Dillon v. Ennis

• Decision Date: 16 July 1918
• Docket Number: No. 19156.,19156.
• Parties: DILLON et al. v. ENNIS et al.
• Court: Missouri Supreme Court

205 S.W. 191

DILLON et al. v. ENNIS et al.

No. 19156.

Supreme Court of Missouri, Division No. 2.

July 16, 1918.

Appeal from Circuit Court, Jackson County; Joseph A. Guthrie, Judge.

Action by John H. Dillon and W. H. Douglas, composing the firm of Dillon & Douglas, against H. R. Ennis and M. H. Woods.. Judgment of nonsuit, and plaintiffs appeal. Reversed and remanded.

Plaintiffs sued in the circuit court of Jackson county on eight promissory notes aggregating the sum of $41,484.70. On a trial before a jury, at the close of all the evidence, the court directed a nonsuit, and the plaintiffs appealed.

Several defenses were set up to the action on the notes: First, that the notes were given for the purpose of compounding a felony; second, a want of consideration; and, third, fraud in that the notes were given by the defendants to the plaintiffs for the purpose of procuring the assent of the plaintiffs to a composition of the debts of the Merchants' Refrigerating Company of Kansas City, Mo., against which a bankruptcy proceeding was pending. It is alleged that the plaintiffs, although signing the agreement of composition with the other creditors of that corporation,. procured the notes sued on, for the full amount of their claim; said notes being in addition to what they received as their pro rata portion from the assets of the refrigerating company.

Dillon & Douglas were engaged in the wholesale produce business at New Haven, Conn. The Merchants' Refrigerating Company, located at Kansas City, did a refrigerating and warehouse business, had a city franchise to supply refrigeration to patrons in the business section of the city, and conducted a storage and produce business on its own account. During the year 1907, the plaintiffs transacted a large volume of business with the refrigerating company, in eggs. In October of that year, the plaintiffs held warehouse receipts issued by the refrigerating company to the amount of $41,484.70, representing eggs which bore certain identifying marks and were supposed to be stored in the warehouse of the refrigerating company. The refrigerating company was under the management of one J. E. Brady. It became involved with many creditors, and in October 1907, a proceeding was brought against it in the federal court by some of the creditors in which a receiver was appointed. Dillon & Douglas in that proceeding filed an intervening petition claiming under their warehouse receipts the eggs bearing their identifying marks. Soon afterwards an involuntary bankruptcy proceeding was brought against the refrigerating company and a receiver appointed therein. Here Also Dillon & Douglas filed an intervening petition, claiming under their warehouse receipts the eggs in storage, bearing their marks. The Merchants' Refrigerating Company had given a bond as a public warehouseman, in the sum of $25,000, and Dillon & Douglas also brought suit in the circuit court on that bond against the refrigerating company and its surety, the Federal Union Surety Company. Some time in November, 1907, after these proceedings were started, Dillon & Douglas filed their claim in the bankruptcy proceeding mentioned. It seems also that about the same time an involuntary bankruptcy proceeding was begun against J. E. Brady, manager of the refrigerating company.

The total claims against the refrigerating company were so large that the assets available would pay only a small per cent. of the amount due. The defendants Ennis and Woods were not stockholders in the refrigerating company, nor interested in it in any manner. They, with three other men, J. S. Parks, C. H. Smalley, and C. II. Pattison, together with J. E. Brady, manager of the refrigerating company, were interested in an enterprise in Southeast Missouri which involved large tracts of land, mines, etc. This gave them an interest in the prosperity of Brady, and these five men reached the conclusion that, if the bankruptcy proceedings were pressed against Brady and the refrigerating company, it would so affect Brady's business standing as to involve their joint enterprise in Southeast Missouri. It seems they determined, if possible, to avoid that extremity and prevent the carrying on of those proceedings to a conclusion. They also feared criminal proceedings against Brady. In the meantime, the creditors of the refrigerating company decided that it was to their advantage to effect a composition without carrying the bankruptcy proceedings through to a sale of the refrigerating company's assets, and they began to form plans by which a composition might be effected.

