Hawes v. First Nat. Bank of Madison

• Decision Date: 29 November 1915
• Docket Number: 4499.
• Parties: HAWES et al. v. FIRST NAT. BANK OF MADISON et al.
• Court: U.S. Court of Appeals — Eighth Circuit

229 F. 51

HAWES et al. v. FIRST NAT. BANK OF MADISON et al.

No. 4499.

United States Court of Appeals, Eighth Circuit.

November 29, 1915

C. C Le Forgee, of Decatur, Ill. (Francis R. Wiley, of Decatur Ill., on the brief), for appellant McGinley.

James C. Jones and Frank H. Sullivan, both of St. Louis, Mo. (Lon O. Hocker, of St. Louis, Mo., on the brief), for other appellants.

Thomas B. Harlan, of St. Louis, Mo. (Matthew G. Reynolds, John A Hope, and Chase Morsey, all of St. Louis, Mo., on the brief) for appellees.

Before CARLAND, Circuit Judge, and AMIDON and VAN VALKENBURGH, District Judges.

CARLAND Circuit Judge.

On July 3, 1914, John E. Franklin of St. Louis, Mo., owed, either directly or as an indorser, nearly $1,000,000, to more than 100 banks in St. Louis and surrounding territory. There was a meeting of his creditors at which his financial condition was considered. In preference to bankruptcy or a receivership, the creditors and Franklin decided that a trust agreement whereby the latter should turn over all his property to a committee in trust for his creditors should be executed. The committee agreed upon was as follows: Samuel C. McCluney, a dealer in commercial paper, and who had sold about $160,000 of Franklin paper to country banks and represented them therein; Richard S. Hawes, vice president of the Third National Bank of St. Louis, which held about $50,000 of Franklin paper, and was correspondent for some of the country banks carrying such paper; Leonidas S. Mitchell, an officer of the National Bank of Commerce, which was carrying about $165,000 of the paper mentioned and represented other country banks carrying the same; August E. Brooker, a banker, who represented banks with claims amounting to about $40,000, and August Schlafly, a banker and large real estate owner who did not represent any claims against Franklin, but was his personal friend. Unless the creditors should accept this plan with unanimity, or nearly so, it could not be put into execution.

About August 15, 1914, all but 10 or 15 of the direct creditors had executed the trust agreement. Thereupon the committee above mentioned executed it and undertook the trust. The trust agreement was finally executed by 113 creditors, constituting practically all of the direct creditors and a large majority of the indirect creditors. The complainants in this case executed it. There were three parties to the agreement: Franklin as party of the first part, the committee above mentioned, party of the second part, and the creditors of Franklin, parties of the third part. The agreement occupies nine printed pages of the record, and for obvious reasons cannot be set out here, nor is it necessary to do so. The agreement provided that Franklin should transfer all of his property to the committee and that the committee should have the following power:

'The committee shall have the authority to hold, manage, control, sell, operate, rent, and lease the property transferred or conveyed to it; to prosecute or defend any suit at law or equity affecting the title to said property, or in any wise relating thereto, and to settle, arbitrate, or compromise any such suit or any matter pertaining to the property transferred or conveyed to it, or which, by the terms of this agreement, should, in the opinion of the committee, have been so transferred or conveyed; to pay the interest or principal of any mortgage, incumbrance, or lien now existing or hereafter created against said property; to pay all taxes or special assessments levied upon said property; to sell any or all of said property for cash or for notes, and upon such terms and conditions and in such parcels as it may deem best; to borrow, from time to time, any sums of money, and to secure the repayment of the same by charge, pledge, mortgage, deed of trust, or other instrument in writing upon the property, real or personal, or any of it, conveyed and transferred to it by said Franklin, and any and all sums so borrowed shall take priority over the claims of the depositors to the property held by the committee or the amounts realized therefrom; to pay off and cause to be released and canceled any indebtedness now or hereafter existing against said property; to bid or refrain from bidding at any sale of any of said property, and to hold any property purchased by it, either in its own name or in the name of any person or corporation nominated by it; to return to said Franklin and his legal representatives any property which, in the opinion of the committee, cannot be realized on for the benefit of the creditors; and, in general, to exercise over the property conveyed and transferred to it, or its nominee, the control, power, and authority of absolute owner, save and except that the funds realized by it shall be applied by the committee as hereinafter provided.'

