Butler v. United States, 482.

• Decision Date: 18 November 1931
• Docket Number: No. 482.,482.
• Citation: 53 F.2d 800
• Parties: BUTLER v. UNITED STATES.
• Court: U.S. Court of Appeals — Tenth Circuit

53 F.2d 800 (1931)

BUTLER v. UNITED STATES.

No. 482.

Circuit Court of Appeals, Tenth Circuit.

November 18, 1931.

COPYRIGHT MATERIAL OMITTED

C. V. Caldwell, of Los Angeles, Cal. (Minor Moore, of Los Angeles, Cal., on the brief), for appellant.

George H. Lunt, Asst. U. S. Atty., of Salt Lake City, Utah (C. R. Hollingsworth, U. S. Atty., and E. C. Jensen, Asst. U. S. Atty., both of Salt Lake City, Utah, on the brief), for the United States.

Before PHILLIPS and McDERMOTT, Circuit Judges, and POLLOCK, District Judge.

McDERMOTT, Circuit Judge.

Four indictments were returned against the appellant, all of them charging the use of the mails in the execution of a scheme to defraud. The different indictments relate to different loans that were discounted; the different counts set out various letters concerning the loan made the basis of the particular indictment. All of the charges grow out of the activities of the appellant as president and general manager of the Western Livestock Loan Company, of Salt Lake City, for the months immediately preceding March 14, 1928, when the company went into a receivership. The cases were tried as one, and concurrent sentences imposed. It will be unnecessary, in this opinion, to deal with the cases separately.

The proof developed, without substantial contradiction, that since 1917 the Western Livestock Loan Company (hereafter referred to as the company) had been engaged in the business of lending money on live stock security, and selling the loans to banks in various parts of the country, either directly or through note brokers, the company guaranteeing the payment of the loans. Each year the company would establish a line of credit with such banks or brokers, and would furnish them with a statement of the financial condition of the company. When a cattleman or sheepman applied for a loan, the company would send out an inspector to examine the cattle or sheep offered as security; the inspector would make a written report; the company would take a financial statement of the borrower; if the loan was approved, the borrower would execute a note and chattel mortgage, generally for a short term. The company, if in funds, would pay out on the loan to the borrower, and then sell the paper; if not in funds, it would sell the paper and then pay the borrower. In either event, the loan would be offered to a bank, the note and mortgage being accompanied by the financial statement of the borrower and by the inspector's report. It takes but a limited knowledge of banking to know that when these loans were offered for sale, that the company represented that (a) the paper offered evidenced bona fide loans to honest-to-goodness borrowers; (b) the security offered was a first lien; (c) the financial statement of the borrower had been made by him, and that the company was not aware of its falsity or forgery; (d) the inspector's report was genuine; and (e) the financial statement of the company, which guaranteed the loan, was true and correct when made. These representations are necessarily implied from the nature of the transaction, just as one represents a check to be genuine when he offers it to a bank for cashing. The representations are material; in buying paper, banks rely upon the financial statement of the maker and guarantor; upon the value of the security offered and the priority of the lien; and upon the moral risk — the probability that an honest man will endeavor to pay the debts he has honestly contracted.

Through many years of honest dealing, the company had built up an enviable reputation; both borrowers and banks believed in it and trusted it. Through the same years, the dangerous practice grew up of borrowers signing instruments in blank. If a borrower wanted $20,000 he would execute a single set of papers for that amount; often it developed that such a loan could not be marketed except through brokers, who would sell it in pieces of $2,000 each. It was inconvenient to recall the cattleman from his range; so he would sign ten additional sets of papers in blank, so that the loan could be broken up in smaller denominations if need be. During the term of the paper, cattle might be sold, and the proceeds held to apply on the note; partial renewals of the notes originally made often were contemplated, the amounts of which could not be determined when the original papers were made. To avoid the long trek from his outfit to town when the note matured, the borrower would sign blank papers to be used when and if a renewal was necessary.

