H. Scherer & Co. v. Everest

• Decision Date: 20 March 1909
• Docket Number: 2,802.
• Citation: 168 F. 822
• Parties: H. SCHERER & CO. et al. v. EVEREST. [1]
• Court: U.S. Court of Appeals — Eighth Circuit

168 F. 822

H. SCHERER & CO. et al. v. EVEREST. ^[1]

No. 2,802.

United States Court of Appeals, Eighth Circuit.

March 20, 1909

(Syllabus by the Court.)

The suppression of depositions is not the remedy in equity and bankruptcy in the federal courts for the refusal of a witness to answer competent questions or to produce material evidence, because in case of an appeal all the evidence adduced must be presented to the appellate court.

The true remedy is an enforced order of the proper court that the witness answer or produce the evidence.

When the taker of a deposition fails or refuses after its return to put it in evidence, the opposing party may introduce all or a part of it, and the taker may then put in evidence any other part not introduced by his opponent.

The fact that a corporation, authorized to issue commercial paper within a limit prescribed by a statute which does not declare indebtedness in excess of that limit void, created an indebtedness in excess of the limit to the knowledge of the purchasers of this commercial paper for value, does not relieve it from liability thereon.

The remedy for the violation is ouster of the corporation by the state, not the destruction of the purchasers' contracts.

A corporation authorized to issue commercial paper, which issues it without consideration to a second corporation which it authorizes to sell it and to remit the proceeds, or to substitute it for the earlier paper of the first corporation is estopped from denying liability upon it to a purchaser without notice to whom the second corporation has indorsed it in payment of its just debt or for cash.

'When a corporation has power under any circumstances to issue negotiable securities, the bona fide holder has a right to presume that they were issued under the circumstances which give the requisite authority, and they are no more liable to be impeached for any infirmity in the hands of such a holder than any other commercial paper.'

Where one of two parties must suffer loss from the fault of a third, he who intentionally or culpably clothed the third party with power to cause the loss must bear it.

The taking of commercial paper in payment of a debt due, or past due, or as collateral security therefor, is a purchase for value in the ordinary course of business, and clothes the taker with the protection of such a purchaser.

Where one takes commercial paper without notice in payment of a debt of an indorser, who had obtained it by fraud from the maker, he is entitled to recover the amount of the debt paid for it under section 3070, Code Iowa, which provides that no holder of such paper shall recover a greater sum than he paid for it.

It is the duty of the national courts to exercise their independent judgment in the determination of all questions of general jurisprudence, of commercial law, and of right under the Constitution and laws of the United States, although the decisions of state courts may conflict.

I. N. Flickinger (Flickinger Bros. and Walter S. Harlan, on the brief), for appellants.

George H. Mayne (Mayne & Hazelton, Wright & Baldwin, Harl & Tinley, and G. B. Jennings, on the brief), for appellee.

Before SANBORN and ADAMS, Circuit Judges, and RINER, District Judge.

SANBORN Circuit Judge.

This is a proceeding in bankruptcy wherein nine creditors have appealed from a decree of the District Court which disallowed certain portions of their claims against the estate of the bankrupt and affirmed rulings of the referee which suppressed the testimony of some of their witnesses. The claims of these alleged creditors are founded upon promissory notes made by the Union Transfer Company, a corporation, the bankrupt, payable to the order of the New Decatur Buggy Company, another corporation, and indorsed by the latter before maturity in the ordinary course of business to the respective claimants.

