American Exch Nat Bank of New York City v. Ward

• Decision Date: 21 October 1901
• Docket Number: 1,497.
• Parties: AMERICAN EXCH. NAT. BANK OF NEW YORK CITY v. WARD et al.
• Court: U.S. Court of Appeals — Eighth Circuit

111 F. 782

AMERICAN EXCH. NAT. BANK OF NEW YORK CITY v. WARD et al.

No. 1,497.

United States Court of Appeals, Eighth Circuit.

October 21, 1901

Henry C. Solomon (Benjamin F. Wollman and Armwell L. Cooper, on the brief), for plaintiff in error.

Hugh C Ward (Herbert S. Hadley and Frank Hagerman, on the brief) for defendants in error.

Prior to March 29, 1895, the Martin-Perrin Mercantile Company hereinafter called the 'Mercantile Company,' was doing an extensive business in Kansas City, Mo. It had issued common stock of the face value of $300,000, and preferred stock of the face value of $150,000. The common stock was held, $150,000 of it by E. L. Martin, its president; $100,000 of it by C. G. Perrin; and $50,000 of it by Thomas E. Gaines; these three men constituted the board of directors. Of the preferred stock, $75,000 in face value was held by the Metropolitan National Bank of Kansas City, hereinafter called 'Metropolitan Bank'; $50,000 by the National Bank of Commerce of Providence, R.I., hereinafter called 'Providence Bank'; and $25,000 by J. Levy & Bros. of Cincinnati, Ohio, hereinafter called 'Levy & Bros.' At this time the mercantile company was, and for some time prior thereto had been, indebted to the Metropolitan Bank in the sum of $25,000; to the Providence Bank, $5,843; and Levy & Bros., $10,506,-- the payment of none of which was secured. It was also indebted to the American Exchange National Bank of New York City, the plaintiff in error, in the sum of $6,250, likewise unsecured. This constituted all of the unsecured indebtedness on March 29, 1895. Whether the Metropolitan Bank, Providence Bank, and Levy & Bros. were the absolute owners of the preferred stock, or held it as collateral security for the payment of indebtedness due them, is, for the purposes of this case, unimportant. Besides this unsecured indebtedness, the mercantile company then owed to divers persons the sum of $123,521, the payment of all of which was duly secured by collateral. The mercantile company had prior to March, 1895, transacted a large business in buying and selling liquor, but, for reasons unnecessary to mention, its business had declined, and was no longer profitable. Representatives of the Metropolitan Bank, Providence Bank, and Levy & Bros. met together in March, 1895, and, after consideration of their interests, decided that a change in management of the mercantile company was desirable. Conferences then followed between them and the officers and directors of the mercantile company, which resulted in the transfer of substantially all of the common stock from their former owners to them, and in the substitution of W.C. Glass and J.H. Wiles as directors in place of E.R. Martin and Thomas E. Gaines, the former of whom having before that time taken the place on the board formerly held by C.G. Perin. Glass was made vice president, and, because of a prior valuable experience in the liquor business, was made general manager, with full control over the business of the company, and immediately entered upon the discharge of his duties as such. The plaintiff in error was forthwith informed by E. L. Martin, the president, of this change in the management; Mr. Martin writing it that 'the Metropolitan Bank (whose directors had become the managers of the mercantile company) thought the changes which are made would be beneficial to the common stockholders and creditors.' Mr. Martin testifies, in substance, that the plaintiff in error was practically the only other unsecured creditor, besides the two banks already referred to and Levy & Bros., and he thought it should be notified of what was being done. The record shows that Martin was particularly friendly to plaintiff in error, and gave it full information of the transaction already detailed, which occurred on March 29, 1895, and that no objection or complaint was made by plaintiff in error with respect to that transaction. The new management in July, 1895, before appropriating any of the funds of the mercantile company to the payment of the unsecured indebtedness due to the Metropolitan Bank, Providence Bank, or Levy & Bros., remitted to plaintiff in error the sum of $1,250, thereby reducing its claim to $5,000. On December 18, 1895, it was found that additional money was required to properly carry on the business. At that time, with full knowledge and acquiescence by Mr. Martin, the president of the mercantile company, the following agreement was entered into:

