Newton v. Michigan Chemical Co.

KNAPPEN, Circuit Judge (after stating the facts as above). [1] We are asked to dismiss the appeal from the disallowance of the Newton claim because return was not made by February 8th, which was the last day therefor in the absence of extension. Rule 18 of this court authorizes the judge who signed the citation to “enlarge the time for return at or before its expiration.” The order of extension was not actually entered until February 10th, but the order expressly recites-that it was “duly granted” on February 8th, and had “been inadvertently omitted from the record of that day.” We must conclusively presume that this recital expresses the truth, and the order must thus be treated as if made and entered on February 8th. The motion to dismiss must accordingly be denied. [2] Turning to the merits: The representations that the brick company had machinery and sufficient capital to operate were material; and we shall assume, for the purposes of this opinion, that the brick company was sufficiently organized to make Haskin’s representations binding upon it with réspect to a transaction of which the brick company has had the benefit. The referee and the court have found, however, that appellant had early knowledge of the falsity of the representations we are considering, and that with such knowledge he elected to maintain his status as a stockholder, participating as such until just before the bankruptcy, which seems to have been precipitated by the bill filed by appellant to rescind his purchase. These concurrent findings of the referee and judge must be accepted unless clearly wrong. Haines v. Bank (C. C. A. 6th Cir.) 203 Fed. at page 228, 121 C. C. A. 431; Western Transit Co. v. Davidson Steam-ship Co., 212 Fed. 696, 129 C. C. A. 232, decided by this court March 13th last. The rule announced by these cases is especially applicable where, as is the case here, the entire testimony was taken before the referee. Wabash Ry. Co. v. Compton (C. C. A. 6th Cir.) 172 Fed. 17, 21, 96 C. C. A. 603. We find nothing seriously impugning the correctness of these concurrent findings, unless in respects not deemed controlling. True, we-are cited to no testimony that appellant’s employment of attorney was as early as February, 1911; and the record is perhaps more consistent [882] with the conclusion that he did not actually attend the stockholders’ meeting at which the action was taken to change the process of manufacture from sand to shale; and, while he attended the meeting at which it was decided to close down the plant and sell out the assets, the record does not show how he voted, and he denies having done so. But these discrepancies, so far as they are such, are not controlling. Appellant knew in September, 1910, about the sales of stock below par and what each stock purchaser had paid; also, that the brick-making machinery was secondhand; that it had been bought for $5,-500, and was being resold to the brick company for that amount plus $25,000 par of brick company stock; also, that the building was to be paid for largely in stock. He seems to have cared little for these matters, and if the company had proved able to make brick commercially and profitably he would have been satisfied. There was no representation that the samples of brick shown were made by this machinery. The reason he failed to take the remaining $750 par of stock was that the company did not succeed in making brick; and he admits he knew he was foolish to pay the last thousand dollars, which was paid in August, 1910. It is fairly open to inference that, if appellant was not actually convinced, he had at least good reason to believe before January, 1911, that the company could not with commercial profit make sand brick by the process involved. He at least knew of the action had November 4, 1911, to change to the shale process; for as to meetings he did not personally attend he seems to have been kept advised by Dr. Cronin, his fellow townsman and family physician. The conclusion is irresistible that for a year after he had reason to believe the company was not likely to make good he participated, as stockholder, in the carrying on of the business. Meanwhile, it is fair to presume, the net assets of the company became of less distributive value than when bankruptcy intervened. To now permit rescission would be to allow appellant to obtain a larger share of the assets than other stockholders, some, at least, of whom appear to have been as deserving of indulgence as he. We think as to the'representations now in question he must be held to have elected to maintain his status as stockholder. The rule is well settled that any decisive act of a party with knowledge of his rights and of the facts determines his election in case of inconsistent remedies; and that the exercise by a buyer of acts of ownership over property bought which are inconsistent with a right to rescind the contract constitutes a waiver of' such right. See Roseboom v. Corbitt, 196 Fed. 627, 633-635, 116 C. C. A. 301, decided by this court, where a number of authorities are collected. [3] The representation that by the binder process brick could be made at $8 per thousand, salable at $22, must be regarded as a mere expression of opinion. No criticism is made upon the merits of the brick actually shown by Haskin to appellant, and there is no doubt that the samples so shown had been actually made by Haskin, either alone or with his associates, under the formula, at a brick-machining plant. There was no representation that the manufacture of brick under this process had been commercially carried on; the accuracy of the representation as to cost, profit, and