In re Jackson Brick & Tile Co.

• Citation: 189 F. 636
• Decision Date: 18 July 1911
• Docket Number: 21.
• Parties: In re JACKSON BRICK & TILE CO.
• Court: U.S. District Court — Eastern District of Missouri

189 F. 636

In re JACKSON BRICK & TILE CO.

No. 21.

United States District Court, E.D. Missouri, Eastern Division.

July 18, 1911

Oliver & Oliver, for Sturdivant Bank.

Fordyce-Holliday & White, for Merchants-Laclede Nat. Bank.

Moses Whybark and W. D. Hines, for trustee.

DYER District Judge.

This is a proceeding for review of an order of the referee in bankruptcy, allowing the claim of the Sturdivant Bank as an unsecured claim against the bankrupt estate and denying the prayer of the claimant that its claim be allowed as a secured claim. The Sturdivant Bank presented its claim against the bankrupt in the sum of $15,410, and set forth therein that it held as security for said indebtedness 25 promissory notes each for $500, executed by the Jackson Chemical Manufacturing Company, a corporation, and that the last-mentioned notes were secured by a deed of trust upon 117 acres of land, and also upon two lots in Cape Girardeau county, Mo. The claimant prayed that its claim be allowed as a 'preferred claim' against the bankrupt, and prayed that the land described in the deed of trust 'be stricken from the schedule of assets belonging to the bankrupt estate and applied to the credit of the notes, ' referred to in the claim. The trustee of the bankrupt estate filed written objections to the allowance of the claim as a preferred one alleging, in substance: (1) That the claimant obtained a preference in respect of its claim by means of a judgment rendered in its favor against the bankrupt; (2) that the transfer of the land mentioned in the deed of trust from the bankrupt company to the Jackson Chemical Manufacturing Company, and the deed of trust executed by the Jackson Chemical Manufacturing Company, constituted a voidable preference under the bankrupt law; (3) that the deed from the bankrupt to the Jackson Chemical Manufacturing Company, and the deed of trust of the latter company securing the notes held by the bank, were withheld from record by the bank for about four years, and that the withholding of said conveyances from record gave the bankrupt a fictitious credit and enabled it to procure material and labor and to borrow money on credit and constituted a fraud in law against the creditors of the bankrupt; (4) that the 'Jackson Chemical Manufacturing Company never had any legal existence, nor was a charter ever issued by the state of Missouri, or any other state, creating such corporation, and * * * if it did have such legal existence, it never had any assets or property of any kind, but was created solely for a fraudulent purpose, * * * and that said conveyance and the said incumbrance were executed with the intent to hinder, delay, and defraud the creditors of the bankrupt.'

One Hugh R. Quinn, a creditor, by leave of the referee, also filed written objections to the allowance of the bank's claim, alleging, in substance: (1) That the real estate described in the deed of trust held by the bank is and always has been the property of the bankrupt company; (2) that the deed from the bankrupt company to the Jackson Chemical Manufacturing Company was never delivered and no title passed thereby; (3) that the said deed was not filed for record until within four months of the adjudication of bankruptcy; (4) that the Jackson Chemical Manufacturing Company, if incorporated in fact, had no authority under its charter to take and hold said real estate, and that the deed of trust made by the Jackson Chemical Manufacturing Company is null and void and of no effect; (5) that the deed of trust executed by the Jackson Chemical Manufacturing Company was never delivered, and no title passed thereunder; (6) that the deed of trust executed by the Jackson Chemical Manufacturing Company was not filed for record until within four months of the adjudication of bankruptcy herein and is null and void as a lien upon the estate of the bankrupt.

The referee afterwards heard the evidence submitted by the respective parties, and on March 23, 1908, made an order disallowing the claim 'as a preferred or secured claim,' and allowing it as a general claim in the sum of $16,275; and also made an order denying the application of the claimant to strike from the schedule of assets the land described in the deed of trust referred to in the claim. Thereafter, on April 2, 1908, the claimant, the Sturdivant Bank, filed with the referee a petition for review of the foregoing order and the referee has certified the matter to this court.