The Transfer Company was engaged in the business of buying and selling carriages, wagons, tools, and agricultural implements in the state of Iowa. The Decatur Company was manufacturing and selling carriages in the state of Ohio. In 1905, the Transfer Company agreed that prior to September 30, 1906, it would purchase of the Decatur Company 1,000 vehicles, and in September, 1906, it contracted to buy 1,500 vehicles of the Decatur Company before September 1, 1907. These contracts provided that the Transfer Company should pay for these vehicles upon their receipt by promissory notes payable to the order of the Decatur Company without interest, four months after the dates of the invoices respectively. These parties further agreed, and they performed this agreement, that the Transfer Company should order vehicles in advance of its needs, and should deliver to the Decatur Company its notes therefor payable in four months from their date; that at the maturity of these notes the Transfer Company should make and deliver like notes payable in four months to the Decatur Company, called 'renewal notes,' which the latter company should use to take up the original notes when possible, and, when this was impracticable, should discount and send the proceeds to the Transfer Company to enable it to pay these original notes. Under this agreement and practice the Transfer Company issued two classes of original notes, those given for vehicles received, and those given for vehicles to be delivered; and it issued three classes of renewal notes, those issued to take up original notes for vehicles received, those used to take up original notes for vehicles to be delivered, and those issued to be discounted by the Decatur Company to raise money to send to the Transfer Company to pay the original notes which could not be renewed. All the notes of these various classes were in the usual form of such commercial paper, and there was nothing about them to enable any third party to distinguish those of one class from those of any other. A very large number of these notes, which amounted in the aggregate to more than $60,000, was issued, and many were paid; but in January, 1907, when the Transfer Company was adjudged a bankrupt, it owed more than $200,000 and notes of the Transfer Company to the aggregate amount of more than $60,000 were held by the claimants.

The Decatur Company had not delivered all of the vehicles to be delivered for which some of these notes had been issued, and it had failed to pay over to the Transfer Company some of the proceeds of some of these notes which the Transfer Company had delivered to it to be discounted to raise money to enable the Transfer Company to pay its original notes. There was evidence tending to show that notes to the amount of about $60,000 had been issued either for undelivered buggies, for renewals of notes for undelivered buggies, or for money for which the Transfer Company had received only about $14,000 in value; but the evidence upon this subject is uncertain and unsatisfactory, and it fails to show clearly which of these numerous notes were issued for undelivered buggies, which for renewals of notes for undelivered buggies, which for cash that was not remitted, and which for cash actually returned. H. Scherer & Co. is a corporation engaged in the manufacture of carriage materials at Detroit, in the state of Michigan, and one of the claimants in this proceeding. It sold some of its carriage materials to the Decatur Company from time to time, and took in payment of its past-due account against that company, and for cash, 12 of these notes before they respectively matured, which amounted in the aggregate to $12,917.40. Scherer & Co. filed these notes and formal proof of its claim upon them in the bankruptcy proceeding against the Transfer Company. The trustee objected to the allowance of its claim, testimony was taken, the referee suppressed that of the claimant, allowed it $2,209.25, upon two of the notes which it held, and disallowed the remainder of its claim. The objections of the trustee were: (1) That the notes were delivered to the Decatur Company without any consideration to the Transfer Company; (2) that they were left in the hands of the Decatur Company to be negotiated for the Transfer Company, and were converted to its own use by the Decatur Company; (3) that the claimant took the notes with notice of their infirmity as collateral security for a debt of the Decatur Company; and (4) that the claim was not filed in good faith but for the Decatur Company.

It is assigned as error that the testimony of H. Scherer was suppressed by the referee and by the court for the reason that he refused to answer questions and produce exhibits on cross-examination. The facts pertinent to this specification are these: Scherer testified at Detroit, Mich., on May 1, 1907; the motion to suppress his deposition was filed with the referee in Iowa on June 29, 1907; the referee sustained that motion on September 30, 1907; on October 1, 1907, the claimant moved that the deposition be returned to the notary public for the purpose of having the questions upon cross-examination answered, and that motion was denied by the referee. Scherer testified in his deposition upon his direct examination that he was the president of the claimant; that between August 20 and November 30, 1906, he purchased the notes of the Transfer Company from the Decatur Company before their maturity for his corporation, and that his corporation paid the face value thereof less interest at 6 per cent. per annum, with a just claim it held against the Decatur Company to the amount of about $8,500 and with $3,450 in cash; and that neither he nor any of the officials of the corporation, so far as he knew, had any knowledge or information of any infirmities or defects in or defenses to the notes when he purchased them.

The exhibits which he...