Prudential Ins. Co. of America v. Nelson

• Decision Date: 09 February 1939
• Docket Number: No. 7920.,7920.
• Citation: Prudential Ins. Co. of America v. Nelson, 101 F.2d 441 (6th Cir. 1939)
• Parties: PRUDENTIAL INS. CO. OF AMERICA v. NELSON. In re CHICKAMAUGA TRUST CO.
• Court: U.S. Court of Appeals — Sixth Circuit

101 F.2d 441 (1939)

PRUDENTIAL INS. CO. OF AMERICA v. NELSON. In re CHICKAMAUGA TRUST CO.

No. 7920.

Circuit Court of Appeals, Sixth Circuit.

February 9, 1939.

Burnet Sizer, of Chattanooga, Tenn. (Sizer, Chambliss & Kefauver and J. B. Sizer, all of Chattanooga, Tenn., on the brief), for appellant.

Chas. S. Coffey, of Chattanooga, Tenn. (Chas. S. Coffey and Coffey, McCoy & Durand, all of Chattanooga, Tenn., on the brief), for appellee.

Before HICKS, ALLEN, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

This is an appeal from a decree of the District Court denying a petition to review the order of the court's Referee in Bankruptcy.

The Chickamauga Trust Company, a Tennessee corporation, was adjudged a bankrupt on December 31, 1930. For many years prior to this adjudication it was an entrepreneur with The Prudential Insurance Company of America for procuring and making loans on real estate. So much of the contract between the parties as is material to a decision is as follows:

"Paragraph 2 provides that the correspondent shall submit applications for loans subject to the following conditions:

"`(a) The Insurance Company shall be the sole judge as to such applications as it may, in its absolute discretion, elect to approve.

"`(b) The Insurance Company shall be the sole judge as to such papers and documents, legal or otherwise, as it may require to be furnished; (1) when a loan application is submitted for approval and (2) as a condition precedent to disbursement. In each and every case, however, the Correspondent shall furnish to the Insurance Company an accurate statement of the cost of the loan to the borrower by way of commissions presently payable and/or commissions payable on a deferred basis.

"`(c) The Insurance Company shall be the sole judge as to who shall furnish, examine and/or sign the documents mentioned, in sub-paragraph (b) preceding and shall be the sole judge as to whether or not such documents are satisfactory in form, execution and contents, and as to the legal sufficiency of the title to the security.'"

The Trust Company submitted to the Insurance Company for its approval, applications for loans and when approved, it procured and forwarded notes and mortgages payable to the Insurance Company signed and acknowledged by the borrower and at the same time an abstract of title.

In some cases the Trust Company advanced out of its own funds, less its expenses and commissions, the sum due the borrower and furnished to the Insurance Company satisfactory evidence of its payment. In others, it forwarded the loan contracts and supporting papers to the Insurance Company, together with a statement of its expenses and commissions. In the first type of cases, the Insurance Company remitted to the Trust Company; in the second, to the Trust Company or a designated depository which made disbursements to the borrower and the Trust Company for its commissions and expenses.

Under the first type of loan the binding contracts were on forms prepared by the Trust Company; in the others, on those of the Insurance Company.

The Trust Company collected for the Insurance Company both principal and interest on the loans, which were deposited to its account in the Hamilton National Bank or the First National Bank of Chattanooga, Tennessee. It mailed to the Insurance Company daily reports showing the amount of the collections and under its agreement was to also remit daily.

At the date of bankruptcy, the Trust Company was indebted to the Insurance Company in the sum of $115,000 for collections made, but not remitted.

Prior to bankruptcy and during the calendar year 1930, the Trust Company had submitted to the Insurance Company on forms provided by the latter, nine applications for loans aggregating $10,663.40, which had been approved by the Insurance Company and the Trust Company notified. Subsequently the Trust Company had the borrowers execute notes and mortgages payable to the Insurance Company for the respective amounts and it paid to them out of its funds the face thereof, less its charges and commissions and charged against the respective borrowers the amounts of the loans.

At the time of bankruptcy the Insurance Company had approved only the applications for these loans and the Trust Company listed them as assets in its schedule filed in the bankruptcy proceedings. Between March 3 and April 1, 1931, the appellee, F. A. Nelson, Trustee in Bankruptcy for the Chickamauga Trust Company, forwarded by registered mail to the appellant, The Prudential Insurance Company of America, Newark, N. J., the completed papers covering the loans.

In all letters of transmittal the trustee advised the Insurance Company that the respective loan "having been completed according to the application and the terms and rules and regulations of The Prudential Insurance Company" he was inclosing the papers consummating the loan. He concluded his letter by requesting the Insurance Company to send him a check as soon as possible covering the amount due the Chickamauga Trust Company for the sums paid out by it on this account. The Insurance Company retained the notes and mortgages and advised the trustee that it was giving credit of $11,613.07 on the indebtedness of the Chickamauga Trust Company to it at date of bankruptcy.

Shortly thereafter the trustee filed his petition before the Referee in Bankruptcy praying that an order be entered in the proceedings directing the ...