In re Brown

• Decision Date: 05 October 1908
• Docket Number: 1,601.
• Parties: In re BROWN. v. MAJOR et al. BROWN
• Court: U.S. Court of Appeals — Ninth Circuit

164 F. 673

In re BROWN.

BROWN v. MAJOR et al.

No. 1,601.

United States Court of Appeals, Ninth Circuit.

October 5, 1908

Hiram W. Johnson, for petitioner.

Daniel O'Connell, for respondents.

Before GILBERT, ROSS, and MORROW, Circuit Judges.

ROSS Circuit Judge.

This is a petition for the revision, under section 24b of the bankruptcy act of July 1, 1898, c. 541, 30 Stat. 553 (U.S Comp. St. 1901, p. 3432), of an order of the United States District Court for the Northern District of California.

The petition to this court shows that on the 28th day of January 1908, Frieda R. Major, Maude A. Ralston, and Kate A O'Connell, as administratrix of the estate of George P O'Connell, presented a petition to the judge of the court below praying that the present petitioner be adjudged bankrupt. Brown field a demurrer to that petition, which demurrer the court below overruled, and it is that ruling that is here sought to be revised. The real grounds of the demurrer were that the petition for the adjudication in bankruptcy did not show that the petitioners thereto were holders of provable claims against Brown or his estate, that the amount of the alleged claims of the petitioners against the alleged bankrupt was not sufficient to entitle them to the relief sought, and that the averments of the petition filed by the alleged creditors were indefinite and uncertain in certain enumerated particulars.

The petition to which the demurrer was interposed alleged, among other things, that the California Safe Deposit & Trust Company was then, and for more then five years then last past had been, a corporation organized and existing under the laws of the state of California, and until October 30, 1907, conducted a general banking business under the laws of that state, and also carried on the business of a savings and loan corporation, and also of keeping money and other valuable personal property in safe-deposit vaults at agreed rentals, and acted as executor, administrator, guardian, trustee, and receiver, discounted bills of exchange and other evidences of indebtedness, and received moneys on deposit, payable on demand and otherwise; that the whole amount of the capital stock of the company was three millions of dollars, divided into 30,000 shares of the par value of $100 each, of which stock 22,122 shares were subscribed for and issued, 577 of which were issued to and then held by Brown; that on November 1, 1907, Brown was, and for five years prior thereto had been, a director and vice president and manager of the company, and was not, and had not been during the period mentioned, a wage-earner or engaged chiefly in farming or the tilling of the soil; that on October 30, 1907, the company closed its doors and refused to pay on demand the money deposited therein, and refused to pay any of its debts or obligations, and has continued in such refusal, and has kept its doors closed ever since; that on December 7, 1907, the bank commissioners of the state of California adjudged the company insolvent, and that it was dangerous for it to continue to do business, and on December 9th of the same year the Attorney General of the state commenced an action in the name of the people of the state against the company and its officers and directors, in the superior court of the state in and for the city and county of San Francisco, to have the company adjudged insolvent and a receiver thereof appointed, and that on January 3, 1908, a default was entered against such officers and directors, including Brown, and that on January 14, 1908, the said superior court adjudged the company insolvent and appointed a receiver of its property; that the petitioners are creditors of Brown having provable claims amounting in the aggregate, in excess of securities held by them, to the sum of $500, the nature and amount of which are as follows:

'That said California Safe Deposit and Trust Company was insolvent on said December 7th, 1907, and for more than a year prior thereto said J. Dalzell Brown well knew during all that time, and advertised and requested your petitioners and others to deposit their money with said company, and during the months of September and October, 1907, your petitioner Kate A. O'Connell, as such administratrix, deposited the sum of one thousand seven hundred and seventy-four dollars ($1,774.00) with said company, and in the month of October, 1907, said Frieda R. Major deposited the sum of eleven hundred and twenty-five dollars ($1,125.00) with said company, and about July or August, or September, 1907, said Maude A. Ralston deposited the sum of one hundred dollars ($100.00) with said company, said company receiving and keeping each and all of said deposits as a savings bank under the laws of the state of California, agreeing to return said money to said depositors on demand, and the allowance of said deposits by said Brown at said time was a violation of section 562 of the Penal Code of the state of California.'

