Baird v. Smith

MACK, Circuit Judge. Appeal'from an order overruling the referee’s disallowance of a claim filed against the bankrupt’s estate and allowing it for $5,026, something less than the amount claimed. — 60 — [1] 1. Smith was one of three petitioning creditors. The bankrupt and one creditor contested the petition, asserting, inter alia, that Smith’s claim was not valid and provable. Subsequently, however, and after a partial hearing, the adjudication was expressly consented to and the order of adjudication was entered. For the reasons fully stated by Judge Sanborn in his dissenting opinion in Ayres v. Cone, 138 Fed. 778, 71 C. C. A. 144, with which we entirely agree, this adjudication cannot estop the trustee acting on behalf of all creditors or any non-contesting creditors from denying the validity and provability of Smith’s claim. [2] 2. The claim was founded on a judgment rendered by default in the state court. The reduction of an alleged debt to judgment in a state court before bankruptcy does not exempt it from attack by or on behalf of creditors who would be injuriously affected by its allowance, when such allowance is sought in bankruptcy proceedings. Chandler v. Thompson, 120 Fed. 940, 57 C. C. A. 230. .3. The judgment was rendered on a demand note for $5,000, dated March 27, 1913, and executed in the name of the bankrupt by its president. It was purchased by the claimant on April 10, 1913, for $2,500, of which $600 was paid in cash and $320 in driblets thereafter. No more appears ever to have been paid. Suit thereon was begun April 18, 1913, and the bankruptcy petition was filed June 16, 1913. [3] (a) The note was never delivered as a note. Under the un-contradicted testimony, it was handed to the payee simply as evidence of a commission-that he was to receive for selling bankrupt’s increased capital stock, but not to be effective until signed by bankrupt’s treasurer in accordance with the by-laws requiring both signatures. Storey v. Storey, 214 Fed. 973, 131 C. C. A. 269. [4-6] (b) Whatever may be the presumptive authority of the president of an Illinois business corporation to execute notes for its ordinary business transactions (see. cases cited in Hallett v. St. Vincent College, 201 Fed. 471, 119 C. C. A. 647), there is no such presumption in favor of a payee who knows that the notes were given for other purposes. Neither securing fresh capital by the sale of additional stock, nor contracting to pay commissions therefor, is an ordinary business transaction of the corporation, within the implied powers of the president'acting as general manager; so that, irrespective of the by-laws or the specific condition upon which alone the note was to become effective, it was invalid as between the parties, because unauthorized either by the directors or the shareholders of the bankrupt. [7] (c) The consideration totally failed; the payee did absolutely nothing that would have entitled him to commissions, even had the execution of the contract or note been duly authorized; and the deal was off before the transfer to Smith. [8, 9] (d) As Smith has not even paid the agreed purchase price, his claim could in no event excéed the amount paid (Illinois Neg. Instr. Act [Laws 1907, p. 410] § 54), even if he were otherwise a holder in due course. But in view of his own testimony, that he knew where the payee got the note and what it was for, and irrespective of — 61 — any possible charge of constructive notice because of the inadequate price paid, he must be held to have had actual notice of all the facts. The order allowing the claim must be reversed, and the cause remanded, with directions to sustain the objections and to disallow the claim.