Dilworth v. Boothe

• Citation: 69 F.2d 621
• Decision Date: 14 March 1934
• Docket Number: No. 6986.,6986.
• Parties: DILWORTH v. BOOTHE.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

69 F.2d 621 (1934)

DILWORTH v. BOOTHE.

No. 6986.

Circuit Court of Appeals, Fifth Circuit.

March 14, 1934.

Mark McMahon, of Fort Worth, Tex., C. W. Trueheart, of Longview, Tex., and George Cannon, of San Antonio, Tex., for appellant.

Henry A. Hirshberg and Arthur W. Mueller, both of San Antonio, Tex., for appellee.

Before BRYAN, FOSTER, and SIBLEY, Circuit Judges.

FOSTER, Circuit Judge.

Coke Emory Dilworth was a member of a partnership conducting a private, unincorporated bank at Gonzales, Tex., under the style of the Dilworth Bank. The firm and its members were adjudicated bankrupt on a voluntary petition on June 23, 1931. Coke Dilworth applied for a discharge on June 14, 1932, and the petition was referred to the referee. Thereafter the trustee filed his opposition to the discharge, charging that the bankrupt had committed offenses punishable by imprisonment, by fraudulently concealing assets from his trustee and making a fraudulent and false oath in his bankruptcy proceedings. After a hearing before the referee he reported adversely to the bankrupt. On a review by the District Court the conclusions of the referee were approved, and judgment was entered denying a discharge. This appeal followed.

The record discloses the following material facts: In the early part of 1931 Coke Dilworth was personally indebted to the Frost National Bank, of San Antonio, on notes in the sum of $85,000, and the Dilworth Bank was indebted to it on a note for $75,000. The Frost National Bank requested security of Coke Dilworth. He went to his brother-in-law, H. L. Kokernot, apparently a man of considerable means, and requested assistance. The result was that certain mineral royalties owned by Coke Dilworth and a ranch known as the Wolf Ranch, owned by his wife, were deeded to the Kay Royalty Corporation, owned entirely by Kokernot, in the form of a sale, for respectively $110,000 and $50,000. The deed was properly recorded. The Kay Corporation executed a vendor's lien note for $160,000. Kokernot indorsed this note personally, it was pledged to the Frost National Bank as security for a new note executed by Coke Dilworth, in the same amount, and the pre-existing notes were canceled. The vendor's lien note was dated March 10, 1931, and was payable in three installments; $60,000, due in one year, $50,000 due in two years, and $50,000 due in three years, after date. It was contemplated that the revenues from the royalties would be sufficient to liquidate the note. As to this transaction Coke Dilworth testified that Kokernot assured him that he did not want to make any money out of the transaction and, knowing him, he took that to mean that when the Kay Corporation paid its obligation to the Frost National Bank, Kokernot would immediately transfer the ranch back to his wife and the royalties to him.

About a month prior to the filing of the voluntary petition, involuntary bankruptcy proceedings were begun in the same court against the Dilworth Bank and its members charging that the giving of the Kay Royalty note to the Frost National Bank was an act of bankruptcy as creating a preference.

Mr. Mark McMahon, a reputable and competent attorney, was employed by Coke Dilworth in his bankrupt proceedings. Together they went over the schedules which had been prepared. The schedules truthfully reflected the legal aspects of the royalty transaction, but did not mention any interest of the bankrupt in the royalties, except as to the vendor's lien note, which was surrendered. Mr. McMahon testified, in substance, as follows: Coke Dilworth complained that the royalties were not in the schedules and told him that they ought to be worth enough to pay all the debts of the bank; that he had made a straight deed to the royalties, but they were pledged as collateral to pay $110,000 and were to go back to him. He insisted on their being put in the schedules. McMahon inquired as to whether the royalties were the same as those complained about in the involuntary petition, and was told that they were. McMahon had in mind not only Coke Dilworth, but also Kokernot, the bank, and the trustee. He did not think it would be fair to the other parties to put the royalties in the schedules. Everybody knew about the transaction, and he wanted to let the parties try to get together and not have any one prejudiced by a statement of the bankrupt. He advised Coke Dilworth that he had the right to file an amended schedule, and advised that the royalties be not included in the schedules until they had a conference with Kokernot, the bank, and the attorneys for the trustee when they were appointed. It was at his insistence and on his advice they were not included in the schedules. Later, he discussed the matter with the attorneys for Mr. Boothe, the trustee. Coke Dilworth testified that he talked to Mr. W. T. Miller, attorney for the trustee, about filing a supplemental schedule showing the ownership of the royalties in him but he (Dilworth) did not think it necessary as Everett Lawley (a member of the firm) had turned in some royalties after he had filed his schedules and made no amendment to his schedules. The testimony of McMahon and Coke Dilworth, the substance of which is above set out, is undisputed.

Later, the trustee entered into negotiations with the Frost National Bank and Kokernot about the royalties. It is not shown when these negotiations began except that the trustee testified it was long prior to their consummation. On November 17, 1931, the trustee was granted authority by the referee to enter into a compromise with regard to the royalties and concluded the transaction some time in December. As the result of this compromise, the trustee received all the stock of the Kay Royalties Corporation in full ownership, which carried full title to the royalties, Kokernot was released from his indorsement, and the rights of the Frost Bank were adjusted. The royalties were officially appraised in the bankruptcy proceedings at $95,000.

Coke Dilworth and the other members of the Dilworth Bank had been indicted in a state court for receiving deposits while the bank was insolvent. On April 25, 1932, they filed an application for a continuance in the state court on the ground that certain named witnesses were absent and could not be procured in time for the trial. In this application Coke Dilworth said under oath that on May 2, 1931 (the date the bank closed), he owned the Kay royalties, which cost him $220,000; that the absent witnesses would testify that they were worth, on May 2, 1931, more than $500,000; that the title shown by the record to these royalties was in the Kay Royalty Corporation to secure an indorsement of H. L. Kokernot in the sum of $110,000, but the...