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ing the examination of Federal Prohibition to recover for telephone service furnished both Agent McNeeley. The affidavit and search corporations of value exceeding $3,000, held, warrant were noi in the possession of the finding that charges of fraud and collusion


serted as basis of individual defendants' liability government's attorney, but were on file in the were not sustained, did not under Judicial office of the justice who issued the warrant. Code, 8 37 (Comp. St. § 1019), necessitate a disUnder these circumstances, it was not the missal on ground that, in absence of liability duty of the government's attorney to pro- involved.

for both claims, a jurisdictional amount was not duce these papers. If the defendant desired their production, he had equal rights with 3. Courts ew351/2-Want of support for claim

asserted in good faith as grounds for court's the government's attorney to cause a sub

jurisdiction does not require dismissal. pæna duces tecam to issue for the justice Judicial Code, $ 37 (Comp. St. § 1019), prowho had them in his possession.

viding for dismissal of suit not really and sub[4] It is also claimed that the court erred in stantially involving a dispute or controversy cross-examining the defendant. The court

within jurisdiction of court, does not require

dismissal of a suit on a claim made in good did ask the defendant a number of questions, faith, although court may decide that claim is but it does not appear that defendant inter- not supported by the evidence. posed any objections or took any exceptions 4. Action Cm70—Amendment of bill to declare to the questions propounded by the court, on written contract held not abandonment of which it is now claimed constituted prejudi- original suit. cial error. Nor does it appear that any of In suit against two corporations, a director these questions were improper.

of each, and the principal stockholder of both, [5] It is also claimed that the court erred corporations, wherein individual defendants in

to recover for telephone service furnished both in its charge to the jury. It is sufficient to troduced written contracts by which they had say in reference to this contention that there assumed liability for claims sued on and sought was no error in the charge, in so far as ex

dismissal on ground that plaintiff had adequate ceptions were taken thereto. This court will remedy at law, plaintiff's amendment of bill so

as to declare on the written contracts was not not consider alleged errors to which no ex- an abandonment of original suit. ceptions were taken, except and unless it ap- 5. Account om 6-Suit to recover for telephone pears that by reason of these errors there

service held within equity jurisdiction behas been a miscarriage of justice. It does cause of complicated nature of accounts. not appear to this court that there has been

Suit against two corporations and certain any miscarriage of justice in this case, but, individuals to recover for telephone service on the contrary, that the defendant has had furnished the corporations, consisting princia fair and impartial trial, that the evidence pally of long-distance conversations over a con

siderable period of time, wherein defendants fully sustains the verdict of the jury, and claimed numerous overcharges and disputed that the errors assigned are highly technical correctness of each item, held within equity and without merit.

jurisdiction on ground of complicated and dis

puted character of accounts. Judgment affirmed.

6. Trial mil(3) --Suit to recover for tele.

phone services involving accounting by indi. vidual defendant held within equity jurisdiction.

In suit against two insolvent corporations, a WALKER GRAIN CO. et al. v. SOUTHWEST. director of each, and the principal stockholder ERN TELEGRAPH & TELE

of both, to recover for telephone services, PHONE CO.

where it was found that principal stockholder

had illegally appropriated large sum from treas. (Circuit Court of Appeals, Fifth Circuit. De- ury of one of corporations, held, equity jurisdiccember 1, 1925. Rehearing Denied tion existed for purpose of compelling an acJanuary 19, 1926.)

counting by him which would be retained as to

other individual defendants without sending No. 4619.

case to law side of court. 1. Appeal and error Cm 907(2)—Where evi. 7. Equity cm 427(1)-Judgment held properly

dence is not included in record, findings of entered against individual defendant under fact assumed correct.

contract proved by him, though bill not Where evidence is not included in record,

amended to declare on contract. findings of fact must be assumed correct.