That petitioners thereafter demanded from said company the payment of the amount of their several deposits of money, which the company refused to pay, and that no part thereof has ever been paid to the petitioners or to any person for them; that the petitioners thereafter demanded from the California Safe Deposit & Trust Company payment of the amount of their said several deposits, no part of which payment has ever been made; that during the three years then last past, and during the term of office of the said Brown, moneys were embezzled and misappropriated by the officers of the company as follows:

'(1) In violation of section 571 of the Civil Code of the state of California, more than the sum of five million dollars of the money of the depositors of said bank and corporation was loaned on inadequate security.

'(2) In violation of section 578 of said Civil Code more than the sum of three million dollars of the deposits and funds of said corporation was directly and indirectly borrowed by the directors and officers of said corporation.

'(3) In violation of said section 578 more than five million dollars of the deposits and funds of said corporation were loaned, for which officers and directors of said corporation became and were obligors, indorsers, and sureties.

'(4) In violation of section 561 of the Penal Code officers of said corporation overdrew their accounts with said bank and wrongfully obtained the money and funds of said bank to the amount of one million dollars.

'(5) In violation of section 560 of the Penal Code, and section 309 of the Civil Code, dividends to more than one million dollars were made and paid from other than the surplus profits arising from the business thereof.

'(6) In violation of said sections of the Penal Code and Civil Code, the capital stock of said corporation to-- dollars was divided, withdrawn, and paid to certain stockholders of said corporation.

'(7) In violation of said sections of the Codes, debts to the amount of six million dollars beyond the subscribed capital stock were created.

'(8) During the three years said J. Dalzell Brown and other officers and directors of said corporation knowingly received and possessed themselves of the moneys, stocks, bonds, and other property of said corporation otherwise than in the payment of a just demand, and, with intent to defraud, omitted to make, or caused or directed to be made, a full and true entry thereof in the books and accounts of said corporation.

'(9) During the past three years said corporation and savings bank has purchased, held, and conveyed, and now holds, stock and shares of various worthless and insolvent corporations amounting to more than four million dollars, which section 574 of the Civil Code and other laws of the state of California prohibits said corporation from purchasing, holding, or conveying.

'(10) The moneys received by said bank and corporation, and its officers and directors, were received as a bank for safe keeping, savings, and loan, according to the restrictions provided by law, and during the past three years said savings bank and corporation purchased, invested, and loaned its capital and the money of its depositors in mining shares or stocks to the mount (amount) of more than one million dollars.'

The petition of the creditors further alleges that Brown is insolvent, and that within four months next preceding the filing of the petition, while so insolvent, he committed acts of bankruptcy as follows:

'(1) On or about December 13, 1907, an action was commenced in said superior court against J. Dalzell Brown by A. B. Southard and J. A. Bloch for the sum of $3,693.70, and said Brown, with intent to prefer such creditors, allowed a judgment by default to be entered against him in said action on or about December 23, 1907, and said judgment constitutes a lien on the real estate of said Brown, and is still in full force and effect.

'(2) On or about the . . . day of December, 1907, said Brown, with intent and purpose of hindering, delaying, and defrauding his creditors, and especially your petitioners, made and caused to be made conveyances and transfers of the property hereinafter described, and other property, to his wife, Harriet D. Brown, of said city and county of San Francisco, without any valuable consideration, and with intent to prefer said Harriet D. Brown to all his other creditors, and especially these petitioners, and said Harriet D. Brown joined in said intent and purpose: (1) That parcel of land on the southerly side of Washington street and east of Buchanan street, in said city and county of San Francisco, with the

...