In re Blanchard

• Decision Date: 14 October 1918
• Parties: In re BLANCHARD.
• Court: U.S. District Court — District of New Jersey

253 F. 758

In re BLANCHARD.

United States District Court, D. New Jersey.

October 14, 1918

Robert H. Southard, of Newark, N.J., for trustee.

Albert C. Wall, of Jersey City, N.J., and William F. Allen, of New York City, for claimant.

HAIGHT District Judge.

The primary question in this matter, as I understand it, is whether claimant's stock in the Prudential Insurance Company, which was first pledged with the Fidelity Trust Company to secure the payment of a note or notes of the Blue Ridge Enamel Brick Company, and later with Milton E Blanchard, to secure a note of the same company made to his order, was loaned by the claimant to her sons jointly-- the bankrupt, Fred C. Blanchard, and William W. Blanchard-- as it is contended on her behalf, or whether it was loaned to the Brick Company as the trustee contends. The referee has found in accordance with the claimant's contention. If his conclusion in that respect was correct, undoubtedly the allowance of the claim was proper. I have accordingly examined with care all of the evidence which was before the referee, and am forced to the conclusion that his finding was not justified from the evidence.

In so deciding I have not been unmindful of the rule which prevails in this district, and elsewhere I think, that the court will not disturb the finding of fact of a referee, based upon conflicting evidence, involving questions of credibility unless there is most cogent evidence of mistake and miscarriage of justice. In re Partridge Lumber Co., 215 F. 973, 976 (D.C.N.J.). But it is also a general rule that if the finding be a deduction from established facts or uncontradicted evidence, it will not carry any great weight for the court, having the same facts, may as well draw inferences or deduce conclusions as the referee. In re New York & Philadelphia Package Co., 225 F. 219, 221 (D.C.N.J.). There was really no question before the referee which had to be solved from conflicting evidence, involving the credibility of witnesses, but rather the question was whether the evidence was sufficient to justify a finding that the stock was loaned directly to the sons of the claimant rather than to the Brick Company. A review of the evidence is necessary, I think, in order that the reasons upon which my conclusion is based may be understood.

On August 1, 1904, the Brick Company borrowed $205,000 from the Fidelity Trust Company on its note, indorsed by the claimant and her three sons before named, and pledged as collateral security for its payment 1,176.46 shares of the capital stock of the Prudential Insurance Company, all or the greater part of which belonged to the claimant. Whether this was an original loan, or whether it was a consolidation of previous unpaid loans, the evidence does not positively disclose; but it would seem that it was the latter, supplemented possibly by an additional loan made on the day that the last-mentioned note was executed. On April 3, 1908, this note, as well as some others made by some of the claimant's sons individually (for the payment of which collateral belonging to the claimant had likewise been pledged), were called, and a demand made that they be paid on or before April 6th. In order to prevent a sale of the collateral, Milton E. Blanchard, another son of the claimant, who apparently was not interested in the Brick Company, took up the note held by the Fidelity, and on April 6th a new note for $216,411.67 (being the amount that he paid to the Fidelity), payable in one year from date, was made to his order by the Brick Company. It was indorsed by W. W. Blanchard, Fred C. Blanchard, and the bankrupt. There was pledged with it, as collateral, 1,225 shares of the capital stock of the Prudential Insurance Company belonging to the claimant, included in which, as far as I can ascertain from the evidence, were the 1,176.46 shares held by the Fidelity as collateral for the $205,000 note. This note was held by Milton E. Blanchard until March, 1914, a short time after the voluntary petition of the bankrupt in this case was filed, when the amount due thereon was paid by the claimant, in order to prevent the sale of the collateral which had been pledged for its payment, and the note was transferred to her. She is still the holder of it.