In suit against two insolvent corporations

and certain individuals to recover for telephone 2. Courts Om3511/2--Finding of want of fraud services furnished both corporations, where inasserted as basis of defendants' liability in a

dividual defendants to defeat equity jurisdiction jurisdictional amount held not to necessitate proved written contracts by which they assumed dismissal.

individual liability and asserted that an adeIn suit against two corporations, a director quate remedy at law existed, held, court hav. of each, and the principal stock holder of both, ing jurisdiction on other grounds could prop


10 F.(20) 272 erly enter judgment against one of the individ- their claims, the bank accounts of the corual defendants on his liability under the contracts proved by him, though as to him no

porations were kept constantly overdrawn, trial amendment of bill to declare on the con

and the profits as fast as earned were taken tract was made.

by Walker and deposited either to the credit

of himself or his wife, and arrangements were 8. Pleading On 236(5)-Allowance of amendment increasing plaintiff's claim to conform

made by him with the bank in which the deto proof is within discretion of court.

posits of the corporations were kept to pay Allowance of amendment increasing plain any overdrafts which Walker made on behalf tiff's claim to conform to proof is within dis- of the corporations and charge the same to cretion of court.

his individual account. In this way the corAppeal from the District Court of the porations became liable to creditors in the United States for the Northern District of aggregate amount of several hundred thou

sand dollars, and were insolvent. J. L. Texas; William H. Atwell, Judge.

Walker had wrongfully taken and approSuit by the Southwestern Telegraph & priated to his own use large sums of money, Telephone Company against the Walker many times the amount of appellee's claims, Grain Company and others. Decree for com- belonging to the corporations. Mrs. Walker plainant (3 F. [20] 819), and defendants ap

was a director in the Walker Grain Compapeal. Affirmed.

ny, and Ivy in the Ivy Grain Company, and E. B. Robertson, of Fort Worth, Tex. (W. these individual defendants participated in E. Spell, of Waco, Tex., and H. T. McGown the fraudulent scheme and practices of J. L. and P. T. Lomax, both of Fort Worth, Tex., Walker. The accounts of the corporations on the brief), for appellants.

with appellee were made up of charges for Stanley Boykin and H. C. Ray, both of long-distance telephone conversations, and Fort Worth, Tex. (Nelson Phillips and C. M. covered a considerable period of time. DeMeans, both of Dallas, Tex., on the brief), fendants claimed there were numerous overfor appellee.

charges and disputed the correctness of each Before WALKER, BRYAN, and FOS- item charged, and for that reason the acTER, Circuit Judges.

counts were complicated and their settlement

was properly the subject of inquiry by a BRYAN, Circuit Judge. This is a suit in court of equity. equity in which appellee recovered a decree During the taking of evidence before a fór telephone service furnished to the Walk- master, defendants introduced two contracts er Grain Company and the Julian A. Ivy in writing, in one of which the individual deGrain Company. Separate accounts were fendants bound themselves to pay the amount kept, according to which the indebtedness of due upon the account asserted by appellee each company, exclusive of interest and costs, against the Walker Grain Company, and in was less than $3,000, but the indebtedness of the other entered into a like obligation on beboth companies exceeded that amount. half of the Ivy Grain Company. The con-'

The original defendants were the two tracts were pleaded in the answer of defendgrain companies, J. L. Walker, and his wife, ants which alleged that the individual defendMrs. M. M. Walker; but by amendment Jul- ants, including Ivy, had signed them and ian A. Ivy was also made a party defendant. thereby appellee was given a full, complete,

The bill was filed by appellee in its own and adequate remedy at law. After the conbehalf, and for the benefit of all other cred- tracts had been introduced in evidence, apitors who might join in seeking the relief pellee filed a trial amendment, in which the prayed and contribute to the costs of the suit. contracts were pleaded "for the purpose of The case made by it is this: J. L. Walker making the pleadings of the complainant conwas engaged in the business of buying and form to the evidence introduced herein,” but selling grain for future delivery. In order to omitted to pray for judgment against the deavoid personal liability, he formed the de- fendant Julian A Ivy. All the other defendfendant corporations and subscribed to prac- ants were included in the prayer for judgtically all of their capital stock, and used ment. However, the amendment prayed for them as mere dummies. He caused these cor- general relief. porations to enter into contracts for future [1] The district judge approved findings of delivery of grain and to accept or repudiate the master to the effect that the corporations them according to whether there was a profit were insolvent, but had not been organized to be realized or loss to be sustained. In or- for the purpose of enabling Walker to perder to prevent creditors from realizing on petrate a fraud upon his creditors. The mas

