “mortgage”) was filed for record in the proper office at 6:10 p. m., and duly recorded. Quinn in due time filed with the referee proof of such note and mortgage, and asked that the balance due upon the note, viz., $27,600, be allowed as a claim secured by such mortgage and entitled to priority of payment from the proceeds of the property included therein. The trustee objected to the allowance of the claim as secured, upon the grounds: (1) That the mortgage was in fact a voidable preference; (2) that it was made by the bankrupt with intent to hinder, delay, and defraud its creditors, was accepted by Quinn with like intent, and not in good faith, and is therefore void. Tlie referee overruled the objections and held that the mortgage was neither intended as a preference nor to defraud the creditors of the bankrupt, and allowed the claim as one entitled to priority of payment from the proceeds of the property included in the mortgage. Upon petition by the trustee for review of this order, the District Court held that the mortgage was not a preference, but was made by the bankrupt with intent to defraud its creditors and accepted by Quinn with like intent, reversed the order of the referee, and directed that the claim be disallowed unless Quinn should relinquish all claim to the property covered by the mortgage. Erom such order Quinn brought this appeal, and, having died during its pctidency, it lias been revived in favor of the appellant as his executor.
The principal facts disclosed by the testimony are: That the bankrupt was incorporated in 1897 under the name of the English Mining & Manufacturing Company, and its name afterwards changed to that of the Jackson Brick & Tile Company. Its principal place of business was at Jackson, Cape Girardeau county, Mo., where it was engaged in the manufacture of brick and tile. Henry R. English Was its principal stockholder and has been its president and the general manager of its affairs from its organization to the time of its bankruptcy. The Jackson Exchange Bank of Jackson (which will be called the “Jackson Bank”) was organized by Henry R. English, Hugh R. Quinn, the deceased, and some others as a banking corporation under the laws of Missouri in 1893, with a capital of $20,000, and prior to 1903 had accumulated a surplus of $10,000. English and Quinn were among its first directors. Quinn was its first cashier, and
“That the makers and indorsers severally waive presentment for payment, notice of nonpayment and protest, and consent that the time of payment may be extended without notice thereof.”
One of the $7,500 notes was payable at the bank in nine months and signed by the bankrupt corporation by Henry R. English' as its president; one in seven months, signed by Henry R. English individually; one in six months, signed by Catherine Oates; and the $3,-.283.32 note in 90 days and signed by U. M. English. ‘ Catherine Oates is an elderly lady who has resided in the family of Mr. English for many years, and U. M. English is a daughter of Mr. English, and each was without financial responsibility. As security for these notes the -bankrupt and Mr. English made to the bank two trust deeds which included all of the property of the bankrupt, but they were withheld from record because, as Mr. Quinn says:
“We did not want the public to know we had made so large a loan to English ; therefore they were kept secret and not placed of record, and only the directors of the bank knew of them.”
In the latter part of August, 1905, the bank examiner again insisted that this indebtedness be paid, or reduced and additional security obtained for it. Thereupon Quinn and English agreed with the bank examiner to indorse the notes, and English also agreed to have his wife indorse them. Pursuant to this agreement, Quinn and Mrs. English on August 25, 1905, indorsed each of the four notes, and H. R. English also indorsed the three that were not signed by him. Prior to this time John A. Snider, who had lately become vice president of the bank, also began to urge that the indebtedness be paid, and others of 'the directors joined him in so doing. The bankrupt in 1905 was owing the Sturdivant Bank of Cape Girardeau, Mo. (which will be called the “Sturdivant Bank”), $15,000 and accrued interest; the Merchants-Raclede National Bank of St. Rouis (which will be called the “Raclede Bank”), $8,500 and interest; the Whitewater Bank of White
“The interests of English were so interwoven with the bank that placing it on record would shatter the confidence of the community in the bank.”
Mr. Quinn says:
“That is (he reason why I consented not to place it on record, and another reason vas, to give English an opportunity to consummate a deal in St. Louis.”
Subsequent to the making of this mortgage, the Sturdivant Bank had requested of Mr. English an explanation of his dealings with that bank; and about August 8, 1906, it had turned over to its attorney for collection its claim against the bankrupt. On August 8th the president of the Sturdivant Bank, and its attorney, had a conference with Mr. Quinn and his attorney at the Sturdivant Bank office in Cape Girardeau. At the close of or during this conference Quinn’s attorney advised him to place his mortgage of record, and at 6:10 p. m. of that day Mr. Quinn filed the same for record. A few minutes later English filed for record the trust deed to the Sturdivant Bank and the one to the Laclede Bank, and one or two other instruments affecting the title to this property, which were all dated prior to the Quinn mortgage of June 28th. How Mr. English came to be in possession of these instruments does not appear. The result of the placing of these instruments of record at that time was that these trust
“The reason why the .Taekson Bank was anxious to settle the claim against the bankrupt was that the loan was too large for the capital of the bank, and that the bank examiner had criticised us severely on account of the loan.”
