Case Name: In re WHITE et al.; CUMMINGS v. DAY
Court: United States Court of Appeals for the Seventh Circuit
Jurisdiction: United States
Decision Date: 1910-10-04
Citations: 183 F. 310
Docket Number: No. 1,669
Parties: In re WHITE et al. CUMMINGS v. DAY.
Judges: Before GROSSCUP, BAKER, and SEAMAN, Circuit Judges.
Reporter: Federal Reporter
Volume: 183
Pages: 310–312

Head Matter:
In re WHITE et al. CUMMINGS v. DAY.
(Circuit Court of Appeals, Seventh Circuit.
October 4, 1910.)
No. 1,669.
Bankruptcy (§ 351 ) — Provable Claims — Notes oe Partner Pledged by Firm.
Where a partner, acting for the firm, pledged as collateral security for a loan to the firm, for which he was indorser, among other collateral, individual notes made by himself to the firm for borrowed money, which were afterward sold by the pledgee in accordance with the terms of the pledge, the purchaser took the same title and rights as though the notes had been those of a third party, unaffected by the fact that the maker was also indorser on the principal debt, and was entitled to prove the notes against the estate of the maker in bankruptcy.
[Ed. Note. — For other cases, see Bankruptcy, Dee. Dig. § 351.*]
Appeal from the District Court of the United States for the Eastern Division of the- Northern District of Illinois.
In the matter of George E. White and James D. Kline, individually and °as copartners under the firm name of George E. White & Co., bankrupts. From an order disallowing a claim against the individual estate of George E. White, Edmund S. Cummings appeals.
Reversed.
Edmund S. Cummings, Harry G. Colson, and Theodore Johnson, for appellant.
Charles B. Haffenberg, John D. Hood, A. A. McClanahan, and Jacob G. Grossberg, for appellee.
Before GROSSCUP, BAKER, and SEAMAN, Circuit Judges.
For other cases see same topic & § number in Dec. & Am. Digs. 1907 to date, & Rep’r Indexes

Opinion:
GROSSCUP, Circuit Judge,
delivered the opinion:
The appeal is from an order of the Court below, setting aside an order of the Referee in Bankruptcy allowing the claim of appellant against the estate of George E. White, individually, for $75,000., and sustaining the objections of the trustee to the allowance of said claim, and rejecting the same except as to the sum of $425.
George E. White was a copartner in the firm of George E. White & Company, that went into bankruptcy at the same time that George E. White and James D. Kline, the copartners, individually went into bankruptcy. The trustee is the same in both cases. The transaction 'disclosed in the proof shows, that to secure a loan of money made to him by the firm of George E. White & Company, George E. White individually executed to the firm his notes for $75,000., one for $50,000., and another for $25,000., secured by a trust deed to James D. Kline, as trustee, upon certain real estate in Cook County; that contempo raneously, George E. White & Company were borrowers from one Eusch, a loan broker, upon a line of credit that ran sometimes as high as $180,000; that at the time of the bankruptcy proceedings, George K. White & Company owed Eusch about $10,000.; and that to secure this loan of the firm from Eusch, the notes of George E- White, individually, before mentioned, to George E. White & Company, had been given as collateral security to Eusch under a written agreement "by and between George K. White, party of the first part, and Harry B. Eusch, doing business as II. B. Eusch and Company, party of the second part," wherein, after reciting that George E. White & Company had executed and delivered to Harry B. Eusch various promissory notes bearing the endorsement of George E. White individually, and that it was contemplated that from time to time other notes bearing the same endorsement should he delivered, some of such notes to be purchased and retained by Eusch and others to be sold by him as a note broker, it was agreed that, to secure all liability of George E. White & Company to Eusch, George E. White had deposited, and would from time to time thereafter deposit, various stocks, bonds, and uotes, and other securities, as collateral security; with the further agreement that, in case of the nonpayment at maturity of the1 notes of George E. White & Company held by Eusch, the holders of the notes might sell sfleh collateral publicly or privately without advertisement, the party having the right, in case the sale was made publicly, to become the purchaser of such collateral himself. The two notes amounting to $75,000., above mentioned, were included in this collateral given to Eusch, together with the mortgages securing them, which, after the beginning of the bankruptcy proceedings, Eusch sold to appellant at public sale, the terms of the contract, in that respect, being followed —appellant having first relinquished the mortgages; relying solely, for the payment of these, notes, upon the personal responsibility of White.
It will he observed that the contract respecting,the collateral was "between George E. White, parly of the, first part, and Harry B. Eusch, doing business as 11. B. Eusch and Company, party of the second part," from which it is urged that the notes, as notes belonging to George E. White & Company, though actually put up as collateral under the contract, do not fall within the terms of the contract in that it is not shown that the contract, as such, was ever adopted by George K. White & Company. This objection, however, disappears in the face of the evidence, that whatever may have been contemplated in the original contract.of pledge, with respect to its being White's collateral solely that was to be put up, While in fact put up the collateral belonging to the firm, of which he was a member, and for the benefit of that firm, from which, in the absence of other evidence (and there is no other evidence) we think it follows, as a presumption, that the terms of the contract were adopted by the firm. Indeed, to rebut this presumption, it would be necessary to show that White had no authority from his firm to do what lie did do in pursuance of the contract.
But "White being an endorser individually upon the indebtedness due from the firm of George E. White & Company to Eusch, amount ing to $40,000., it is said that these notes, put up as collateral, are "double evidence" of the same indebtedness. We think not. The obligation that was put up as collateral, is the obligation of White to the firm, wholly independent of the obligation of White as endorser of the firm to Lusch — as wholly independent as if the notes had been the notes of a stranger to the firm — a collateral that the creditor had the right to ask, that the debtor had the right to give, and that, in the asking and giving, increased the security of the original debt of the firm to Lusch. True, the collateral could not have been used to an extent beyond the debt to which it was collateral, and the debt cannot be 'allowed except to the extent that the collateral has not paid it, but the sale of the collateral having amounted to but a small proportion of the debt, and the question here being the responsibility of White individually and not of his firm, these questions do not arise.
The order appealed from is reversed, with instructions to allow the claim.