342 l 134 FEDERAL umroacuma.
TOWNSEND, Circuit ]udge. The Waterloo Organ Company was
adjudicated an involuntary bankrupt in 1902. In 1894 it had made a
second issue of bonds to the First National Bank of Waterloo, as trus-
tee under a mortgage, and had deposited them with the trustee to be
delivered by it upon the orders of the company as the bonds should be
disposed of for corporate purposes. In 1891 Bacon, the president of
said First National Bank, became a subscriber for 10 shares of the
capital stock of said corporation, of the par value of $100 each, and
afterwards received shares by way of scrip dividends, so that in july,
1898, he was the owner of 16% shares. One Alexander C. Reed, who
was practically the founder of the company, and its president, had
promised Bacon that at any time when he was dissatisfied he would
take his (Bacon’s) stock off his hands. On ]uly 16, 1898, Bacon told
him he understood that stockholders had sold their stock for the pur-
pose of getting out from under the stockholders’ liability, and asked
him to make good said promise; and on said day Reed bought said
stock, and paid therefor by his note of even date payable to Bacon’s
order one day after date, for $1,000; and Bacon indorsed the note
to the order of the secretary of said organ company, and delivered it
to him, and received in exchange therefor an order upon the cashier
of said First National Bank, trustee, for two bonds of the corporation.
for $500 each, and, upon surrender thereof, received the bonds in
question from the bank. Bacon was then president of said bank. On
the same day he resigned his position as a director of the organ com-
pany. From that time until default by the company, the coupons upon
said bonds were regularly collected by said Bacon, through the bank,
in the ordinary course of business.
It appears that at the time of said transaction Reed was solvent. He
was president of the organ company, and the owner of three-fourths
of its stock. Said note was never collected, and was not entered among
the bills receivable of the organ company, nor upon its annual inven-
tory, prior to December, 1901; and the two bonds issued to Bacon
were not entered upon the account of the bonded indebtedness of the
organ company until that date, when the amount was charged to profit
and loss. It is asserted, and not denied, that the copy of said order
on the bank, and receipt for the bonds, were not entered in their reg-
ular place in the copy book of the organ company, but on the last page
thereof. From this and other facts it is argued that the transaction
between Bacon and Reed was a fraudulent scheme on the part of Bacon
to get rid of his stock in exchange for the bonds. The testimony of
Bacon is indefinite and contradictory.
The referee, who heard the witnesses, concluded that the facts as
proved were insufficient to prove fraud, and especially that they failed
to show any knowledge or information of fraud brought home to
Francis Bacon, and that, if there was any fraud, it was a fraudulent
scheme between the officers of the organ company to relieve Reed
from the payment of his note. While we are not entirely satisfied as
to the correctness of these conclusions, in View of the foregoing facts,
we have not found it necessary to disturb said finding that fraud on the
part of Bacon had not been proved.