Warner v. Powelson

• Decision Date: 20 February 1917
• Docket Number: 147.
• Citation: 240 F. 628
• Parties: WARNER et al. v. POWELSON et al.
• Court: U.S. Court of Appeals — Second Circuit

240 F. 628

WARNER et al. v. POWELSON et al.

No. 147.

United States Court of Appeals, Second Circuit.

February 20, 1917

Root Clark, Buckner & Howland, of New York City (Grenville Clark Emory R. Buckner, and Robert P. Patterson, all of New York City, of counsel), for appellants.

Simpson Thacher & Bartlett, of New York City (Graham Sumner, of New York City, of counsel), for appellees.

Before WARD, ROGERS, and HOUGH, Circuit Judges.

WARD Circuit Judge.

This is a suit in equity arising out of the following facts:

There were two companies interested in certain properties in the state of Tennessee, viz., the Tennessee Eastern Electric Company, the principal company, and the Tennessee Natural Development Company, Incorporated, the construction company. The defendant Powelson was the president and a director of the Development Company, which was indebted to him in the sum of $45,184.72, for which it delivered to him its collateral note, secured by the first mortgage bonds of the Electric Company, from which the coupons had been cut for 18 months in advance, for $20,000; the same bonds, but with coupons uncut, for $30,000; the Electric Company's note for $16,896.77, due July 15, 1914, secured by $33,000 of the Electric Company's bonds, being also security for other obligations of the Electric Company to the Development Company, amounting to $15,000. The collateral note was in the usual form, giving Powelson the right in case of default to sell the collateral at public or private sale and to become himself the purchaser, subject to the following limitation:

'The holder hereof agrees that none of the collateral accompanying this note will be sold without giving Warner, Tucker & Co., of Boston, Mass., an opportunity to bid on same.'

It also appeared that the Development Company was owned, one-half by Powelson and one-half by the firm of Warner, Tucker & Co., of Boston. Payment of the Development Company's note having been refused, Powelson gave notice to Warner, Tucker & Co. that he would sell the collateral on February 11, 1914, at the auction rooms of Adrian H. Muller & Son, New York City. A member of the firm of Warner, Tucker & Co. came on to New York to see Powelson, with a view to settling the matter, and the sale was adjourned to February 18th. Warner, Tucker & Co. sent a letter to Redmond & Co., well-known bankers of New York City, asking them to attend the sale and bid up to 68 for the $20,000 lot of bonds, 78 and interest for the $30,000 lot, and up to 99 and interest for the note. In accordance with these instructions Redmond & Co. sent two clerks, who were not personally known to the auctioneer, to attend the sale and bid, without giving them any funds to make a deposit, as this was never required by the auctioneer of them or of any other bankers of New York City in good standing.

The $20,000 lot of bonds was first put up, one of Redmond &amp Co.'s clerks bidding 50, and on up to 69, at which price they were knocked down to Powelson. There were no other bidders. Upon the $30,000 lot of bonds the bidding began at 55, and ran up between Redmond & Co.'s clerk and Powelson to 77, at which price they were knocked down to Redmond & Co.'s clerk. He gave the auctioneer the name of Warner, Tucker & Co. as purchasers. Not knowing this firm, the auctioneer referred the same to Powelson, who said they were not acceptable. Thereupon the clerk gave them the name of Redmond & Co., with which the auctioneer was quite satisfied, but after conference with Powelson asked whether the bidders had any money to make a deposit. They replied that they had not and that none was ever required of Redmond & Co. They were then asked for their credentials, and showed the auctioneer's clerk the heading of the letter of Warner, Tucker & Co. to Redmond & Co.,...