10 F.(20)–18



ter also found that J. L. Walker had receiv- jurisdiction. Section 37 of the Judicial Code ed the sum of $51,500 from the Walker Grain (Comp. St. § 1019) provides for the dismissCompany and reported that the testimony al of a suit which does not really and substanwas conflicting as to whether that company tially involve a dispute or controversy propowed Walker anything at the time; but the erly within the jurisdiction of the court. A district judge sustained exceptions to this suit upon a claim made in good faith is not finding, and held that the said sum of $51,500 to be dismissed, although the court may debelonged to the Walker Grain Company and cide that the claim is not supported by the was wrongfully taken by Walker. The court evidence. Hart v. Keith Exchange, 262 U. S. entered a decree against each of the corpora- 271, 43 S. Ct. 540, 67 L. Ed. 977; Binderup tions for the amount found by the master to v. Pathé Exchange, 263 U. S. 291, 44 S. Ct. be due by it, and against the individual de 96, 68 L. Ed. 308. fendants for the aggregate amount found to In Flanders v. Coleman, 250 U. S. 223, be due by both corporations. The amount of 39 S. Ct. 472, 63 L. Ed. 948, it is said: the decree against the Ivy Grain Company "Whether the District Court has jurisdiction was in excess of the amount claimed in ap- to grant any relief must be determined upon pellee's amended bill, but on motion for re- a consideration of the allegations of the bill hearing submitted by appellants the court and the amendment thereto. If there be permitted appellee to file an amendment enough of substance in them to require the claiming the amount found by the master and court to hear and determine the cause, then the court to be actually due. The evidence jurisdiction should have been entertained.” is not included in the record, and it is there. The District Court proceeded to hear the case fore to be assumed that the findings of the

on the merits, and must have been convinced court upon the facts are correct.

that appellee's suit was brought in good faith. In support of their assignments of error, [4,5] The amendment to the bill which deappellants contend: That the court erred in clared on the written contracts of appellants refusing to dismiss the suit for want of ju- to pay the accounts of the corporations was risdiction, because, first, the court reached the not an abandonment of the original suit. conclusion from the evidence that the charges The amendment was wholly unnecessary inasof fraud and collusion had not been sustain- much as appellants themselves had introduced, and, secondly, because appellee's amend- ed the same contracts in evidence in an efment declaring on the written contracts, by fort to sustain their theory that appellee had which the defendants bound themselves to

a plain and adequate remedy at law. Furpay the accounts sought to be recovered, con- thermore, in our opinion the court properly stituted an abandonment of the original suit entertained the case on the equity docket, beand set up two new and distinct causes of

cause the accounts were disputed and comaction, upon each of which there was a plain plicated. Kirby v. Lake Shore R. R. Co., and adequate remedy at law; that, as the 120 U. S. 130, 7 S. Ct. 430, 30 L. Ed. 569; averments of fraud and collusion apply only Walker v. Wilkinson (C. C. A.) 3 F.(20) to J. L. Walker, the bill should have been 867; 10 R. C. L. 355. dismissed as to all the other appellants; that [6] The court found that J. L. Walker had the decree against Julian A. Ivy was errone- illegally taken $51,500 out of the treasury of ous, because there was no averment in the the Walker Grain Company. It is hardly trial amendment that he executed either of the open to question that jurisdiction existed for written contracts; and that the decree against the purpose of compelling an accounting by the Julian A. Ivy Grain Company was in ex

him upon the suit of creditors. Chicago, etc., cess of the amount claimed against that com

Ry. Co. v. Third National Bank, 134 U. S. pany in the amended bill upon which the trial 276, 10 S. Ct. 550, 33 L. Ed. 900. In view of was had.

the fact that the corporations appear to have [2,3] The charges in the bill of fraud and been insolvent, there existed jurisdiction in collusion stated a cause of action against the

a court of equity, although appellee's claims individual appellants. If they were liable had not been reduced to judgment. Case v. for both accounts, the amount sought to be Beauregard, 101 U. S. 688, 25 L. Ed. 1004. recovered was within the jurisdiction of the Having properly acquired jurisdiction, it was District Court. It was found, upon a con- proper to proceed in equity to do full jussideration of the evidence, that the corpora- tice without sending the case of the other aptions were not used as dummies in the per- pellants to be determined on the law side of petration of a scheme to defraud. The court the court. Equity Rule 23; Ober v. Gallaghreached that conclusion in the exercise of its er, 93 U. S. 199, 23 L. Ed. 829; Camp v.