While these discussions were going on in Kansas City, Ennis and Pattison, two of the friends of Brady, paid a visit to Mr. Douglas, of Dillon & Douglas, in New Haven, Conn., taking with them a note for the full amount of Dillon & Douglas' claim, $41,484.70, due two years after date with interest at 6 per cent., and signed by J. S. Parks, H. R. Ennis, C. R. Smalley, M. H. Woods, and C. H. Pattison. As to what was said in that interview between Douglas and Ennis and Pattison, the evidence is conflicting. Ennis testified that Mr. Douglas expressed a determination to prosecute Brady criminally, and expressed a hope that he would see Brady in the penitentiary eating soup out of a tin can; but became more amiable, in fact agreed to refrain from prosecuting Brady criminally, in consideration of security for his debt. The note mentioned was offered him for his claim. Douglas swore that there was no suggestion of his refraining from prosecuting Brady; that he was very much incensed at Brady and expressed a desire to see him in the penitentiary, a desire which remained with him when he testified; but that he made no promise or even suggestion that any settlement of his debt would induce him to refrain from a prosecution. No conclusion was reached at that interview. Mr. Douglas did not take the note, but referred Ennis and Pattison to his attorney, Mr. Cook, at Kansas City, who, he said, would conclude any arrangement that might be made. Immediately after this interview, Douglas wired his attorney, Mr. Cook, at Kansas City, to suspend action in the Brady matter until he received his letter. At that time there was no criminal proceeding against Brady, so far as Douglas' claim was concerned, though there were criminal prosecutions pending on account of claims of other creditors. The only proceedings pending in Kansas City at that time in which plaintiffs were interested were those mentioned above in which the plaintiffs had filed intervening petitions, and possibly the bankruptcy proceeding against Brady. At the same time Douglas wrote a letter to Mr. Cook, calling attention to the telegram and explaining that Mr. Pattison and Mr. Ennis had called upon him and had proposed to give him a note in settlement of his claim. This letter directed Mr. Cook to prosecute a settlement and cautioned him to treat the matter confidentially so no suspicions might be arousal on the part of any other creditors. The letter goes at length into some details of the proposed settlement, suggests an inquiry as to the rating of the signers of the note, but does not mention any criminal proceeding.

In the meantime, the creditors reached an agreement among themselves regarding a plan for a composition with the refrigerating company. According to this plan, a new corporation was organized called the Mid-Continent Refrigerating Company. The assets of the Merchants' Refrigerating Company were transferred to it, and each creditor was to surrender his claim and be given for it 50 per cent. in capital stock, at par, of the new company, and 50 per cent. in second mortgage bonds on the property. The assets of J. E. Brady, it seems, were turned in as part of the working capital of the new company. Dillon & Douglas refused to come into this arrangement because they claimed they had security, in that their warehouse receipts called for certain and definite property which could not be administered in the bankruptcy proceedings.

After the return of Ennis and Pattison from New Haven, they finally reached an agreement with Mr. Cook, representing Dillon & Douglas, whereby Ennis received the warehouse receipts and the plaintiffs received the notes sued on. The agreement was in writing, dated January 9, 1908, and was signed by Ennis, acting for himself and his four associates, and by Cook for Dillon & Douglas. It recited the execution and delivery of the eight promissory notes, seven of them for $5,000 each, and the eighth for $6,484.70, signed by the five men named above, in consideration of which Dillon & Douglas assigned to Ennis all the claims and demands of every kind against the Merchants' Refrigerating Company and against J. E. Brady. Dillon & Douglas agreed to file proof in their own names of their claim against the refrigerating company in the pending bankruptcy proceeding, but all benefits flowing therefrom were to pass to Ennis. The contract provided further that the above-mentioned intervening petitions by the plaintiff should be withdrawn, and that the suit pending in the circuit court of Jackson county against the Merchants' Refrigerating Company and the Federal Union Surety Company on the warehouse bond should also be dismissed unless Ennis should elect to prosecute the same, which he might do at his own expense. It was further provided that all stock and bonds to be issued (in pursuance of the composition agreement) should be held by the plaintiffs as collateral security for the promissory notes.

The evidence shows that the claim of Dillon & Douglas was presented and allowed in the bankruptcy matter in their own names and then assigned to one H. C. Edwards, who was an employé of Ennis. The stock in the Mid-Continent Refrigerating Company, in pursuance of the composition agreement, was issued to H. C. Edwards; and, likewise, the mortgage bonds of the Mid-Continent Refrigerating Company were issued to Edwards. The stock and bonds...