In re Quality Shop

• Decision Date: 15 April 1913
• Docket Number: 1,915.
• Citation: 205 F. 266
• Parties: In re QUALITY SHOP. v. WILLSON. TRADERS' NAT. BANK
• Court: U.S. Court of Appeals — Seventh Circuit

205 F. 266

In re QUALITY SHOP.

TRADERS' NAT. BANK v. WILLSON.

No. 1,915.

United States Court of Appeals, Seventh Circuit.

April 15, 1913

Alexander C. Ayres and Frank C. Ayres, both of Indianapolis, Ind., for appellant.

Ralph Bamberger and Isidore Feibleman, both of Indianapolis, Ind (Wm. L. Taylor, John W. Holtzman, and Lewis A. Coleman, all of Indianapolis, Ind., of counsel), for appellee.

See also, In re Quality Shop Co., 202 F. 196.

Appeal from a judgment disallowing a claim of Traders' National Bank against the bankrupt. The trial court held that, if the promissory note on which the claim is based is to be regarded as made upon consideration, it is void because it was an Indiana contract, made nonnegotiable by Indiana law, and is shown by the evidence to have been entirely without consideration. If, on the other hand, the note is to be regarded as accommodation paper, it is void, because the corporation maker had no power to issue such paper.

It appears that the bankrupt was an Indiana mercantile corporation having a capital stock of $15,000, of which Jacob Strauss, president and manager, held $5,000, and Meyer and Simon, residing in Rochester, N.Y., owned the balance. Meyer and Simon were a partnership interested in 11 retail stores in various cities, part of them similar to the bankrupt. In March, 1910, Meyer and Simon negotiated for the purchase of a stock of clothing in Indianapolis, where the bankrupt was located, and on April 26, 1910, a bill of sale of the stock referred to was made. At the time of this purchase, Strauss manager of the bankrupt, supposed the purchase was for it, and that the two stocks of goods would be consolidated, and the Quality Shop removed to the new place of business, where the purchased stock was located; but there was actually no reason or basis for this belief on his part. On May 12, 1910, Meyer and Simon requested Strauss to make a note of the Quality Shop for $19,876.30, approximately one-third of the purchase price of the Indianapolis stock. This sum was inserted in the note, so it would not appear to Strauss as being accommodation paper. Strauss, supposing, but without any basis of fact, that the note represented part of the purchase price, signed it as president of the Quality Shop and sent it to Meyer and Simon. A copy of the note follows:

'Four months after date we promise to pay to the order of Ely Meyer & M. C. simon, nineteen thousand eight hundred and seventy-six and 30/100 dollars at No. 5 North Penn. St.

'(Signed) Quality Shop Company,

'Jacob Strauss, President.'

The place of payment mentioned in the note is Indianapolis, and by the Indiana law the note was not negotiable, because not payable at a bank. There is nothing in the case to show that Strauss sent the note to the payees expecting it would be discounted. On receiving the note, Meyer and Simon inserted the words 'Indianapolis, Indiana,' just before the date.

On May 24, 1910, Meyer and Simon took the note to the Traders' National Bank of Rochester, N.Y., where they had a line of credit. Simon told the bank the note was given for merchandise, and was not accommodation paper. The bank had agreed to loan $100,000 on accommodation paper, which limit had then been reached. The note was discounted, and the proceeds carried to the credit of Meyer and Simon. At the time of giving the note the Quality Shop owed nothing to Meyer and Simon, but was their creditor to a considerable amount. The Quality Shop never received anything on account of the note. The Quality Shop having become bankrupt, a claim was filed upon the note, but disallowed by the referee, and by the District Court on review. By the law of New York, the note was negotiable; not so by the law of Indiana.

Contrary to the finding of the referee, counsel for appellant assert that the proofs show inferentially the following state of facts: 'That the stock was purchased for the Quality Shop-- that is, was all one connected scheme of a set of rascals (of whom Strauss was one) to buy the stock really for the Quality Shop in another name, put away the best goods have a small fire, get big damages from the insurance companies, fake the...