Pharr v. United States, 5697.

• Citation: 48 F.2d 767
• Decision Date: 15 April 1931
• Docket Number: No. 5697.,5697.
• Parties: PHARR v. UNITED STATES.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

48 F.2d 767 (1931)

PHARR v. UNITED STATES.

No. 5697.

Circuit Court of Appeals, Sixth Circuit.

April 15, 1931.

L. E. Gwinn, of Memphis, Tenn., for appellant.

J. A. Wharton, Sp. Asst. to Atty. Gen. (Lindsay B. Phillips, U. S. Atty., and Herbert L. Harper, Asst. U. S. Atty., both of Memphis, Tenn., and Nugent Dodds, Sp. Asst. to Atty. Gen., on the brief), for the United States.

Before MOORMAN, HICKS, and HICKENLOOPER, Circuit Judges.

MOORMAN, Circuit Judge.

Appellant was a dealer in cotton and a customer of the Union & Planters' Bank & Trust Company, of Memphis, Tenn., a member bank of the Federal Reserve System. Beauchamp was a vice president of the bank in charge of its cotton department. The two were jointly indicted, Beauchamp as principal and appellant as aider and abettor, for misapplying the funds and credits of the bank. Beauchamp entered a plea of nolo contendere and was sentenced to imprisonment. Appellant pleaded not guilty, and was tried and convicted on each of the nineteen counts of the indictment. On this appeal he assigns numerous errors, the first of which is that the trial court should have directed a verdict of not guilty.

The several counts of the indictment may be considered in three groups. All of them relate in part to a pre-existing indebtedness of appellant to the bank. The indebtedness arose in this way: In the spring of 1923, the Memphis bank, through New Orleans, New York, and Boston banks, advanced money to appellant to buy cotton to fulfill contracts he had made in Germany. The cotton was bought and shipped, but upon its arrival in Germany was rejected — apparently for good cause. Upon the rejection of the cotton the out-of-town banks demanded their money. Beauchamp, acting for the Memphis bank, paid it and took over the securities held by those banks. The securities consisted of the cotton itself, which in the meantime had declined in value $50 or $60 a bale. Appellant was without means to pay this indebtedness, and to sell the cotton, if it could be sold, would result in a loss of more than $500,000, and perhaps wreck the bank. With the hope that appellant could earn enough to take up the indebtedness, Beauchamp, without consulting the finance committee or the higher officers of the bank, agreed to furnish him the money to buy low-grade cotton. It was in pursuance of this plan, presumably, that appellant drew the drafts alleged to have resulted in the misapplications charged.

Prior to June 11, appellant, in carrying out his arrangement with Beauchamp, had bought considerable cotton and issued drafts therefor on New Orleans banks. When these drafts, with bills of lading attached, arrived in New Orleans, there was no money in the banks to pay them. In order to raise the necessary funds appellant drew drafts through the New Orleans banks on his Memphis office which were forwarded to the Memphis bank for collection. He had no credit or funds in the Memphis bank, and as the drafts had no cotton back of them Beauchamp had no color of excuse for paying them. The cotton had then reached New Orleans, and had been stored in warehouses and warehouse receipts issued to the banks holding appellant's drafts. Knowing this, Beauchamp and appellant hit upon the plan of borrowing the warehouse receipts, giving trust receipts therefor to the New Orleans banks, and using the warehouse receipts as collateral on other drafts. This they did, with the result that on June 11 and 13 appellant drew three drafts through Beauchamp's bank on the French American Banking Company, New York, and the Equitable Trust Company, New York, aggregating in amount $263,498.59, and attached thereto the warehouse receipts. Beauchamp immediately credited the drafts to appellant's account, and paid checks which he drew on the account to take up the drafts in New Orleans. The warehouse receipts were not released by the New Orleans banks until two weeks later. Between June 13 and 27 appellant sold the cotton, and upon the release of the receipts attached them to other drafts. The three drafts drawn on the New York concerns were never presented for payment and were never paid by appellant. They form the bases of counts 8, 9, and 10.

Counts 1, 2, 3, 4, 5, 6, 7, 16, 17, 18, and 19 form a second related group. Nine of them relate to payments of drafts drawn on E. F. Hutton & Co., New York, and the other two to drafts drawn on Blythe & Bonner, New York, all between July 30 and October 12. All of these drafts had attached to them bills of lading for cotton. They were never forwarded for collection nor intended to be forwarded. The cotton was of low grade, some of it not marketable at all, and in some cases not shown to have been in existence. Typical of most of these transactions is the one covered by count 3 in which the draft for $43,842.60 was secured by 260 bales of cotton that actually cost $10,388.08. There was no record on the books of appellant showing he had ever owned or dealt in the cotton supposedly pledged as collateral to the drafts involved in counts 6 and 7, amounting to more than $45,000. The cotton purporting to be back of the draft involved in count 5, amounting to $42,500.00, was found in Bremen, Germany, at the time the bank was liquidated, having been shipped there by appellant, consigned to himself, and undisposed of. All the drafts, with the exception of those involved in counts 16, 17, 18, and 19, were charged off by the bank as losses. The last-mentioned drafts were taken up by new drafts issued on the same cotton, and these were also charged off as losses. The misapplications were alleged to have occurred upon the payment of the original drafts.

The remaining counts, 11, 12, 13, 14, and 15, which we designate as group 3, involve drafts aggregating $81,733.60, covering the period from March 6 to 15, 1924, inclusive. These drafts were drawn by appellant in New Orleans upon himself, accepted and credited to his account in Memphis by Beauchamp, and the credits checked out. While each of them appeared on its face to be secured by cotton, there was in fact no cotton behind any of them, so far as was shown by appellant's books, and none was found by the liquidating agent of the bank.

Pharr was insolvent on June 11, 1923. He and Beauchamp both knew this. Both knew the drafts which the bank paid were either not secured at all or were not sufficiently secured, and both resorted to artifice and deception to make it appear on the books of the bank that the transactions were regular. That it was necessary to resort to these deceptions to get the money seems obvious when it is remembered that appellant then owed the bank more than a half million dollars and had no assets or property except an equity in his home. The evidence tends to show, it is true, that at some point in the course of his dealings with the bank he gave to it such additional security as he could by...