Lippincott v. Shaw Carriage Co.

Citation25 F. 577
PartiesLIPPINCOTT and others v. SHAW CARRIAGE CO. and others.
Decision Date21 November 1885
CourtD. Indiana

Horace Speed and Harrison, Hines & Miller, for plaintiffs.

Claypool & Ketcham, for defendants.

WOODS J.

A particular statement of the numerous exceptions filed by the parties is not deemed necessary here. Omitting many details of evidence, I give so much of the master's report as is thought to have an important bearing upon the questions to be decided. Except in some particulars which will be indicated the facts of the case as stated by the master are well supported by the evidence. The report is as follows:

The bill was filed by Ezra Lippincott and others, merchants, in behalf of themselves and all other creditors who might come in and pay their share of the costs, etc., against the Shaw Carriage Company, the First National Bank of Indianapolis Benjamin C. Shaw, Irwin Robbins, Thomas C. Redding, William B. Redding, F. A. W. Davis, trustee, William H. Morrison trustee, F. A. W. Davis, John L. Ketcham, Jane M. Ketcham, William H. Morrison, Samuel Miller, William Needham, Peter Ditmars, Peter J. Banta, partners under the firm name of the Indiana Banking Comapny, William J. Holliday, John W. Murphy, James F. H. Tompkins, and George Tousey. The object and prayer of the bill is to set aside certain alleged preferential mortgages executed by the defendant the Shaw Carriage Company to the defendants the First National Bank of Indianapolis and the Indiana Banking Company, and also to set aside certain mortgages executed by the respondent Shaw individually to F. A. W. Davis, as cashier of the Indiana Banking Company, on or about the seventh day of May, 1879, on the ground that they were without consideration, and were fraudulent and void.

The evidence discloses the following facts.

In December, 1873, the Shaw Carriage Company was incorporated. * * * In January, 1879, Shaw, who had been treasurer of state of the state of Indiana for four years, and whose term would expire February 8, 1879, was a defaulter to the amount of, say $127,000, which he had used, or appropriated to his own use, in his own business, contrary to law. As the time approached for settlement he made efforts to make good his deficit. Early in January he applied to the banks of Fletcher & Sharpe and Woollen, Webb & Co., of Indianapolis, and obtained for the company loans of $30,000,-- $20,000 from Fletcher & Sharp, and $10,000 from Woollen, Webb & Co.,-- and about the same time procured a loan of $10,000 from the Meridian National Bank for the company. He obtained these loans upon a statement that the company had been or was about to be pushed or crowded by the Indiana National Bank, where it had formerly kept its account, by the new management which had succeeded Mr. Tousey, the former president, and that he desired the money to enable him to close the company account with that bank. This was not true; the amount the company owed the Indiana National Bank at that time was nominal, if anything. The plain motive for obtaining these loans was to enable him to settle his account as treasurer of state. He still lacked over $80,000 to enable him to settle with the state.

The defendants Davis and Robbins, and Mr. Franklin Landers, who is not a defendant, were among the sureties on his official bond, and the evidence shows that they all knew that Shaw was short in his accounts with the state to a large amount. Landers, who assisted Shaw in making his settlement, indorsed his note for $5,000. He says he talked with Davis about the deficit, and about settling it up. Shaw says he talked with Landers and Robbins about it. To enable Shaw to raise the balance needed, Robbins, treasurer of the company, made the notes of the company payable to Shaw and Robbins, which were indorsed by them before delivery. These notes amounted to $82,000, and were negotiated on February 5th and 8th, at the Indiana Banking Company's bank, for certificates of deposit for that sum, which were made payable to the Shaw Carriage Company. In that transaction Davis acted for the Indiana Banking Company, and knew that the object was to enable Shaw to raise money with which to settle with the state.

