Court Opinion

ID: 8823496
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:40:06.51073+00
Date Added: 2024-06-11T17:04:42.642861
License: Public Domain

STONE, Circuit Judge
(dissenting). This is an appeal from the disallowance of part of a claim against the bankrupt estate of the Brown Consolidated Milling Company. The claim as filed totaled $7,-*685146.52, and was allowed for $2,0(81.18. It is because of the disallowance of the difference between these sums that this appeal is brought.
The claim consisted of three general items: Of $1,284.49, constituting a balance of account arising out of a shipping account for the purchase and sale of actual grain; $5,191.67, representing a promissory note for $5,000, with accrued interest; and $670.36, a balance of account, alleged by the trustee to have arisen from grain option deals. The first two items were confessed by the trustee. He opposed the last item of $670.36, as arising out of gambling or option dealings. He also sought a reduction of the admitted claim by $4,-394.98, contending that the sum of $4,394.98 was a balance due the estate from the sum of $8,925, which had been paid claimant, on account of similar dealings. The trustee based his objections upon the grounds that the bankrupt had no charter authority to engage in such gambling transactions, that the official of the bankrupt using its funds therefor had no authority to so do from the stockholders or directors of the bankrupt, that the deals were purely option or gambling transactions, and that such were made in the state of Nebraska, where they were, declared by statute to be unlawful.
The findings of fact and conclusions of law of the referee were very meager, but were to the effect that the bankrupt, through its officers, had been engaged with the claimant in illegal grain option deals to the extent contended by the trustee, and, on that ground, disallowed the third item of the claim for $670.36, and allowed a reduction of the admitted claim by $4,394.98, leaving the claim as thus reduced and allowed at $2,081.18. "Upon a petition for review, the District Court, being of the opinion that the report of the referee did not sufficiently find the facts to enable the court to determine the same, heard the claim and objections thereto de novo upon the evidence submitted to the referee. The court found that the manager of the bankrupt, “purporting to act in the name of said corporation,” had engaged in unlawful grain option transactions with claimant in Nebraska in the particular and to the extent urged by the trustee, and reached the same result as the referee.
There are two points urged by appellant upon the merits: First, that the evidence does not sustain the finding by the referee and trial court that the questioned transactions were gambling deals; second, that, even though they were such, yet the trustee cannot avail himself of that condition. The first point must be examined in the light of the presumption as to the correctness of the finding, which can be overturned only if there is no substantial supporting testimony, or unless obvious error or- mistake is indicated. The evidence upon this point was conflicting, but there was very substantial, and even convincing, testimony in support of the finding, and no obvious error or mistake has been discovered.
Another point of fact, claimed by appellant to vitally affect the finding that the deals were gambling transactions, is whether the contracts are to be regarded as made in Nebraska or in Illinois; its contention being that the Illinois law governs, and that that law requires *686the unlawful intent not to deliver or accept actual grain shall be shared by both parties, while the Nebraska law makes the intention of one of the parties sufficient. The referee made no specific finding as to where the contracts were made, but found generally that they were gambling transactions, while the trial court went more into detail in its finding, and determined that the contracts were made in Nebraska. There is no necessary conflict in these findings. Besides, the evidence as to what was done in making these contracts does not conflict in essentials. I think that the evidence sribstantially supports the conclusion that the contract between these parties, which was one of brokerage, was made in Nebraska. The fact that what was to be done under these contracts-was to be performed in Illinois does not affect the situs of these contracts. It also seems to me that the case of Lamson Bros. & Co. v. Bane, 206 Fed. 253, 124 C. C. A. 121, 46 L. R. A. (N. S.) 650, decided by this court, determines the situs of this contract to be in Nebraska. I therefore conclude that the finding that these contracts were gambling transactions must stand.
The second contention is that, even though these transactions were gambling contracts, yet the trustee, as to them, stands in the shoes of- the bankrupt, and cannot defeat the claim for $670.36, nor offset the counterclaim for $4,394.98. Being a Nebraska contract, the right of recovery for losses would be governed by the law of that state. Lamson Bros. & Co. v. Bane, supra. The Supreme Court of that state, in case of Ives v. Boyce, 85 Neb. 324, 123 N. W. 318, 25 L. R. A. (N. S.) 157, which involved similar wagering dealings, has decided that no recovery can be had, but that the parties will be left as they are. This would conclude this claimant as to the item it claims of $670.36. Also see Embrey v. Jemison, 131 U. S. 336, 9 Sup. Ct. 776, 33 L. Ed. 172; Irwin v. Williar, 110 U. S. 499, 4 Sup. Ct. 160, 28 L. Ed. 225; Sprague v. Warren, 26 Neb. 326, 41 N. W. 1113, 3 L. R. A. 679. Supposing, for the moment, that the corporation is subject to the same rule, had it endeavored, by suit, to recover its losses of $4,394.98', would the same rule apply where it would seek to reduce a legitimate claim in suit by setting forth such losses as a counterclaim? It would seem that the rule applies to counterclaims and set-offs. Higgins v. McCrea, 116 U. S. 671, 6 Sup. Ct. 557, 29 L. Ed. 764; 20 Cyc. 951, and citations. Therefore the offset of $4,394.98 urged by the trustee cannot be sustained, .unless either a trustee in bankruptcy stands in a more favorable position than the bankrupt, or the transactions here involved were not authorized by the bankrupt. If the trustee occupies any such favored position, it must spring from his relation to and representation, in a sense, of the creditors of the bankrupt. A creditor of a gambler, however, is in no better position than the gambler as to recovery of gaming losses.
There remains the contention that these gambling transactions weret not authorized by the corporation, and not binding upon it. The charter powers of the bankrupt are set forth in the objections of the trustee to the claim. Such powers, while broad, give no basis for any claim that they authorize the bankrupt to engage in option grain dealings. It would be unbelievable that the state of Nebraska, which prohibits such contracts, would grant the bankrupt a charter right to *687enter into them. Nor did the stockholders or directors attempt to grant such authority. Before any of these transactions, the board of directors passed a resolution “that no option deals on grain shall be made without the consent of the majority of the officers of the company.” The company had four officers during the time here material. May 13, 1915, there was a change in stockholders and in officers. The substantial evidence is that only two of these officials knew of the option deals before the above date, and then only for a portion of that time, and that only one, the participant, had atiy knowledge thereof after this date and up to the bankruptcy. Nor could they have discovered the nature of the transactions from the regular books of the company, though they might have done so by going through the letter files. The evidence supports no conclusion that there was any authority from the bankrupt to use its funds in such transactions. Nor could the bankrupt, nor can its trustee, be estopped from presenting this offset, because such winnings as there were came to it and were used by it. The reason is that these transactions are not only ultra vires, but are positively illegal, and no action of the corporation could constitute an estoppel or ratification, so as to make it effective.
I conclude, therefore, that the result reached by the referee and trial coui't was correct, and should be affirmed.