Een da Led.!!43 of Dallas, Tex. (Burgess, Owsley, Storey de

10 F.(2d) 276 Boyd, 229 U. S. 530, 33 S. Ct. 785, 57 L. Ed. themselves to jurisdiction of District Court as 1317. Therefore it was not error for the respects such suits. court to enter a decree against the other in- 4. Bankruptcy Om 252—Bankrupt corporation's dividual appellants, who the evidence shows stockholders, offering compromise, held en.

titled to have offer accepted exactly as made, were also liable for the full amount of the

or not at all, claims against both corporations.

Stockholders of bankrupt corporation, offer[7] Julian A. Ivy was shown to be liable for ing to compromise claims, were entitled to have the contracts introduced in evidence by ap- offer accepted exactly as made, or not at all. pellants, and the court therefore had the power to enter judgment against him upon his Appeal from the District Court of the own showing, and in the absence of the trial United States for the Northern District of amendment.

Texas; William H. Atwell, Judge. [8] The allowance of the amendment in

In the matter of the Ben L. Berwald Shoe creasing the claim against the Ivy Grain

Company, Bankrupt. From an order apCompany, so as to make the pleadings conform to the proof, was within the discretion proving an offer of compromise (1 F.[2]

494), the Hamilton-Brown Shoe Company of the court, and was entirely proper.

and others appeal. Reversed and remanded. The decree is affirmed.

R. G. Storey and Fred J. Dudley, both 27123675

20 46 har(7.485. Stewart, of Dallas, Tex., on the brief), for HAMILTON-BROWN SHOÈ'co. et al. v. appellants. BEN L. BERWALD SHOE CO. et al.

Emil Corenbleth, of Dallas, Tex., for apin re BEN L. BERWALD SHOE CO.

pellees. (Circuit Court of Appeals, Fifth Circuit. De

Before WALKER, BRYAN, and FOScember 22, 1925. Rehearing Denied

TER, Circuit Judges.
January 19, 1926.)
No. 4603.

FOSTER, Circuit Judge. This is an ap

peal from an order approving an offer of 1. Bankruptcy Om 440—Order approving offer of compromise held appealable, and proceed. compromise, made by a third party to the ing

for review not required to be taken with trustee on behalf of himself and the others, in 30 days.

as well as the bankrupt. A motion was made Order approving offer of compromise made to dismiss the appeal. It appears that the by bankrupt's stockholders held to involve con- order appealed from was entered on March 2, troversy arising in bankruptcy proceeding, under Bankruptcy Act, § 24a (Comp. St. § 5608), 1925, and the motion for the appeal was not appealable under the general equity jurisdiction filed until June 1, 1925, nearly three months of the court, and not purely administrative or- later. der, reviewable under section 24b by petition to [1] Appellees contend that the case should revise, required to be filed within 30 days, nor an appeal to be governed by section 25a (Comp. have been removed to this court on petition St. § 9609).

to superintend and revise, for which our rules

fix a limit of 30 days. See rule 38. As will 2. Bankruptcy w 252—Trustee may, with ap. subsequently appear, the case presented is

proval of court, compromise controversy concerning bankrupt estate.

not purely that of an administrative order, Under Bankruptcy Act, $ 27 (Comp. St. & contemplated by section 24b, Bankruptcy Act 9611), bankruptcy trustee may, with approval (Comp. St. § 9608), nor an appeal, to be of court, compromise any controversy concern- governed by section 25a of said act (section ing bankrupt estate, and for this he represents 9609). For the purpose of jurisdiction, and all creditors.

with regard to the delay allowed for remov3. Bankruptcy Oma252-Trustee held not au. ing it, the case must be considered as involv

thorized to accept offer to compromise claims ing a controversy arising in a bankruptcy against bankrupt's officers individually over objections of certain creditors.

proceeding contemplated by section 24a, Offer of compromise, made by bankrupt's Bankruptcy Act, and appealable under the stockholders to take over bảnkrupt's assets on general equity jurisdiction of this court. So condition of releasing claims against bankrupt, considered, the appeal was taken timely. The its officers, and stockholders, could not be ac

motion to dismiss will be denied. eepted by trustee under Bankruptcy Act, $ 27 (Comp. St. § 9611), over objection of creditors

