Appeal from the District Court of United States for the Eastern District of Wisconsin; Ferdinand A. Geiger, Judge.
Before EVANS, SPARKS, and FITZHENRY, Circuit Judges.
The facts as found by the court are not in dispute. On February 7, 1929, decedent Frank J. Sullivan entered into a trust agreement with the United States National Bank and Trust Company of Kenosha, hereafter referred to as the Bank, whereby it was to act as trustee of certain funds to be derived from insurance upon decedent's life, for the benefit of appellees who are his wife and children. Decedent, a resident of Wisconsin who had been a shoe merchant, died on March 9, 1930, leaving a will naming the Bank as executor of his estate, and as trustee of his testamentary trust. The Bank thereafter acted in both capacities. At the time of his death decedent owed the Bank $1,335 on an unsecured note or open account, and $20,000 upon a note secured by a mortgage upon the building owned by decedent in which he was conducting a retail shoe business at the time of his death. The Bank as trustee received on decedent's life insurance policies the following amounts:
On March 20, 1930, the Bank as trustee purchased from itself the mortgage note paying itself $20,000 out of the insurance trust funds, and without having a disinterested appraisement of the note or the real estate securing it. At that time the real estate was worth $19,837.18, and was subject to a street improvement lien of $4,150 with six per cent. annual interest due thereon from June 29, 1928, of which lien the Bank had knowledge.
On May 3, 1930, the Bank as executor purchased from the Continental Bank of Chicago for a consideration of $5,000, 150 shares of the Bank's capital stock of the par value of $3,000, using funds of the trust to pay for it. This in turn on the same day was delivered by the Bank as executor to itself as trustee of the insurance trust for a consideration of $6,000. Having already paid $5,000 to the Continental Bank out of the trust funds, an additional sum of $1,000 was taken from the trust funds by the Bank as trustee and credited to itself as executor, as an asset of the estate. At that time the book value of the stock, without discount for loans, notes, furniture and fixtures did not amount to $6,000.
On October 3, 1930, the Bank as trustee purchased from itself as executor, the furniture, fixtures and stock of the retail shoe business which was being conducted by decedent at the time of his death in the building covered by the mortgage which had been purchased by the Bank as trustee from itself as creditor. The purchase price agreed upon was $12,000, but the price paid was $12,200, which amount the trustee obtained by the sale of valid mortgage notes belonging to the trust. The trustee conducted the business with a loss of $4,988, of which $2,918.14 was due to depreciation of inventory.
On November 13, 1932, the Bank suspended business and was taken over by the Comptroller of the Currency who named appellant Taylor as receiver. On January 6, 1933, the Comptroller made an assessment upon each shareholder of the Bank for 100% of the par value of his stock.
The money obtained from the sale to the trustee of the three items referred to was applied by the executor toward the payment of creditors' claims and expenses of administration, including the Bank's unsecured claim of $1,335.18, and its charge for services as executor in the sum of $943.08.
The estate of decedent was administered under the jurisdiction and authority of the Kenosha County Court whose appraisers on May 8, 1930, appraised the real ...