English and Quinn had been long time friends and business associates. English was circuit clerk and recorder of Cape Girardeau county for some 14 years, and Mr. Quinn was his deputy during that time. They retired from this office in 1893, shortly after organized the Jackson Bank, and afterwards as directors and officers of the bank jointly managed the same until July, 1906, when English was succeeded as president by John A. Snider, but Quinn continued as cashier.
The questions for determination upon the facts above stated are: (1) Was the mortgage to Quinn of June 28th a preference under section 60b'of the bankruptcy act? Act July 1, 1898, c. 541, 30 Stat. 562 (U. S. Comp. St. 1901, p. 3445). If not, (2) was it made by the bankrupt and accepted by Quinn in good faith upon a present consideration and valid under section 67d? Or (3) was it made with intent to hinder, delay and defraud the creditors of the bankrupt, and void under section 67e of the act? That the bankrupt corporation was insolvent on June 28, 1906, when the mortgage to Quinn was made, and had been for more than a year prior thereto admits of no doubt under the testimony, and that question need not be further con- . sidered. That Mr. Quinn had actual notice of such insolvency, or at least of such facts as would put a reasonably prudent person upon inquiry which if pursued would have disclosed to him the bankrupt’s insolvency, is equally clear. His business and social relations with English were so close and had continued for such length of time that he must have known, and the evidence leaves no room to doubt that he did know, of the bankrupt’s hopeless insolvency. To answer the first of the above questions requires that it be first determined whether or not Mr. Quinn at the time his mortgage was made was a creditor of the bankrupt. The appellant contends that he was not. On August 25, 1905, Mr. Quinn indorsed the four notes of May 12th in favor of the bank, one of which was signed by the .bankrupt, one by English, one by his daughter, and the other by another member of his family, all of which were for an existing indebtedness of the bankrupt to the Jackson Bank, one of which was then past due. The fact that three of these notes were not signed by the bankrupt is wholly immaterial. They were all for its then existing indebtedness to the bank which was put in the form of these notes at the instance of the bank examiner to make it appear upon the books of the bank that the indebted
But it is urged that Mr. Quinn’s indorsement was after the notes had been executed and delivered to the bank, was without any new consideration, and that in so indorsing them he incurred no liability upon either of the notes. We cannot assent to this. Under the law of Missouri one not a party to commercial paper who signs his name on the back thereof at the time it is first put into circulation is deemed to be a joint maker thereof and is liable as such; but if he so indorses it afterwards he is deemed a guarantor, and a new consideration is necessary to support the indorsement. Stagg v. Linnenfelser, 59 Mo. 336; Burnham v. Gosnell, 47 Mo. App. 637; Adams v. Huggins, 73 Mo. App. 140. In either event the note and the indorsement thereon, being in writing, are presumed to be upon a valid consideration, and in a suit thereon it is unnecessary to set forth the considerations. Rev. Stats. Mo. 1899, § 894; Caples v. Branham, 20 Mo. 244, 64 Am. Dec. 183; Lindell v. Rokes, 60 Mo. 249, 21 Am. Rep. 395; Glasscock v. Glasscock, 66 Mo. 627; Montgomery County v. Auchley, 92 Mo. 126, 4 S. W. 425. And see Mandeville v. Welsh, 5 Wheat. 277-283, 5 L. Ed. 87; Page v. Bank, 7 Wheat. 35-37, 5 L. Ed. 390; Parsons, Notes & Bills, p. 175.
Though the evidence shows that Quinn’s indorsement of the notes in question was after they had been first delivered to the bank, there is neither allegation nor proof that such indorsement was without consideration. Quinn studiously avoided saying there was no consideration for his indorsement, and all he said is that “he was not a creditor of the bankrupt when it.made to him the note and mortgage of June 28th.” But this is a mere conclusion only. Pie says that when he signed the notes on August 25th that:
“The bank examiner was there and insisted on the paper being taken care of in the bank, and asked me to indorse the notes, and I did so.”