salability could only be determined [883] by a testing out through actual commercial manufacture, and appellant must, in the nature of thing's, have so known. We are not convinced that Haskin did not expect and believe that the manufacture would be commercially profitable. The representation that the brick company had the exclusive right to use the secret process, although not strictly accurate, could not well have prejudiced appellant. It seems to have been understood that the chemical company was to manufacture the binder for the brick company for a price to be paid therefor. It does not seem to have been represented or expected that the brick company was to have control of such binder manufacture, or that its officers and stockholders were necessarily to know the formula. True, it turns out that there had been no written contract between the chemical company and the brick company respecting the use of the binder, and the price for its manufacture had not been fixed; but no controversy seems to have arisen over this subject, and it is not claimed, as we understand the record, that the disappointment regarding, and subsequent abandonment of, the binder process was caused, or in any way contributed to, by any lack of actual ownership of the formula as between the chemical company and the brick company, or by reason of the terms on which the chemical company manufactured or was willing to manufacture the binder for the brick company. Indeed, representatives of the chemical company assert (without contradiction so far as we can' find) that an exclusive right to the benefit of the formula in Wayne county, or at least Detroit, was intended to be passed to the brick company; and the binder, so far as used by the brick company, seems to have been furnished by the chemical company at no more than cost. The abandonment of that method of manufacture was due only to the failure of the process to work commercially; in other words, to make brick that would hold together. Appellant, apparently, expressed the situation, when he said: “I don’t know, only this much, if you will allow me to say it, that I think the doctor [Haskin] fell down on his proposition. I don’t think he could make the brick. He might make a few in a kind of a laboratory test, but to make it by the wholesale, I don’t think he could make them.” The investment was naturally a serious disappointment to appellant, as it doubtless was to several other investors. But upon the case presented, we think appellant’s claimed right of recovery of the price paid for his stock was properly denied. [4] Motion is made to dismiss the appeal from the allowance of the other claims because not taken by the trustee, and for lack of evidence that that officer had. ref used a request to appeal. A creditor may, under proper circumstances, be permitted to take an appeal when the trustee has'refused to do so. Ohio Valley Bank Co. v. Mack (C. C. A. 6th Cir.) 163 Fed 155, 89 C. C. A. 605, 24 L. R. A. (N. S.) 184. See, also, In re Roadarmour (C. C. A. 6th Cir.) 177 Fed. 379, 380, 100 C. C. A. 611. While the record returned to this court contains, we think, no competent and sufficient evidence of a demand upon, and refusal by, the trustee to appeal, or that the referee refused to direct appeal by the trustee, yet we should hesitate to ignore the undisputed affidavits [884] ■filed in opposition to the motion to dismiss, which show such express •demand upon and refusal by the trustee, and a refusal by the referee, following the appeal, to direct the trustee to enter his appearance and proceed with the appeal. [5] The referee has found, however, as a fact that the assets of the bankrupt estate are amply sufficient (net) to pay all claipis scheduled; •and, if this is so, appellant had no right or occasion, as a creditor merely, to appeal from the allowance of the other claims; for in the capacity of creditor he had no legal interest in such claims. The final determination that he is not a creditor effectually deprives him of such interest, and renders immaterial the criticisms urged against the correctness of the referee’s finding of solvency. The appeal from the allowance of such other claims should therefore be dismissed, unless appellant is properly here as a stockholder also. [6] But assuming that a mere stockholder in a bankrupt corporation has a right to appeal from an order allowing creditors’ claims, •otherwise than through the trustee or in his name by the sanction of the court (a question we have no occasion to pass'upon), it is enough to say that appellant has, in the bankruptcy proceeding, continuously disclaimed the status of stockholder; and, as we interpret the record, has, -as a creditor only, claimed and been granted an appeal from the allowance of claims other than his own, which claims he was specially interested in defeating, if the bankrupt was insolvent; as their allowance would, in such case, reduce the amount of his recovery as .a creditor. Appellant’s claimed status of creditor is absolutely inconsistent with .a stockholding relation. He could not at the same time have maintained appeals in both capacities. ’ The appeal from the allowance of the claims of others than appellant will therefore be dismissed. The order disallowing appellant’s claim is .affirmed, with costs, but without prejudice to such right of action, if any, as appellant may have against any of the individual parties on account of such stock purchase, or to such proceedings, if any, as the trustee may be advised to take on account of sales of corporate stock •at less than par. We must not be understood as intimating an opinion whether or not such rights of action exist.