Siebert v. Hall

• Court: U.S. Court of Appeals — Eighth Circuit
• Writing for the Court: KENYON, GARDNER, and SANBORN, Circuit
• Citation: Siebert v. Hall, 63 F.2d 517 (8th Cir. 1933)
• Decision Date: 03 February 1933
• Docket Number: No. 9526.,9526.
• Parties: SIEBERT v. HALL et al. In re CONSUMERS' UTILITY CO.

63 F.2d 517 (1933)

SIEBERT v. HALL et al. In re CONSUMERS' UTILITY CO.

No. 9526.

Circuit Court of Appeals, Eighth Circuit.

February 3, 1933.

P. A. Lasley, of Little Rock, Ark. (H. M. Trieber, of Little Rock, Ark., on the brief), for appellant.

Harry E. Meek, of Little Rock, Ark. (W. E. Brownback, of St. Louis, Mo., and C. H. Moses and J. W. House, both of Little Rock, Ark., on the brief), for appellee.

Before KENYON, GARDNER, and SANBORN, Circuit Judges.

GARDNER, Circuit Judge.

This is a suit brought by Sydnor Hall and W. E. Brownback, as trustees, against the People's Public Service Company and the Consumers' Utility Company, both corporations, to foreclose a deed of trust executed by the Consumers' Utility Company to them as trustees for the Southeast Company, a corporation, securing the payment of a note for $75,000, executed by the Consumers' Utility Company and the People's Public Service Company. The note bears date July 1, 1930, while the trust deed is dated July 28, 1930. The People's Public Service Company is a holding company, owning all of the stock of the Consumers' Utility Company. Subsequent to the commencement of the foreclosure suit, and after the defendants had filed answer, the Consumers' Utility Company was adjudged bankrupt, and the appellant, V. H. Siebert, as trustee in bankruptcy of that company, was, by order of court, permitted to intervene and become a party defendant.

It is alleged in the complaint that the promissory note for $75,000 was given to evidence indebtedness from the makers to the payee, on account of advances made, services rendered, debts assumed, and indebtedness incurred. Then follow certain items of alleged expenditures and statement of services, which may be summarized as (1) money advanced on May 26, 1930, in connection with purchase of Sheridan properties, $40,875; (2) cash advanced June 4, 1930, to joint makers of note, $5,000; (3) charges for services in appraising and inspecting properties, and other expenses of loan, including compensation for services in settlement of controversy with holders of first mortgage, etc., $3,000; (4) principal and accrued interest on prior deed of trust assumed by the Southeast Company, $23,661.48; (5) cash advanced July 11, 1930, to joint makers of note, $2,463.52, making an aggregate amount of $75,000.

Appellant, in his answer, denies that the payee of the note made any advances to, assumed any debts of, or incurred indebtedness chargeable to, either of the makers of the note by way of any services in appraising or inspecting properties, or of any expenses of loan, or of services in settlement of controversy with holders of first mortgage; denies that any services were performed, or that the services performed were worth $3,000, or any other amount. The effect of the denial puts in issue the allegations of the bill of complaint, but it is alleged that "the Southeast Company assumed, but has not in whole or in part, paid the sum of $23,661.48 on account of said prior mortgage, and is not entitled to recover the same." The answer then alleges that the note and the deed of trust securing same are void, "in that by each thereof a greater sum of value for the loan or forbearance of money than 10 per cent per annum was reserved, taken, secured or agreed to be taken or reserved." Other allegations of the answer are not material to the issues presented.

The trust deed covers electric light, telephone, and water systems in Arkansas, belonging to the Consumers' Utility Company. The note became due six months after its date, and in default of payment this suit to foreclose was commenced. The Southeast Company owns utility plants in Alabama and Arkansas.

The trial court found that the transaction was not tainted with usury and entered judgment for foreclosure of the deed of trust, and from the decree so entered the trustee in bankruptcy, after severance, has taken this appeal.

The substantial, if not the only, issue involved in this case is whether the plea of usury was established by a preponderance of the evidence. This plea is based upon two contentions: (1) That the $3,000 item, purporting to be for services, was in the nature of a disguise or shift to hide usury; (2) that the undertaking of the Southeast Company to secure releases of the first mortgage indebtedness was usurious because said indebtedness was not presently paid, but withheld by the lender. To understand the contentions of the parties, it is necessary to consider certain negotiations had between them prior to the execution of the note in question.

