In re Desnoyers Shoe Co.

• Citation: 224 F. 372
• Decision Date: 20 May 1915
• Docket Number: 2106.
• Parties: In re DESNOYERS SHOE CO. v. SANGAMON LOAN & TRUST CO. et al. DOZIER
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

224 F. 372

In re DESNOYERS SHOE CO.

DOZIER v. SANGAMON LOAN & TRUST CO. et al.

No. 2106.

United States Court of Appeals, Seventh Circuit.

May 20, 1915

[Copyrighted Material Omitted] Appellant, Dozier, a wealthy business man, after some conversations with W. L. desnoyers, president of the bankrupt Desnoyers Shoe Company, as to the advisability of his investing money in the Desnoyers business and of having them provide a place for his 21 year old son, expressed his willingness to put in $50,000 and asked Desnoyers to draw up a paper covering the arrangement reached. Thereupon Desnoyers dictated the following document, dated January 24 1911, on the letterhead of the company:

'Mr. L. D. Dozier, Sr., St. Louis, Mo.-- Dear Sir: In accepting your check for $50,000, receipt of which is hereby acknowledged, we wish to cover all the points of the agreement between us, of which your payment is the initial step. The $50,000 received from you, and referred to above, is to become a part of the capital stock of the Desnoyers Shoe Company as soon after July 1st as we can legally arrange for an increase to our capital stock, the increase to be from the present $300,000 to $500,000 and to be all paid in in cash or its equivalent, except $50,000, which is to be carried for the account of the undersigned until such time as the dividends on same shall have paid for the principal or until it shall be paid for in cash, or, in the event of my death, it shall become treasury stock for the company, with exception of such parts as have already been paid for in the manner outlined above. The $50,000 which you are now paying, it is understood, is to become special capital until such time as we are able to merge it into the general capital stock in the manner outlined above, and it is to bear the same percentage of dividends as regular stock beginning from the 1st of January; and, in addition to this, as a premium for prepayment, we will pay you 6 per cent. per annum for interest on the said amount from to-day until the 1st of July. It is further understood to become a part of this agreement that if you, or Lewis, or both, should desire to become officers and directors, or both, of this company, that such arrangements will be made. It is further understood that the writer is to give Mr. Lewis D. Dozier, Jr., every legitimate opportunity to increase in knowledge in the shoe business or such general business as comes before the writer. It is further understood that the salary basis under which I am now working will be changed after July 1st, and that, in lieu of the commission I have been getting, that I shall receive a salary of $ . . . per year, as per my conversation with you.

'Desnoyers Shoe Company,

'W. L. Desnoyers, Pres.

'W. L. Desnoyers.'

He handed this document to Dozier, who, after reading it, said, 'You seem to have covered the case completely,' and thereupon handed him his check for $50,000, payable to the bankrupt. At the same time, Desnoyers gave Dozier a check for $1,316.67 as interest at 6 per cent. on the $50,000 to July 1st. On the following day the $50,000 check was cashed. On June 27, 1911, Dozier received a further check of $516.67, as interest from July 1st to September 1st. Entries covering each of these transactions were made on the general ledger of the bankrupt in an account opened up with Dozier. No other entries appear on this account. The testimony does not show that Dozier had any knowledge of how his account was carried on the company's books.

At a directors' meeting, held February 6, 1911, some question was raised as to the right of Desnoyers to assure Dozier that the stockholders of the company would carry out the agreement. Desnoyers said, in answer to an inquiry of one of the directors as to what would happen if the stockholders failed to increase the stock, that in that event the money would be paid back to Dozier. While Desnoyers' testimony is, in some respects, apparently contradictory and uncertain, it seems clear from his entire testimony that at no time did he and Dozier discuss the possibility of a failure to increase the capital stock, or of any circumstance under which the money should or must be returned. Dozier, because of ill health, did not appear as a witness.

The minutes of the directors' meeting of February 6th show the following resolution: 'It was moved and seconded that the president be authorized to advise Mr. L. D. Dozier that the members of the board of directors would be glad to have Mr. Dozier associated with them as a stockholder, and that a proposal to increase the capital stock of the company would be submitted at the next annual meeting of the stockholders of the company. This motion was unanimously carried, all of the directors present voting in favor thereof.'

Subsequently Desnoyers gave out the following statement to commercial agencies and to some of the large creditors:

"Statement of the Desnoyers Shoe Company, Jan. 1st, 1911. "Assets. Real estate, machinery, etc................. $230,913.61 Bills receivable .............................. 2,600.00 Accounts receivable ............ $88,712.33 Less doubtful .................. 800.00 87,912.33 Inventories and prepaid items ............... 250,941.67 Cash L. D. Dozier .............. $50,000 Cash ........................... 11,832.02 61,832.02 ----------- ----------- $634,199.63 "Liabilities. Accounts payable ........................... $254,539.10 20,000.00 ----------- ----------- $274,539.10

'The real estate item consists of modern brick factory building in Springfield, Ill., with an area of 75,000 square feet of floor space, all thoroughly sprinklered (insurance rate 15 cents per hundred dollars), having a frontage of 320 feet on a paved avenue, by 420 feet on the Wabash Railroad. This is not outlying property, but is well downtown and surrounded on all sides by the homes of working people.

'All the items as listed above were compiled by ...