In re Kansas City Journal-Post Co., 12806.

• Decision Date: 05 September 1944
• Docket Number: No. 12806.,12806.
• Citation: 144 F.2d 819
• Parties: In re KANSAS CITY JOURNAL-POST CO. BOSTIAN v. NEWMAN.
• Court: U.S. Court of Appeals — Eighth Circuit

144 F.2d 819 (1944)

In re KANSAS CITY JOURNAL-POST CO. BOSTIAN v. NEWMAN.

No. 12806.

Circuit Court of Appeals, Eighth Circuit.

August 11, 1944.

Rehearing Denied September 5, 1944.

A. J. Granoff, of Kansas City, Mo. (Samuel W. Sawyer and Claude A. Ferguson, both of Kansas City, Mo., on the brief), for appellant.

Hugh H. Obear, of Washington, D. C. (James A. Reed, Robert J. Ingraham, and Burr S. Stottle, all of Kansas City, Mo., on the brief), for appellee.

Before GARDNER, JOHNSEN, and RIDDICK, Circuit Judges.

JOHNSEN, Circuit Judge.

This case involves an application of the principles which have been set out in No. 12,793, In re Kansas City Journal-Post Co. (Bostian v. Shapiro), 8 Cir., 144 F.2d 812, decided concurrently herewith, and which need not be repeated here.

The question is whether Newman, president of the bankrupt corporation, had a substantial adverse claim to $75,900 withdrawn by him from the corporation's bank account some time before the bankruptcy, so that he could not, except with his consent, be made subject to a turnover order in summary proceedings. Newman had objected to the summary jurisdiction of the referee and had set out in his response the matters which he contended made him an adverse claimant. A hearing was held, and evidence was adduced.¹ The referee found that Newman was withholding the funds "without the slightest color of title", and entered a turnover order against him. The District Court set aside the order "for want of jurisdiction in the referee to make the order in a summary proceeding." See 51 F.Supp. 1009, 1018, 1019.

As indicated in our opinions in Nos. 12,791 and 12,793, the evidence showed that, some months before the bankruptcy, Newman had made a contract, in his own name as agent, with General Properties Co., Inc., for the purchase of the secured bonds, some unsecured notes and the capital stock of the insolvent Kansas City Journal-Post Company. Newman later formally assigned the contract to Morris Schapiro,² but both he and Schapiro claimed that the actual arrangement between them was that Schapiro was to take everything under the contract except the capital stock, and that Newman was to have the stock. General Properties, which was a Henry L. Doherty family-corporation, had been anxious for some time to get rid of its newspaper interest and was willing to take a radical discount on Doherty's investment, but it still desired to see the newspaper kept going as long as possible. The contract was accordingly made to contain a provision that, in addition to the $100,000 which was to be paid direct to General Properties, the purchaser, as "part consideration for the transfer of said stock, bonds and notes," should "contemporaneously with the delivery of said securities and payment therefor * * * cause to be paid into the Kansas City Journal-Post Company $100,000 additional cash working capital and the furnishing of said additional working capital is a condition precedent." It was further provided that for this $100,000 capital addition the purchaser was to be issued 500 new shares of stock.

In form, the contract was a written offer by General Properties to sell, with a notation of acceptance by Newman as agent, which declared that the offer was accepted upon the condition³ that, at the time of the payment of the money and the delivery of the securities, there also should be delivered to the purchaser an assignment of the International Paper Company's account against the insolvent corporation in the sum of $240,663.98 and accrued interest. Newman collaborated with the General Properties' representative in attempting to obtain the assignment, but International Paper refused to give it except upon certain conditions which Newman declared were unacceptable. The offer had provided that time was of the essence, and, on the date agreed upon for performance, the parties got together, and General Properties delivered to Schapiro's attorney the bonds, the notes and the certificates of capital stock assigned in blank, and Schapiro's attorney turned over to General Properties a cashier's check for $100,000 endorsed payable to its order and another cashier's check for $100,000 endorsed payable to the order of the newspaper corporation. There was also delivered to Schapiro's attorney a certificate in his name as agent, for the 500 new shares of stock which were to be issued for the $100,000 capital addition.

Newman was then elected president of the newspaper corporation, and General Properties turned over to the corporation the $100,000 cashier's check for which the 500 new shares of stock had been issued. The board of directors of the corporation by resolution authorized Newman to open an account with the funds in a local bank in the corporation's name and, as president, to draw checks on the account. The account was opened on the bank's records as a general checking account of the corporation. Within three hours after the opening of the account, Newman drew a check on it for $24,000 in favor of Schapiro's attorney, covering the amount which he and Schapiro claimed it had been agreed between them that Newman was to pay for the capital stock. Within a few days thereafter, Newman drew another check on the account for $75,000 in favor of the bank⁴ and had the bank issue New York drafts therefor payable to his own order. Out of the proceeds of these drafts, he purchased some eastern real estate and paid off a mortgage on some other property. Later he drew another check for $900 to his own order and received the cash. The corporation thus was left with only $100 of the $100,000 in its bank account at the time involuntary bankruptcy was instituted. It is the $75,900 which Newman personally received from these withdrawals and appropriated that is the subject of this summary proceeding.

Newman admitted in his testimony that he had no authority from the board of directors to withdraw or use any of the corporation's funds for personal purposes. His contention, however, was that as to the $100,000 deposit he needed no such authority; "that it was never contemplated by said agreement that such sum of $100,000 should be paid into the said Kansas City Journal-Post Company except upon compliance with all the terms and conditions of said contract and agreement"; "that said deposit was not for the benefit of said Kansas City Journal-Post Company or any creditors of the said Kansas City Journal-Post Company until said agreement was fully complied with, being deposited in said account in the name of said Kansas City Journal-Post Company only in...