Coming, now, to the merits, the material seeking in state court to hold officers individ- facts are these: ually liable, where parties had not submitted The Ben L. Berwald Shoe Company was

adjudicated bankrupt and during the admin- promise any controversy concerning the istration of its affairs Ben L. Berwald, who bankrupt estate, and for this he represents was the president and principal stockholder all of the creditors under the law. Such of the bankrupt corporation, made an offer would be his claim for the unpaid portions in writing to the trustee to take over the as- of the stock subscriptions and his right of acsets of the bankrupt for an amount of cash tion to set aside a preference. Bankruptcy sufficient to pay the unsecured creditors 55 Act, § 27 (Comp. St. § 9611). The proceedper cent. of their claims. He was careful to ings in this case to that extent are regular, and stipulate that he did not submit himself to would be binding on appellants, if that were the jurisdiction of the court, and the offer all; however, the offer in this case goes becontemplated the compromise of all claims yond an ordinary offer of compromise. Apof all unsecured creditors of the bankrupt pellants are seeking in a state court to hold against himself and the other officers and the officers of the corporation liable as indistockholders of the bankrupt, as well as the viduals for the full amounts of their claims. claims against the bankrupt corporation. To These claims were not urged in the bankruptthat effect a clause as follows was inserted: cy proceedings, and could not have been.

"This offer is made with the understand- We cannot assume that these claims are ing and for the express consideration that without substance, and with regard to them each and every unsecured creditor of said the trustee was not authorized to represent bankrupt will release the said bankrupt and appellants. A simple illustration will demonall its officers and directors, and each and strate this: It would never be contended by every one of them, from any and all liability any one that the trustee could compromise of every character and description growing the claim of an individual creditor against a out of or incident to or connected with the third person arising from his indorsement operation of the said Ben L. Berwald Shoe of the bankrupt's note. There is no differCompany prior to its adjudication in bank- ence in principle in the case here presented. ruptcy."

Furthermore, none of the parties has submitBefore the offer was made the trustee con- ted himself to the jurisdiction of the District templated suits against Berwald and his as- Court with regard to these suits, and the Dissociates to recover unpaid stock subscriptions trict Court was without jurisdiction to bind amounting to approximately $10,000, and al- appellants to the full extent of the comproso to set aside a preference of about $6,000. mise offered. The order appealed from goes He recommended the acceptance of the offer. too far, and is prejudicial to the rights of A hearing was had before the referee, and appellants. 62 out of 66 unsecured creditors agreed to The court expressed the opinion that the compromise. Appellants, who are 4 of the state courts would take notice of the the unsecured creditors, objected. They had bankruptcy proceedings and act accordingly. previously filed suits in a state court'to re- It is quite apparent that, if the order alcover the full amounts of their claims from lowed to stand, appellants will be greatly Berwald and the other officers and directors, embarrassed in exercising their rights in the on the grounds that the bankrupt was in real- state court, if not absolutely prevented from ity a partnership, of which the stockholders so doing. were members, and was not a corporation, [4] It would seem that the compromise offer. that the stock of the corporation had never ed was fair so far as the trustee was conbeen paid in, and that the individual officers cerned, but, on the other hand, it may well be were guilty of fraud in securing credit for the that appellants were justified in rejecting it corporation. An order had been issued stay- so far as their individual claims are concerning these proceedings in the state court. ed; however, under the circumstances, it On the hearing before the referee, he rec- would not do to affirm the order, with a modiommended the acceptance of Berwald's of- fication reserving the rights of appellants as fer, but certified the question to the District Berwald and his associates must also be conCourt. The District Court entered an order sidered. Undoubtedly they intended the acapproving the compromise and ordering the ceptance of the offer to end the suits in the fund, which had been guaranteed by Ber- state courts, and to settle all claims of any wald, to be distributed pro rata among the kind against themselves arising from their creditors.

connection with the bankrupt. They have [2,3] It may be conceded that the trustee the right to have their offer accepted exactly may, with the approval of the court, com- as made, or not at all.

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