The disputed part of her claim is $271,155, which represents the amount due on the note, after giving credit for a dividend received from the Brick Company, which in the meanwhile had been adjudged a bankrupt. The claimant, as well as her three sons, were the only persons financially interested, at least to any extent, in the Brick Company. The bankrupt was the president, Fred C. Blanchard the treasurer, and William W. Blanchard the general manager. Its capital stock was originally $100,000, or $150,000, of which the claimant owned 100 shares, of the par value of $10,000. Afterwards she acquired 300 shares of the par value of $30,000-- possibly more-- in liquidation of a debt due her for moneys which she had advanced from time to time to the company. The bankrupt apparently gave very little attention to the business of the Brick Company; William W. Blanchard having been in active charge of its affairs. There is no evidence that any new arrangement regarding the use of the claimant's stock as collateral was made when the note to Milton E. Blanchard was executed. Apparently the arrangement under which the stock was originally procured from the claimant to borrow money from the Fidelity was continued. The stock which was held by the Fidelity was simply turned over to Milton, and he assumed the position which the Fidelity had formerly occupied.

It is necessary, therefore, to ascertain what the evidence discloses as to the arrangements which were made when, and circumstances under which, the stock was originally acquired from the claimant. There was no written agreement, or any memorandum in writing, respecting any of the original transactions. The only competent evidence on this point, outside of a letter to the Fidelity signed by the claimant, was the unaided recollection of the claimant, and two of her sons and her daughter, as to what generally transpired when they asked her for stock for borrowing purposes, in which pursuit they seem to have been quite extensively engaged, both personally and on behalf of the Brick Company, for 10 years or more preceding the bankruptcy. The claimant, Mrs. Blanchard, a woman over 90 years of age, testified that she did not think that the stock was pledged for the Brick Company's debts, and did not know whether the sons specified the purpose for which they wanted it, although they may have done so. She had no clear recollection of the transactions, or anything about them. Her testimony may be well summarized in her own language, viz.:

'I loaned my stock to my boys. * * * Why, I loaned it to the boys whenever they wanted it; they knew they could have it when they needed it. * * * I trusted my boys and gave it to them; that is all I know about it.'

Mrs. Walter, a daughter who lives with the claimant, and whose husband, in later years, has been attending to the claimant's business affairs, stated that she remembered that her brothers frequently met at their mother's home for luncheon, and on some occasions they requested loans of stock of the mother, that they might borrow on it; that she remembered, when improvements were needed at the plant of the Brick Company, the brothers would ask for a loan of the stock, so that they might borrow on it and make the necessary improvements; that her mother sometimes objected to having the stock go out of her hands, and would tell them 'to be sure and return it to her as soon as they could'; that they would say that the stock would be perfectly safe with them, and that they hoped to return it soon.

Fred C. Blanchard testified that the brothers met at their mother's home very frequently for luncheon; that the brothers explained the condition of the Brick Company from time to time to their mother, and that if they borrowed any stock it was for the purpose of getting money from the stock and placing it to the use of the company; that sometimes he procured the stock, and sometimes his brother did; and that--

'we always promised, at those times, to return the stock to her-- just as soon as we possibly could. * * * We (two brothers and himself) made an explanation of the need of the money and the condition of the company, and gave our promises to return the stock.'

He admitted having testified, during an examination held in the general bankruptcy proceedings in this case under section 21a, regarding the manner in which the stock in question came into the possession of the Brick Company, as follows:

'As they needed money they borrowed the stock from my mother, and that was the only way.'

The only explanation given by him of the apparent difference in his testimony was that by the use of the word 'they' he referred to his two brothers and himself; that the 'Brick Company was the three brothers.'

W. W. Blanchard testified that, after he and his brothers had used up all of their stock, they felt compelled to go to their mother:

'We would say: 'Mother, it is absolutely necessary; we must have money, and can't you let us have say probably 10 or 20 shares of Prudential stock, and we will get the money on it.' * * * We always assured her we would hold ourselves responsible for the return of her stock. * * * My brother Theo would invariably say she need have no fear whatever; they (referring to the Fidelity Trust Company) wouldn't dare to sell her stock, and, if they did, we will see that it is made good, or she would get the equivalent back.'

By 'they' he stated that he referred to the Fidelity Trust Company, and by we 'to Fred and myself.' He...