The evidence also shows that of these notes about $14,000 was accommodation paper, in excess of any indebtedness of the company to Shaw. This accommodation paper was taken up by Shaw, May 7th or 8th, by his returning to the carriage company its own paper in the hands of the Indiana Banking Company, having given his individual paper, secured by mortgage on his individual property, in payment thereof. With a view to this loan there had been prepared a statement of the company's condition, its assets and liabilities, which was exhibited by Robbins to Davis in January, 1879, by which it appeared that Shaw claimed, as due him from the company, $102,000. By that statement the assets of the company were put at $227,000; consisting of $72,000 for the factory and machinery on Gatling street, in the city of Indianapolis,$61,000 of work done and in course of construction, and $68,000 of raw material, and the balance notes, accounts, etc. According to the testimony of Davis that statement showed over $140,000 of valuable assets, which he believed could be converted into money in a short time, consisting of the following items:

Building and warerooms, - - - - - - - $66,300
Materials and lumber, - - - - - - - - 61,956
Accounts, - - - - - - - - - - - 2,489
Notes, - - - - - - - - - - - 9,213
Cash, - - - - - - - - - - - 147
--------
$140,105

This, it will be seen, differs about $20,000 from the statement as given by Robbins of the condition of the company as it existed in the May following. Mr. Davis says that at the same time Mr. Shaw stated to him that he (Shaw) was worth $150,000. From January to May the company purchased $12,000 of raw material, and the first appraisement or inventory made after the mortgages were executed, and the receiver took possession, put the value of the whole property at $115,000. The January statement showed $169,000 of debts, most of which was due to Shaw, or on time loans by banks.

The evidence shows that part of the notes making up the amount of $82,000, which were discounted by the Indiana Banking Company on the fifth and eighth of February, were payable on demand,-- a form of paper that the company had never before executed in its bank dealings. Mr. Robbins says he has no idea why they were so made; and in view of this fact, and of the condition of the company as shown by the statement made in January, it is difficult to believe that these notes were discounted in the ordinary course of banking business.

Upon the whole evidence, the master is constrained to believe that the motive of the entire transaction, on the part of the banks as well as Shaw, was not to raise funds to assist the company in carrying on its business, but to provide a way by which Shaw might escape the disgrace and punishment which might result from the exposure of his manner of dealing with the public funds. In March or April, 1879, $17,000 of the $82,000 of notes discounted by the Indiana Banking Company were transferred by the Indiana Banking Company to the First National Bank of Indianapolis without indorsement. In March, 1879, some of the other notes held by the Indiana Banking Company against the Shaw Carriage Company became due, and were neither paid nor renewed, nor was any payment or renewal requested. In April other notes of the same character, and held by the same bank, became due, which were treated in the same way.

Shaw testifies that in March, or early in April, he saw that the estimate of the company's property, as made in the January statement to the bank, was greatly in excess of its true value, and he immediately informed Mr. Davis and Mr. Morrison of that fact, Mr. Morrison at that time being president of the First National Bank. In the conversation he told them, he says, that the carriage company could not run any longer unless they would help it, or, as he says, 'see it through,' and would not press the company for their debt; and that after a full discussion, and knowing the facts, they told him that they knew the situation, and to go ahead and they would see the company through, and relying on their promise he went on and bought goods as before.

The company's books show that during the year 1878 the purchases of merchandise were $16,000, upon which they paid $9,000. In the four months and seven days of 1879 the company purchased $12,000 of merchandise, and paid $1,000 on it. The loan from the banks and other debts all, or nearly all, came due in May, 1879, or earlier; and, so far as the evidence discloses, no effort had been made, and no means devised, to meet these maturing liabilities. From the course of business in such manufactories, the company could not begin to realize upon the year's business until after May, and there was no possibility of its continuing as a going concern without the indulgence of its creditors. It is said in explanation that after Shaw retired from his office he intended to extend the business of the company, and expected to make 400 carriages and 1,000 wagons during the year 1879. He promised to give the business his time and personal attention thereafter, something he had not done while in office, and it was expected there would be a revival from the business depression which had existed since the panic. How the business was to be extended without money it is difficult to understand. It is clear from the evidence that from January 1879,-- certainly from and after February 8, 1879,-- the concern had neither assets nor credit sufficient to enable it to continue...

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