In the summer and fall of 1927 the company was beset with financial troubles. The appellant had been general manager since 1919, vice president since 1922, and president since 1926. When trouble came he was the skipper of the boat. He found himself in the possession of a great number of notes and mortgages and financial statements, signed in blank by the trusting clients of his company. He had many inspection reports, signed in blank by inspectors. His company had an established reputation for fair dealing in the money markets of the world. The rest of the story is so obvious it need hardly be told. An example will suffice: In March, 1927, one Peterson executed a mortgage on his sheep to the Western Agricultural Corporation, a subsidiary of the Western Livestock Loan Company, for $40,000. This represented an actual loan. Peterson left with appellant notes and mortgages and financial statements, signed in blank, to be used in case of a renewal. In July, 1927, notes for $50,000, secured by what purported to be a first mortgage on the same sheep, signed by Peterson, were sold to various banks in the northwest. In December, 1927, still a third mortgage, signed by Peterson, for $30,000, was sold to a Chicago bank; it was accompanied by a report of an inspection that was never made, and by a financial statement of Peterson that was untrue. The mortgage covered all the sheep Peterson had, and many he did not have. It purported to be a first mortgage; it was in fact a third mortgage on some sheep, and no lien at all on the sheep that did not exist. In January, 1928, a bank at Rock Springs, Wyo., bought another Peterson mortgage on the same sheep for $20,000. The signatures of Peterson were genuine, but he got none of the proceeds of the last three loans; the banks did not get what they paid for. The last three mortgages were not first liens as they purported to be; did not represent actual loans made; were a fraud upon both the banks who thought they were buying genuine loans secured by a first lien, and upon Peterson, whose notes were floated in abuse of trust. The practice of signing instruments in blank had gotten in its deadly work. That the proceeds of the fraud went to the company instead of to the personal profit of the appellant was a circumstance properly and apparently considered by the trial court in imposing sentence; it has no bearing on the question of the guilt or innocence of appellant.

That the appellant concocted and carried out this vicious scheme to defraud those he had taught to trust him, admits of no doubt. That he used the mails is proven by registry receipts; that he contemplated and authorized such use is proven by an office equipped with stenographers and stamps, and by the fact that the nature of the plan required such use. That the indictments fairly advised him of the offenses with which he was charged is proven by a reading of them and by the exhaustive defense which he made, both by cross-examination and through witnesses of his own, although he himself did not give the jury the benefit of his detailed knowledge of the facts in issue. That the court fairly and ably charged the jury is demonstrated by an examination of his charge, by the fact that no exceptions were taken below, and no complaint is lodged here against it. In this situation, we must disregard "technical errors, defects, or exceptions which do not affect the substantial rights of the parties." 28 USCA § 391.

The principal errors assigned will be noticed. It is contended that there was no proof of any scheme to defraud because the purpose that actuated appellant in discounting the notes "under somewhat peculiar circumstances" was to save the company and thus save its creditors; that appellant was not actuated by hope of personal profit; that, in any event, there was a fatal variance between the proof and the charges laid in the indictments.

The indictments are substantially identical except for the names and dates. The last one charges that the defendant devised a scheme and artifice for obtaining, under the corporate name of Western Livestock Loan Company, money and property, by means of false and fraudulent pretenses, representations, and promises, from the North Side State Bank, of Rock Springs, Wyo., in return for the rediscounting of the Peterson note of January, 1928; that the false representations and promises were "* * * to the effect that (1) said promissory note was the bona-fide obligation of the maker thereof, (2) that the same was sufficiently secured by a bona-fide mortgage upon livestock then owned by said maker of said promissory note, (3) that said promissory note represented a bona-fide loan made by said Western Livestock Loan Company to the maker of said promissory note on the date of said promissory note, (4) that said Western Livestock Loan Company then was a bona-fide and responsible loan company engaged in the business of loaning money upon the security of livestock, and that said Western Livestock Loan Company would save said banking concern from loss on account of its rediscounting said promissory note; whereas in truth and in fact, as said defendants then and there well knew, said promissory note then was not the bona-fide obligation of the maker thereof, but was a fictitious and pretended blank note to which said defendants had secured the signature of said maker as a part of said scheme and artifice, said promissory...