And Snider, vice president of the hank, was also urging that they be taken care of. After so indorsing them, the notes were redelivered to the bank, and they were entered upon its books as against the indorsers as well as against the makers. Quinn has never denied or repudiated that indorsement; on the contrary, he has at all times recognized it as a valid obligation on his part for the payment of the notes, and he alleges in his reply to the objection of the trustee to the allowance of his claim as a secured claim:
“That this claimant had asumed the payment of the entire indebtedness of said company (the bankrupt) to said bank, and agreed to advance and loan to said company the necessary amount of money for that purpose.”
Mr. Quinn as cashier and one of the directors of the bank had approved all of these loans to the bankrupt and permitted it to become indebted to the bank in a sum far in excess of the amount authorized by law. In fact, he and English had permitted the bankrupt to withdraw from tire bank nearly $26,000, or within $4,000 of its entire capital and surplus. In so doing they violated the law, disregarded their obligations to the bank, endangered its solvency, and became liable to it under the law for this excessive indebtedness of the bankrupt, and subjected themselves to removal from the management of the bank if they failed to restore or cause to be restored the money they had so unlawfully loaned, and they were being pressed by the bank examiner to make good to the bank this indebtedness. Under these circumstances, Quinn and English agreed to indorse the notes of May 12th. Quinn indorsed all four of the notes at the request of the bank examiner by writing his name on the back thereof, and under the law of Missouri became a guarantor of their payment. -Mrs.
We think there was ample consideration for Quinn’s indorsement of these notes, and that he became liable thereon to the bank, and at the same time a creditor of the bankrupt.
Furthermore, we think that the mortgage to Quinn was made by the bankrupt in contemplation of and as a fraud upon the bankruptcy act, that it was accepted by him for that purpose, and that it cannot be sustained under section 67d of the act. That section reads in this way:
“Lions given or accepted in good faith and not in contemplation of or in fraud upon this act. and for a present consideration, which have been recorded according to law. if record thereof was necessary in order to impart notice, shall not be affected by this act.”
“Good faith,” and “not in contemplation of or in fraud upon the bankruptcy act,” are of the essence of this subsection, without which, the liens therein mentioned cannot be upheld even though there be a present consideration for them. We think that these essentials are lacking in the transaction of June 28th between the bankrupt and
“We did not want tile public to know we bad made so large a loan to English, therefore they were kept secret and not placed of record, and only the directors of the bank knew of them.”
Quinn, English, and the other directors of the bank knew the circumstances under which these trust deeds were made; that the bankrupt was then insolvent; that they were intended by it as a preference to the bank, and were accepted by the bank with reasonable cause to believe that they were so intended. The bank, therefore, could not hold the property under .the trust deeds as against the trustee in the event of bankruptcy. It was plainly the purpose, therefore, of Quinn and English by the transaction of June 28th, and of July 6th following, to save to the bank the property covered by the unrecorded trust deeds (but which it had lost because of its failure to record them in due time), under the cover of a new mortgage to Quinn upon the same property for a present consideration, but which was in fact, as the trust deeds were, a preference and therefore in fraud of the bankruptcy law. The estate of the bankrupt was not enhanced in the least by this transaction, and its only purpose was to substitute Quinn as its sole creditor, instead of the bank with Quinn as guarantor of its indebtedness. It was a clever attempt to evade the provisions of the bankruptcy act, and if permitted to succeed would work a plain fraud upon that act. Mr. Quinn did not place his mortgage of record until August 8, 1906, at 6:10 p. m., the evening before the attachment suit of the Sturdivant Bank against the bankrupt was commenced. He says the reason that he did not record it when it was made was :
“Tbat English, requested that it be not placed of record because his interests were so interwoven with the bank that placing it on record would shatter the confidence of the community in the bank. Another reason was to give English an opportunity to consummate a deal in St. Louis.”
But one conclusion can be drawn from this statement of Mr. Quinn, and that is that he knew, when he took the mortgage of June 28th, of the insolvency of the bankrupt corporation, that the mortgage was intended as a preference for his own benefit and that of the bank, and as a shield to the bankrupt while its president was negotiating a deal in St. Louis, and was to be placed of record only in case a situation should arise making it necessary to do so, and that he accepted it with that in view and with reasonable cause to believe that it was intended as a preference, and with actual knowledge that it was in contemplation of a fraud upon the bankruptcy act. We are therefore of the opinion that the mortgage to Quinn cannot be sustained under section 67d, and is void under section 60b of the bankruptcy act. See Powell v. Gate City Bank, 178 Fed. 609-611, 102 C. C. A. 55.
The decree is therefore affirmed.
23 Sap. Ct. 436.