In re Hopper-Morgan Co.
| Decision Date | 07 June 1907 |
| Citation | 154 F. 249 |
| Parties | In re HOPPER-MORGAN CO. |
| Court | U.S. District Court — Northern District of New York |
Lansing & Lansing, for claimant.
Brown Carlisle & McCartin, for trustee.
At the times mentioned the bankrupt, Hopper-Morgan Company, was a business corporation organized and existing under the laws of the state of New York, engaged in the business of making and selling writing tablets and other similar paper products. It had its principal office and factory in the city of Watertown, N.Y., but at one time maintained an office in the city of New York, where Roger Morgan, its treasurer, resided and had an office at the times in question. The authorized capital stock of the company was $200,000, only $150,000 of which was issued. Roger Morgan and the estate of Elisha Morgan, his father, owned all the stock, except 50 shares owned by one Bertrand Hopper, and 1 share owned or held by one E. H. Bridge. Said Roger Morgan was also the general manager of the corporation and had sole charge of its finances. Said E. H. Bridge was the assistant treasurer, and resided at Watertown, and managed the company, and drew checks, and discounted the regular paper of the company which he had authority to do. One D. H. Morgan was the president of the company but he took no interest or part in its management. The claimant, First National Bank of Northampton Mass., was and is a duly organized national bank doing business at Northampton, Mass. One Kneeland was its cashier. The Brattleboro Manufacturing Company was a manufacturing corporation located and doing business at Brattleboro, state of Vermont. Charles H. Thompson was its president. He and his family practically owned the company. This Brattleboro Company was a regular customer of the First National Bank of Northampton. Kneeland and Thompson knew each other well. From May to October the Hopper-Morgan Company was a borrower, and known to be such. Its business was successful, and it was well rated with Dun & Co. and Bradstreet, and at the time the notes to be mentioned were given it was a solvent concern. In 1905, and shortly before the issuing of the note in question, this company had been attempting to raise money for its business purposes.
In March, 1905, one Edward E. Trautwine proposed to said Roger Morgan, treasurer and manager of Hopper-Morgan Company, that he issue notes of said corporation for accommodation in the sum of $50,000, and that for their use he would pay 3 per cent., and would also procure to be discounted $10,000 of the paper of the company at 6 per cent. and give receipts for the $50,000 of notes from some reliable concern. Morgan was then endeavoring to raise funds to carry his company through the summer of 1905. March 29th Morgan made and issued $50,000 of the notes of the company and delivered them to Trautwine under the said proposition. Later, and on or about April 4 1905, Morgan made and issued another batch of these notes amounting to $50,000, under an agreement to receive 3 per cent. for the use of them. All of the notes were issued under an agreement that they were not to be a charge against the Hopper-Morgan Company and should be returned 10 days before maturity. Later on other parties appeared in connection with the transactions, and Morgan issued other notes of the company, in all about $160,000. He was paid $3,000 for this loan of the credit of the company. About $1,500 of this he applied on payment of a note of the company. In the fore part of April Morgan was aware that such part of the paper as was issued for regular discount could not be discounted, and he also learned that some of the notes had been sold and negotiated in violation of the agreement. In April Morgan received inquiries from certain parties who had purchased some of this paper as to the validity of the paper, and he stated in reply that it was good and would be paid at maturity. Neither Morgan nor the company took any steps to prevent this use of this paper. Bridge, the assistant treasurer, knew of the issue of the paper, but not all the facts and circumstances. Originally the notes issued were for $5,000 and $2,500 each, but later notes for a smaller amount were issued. Morgan knew that all the paper so issued was to be used outside the state of New York. It was all made in New York and payable in New York state.
On or about April 4, 1905, said Charles H. Thompson, the said president of the said Brattleboro Manufacturing Company, took to the said National Bank of Northampton one of said notes for $2,500, indorsed by said Brattleboro Company and by Thompson individually, and presented it for discount. Kneeland, the cashier, looked up the rating of the maker, discounted the note, and placed the proceeds to the credit of the Brattleboro Company, which company subsequently drew out and used the proceeds. No question is made as to this note. June 10 or 12, 1905, said Thompson took the $5,000 note, in question here, to the said National Bank of Northampton, and requested the bank to discount it, which the bank refused to do. The Brattleboro Manufacturing Company had then overdrawn its account with the National Bank of Northampton $1,483.21, and was also owing it for money advanced on a note for $3,000 made by Van Houten Bros. Jewelry Company, dated February 24, 1905, payable six months after date, and indorsed by said jewelry company, the Brattleboro Company, Elizabeth C. Thompson, and said Charles H. Thompson, and was also owing said bank a note of $1,800 made by the Brattleboro Company and indorsed by said Helen E. Thompson. Thompson stated to the bank that the Liberty National Bank in New York offered to discount the said $5,000 note, if his company (the Brattleboro Company) would open an account with them. He also stated he desired to discount the note and get a credit of $2,200 to make the account of the Brattleboro Company with the National Bank of Northampton good. The Northampton Bank did not discount the note. This $5,000 note reads as follows:
'$5,000.
Watertown, N.Y., April 4, 1905.
'Four months after date we promise to pay to the order of ourselves five thousand dollars at Liberty National Bank, N.Y. City, value received.
'(Signed)
Hopper-Morgan Company, 'Roger Morgan, Treasurer.' It was indorsed as follows:
It was one of the batch of $50,000 issued April 4, 1905, by Morgan as before stated. It does not appear that the National Bank of Northampton made any inquiries as to the purpose for which the note was made, or as to how the Brattleboro Company came by it. It does not affirmatively appear that the said bank had any notice of any infirmity in the note. It does not affirmatively appear how the Brattleboro Company or Thompson came by it. It does not affirmatively appear that it paid value or took it in due course of business. It does not affirmatively appear said company did not. On the 14th day of June, 1905, said Charles H. Thompson reappeared at said Northampton bank with said $5,000 note, and that bank sent it to its correspondent in New York, with a request that it discount the note. This correspondent did not discount it. Thereupon, without inquiry, so far as appears, as to the purpose for which the note was given, said National Bank of Northampton took the said $5,000 note as collateral security for such overdraft of $1,483.21, the money advanced on said Van Houten Bros. Jewelry Company note and said note made by the Brattleboro Company and indorsed by Helen E. Thompson. It was not taken or accepted in payment of such indebtedness to the bank or of any part of same. Kneeland, the cashier, testified the bank took it largely on the strength of the Brattleboro Manufacturing Company. These items of indebtedness of the Brattleboro Company to the National Bank of Northampton still remain unpaid, except as follows:
On the 13th day of October, 1905, the said bank sold the said Van Houten Bros. Jewelry Company note to the Vermont National Bank of Brattleboro, Vt., for $3,026.50, the face of the note and interest, and gave to said bank the following written agreement in reference to said $5,000 note of the Hopper-Morgan Company, viz.:
The First N. Bank of Northampton, 'F. N. Kneeland, Cash.'
So far as appears, the Vermont National Bank made no inquiries as to the purpose for which or consideration on which said note was given. It is clear that the claimant, First National Bank of Northampton, never parted with any value for such note of $5,000, or surrendered any right, or postponed any right of action, or extended credit on the faith of it. It took it as collateral security merely for an old indebtedness and so holds same.
Section 51 of the negotiable instruments law of the state of New York (Laws 1897, p. 727, c. 612), provides as follows:
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