McAtee v. Shade

• Decision Date: 06 December 1910
• Docket Number: 3,133.
• Parties: McATEE v. SHADE.
• Court: U.S. Court of Appeals — Eighth Circuit

185 F. 442

McATEE v. SHADE.

No. 3,133.

United States Court of Appeals, Eighth Circuit.

December 6, 1910

Wilson Cramer, for appellant.

A. P Stewart, T. D. Hines, and Moses Whybark, for appellee.

Before SANBORN and ADAMS, Circuit Judges, and REED, District Judge.

REED District Judge.

The Jackson Brick & Tile Company, a Missouri corporation, was duly adjudged bankrupt upon petition of certain of its creditors filed October 8, 1906, and the defendant in error in due time appointed trustee of its estate. June 28, 1906 the Brick & Tile Company (which will be called the 'bankrupt') made to Hugh R. Quinn its note for $28,200 and a trust deed of all of its property to secure the same. August 8th following, this deed of trust (which will be called the 'mortgage') was filed for record in the proper office at 6:10 p.m., and duly recorded. Quinn in due time filed with the referee proof of such note and mortgage and asked that the balance due upon the note, viz., $27,600 be allowed as a claim secured by such mortgage and entitled to priority of payment from the proceeds of the property included therein. The trustee objected to the allowance of the claim as secured, upon the grounds: (1) That the mortgage was in fact a voidable preference; (2) that it was made by the bankrupt with intent to hinder, delay, and defraud its creditors, was accepted by Quinn with like intent, and not in good faith, and is therefore void. The referee overruled the objections and held that the mortgage was neither intended as a preference nor to defraud the creditors of the bankrupt, and allowed the claim as one entitled to priority of payment from the proceeds of the property included in the mortgage. Upon petition by the trustee for review of this order, the District Court held that the mortgage was not a preference, but was made by the bankrupt with intent to defraud its creditors and accepted by Quinn with like intent, reversed the order of the referee, and directed that the claim be disallowed unless Quinn should relinquish all claim to the property covered by the mortgage. From such order Quinn brought this appeal, and, having died during its pendency, it has been revived in favor of the appellant as his executor.

The principal facts disclosed by the testimony are: That the bankrupt was incorporated in 1897 under the name of the English Mining & Manufacturing Company, and its name afterwards changed to that of the Jackson Brick & Tile Company. Its principal place of business was at Jackson, Cape Girardeau county, Mo., where it was engaged in the manufacture of brick and tile. Henry R. English was its principal stockholder and has been its president and the general manager of its affairs from its organization to the time of its bankruptcy. The Jackson Exchange Bank of Jackson (which will be called the 'Jackson Bank') was organized by Henry R. English, Hugh R. Quinn, the deceased, and some others as a banking corporation under the laws of Missouri in 1893, with a capital of $20,000, and prior to 1905 had accumulated a surplus of $10,000. English and Quinn were among its first directors. Quinn was its first cashier, and by June, 1906, or prior thereto, had acquired a controlling interest in the bank. English became its president in 1897, and continued to act as such until July, 1906, when he was succeeded by John A. Snider, who became vice president in the early part of 1905. The bankrupt early became a borrower from the Jackson Bank, and in 1902 its indebtedness to the bank was some $10,000, which in May, 1905, had increased to $25,783.32. Quinn and English were also two of the executive committee of the bank, charged with the duty of approving or rejecting all applications for loans, and Mr. Quinn testified that he approved all of the loans made to the bankrupt and permitted the creation of its indebtedness to the bank. Early in 1905 the State Bank Examiner objected to these loans, and severely criticised Mr. Quinn and others of the bank's officers for permitting the bankrupt to become indebted to it in excess of the legal limit (which was 25 per cent. of its capital and surplus), and insisted upon the indebtedness being reduced and secured. Because of this the indebtedness was put into four notes on May 12, 1905, three of which were for $7,500 each and one for $3,283.32. Each note was payable to the bank or order, contained a recital that it was 'for value received,' and a clause:

'That the makers and indorsers severally waive presentment for payment, notice of nonpayment and protest, and consent that the time of payment may be extended without notice thereof.'

