Brent v. Simpson

• Decision Date: 19 December 1916
• Docket Number: 2977.
• Parties: BRENT et al. v. SIMPSON.
• Court: U.S. Court of Appeals — Fifth Circuit

238 F. 285

BRENT et al. v. SIMPSON.

No. 2977.

United States Court of Appeals, Fifth Circuit.

December 19, 1916

This is an appeal from a final decree of the District Court of the United States for the Northern District of Florida in a case in which the trustee in bankruptcy of the estate of Knowles Bros., a corporation, was plaintiff, and the executors of F C. Brent, deceased, were defendants. The purpose of the bill was to compel the delivery by the defendants of certain securities, alleged to be the property of the bankrupt corporation, and which were in the possession of the executors. The bill charges that they were transferred by W H. Knowles, who was the president of the bankrupt corporation, for it, in fraud of its creditors; it being insolvent at the time of the alleged transfer in April 1913 and the transfer having been made without consideration moving to the bankrupt. The purpose of the transfer is alleged to have been to indemnify the intestate, F. C. Brent upon an accommodation indorsement, made by him at the instance of W. H. Knowles, to secure his personal obligation, the amount of which the executors of the said F. C. Brent, the indorser, have been compelled to pay, and for the reimbursement of which they are holding the securities. The obligation was a negotiable note of the Pensacola Investment Company, payable to W. H. Knowles, which he discounted at the Importers' & Traders' National Bank of New York City and which he and the intestate indorsed. The securities in question consisted of negotiable notes of third parties, secured by realty mortgages.

The answer of the defendant executors denies that the intestate acquired possession of the securities involved in the suit in April, 1913, as alleged in the bill, but, on the contrary, asserts that the intestate came into possession of them first in October, 1910, when they were delivered to him by W. H. Knowles to indemnify him against loss on an accommodation indorsement, then made by him at the request of W. H. Knowles, individually, and discounted at the Sullivan Banking & Trust Company of Montgomery, Ala. The amount of the loan, evidenced by the note, was $50,000. The original face value of the pledged securities was $100,000, reduced by the surrender by intestate to Knowles of a note for $30,000, secured by hotel stock, which left the face value of the remaining securities, which are here in question, $70,000. The answer asserted the validity of the transfer made in October, 1910, alleging that the securities were then pledged with intestate for value, i.e., for his indorsement on the $50,000 note, discounted by the Sullivan Banking & Trust Company; that they were transferred before maturity to intestate; that, at the time of the transfer, the corporation of Knowles Bros. was solvent and had enough assets to fully pay its debts, not including the pledged securities; that the intestate Brent had no knowledge or notice, at the time he accepted the securities for his indemnity, that W. H. Knowles had not given to Knowles Bros. value for them, or that Knowles Bros. was insolvent, if it was then insolvent. The answer also relied upon the Florida statute of limitations of three years, as a defense to the right of the trustee to recover the securities; and denied the jurisdiction of the District Court. The answer alleged, and the evidence showed, that after the original pledge of the securities by Knowles to intestate Brent in October, 1910, upon the occasion of the renewal of the note held by the Sullivan Banking & Trust Company, the bank asked for collateral, as well as personal, security, and, in pursuance of the bank's request, Brent, or Knowles for him, transmitted the securities, which had been pledged with Brent, to the Sullivan Banking & Trust Company. Upon a subsequent maturity of the note at the Montgomery bank, a misunderstanding arose as to its renewal by that bank, and W. H. Knowles thereupon arranged to get the money, with which to take it up, from the Importers' & Traders' National Bank of New York upon a note, indorsed by intestate Brent as stated. Before the indorsement of the note, discounted at the New York bank, and on April 15, 1913, W. H. Knowles, by letter to intestate, agreed that he, in consideration of his indorsement, might hold for his security the securities originally pledged to him, and which he had turned over to the Sullivan Banking & Trust Company as stated. The note to the Importers' & Traders' National Bank was dated April 19, 1916. On April 30, 1913, the securities here in question were received by W. H. Knowles from the Montgomery bank, and delivered by him to the attorney in fact of intestate, pursuant to the letter of April 15, 1913; the receipt given by intestate or his son and attorney in fact for the securities reciting that they were received from Knowles Bros.

W. A. Blount, A. C. Blount, Jr., and F. B. Carter, all of Pensacola, Fla., for appellants.

W. H. Watson and S. Pasco, Jr., both of Pensacola, Fla., for appellee.

Before PARDEE and WALKER, Circuit Judges, and GRUBB, District Judge.

GRUBB District Judge (after stating the facts as above).

The appeal presents a number of questions upon the admissibility of evidence, only one of which is important under the conclusions we have reached. The appellant offered evidence tending to show that the receipt for the securities in controversy dated April 30, 1913, was made to read in favor of Knowles Bros., instead of W. H. knowles, through mistake of the draftsman. The court excluded this evidence, upon the ground that its effect was to vary the terms of the receipt, which were of a contractual nature. The receipt was two-fold in character. It was an admission by the signer of the receipt of the pledged securities, and it was a contract setting out the terms on which they were to be held by the signer. In the first respect it was explainable by parol evidence. In the latter, it was not. Clearly the personnel of the deliverer of the securities was a matter that related to the instrument in its character as a receipt, rather than in its contractual character. Wayland's Adm'r v. Mosely, 5 Ala. 430, 39 Am.Dec. 335. It may be that the mistake, to be effectual, would have to be shown to be mutual; but the fact, if it was a fact, that the deliverer of the securities, who drafted the receipt, inadvertently placed the wrong name on the receipt, was evidence tending to show a mistake on the part of both parties to it, and competent.

The appellants contest the jurisdiction of the court below, and cite the case of Park v. Cameron, 237 U.S. 616, 35 Sup.Ct. 719, 59 L.Ed. 1147, in support of their contention in that respect. We do not think that case is controlling of this case. In either aspect of this case, certainly if the transaction of October, 1910, is the applicable one, the case is not one in which an officer of a bankrupt corporation has embezzled or misappropriated property of a corporation without its knowledge or consent, recovery of which is sought from him by the trustee. We think, as to both transactions, the record shows that W. H. Knowles' transfers of the securities in controversy was authorized expressly or by acquiescence by Knowles Bros., and is assailable, if at all, because it was a transfer without consideration moving to the bankrupt, and under circumstances making a voluntary transfer a fraud upon its creditors.

The question...