O'KEEFE v. Hill
| Decision Date | 28 June 1939 |
| Docket Number | 6811.,No. 6810,6810 |
| Citation | 105 F.2d 325 |
| Parties | O'KEEFE v. HILL et al. SAME v. MUTUAL LOAN ASS'N OF ATLANTIC CITY et al. |
| Court | U.S. Court of Appeals — Third Circuit |
Bourgeois & Coulomb and George A. Bourgeois, all of Atlantic City, N. J., for appellant.
Louis B. LeDuc, of Camden, N. J., for appellees.
Before BIGGS, MARIS, and CLARK, Circuit Judges.
The appeals at bar grow out of substantially the same circumstances and will be disposed of in one opinion.
The appellant in both cases is the receiver of Atlantic City National Bank. He has brought two suits. The first (No. 6810) was filed against Elisha C. Chew, Charles H. Parsons, Edgar S. Hill, Albert Beyer and Charles Park, directors of Mutual Loan Association of Atlantic City, a New Jersey corporation. Beyer died after the commencement of the action and his executor was substituted as a defendant in his stead. The second suit (No. 6811) was brought against Mutual Loan Association and its receiver, Walter E. Beyer.
Each complaint contains three counts. That in No. 6811 states causes of action upon three notes hereafter referred to. The trial court permitted the case to go to the jury upon all three counts. The jury rendered a verdict against the appellant on the first count and in his favor on counts two and three. The first count was declared upon a note in the sum of $50,500 which is discussed at length at a later point in this opinion. The second and third counts of the complaint were declared upon two other notes in the sums of $10,000 and $14,000 respectively given by the Loan Association to the Atlantic City National Bank under such circumstances as will appear.
The first count of the complaint in No. 6810 is based upon a guaranty, dated December 9, 1929, given by the directors of the Loan Association to the Atlantic City National Bank, it being alleged that the directors of the Loan Association guaranteed the payment of the $50,500 note. The second and third counts are also declared upon this guaranty in so far as it relates to the notes in the respective amounts of $10,000 and $14,000. The jury rendered a verdict of actio non upon all three counts in favor of all the appellees and judgment was entered in accordance with this verdict.
The appellant has appealed from the judgments rendered against him.
The facts are as follows: Mutual Loan Association of Atlantic City is a pawnbroker corporation. It has authorized capital stock of $50,000 which has been divided into 5,000 shares of a par value of $10 each. The treasurer of the Loan Association and its dominating factor in the year 1928 and thereafter was one Tilton. Its board of directors consisted of persons who were dominated by Tilton.
Prior to November, 1927, the Loan Association banked with Atlantic Safe Deposit & Trust Company which had made loans to the Association totalling $27,000. Tilton, who was a director of the Atlantic City National Bank, induced the Bank to take over these loans. Two notes totalling $27,000 were thereupon given by the Association to the Bank and the Association's account was transferred to it. These notes were first reduced to sums of $10,000 and $14,000 respectively and thereafter were subjected to further reductions as indicated by the pleadings. These two notes as reduced are declared upon in the second and third counts of the complaint in No. 6811, and, with the guaranty previously referred to, form the basis of the second and third counts of the complaint against the appellees as directors of the Loan Association in No. 6810.
Upon opening the account for the Loan Association with the Atlantic City National Bank, Park, who was secretary as well as a director of the Association, presented to the Bank a "resolution" of the Association dated November 8, 1927, which pretended to authorize the officers of the Association in the Association's name "* * * to borrow sufficient money from time to time for the operation of the Company, on their promissory note to the Atlantic City National Bank." In fact no such resolution was ever passed by the board of directors of the Association. Park thus prepared the way for Tilton's subsequent fraud.
In April, 1928, Tilton was in need of funds, was himself indebted to the Bank and could procure no further loans from it upon his personal credit. He thereupon made application to the Bank for the loan of $50,500 for the Loan Association. Tilton testified that he put the proposition of pledging of the Association's credit for his own advantage before the directors of the Association at one of the regular meetings of the board and that they agreed he might make the Association's credit his own. Park corroborated Tilton's testimony in this respect, as did Chew. Hill and Beyer denied the truth of these statements and produced the minute book of the Association which showed neither resolution nor discussion upon such a subject until March 10, 1933. Upon that day a resolution ratifying Tilton's transaction was passed.