One of the $7,500 notes was payable at the bank in nine months and signed by the bankrupt corporation by Henry R. English as its president; one in seven months, signed by Henry R. English individually; one in six months, signed by Catherine Oates; and the $3,283.32 note in 90 days and signed by U. M. English. Catherine Oates is an elderly lady who has resided in the family of Mr. English for many years, and U. M. English is a daughter of Mr. English, and each was without financial responsibility. As security for these notes the bankrupt and Mr. English made to the bank two trust deeds which included all of the property of the bankrupt, but they were withheld from record because, as Mr. Quinn says:

'We did not want the public to know we had made so large a loan to English; therefore they were kept secret and not placed of record, and only the directors of the bank knew of them.'

In the latter part of August, 1905, the bank examiner again insisted that this indebtedness be paid, or reduced and additional security obtained for it. Thereupon Quinn and English agreed with the bank examiner to indorse the notes, and English also agreed to have his wife indorse them. Pursuant to this agreement, Quinn and Mrs. English on August 25, 1905, indorsed each of the four notes, and H. R. English also indorsed the three that were not signed by him. Prior to this time John A. Snider, who had lately become vice president of the bank, also began to urge that the indebtedness be paid, and others of the directors joined him in so doing. The bankrupt in 1905 was owing the Sturdivant Bank of Cape Girardeau, Mo. (which will be called the 'Sturdivant Bank'), $15,000 and accrued interest; the Merchants-Laclede National Bank of St. Louis (which will be called the 'Laclede Bank'), $8,500 and interest; the Whitewater Bank of Whitewater, Mo., $2,500 and interest; and various amounts to others. Its entire indebtedness including that to the Jackson Bank was about $70,000, and its assets at the time of the bankruptcy were scheduled at $45,190 and appraised in March, 1907, at $24,661. Quinn knew of the indebtedness to these banks, and also of some at least of the other indebtedness. The Sturdivant Bank held as security an unrecorded trust deed upon 114 acres of land, the property of the bankrupt, and the Laclede Bank held an unrecorded trust deed covering its plant. This property was included in the trust deeds to the Jackson Bank. The Whitewater Bank and the other creditors were unsecured, and some at least were pressing their claims for payment, and the Whitewater Bank had threatened suit. Mr. English was negotiating with some bank in St. Louis for a loan sufficient to take up the entire indebtedness of the bankrupt. In this condition of its affairs, Mr. Quinn in June, 1906, agreed with Mr. English that, if the bankrupt would give to him the same security the Jackson Bank held, he would arrange to pay its indebtedness to that bank and take the mortgage property as security. English assented to this, and on June 28th the note and mortgage of $28,200 were made by the bankrupt to Quinn. Quinn then negotiated for and obtained through the president of the Sturdivant Bank a loan of $20,000 and borrowed from the Jackson Bank $7,000. With this money and some $600 besides, he on July 6, 1906, paid the indebtedness of the bankrupt to the Jackson Bank, which with interest amounted to some $27,600, took up the four notes of May 12, 1905, and the unrecorded trust deeds held by the bank as security, and returned them to Mr. English. When the note and mortgage of June 28th were made, it was agreed between Quinn and English that the mortgage should not be placed of record for the reason that:

'The interests of English were so interwoven with the bank that placing it on record would shatter the confidence of the community in the bank.'

Mr. Quinn says:

'That is the reason why I consented not to place it on record, and another reason was, to give English an opportunity to consummate a deal in St. Louis.'

Subsequent to the making of this mortgage, the Sturdivant Bank had requested of Mr. English an explanation of his dealings with that bank; and about August 8, 1906, it had turned over to its attorney for collection its claim against the bankrupt. On August 8th the president of the Sturdivant Bank, and its attorney, had a conference with Mr. Quinn and his attorney at the Sturdivant Bank office in Cape Girardeau. At the close of or during this conference Quinn's attorney advised him to place his mortgage of record, and at 6:10 p.m. of that day Mr. Quinn filed the same for record. A few minutes later English filed for record the trust deed to the Sturdivant Bank and the one to the Laclede Bank, and one or two other instruments affecting the title to this property, which were all dated prior to the Quinn mortgage of June 28th. How Mr English came to be in possession of these instruments does not appear. The result of the placing of these instruments of record at that time was that these trust deeds which antedated the mortgage to Quinn were placed of record after that mortgage was. The next day, August 9th, the Sturdivant...