The agreement also contained the following provision:

'The depositors agree that they will not, so long as this agreement remains in effect, institute, join in, or become parties to any proceeding at law or equity, or special proceeding in any court, for the purpose of enforcing their claim against the first party, or procuring any settlement or distribution of any of the property of the first party other than by the committee as herein provided.'

The committee was empowered to sell all property and distribute the proceeds to creditors and were to return any surplus that might remain to Franklin. Franklin was also entitled to notice of sale of all collateral either by the parties holding the same or by the committee. The Third National Bank was constituted a depository where creditors might deposit their claims and the papers evidencing the same. For the more convenient handling of the property conveyed Edward W. Labitzke was to take the title to the real estate conveyed by Franklin under the agreement as agent of the committee. On April 16, 1915, the following memorandum of agreement was executed by August Schlafly, as chairman of the Franklin creditors' committee, and one William McGinley:

'This memorandum of agreement, entered into this 16th day of April, 1915, between August Schlafly, chairman of the Franklin creditors' committee, acting for and duly authorized by said committee, and William McGinley:

'(1) Said committee will sell to McGinley, or his nominees, what are known

as the Franklin lands, in Pemiscot county, Missouri, being the lands described in two deeds from Franklin to Edward W. Labitzke, and the said McGinley agrees to buy said lands on the following terms: Twenty-five thousand dollars ($25,000.00) payable on April 19, 1915, of which ten thousand dollars ($10,000.00) shall be cash and fifteen thousand dollars ($15,000.00) shall be the note of said McGinley, payable in twenty (20) days and secured by collateral satisfactory to said committee; the balance of said purchase price shall consist of the note of said McGinley, or his nominee, secured by a mortgage on the lands; said note shall be for the sum of two hundred and seventy-five thousand dollars ($275,000.00), less the amount of the principal due on the three mortgages now on the lands, being approximately one hundred forty thousand dollars ($140,000.00), and said note shall be for approximately one hundred thirty-five thousand dollars ($135,000.00); said note shall bear five per cent. (5%) interest and shall be due January 1, 1916.

'(2) The above agreement is subject to the execution of a contract containing necessary provisions for defects of title, adjustment of interests on mortgages, and other conditions, which contract shall be in form satisfactory to the attorney for the committee and to said McGinley, and shall be executed on April 19, 1915.

'(3) If the committee shall on or before five o'clock on Monday, April 19, 1915, desire to rescind this contract they may do so by paying the said McGinley the sum of ten thousand dollars ($10,000.00).

'Executed in duplicate, at St. Louis, Missouri, this 16th day of April, 1915.

'August Schlafly,

'Chairman of the Franklin Creditors' Committee.

'Wm. McGinley.'

On April 19th the following memorandum was executed by the same parties:

'Date of April 19, 1915, wherever it occurs in this contract, changed by mutual consent to April 20, 1915; otherwise, contract in full force and effect.

'Wm. McGinley.

'August Schlafly,

'Chairman J. E. Franklin, Com.'

At about the time the memorandum of agreement, dated April 16, 1915, was signed the original bill in this case was filed. The bill does not appear in the record, but, as it stopped any further proceedings under the memorandum, we infer that it was filed about the date thereof. On April 27, 1915, an amended bill was filed which appears in the record.

From the amended bill we learn that the action was brought by the First National Bank of Madison and the German State Bank both citizens of Illinois, and the Bank of Tuckerman, a citizen of Arkansas, against John E. Franklin, who executed the agreement of July 3, 1914, R. S. Hawes, August Schlafly, August E. Brooker, Samuel C. McCluney, and L. S. Mitchell, constituting the committee hereinbefore mentioned, Irvin V. Barth, Third National Bank, and Edward W. Labitzke, all alleged to be citizens of Missouri. The bill was dismissed as to Barth and as to John E. Franklin, who was never served with process nor appeared in the action. Appellees allege that they are general creditors of Franklin in the aggregate sum of $17,100. The bill was filed by them in their own behalf and all other creditors of Franklin, as beneficiaries of the trust agreement, who might be willing to join therein and bear their proportional part of the expenses of the litigation. The bill charged no fraud against the trustees, but alleged...