The record does not disclose to what officer of the Bank Tilton made his application for the $50,500 loan. Certain officers of the bank denied that he made application to them. The minutes of the meetings of the Bank's directors show confirmation of the loan the day after the loan was made. Be this as it may, however, upon April 26, 1928, a demand note payable to the order of the Association in the sum of $50,500, signed by Parsons, as president of the Association, and by Park, as its secretary, was delivered to the Bank. Upon the reverse side of this note was a printed guaranty1 which it appears was signed by Tilton as an individual and as treasurer of the Association. Upon the same day, the loan being made, a check signed by Parsons as president and Tilton as treasurer of the Association and payable to Tilton's order was deposited by Tilton to his account at the Bank and was honored by it. Thereafter, Tilton withdrew from his account, so augmented, a sum in excess of $50,500, and thus secured for himself the full benefit of the loan which the Bank made upon the credit of the Association.
As we have stated heretofore this note serves as the basis of the first count of the complaint in No. 6811 and in conjunction with the guaranty of December 9, 1929, hereafter referred to more specifically, as the ground for the first count of the complaint in No. 6810.
Certain other facts should be set forth. Hill and Beyer testified that Tilton kept them in ignorance of these transactions. It does appear that the sum of the $50,500 note was not entered upon the books of the Association until some nine months later and that Tilton did not include any statement in respect to the loan upon his regular monthly reports as treasurer of the Association. Interest payments upon the loan were made to the Bank with Tilton's personal checks, except in one instance, when interest was paid by check of the Association. This check was covered with Tilton's funds, however. Tilton testified that he considered the note to be his obligation.
As security for the $50,500 note, the record shows that the Bank took from Tilton as collateral certain stocks listed upon the face of the note. These stocks were Tilton's property. Upon November 20, 1928, the Bank, at Tilton's request, released to him the stock of Jersey Coast Fire Insurance Company theretofore pledged with the note as part of the collateral, together with a liquidating dividend on the shares in the sum of $24,000. At this time other collateral was substituted for the stock released. The substituted collateral with all collateral was released subsequently to Tilton. The result was therefore that the note of the Association remained at the Bank without collateral.
Following the collapse of the stock market in October, 1929, the Bank demanded of Tilton that he procure a guaranty from the directors of the Loan Association for all loans purported to have been made by the Bank to the Loan Association. A guaranty unlimited in amount, signed by most of the directors of the Loan Association was then procured by Tilton. Apparently Tilton persuaded these directors that this guaranty was merely a duplicate guaranty, a "live" paper, to be executed upon the request of the Bank to replace or revivify the guaranty of December 9, 1927, which was limited in its amount to $25,000. Beyer and Hill testified they signed the guaranty of December 9, 1929, without reading it. The guaranty of December 9, 1927, is not sued upon.
Beyer testified also that in June, 1932, he became aware of the existence of the $50,500 note and of the extent of the Association's indebtedness to the Bank. He stated that he then informed Hill of these facts. Hill and Beyer together made demands upon Tilton and as a result of these demands Tilton delivered to them 100 shares of the stock of the Bank. Hill and Beyer deposited this stock in a safe deposit box in the name of the Association. In January, 1933, the Bank closed its doors and the appellant was appointed receiver for it. The 100 shares of its stock which Beyer and Hill had received from Tilton became worthless. Beyer and Hill thereupon obtained from Tilton certain other securities of slight value for the benefit of the Association. Upon advice of counsel, these were returned to Tilton by Beyer and Hill some months thereafter.
The Law.
As to the $50,500 note, the first count of the complaints in each suit recites that this note was endorsed by Tilton and the Loan Association and was negotiated with the Bank. It is obvious therefore that recovery on the note turns in the first instance upon the question of the validity of its negotiation. Without negotiation a note payable to its maker is a nullity. Negotiation in turn depends upon endorsement. Though the note was signed by Tilton individually and purported to be signed by the Loan Association by Tilton as treasurer, these signatures were placed under the written form of guaranty set out in Note 1 to...
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