In re Valecia Condensed Milk Co.

• Decision Date: 08 February 1917
• Docket Number: 2409.
• Citation: 240 F. 338
• Parties: In re VALECIA CONDENSED MILK CO. v. WARNER. NATIONAL BANK OF LA CROSSE
• Court: U.S. Court of Appeals — Seventh Circuit

240 F. 338

In re VALECIA CONDENSED MILK CO.

NATIONAL BANK OF LA CROSSE v. WARNER.

No. 2409.

United States Court of Appeals, Seventh Circuit.

February 8, 1917

Frank Winter, of La Crosse, Wis., for appellant.

John B Sanborn, of Madison, Wis., for appellee.

See also, 237 F. 136.

The above cause is brought here both by appeal and by petition to review and revise, and is submitted upon the record on appeal, from which it appears that the bankrupt, the Valecia Condensed Milk Company, being desirous of securing a loan of $15,000 from the National Bank of La Crosse, termed appellant herein, made application to said bank through one Montague, a director of the bank, to that end, offering as security its two promissory notes, for $7,500 each, together with $15,000 par value of bonds, and to assign invoices of milk sufficient to take care of the notes by maturity. The bank, having required and received the indorsement of Montague on said notes in addition to the security tendered, made the loan. As security for one of said notes, indorsed by said Montague as aforesaid, said bonds to the amount of $10,000 par value secured upon the bankrupt's Reedsburg plant, were delivered to the bank, together with certain invoices of milk, which latter when paid were to be credited thereon. The transfer of the bonds as collateral was accompanied by the usual instrument in writing, authorizing sale in case of failure to pay the note at maturity, without any expressed provision that the bonds be not sold for less than 75 per cent. of their face value. As security for the other $7,500 note so indorsed, there was in like manner delivered to said bank $5,000 in par value of said bonds, together with certain milk invoices, with like unqualified power of sale.

The transactions thereafter were such that the first described note was fully paid out of the proceeds of the milk invoices and the other note reduced to $5,032.45 and interest at the time of the trial, from the balance of the available milk invoices. The bonds were not turned back pro rata, but held by the bank, without any request for their return having been made by the bankrupt. The notes aforesaid were executed and delivered on December 28, 1914. The Valecia Condensed Milk Company was declared a bankrupt on April 16, 1915, upon petition filed March 27, 1915. On January 21, 1916, the appellant filed its petition with the trustee in bankruptcy, setting out the amount of its claim against the bankrupt, the possession by it of $16,000 of said Reedsburg bonds, the balance of $5,758.38 remaining due on said loan, the fact that said bonds were issued and transferred to it for more than 75 per cent. of their par value, that said bonds were a valid prior lien upon said Reedsburg property, that they should be so treated at any sale of said plant, and giving the numbers and denominations thereof.

Thereafter the trustee in bankruptcy, on January 21, 1916, answered said petition, denying the validity of the said bonds and the lien thereof, and charging that the same were issued in violation of section 1753 of the Wisconsin Statutes, and charging that the same were void. On the same day the appellant filed its amended petition, tendering the bonds it held in excess of a sufficient amount at 75 per cent. of their par value to cover the balance of the bankrupt's indebtedness on said remaining note, and charging that said bonds were originally issued to it at their full par value, and that it became the bona fide holder thereof, without any notice of any unauthorized or irregular issue, or invalidity thereof. By Exhibit A to said amended petition, being a copy of a statement delivered to appellee on about September 23, 1915, appellant sets up its willingness to accept said bonds at not less than 75 per cent. of their face value in payment of the amount remaining due upon said note, viz., $5,080.75, and delivered to the trustee, appellee herein, the balance thereof, and asserts that it never has attempted and never will attempt to sell or deal with said bonds at less than 75 per cent. of their par value. This statement, as well as the tender of the surplus of said bonds, was renewed on the trial. It appears from the record that each of said notes contained provision that the collateral aforesaid stood as or was security 'for this or any other liabilities' of the bankrupt to the bank.

On October 15, 1915, the referee on petition of the trustee entered an order requiring appellant to show cause why the said bonds should not be declared void and why the same...