Court Opinion

ID: 8790667
Source: CourtListenerOpinion
Date Created: 2022-11-26 13:49:47.220414+00
Date Added: 2024-06-11T17:03:19.971397
License: Public Domain

SANBORN, District Judge.
[1] The claimant, L. D. Dozier, filed his claim for money had and received, stating therein that the bankrupt solicited a subscription for 500 shares of the proposed increase of capital stock, and that claimant paid therefor $50,000; that the amount so paid became part of the general funds and property of the bankrupt, and was used by it in payment of its outstanding bills and current expenses from time to time; that the money was furnished as a payment in advance for a proposed stock increase; that the bankrupt paid to the claimant $1,316.67 and also $516.67 as payments in advance for interest on $50,000 paid in. It is further stated in the claim that it was agreed between claimant and the bankrupt that the latter would cause the increase of stock to be legally authorized, and stock certificates would be delivered to the claimant immediately after such authorization ; that the president of the bankrupt informed the board of directors of said advance payment, and the terms under which it was made, and the board ratified and approved the action of the bankrupt in accepting such advance payment, and the bankrupt, with the knowledge and approval of the* board, continued to retain the money so paid. The claim then states that no such proposed increase has been made, and that bankruptcy has occurred; that the $50,000 has never been repaid, and claimant has never become or acted as a stockholder, and has nev*538er received any consideration whatever for the payment, except the interest. Therefore it is claimed that the sum of $50,000 is legally due and owing to the claimant.
The claim was evidently made upon the theory of the case of Chicago Sign Painting Co. v. Wolf, 135 Ill. App. 366, affirmed 233 Ill. 501, 84 N. E. 614, 13 Ann. Cas. 369, and Railroad v. Sneed, 99 Tenn. 7, 41 S. W. 364, 47 S. W. 89. These cases hold that an agreement to pay or a payment for corporate stock to be increased at a future time affords no consideration for Dozier’s payment, so far as the corporation is concerned, and that he could recover from it if no rights of creditors were involved.
The claim is presented upon the theory that there was no other consideration for the payment except a promise to deliver the stock when it should be increased, and, such agreement being void as to the corporation, and the latter being the bankrupt, claimant is entitled to file for his payment. It appears, however, from the agreement made between him and the president of the bankrupt that there were four elements to the consideration, Joeing a promise to pay dividends as on regular stock, a promise to pay interest for the advances, a promise to give the claimant’s son every legitimate opportunity to increase in knowledge in the shoe business, or such general business as came before the president of the company, and the issue of stock. The last element of consideration the bankrupt could not bind itself to perform, and upon this the claimant bases his whole right of recovery. The three other elements of consideration were within the power of the shoe company to perform, and they were being performed when bankruptcy occurred. The contract, therefore, was based upon a consideration partly valid and in course of performance, and partly invalid. The valid part was a sufficient and substantial consideration. Alderton v. Williams, 139 Mich. 296, 102 N. W. 753; Washburn v. Wilson, 48 N. Y. Super. Ct. 159; Pittsburg Stove Co. v. Pa. Stove Co., 208 Pa. 37, 57 Atl. 77; 9 Cyc. 370; Harris v. Tyson, 24 Pa. 347, 64 Am. Dec. 661; Jackson v. Jackson, 222 Ill. 46, 78 N. E. 19, 6 L. R. A. (N. S.) 785.
The claimant might have an action for a partial breach of the contract, and might have filed a claim under section 63b of the bankruptcy act for damages on account of such partial breach. He cannot, however, treat the contract as a whole as invalid, as he has done by filing a claim, and recover the money paid by him, on the ground of the want of mutuality of obligation. The referee should have disallowed the claim as a whole.
[2] It appears also from the record that after the money was paid by claimant the bankrupt gave wide publicity to the fact that the claimant had become connected with the shoe company. The claimant also frequently visited the office of the bankrupt, and attended directors’ meetings. The money was intended to be used in the business of the company. It was to be permanently invested in the business, and the contract in question does’not contemplate that the relation between the parties should be that of debtor and creditor. A statement was sent out by the bankrupt that the $50,000 paid in by the claimant represented an increase of the capital, and was to be special capital until July 1, 1911, *539and it was the purpose of the company on that date to increase its capital, when the special capital would become part of the general funds. It does not appear that the claimant made any statement of his relation to the company, except to the officer of the Boatmen’s Bank, as quoted in the referee’s report. Claimant was a business man of large experience and wealth, and must have fully understood that his connection with the shoe company would be used to enhance its credit. The record shows that five of the creditors, the Boatmen’s Bank, Pfister & Vogel, Gardner-Beardsell Company, Thayer-Foss Company, and the American Hide & Leather Co., relied upon the fact of the claimant’s connection with the company in their dealings with it. I think that the claimant was held out to the creditors as having become connected with the company, and that he has so conducted himself in the whole transaction that he must be held to have authorized such holding out The claimant is therefore estopped to urge his claim as to all creditors who relied upon such holding out.
[3] The point is made by counsel for the claimant that as only one of the creditors, the American Hide & Leather Co., has specially objected to the allowance of the claim, the estoppel, if any, should not operate in favor of any other creditors, and that the trustee does not represent a part only of the creditors, because he can enforce tire common rights and claims of all creditors, and cannot plead or urge the personal claims of individual creditors which are not common to all. On this point claimant relies upon the dissenting opinion of Judge Sanborn in Scott v. Latimer, 89 Fed. 843, 33 C. C. A. 1, in the Eighth circuit. A contrary rule was laid down by the Court of Appeals of that circuit in the case of In re Bothe, 23 Am. Bankr. Rep. 151, 173 Fed. 597, 97 C. C. A. 547, and I think this rule should be followed in this matter.
The decision of the referee shpuld be reversed.