The material facts bearing upon this controversy, as they appear from the referee's summary of the evidence, are as follows:

The bankrupt company was incorporated in Missouri in April, 1897, under the name of the English Mining & Manufacturing Company, and in December, 1902, changed its name to the Jackson Brick & Tile Company. From the time of its original incorporation in 1897, until July, 1906, the bankrupt company was engaged in the business of manufacturing brick, fire brick and drain tile near Jackson, Mo., and had a manufacturing plant and certain lands in that locality.

Henry R. English was the organizer and principal stockholder of the bankrupt company and throughout its career was its president and in complete control of its affairs. On September 12, 1902, Henry R. English caused a corporation to be organized under the statutes of Missouri under the name Jackson Chemical Manufacturing Company, said corporation purporting to have a full paid capital stock of $20,000, but the evidence tends to show that no part of this capital was ever paid in, and that Henry R. English caused the company to be incorporated for the purpose of borrowing money for the bankrupt company, and that the company never transacted any business with the exception of the transaction to be hereafter mentioned. Immediately upon the incorporation of the Jackson Chemical Manufacturing Company, the bankrupt company, then known as the English Mining & Manufacturing Company, executed a warranty deed, dated September 12, 1902, whereby it conveyed to the Jackson Chemical Manufacturing Company, one hundred and seventeen acres of land and two lots in Cape Girardeau County, Mo., for an expressed consideration of $15,000. The deed just mentioned was acknowledged by English as president of the English Mining & Manufacturing Company, on September 18, 1902, and after being so acknowledged was left by English in the posession of one Limbaugh, the notary who took the acknowledgment, and remained in the possession of the notary for several months, and was then returned by the notary to English who placed it in his box in the vault of the Jackson Exchange Bank at Jackson, Mo., where it remained until July, 1906, when it was taken out and afterwards recorded under circumstances to be presently stated.

It further appears from the evidence that on September 12, 1902, the Jackson Chemical Manufacturing Company executed a deed of trust whereby it conveyed the 117 acres of land and the 2 lots here in question to one Henry L. Jones, as trustee, to secure the payment of 25 promissory notes for the sum of $500 each, executed by it and payable five years after date to the English Mining & Manufacturing Company. On December 4, 1902, the English Mining & Manufacturing Company borrowed $8,500 from the Sturdivant Bank and pledged with the bank as collateral security for the loan, the 25 notes of the Jackson Chemical Manufacturing Company above referred to. The evidence shows that in negotiating this loan the bankrupt company was represented by Henry R. English, who informed the bank that the notes were secured by a deed of trust upon certain lands formerly owned by the bankrupt company and that the bankrupt company had conveyed the lands to the Jackson Chemical Manufacturing Company by warranty deed, and that the notes were secured by a deed of trust upon the land executed by the Jackson Chemical Manufacturing Company.

It further appears from the evidence that at the time the loan was obtained from the Sturdivant Bank, Henry R. English forwarded to the bank by mail the deed of trust executed by the Jackson Chemical Manufacturing Company to secure the collateral notes and requested the bank to return the deed of trust to him and that he would record it, and that the bank, on December 4, 1902, mailed the deed of trust to English and requested him to place it of record.

The evidence further shows that the bankrupt company from time to time renewed the note evidencing the debt owing by it to the Sturdivant Bank and afterwards increased its debt to the bank by borrowing additional money so that in July, 1906, it was indebted to the bank in the sum of $15,000 for which the bank held as collateral security the twenty-five notes executed by the Jackson Chemical Manufacturing Company and secured by deed of trust before mentioned. The evidence shows that when the deed of trust executed by the Jackson Chemical Manufacturing Company was returned by the Sturdivant Bank to Henry R. English on December 4, 1902, that English did not file the deed for record, but placed it in his box in the vault of the Jackson Exchange Bank, and that it remained there until July, 1906, when it was taken out and afterwards placed of record under circumstances to be presently stated. Henry R. English testified that the reason he did not record the warranty deed from the bankrupt company to the Jackson Chemical & Manufacturing Company and the deed of trust from the Chemical Company to Jones, trustee, was that he was advised by his attorney not to do so, and that he thought the recording of the instrument might affect the interests of the Jackson Exchange Bank of which he was president, and that he was at the time negotiating with parties in St. Louis to secure money and expected to take up the loan in a short...