In April 1930, E. T. Stanfield, president of defendants, Consumers' Utility Company and People's Public Service Company, had consulted one Moorhead, an investment banker, relative to refinancing the Consumers' Utility Company, but was advised by Moorhead that the company was too small to make public financing feasible, but suggested that Stanfield consult Sydnor Hall, president of the Southeast Company, relative to a merger with the last-named company, in which event financing might be effected. At that time the Consumers' Utility Company was indebted to two Chicago concerns in the sum of $22,000 and interest, this indebtedness being secured by a first deed of trust upon its property. In the meantime it had acquired an option to purchase a telephone system in Sheridan, Ark., which required a payment of $40,875 by June 1, 1930.

On May 20, 1930, Stanfield met Hall of the Southeast Company at St. Louis, Mo., and discussed the question of merger with him. At that meeting it was agreed that Hall and Moorhead would go to Little Rock, Ark., May 22, 1930, for the purpose of inspecting the properties of the Consumers' Utility Company. The Southeast Company, according to Hall's testimony, was in good financial condition, but he was willing to consider any expansion that might seem profitable. The three parties, Stanfield, Hall, and Moorhead, began an inspection of the properties, but Stanfield said that it would be useless to continue the inspection trip because his company had an option to purchase the telephone system at Sheridan, Ark., which would expire June 1st, and it was necessary for him to complete a loan that he was then negotiating so that his company might exercise the option. The inspection trip was therefore not completed, but the parties met at Little Rock, Ark., May 24, 1930, where they entered into a contract which reads, so far as here material, as follows:

"Pursuant with attempting to effect a merger of the People's Public Service Corporation, a Delaware corporation, which we will call party of the first part and which owns one hundred per cent (100%) of the Consumers' Utility Company, Inc., an Arkansas corporation, and the Southeast Company, a Delaware corporation, which we will call party of the second part.

"Party of the second part agrees to loan party of the first part seventy-two thousand ($72,000.00) dollars cash and to give services and other valuable considerations in exchange for which party of the second part will receive a note for seventy-five thousand ($75,000.00) dollars, bearing eight per cent interest and maturing December 31, 1930; same to be secured by a deed of trust embracing all of the properties now owned by the party of the first part and subsidiaries, which are represented as follows: Then follows a description of the property.

"In addition to the above, it is agreed that the party of the first part will pay all legal fees, both of party of first part's and party of the second part's, in connection with said properties and the execution of said deed of trust; party of the second part agrees that legal fees of party of second part will not exceed five hundred ($500.00) dollars and that said $500.00 will be waived in event a consolidation or agreement is reached and applied to the general cost of said agreement."

Stanfield testified that prior to entering into this contract he had told Hall that he was able to secure a loan of $75,000, maturing in two years, with interest at 8 per cent., plus a bonus, but that Hall suggested that such a loan would interfere with, if not prevent, the proposed merger, and he offered on behalf of his own company to advance the money necessary to take care of the immediate demands of the Consumers' Utility Company, so that merger negotiations might continue.

On June 23, 1930, Hall and Stanfield met in Chicago, for the purpose of settling the indebtedness of the Consumers' Utility Company to the Chicago creditors, as provided in the contract. In negotiations with these creditors, it was agreed that Stanfield, in behalf of his company, would waive all damages against the creditors for breach of an alleged contract to lend his company more money, and that they in turn would waive certain expense items growing out of the loan which they claimed were chargeable to the debtor. These creditors agreed that, if they received on July 1, 1930, the accrued interest due them to that date, and $1,000 on principal, they would accept payment of the balance of $21,000 in installments of $1,000 a month, plus accrued interest. Hall testified that his company assumed the payment of these debts in the manner agreed, and that "the amount thus assumed was treated as a cash advance, to that extent, under the note." The Southeast Company has made payments on the debt of the Chicago creditors in various installments, aggregating $12,657.16. Hall, for his company, advanced $40,875 for the purchase of the Sheridan telephone property on the 26th of May, 1930, and the sum of $5,000 on June 4, 1930. The $75,000 note, the basis of the foreclosure in this suit, was sent to Stanfield for execution July 7, 1930, at which time only the sum of $2,661.48 had been paid to the Chicago creditors.

On June 16, 1930, Stanfield met Hall in Jackson, Miss., and from there they went to Tuskegee, Ala., to inspect properties of the Southeast Company. They intended to inspect other properties...