'The Metropolitan Bank of Kansas City, Mo., the National Bank of Commerce of Providence, R. I., Jas. Levy & Bros., of Cincinnati, O., and the Martin-Perrin Mercantile Co., of Kansas City, Mo., in consideration of the mutual agreements herein contained, do hereby jointly and severally agree with each other as follows: The sum of fifteen thousand ($15,000) dollars is to be forthwith loaned by the three first parties named to the Martin-Perrin Mercantile Co. on its several promissory notes, all to be of even date, and at four months, less discount at six per cent. per annum, in the following amounts: Metropolitan National Bank, $7,500; National Bank of Commerce, $5,000; Jas. Levy & Bros., $2,500. This agreement is entered into on the express condition and understanding that all of said loans are to stand upon a parity and equality, and are made at the request of the said Martin-Perrin Mercantile Co., and are to be paid prior and preferable to the present unsecured indebtedness of said company, as the same now exists and appears on its books, to the other parties hereto, none of which shall in any manner be secured, paid, or discharged until the entire $15,000 herein agreed to be loaned is fully and entirely secured or paid; but the words 'present unsecured indebtedness' shall not be deemed to mean or include discounted customers' paper, or other paper that may be otherwise secured, but, as long as any part of such $15,000 is unpaid, such present unsecured indebtedness of such company to the other parties herein shall, as between said parties, be treated as a parity, so that, if for any reason security is taken by one, like security shall be taken for all, without preference as between each other. And the said Martin-Perrin Mercantile Co., by its signature hereto, agrees to pay said $15,00 in the manner herein expressly set out, and agrees not to pay, secure, or discharge its said unsecured indebtedness to the other parties hereto as the same now exists or appears on the said books of said company, other than as herein agreed.

And the Martin-Perrin Mercantile Company agrees that William C. Glass shall continue as vice president and manager of said company, but the other parties hereto in no wise assume any supervision, direction, or control of the said business.

'Witness the hands, respectively, of the parties hereto on the 18th day of December, A.D. 1895.'

Pursuant to the terms of this agreement, the full amount of $15,000 was loaned to the mercantile company. Soon thereafter, and before appropriating anything to the payment of the claims of the two banks or Levy & Bros., in June, 1896, the new management again remitted to plaintiff in error $1,000 reducing its debt to $4,000. By reason of long and continued depreciation in value of a large stock of whisky on hand when the new management took charge, and also by reason of other unfortunate circumstances and conditions, the expectations of all concerned were disappointed, and on November 26, 1897, it was found advisable to wind up the business of the mercantile company. On that day, pursuant to a resolution of the board of directors, a chattel mortgage and deed of trust were executed, conveying all the property of the mercantile company to Hugh C. Ward and James K. Burnham, as trustees, to secure the payment of the following indebtedness: First. A note due the Metropolitan Bank for $7,500, a note due the Providence Bank for $5,000, and a note due Levy & Bros. for $2,500. These notes represented the loan as made by the payees, respectively, according to the agreement of December 18, 1895, no part of which had ever been paid. Second. Note due the Metropolitan Bank for $30,500, notes due the Providence Bank for $6,000, and notes due Levy & Bros. for $2,121.73. These represented the unsecured indebtedness of the payees, respectively, as it stood on November 26, 1897, and amounted to $6,722 in excess of the indebtedness of the mercantile company to them at the time they, in March 1895, undertook, through their representatives, the management of the business. In other words, these three creditors in their effort to extricate themselves and the plaintiff in error, who, as already stated, were the only unsecured creditors in March, 1895, succeeded in paying off $2,250 of the debt due to the plaintiff in error, leaving a balance at that time due to it of $4,000, but increasing their own aggregate unsecured indebtedness in the sum of $21,722; the same consisting of loan of $15,000 made on December 18, 1895, and $6,722 in addition thereto. The plaintiff in error being informed by its friend, Mr. Martin, of all the steps taken by the new management from the beginning to the end, found no fault until the chattel mortgage and deed of trust were executed on November 26, 1897. This, Mr. Martin says, it complained of, saying, 'It ought to have been secured, along with the balance of them, by mortgage. ' Plaintiff in error afterwards, and on December 20, 1897, instituted a suit by attachment in the credit court of the United States for the Western district of Missouri against the mercantile company to recover the balance of $4,000 and interest then remaining due it, and caused Hugh C. Ward and Thomas K. Burnham, the defendants in error, to be summoned as garnishees. Interrogatories having been duly...