American Dist. Steam Co. v. Waltermire

DENISON, Circuit Judge (after stating the facts as above). 1. The question mainly considered by the court below and argued here is whether the covenant of the Steam Company to pay the debts of. the Truck Company, thereby giving to the capital stock of the Truck Company the greater part at least of its selling value, and the covenant of the Eindlay Company to pay to the Steam Company the purchase price of this capital stock, were dependent upon each other, or whether they were independent, so that, therefore, tbe Steam Company had no right, as against the. Eindlay Company, to purchase the Truck Company’s debts or otherwise stand as its creditor, and so that there was no sufficient justification for the issue of the receiver’s certificates. This main question we find no occasion to decide; for the purposes of this opinion we assume that the conclusion reached below was right; but we thiuk that, for other reasons, the result which was reached cannot be sustained. [1] 2. The situation which existed when the Steam Company and the receiver reached an agreement was typical of those which justify a compromise to avoid litigation. It cannot be doubted that the Steam Company’s claims were made in good faith. So far as expressly stated, they extended only to the last $10,000 of the bank notes, but it was as obvious then to the receiver as it is now to all that these claims extended also to the $20,000 of the Steam Company’s own notes, which had been formally paid or canceled, if at all, only by bookkeeping entries. Since all these claims, as against the Findlay Company, could have been met by paying the $19,500 notes, it follows that the receiver was confronted by a situation where a $19,500 claim might be established as absolutely preferred, or else take away the bulk of the assets of the receivership, or at least enough to destroy the integrality of the plant and business. By advancing $10,000 of the claim to the rank of second preferred, at an apparent cost of the difference on $10,-000 between par ahd the then expected general dividend, he secured, at the least and even if the claims could be defeated, escape from litiga [416] tion and expense and damages from delay in carrying out the receivership plans, all of which might well amount to more than the difference between par and dividend on $10,000. That all this was in the minds of the parties is shown by the care with which the Steam Company’s release was made to cover “all other similar notes.” Indeed, the settlement seems practically to have included tire $8,000 of individual claims. [2] The only reason urged for doubting that the validity of the certificates was sufficiently supported, as being an accord and satisfaction of tire dispute, is that the situation was not fully presented to or understood by the court when the certificates were authorized. It is quite true that the petition of the receiver, reporting the settlement made with the Steam Company, did not exhibit a copy of the contract, and reported only the conclusion of the receiver that the two covenants had been dependent, and that the Steam Compaxry was right in its contention. It is true also that the counsel for the Steam Compaxry participated in this incomplete presexrtation of the facts. It is natural that the court should have felt surprise when it was later disclosed that the claims of the Steam Company were doubtful rather than clear; but the court below does not find, nor do we see any indication that there existed, any overreaching of the receiver by the Steam Company or any intent to deceive or to mislead the court. The receiver was a capable business man. He was advised by his counsel; at tire worst, they made a mistake of law; and in good faith they stated to the court the conclusion. which they had reached. Indeed, it is clear enough that, even if the original contract had been fully stated and the court had concluded that the Steam Company was wroxrg in its position, nevertheless it would have been prudent to appx'ove a reasonable compromise and avoid delays and appeals. The utmost result reached by this view is that the compromise might have been at a figure somewhat more favorable to the receiver. [3] Even from this aspect, we would hesitate to reverse the action of the court below in canceling the receiver’s certificates, except that it is impossible upon such cancellation, to put the Steaxn Company back in statu quo. During the period after the settlement, the busixxess was continued, the proceeds of the trucks sold were mingled axid expended or reinvested, the material on haxxd used up, and, at the end, the machinery and other remainixig assets which tire Steam-Company xnight have claimed, wex-e united with other assets in one gross sale. It is impossible to trace the proceeds of this property converted during the receivership and impossible to tell what part of the final purchase price was realized from the disputed assets then remaining. Even if there had been a substituted right to proceed against the entire $12,500 fund, this is not the equivalent of a right to assert and litigate a $19,500 claim against $25,000 of property, and the latter right is what the Steam Company gave up. This consideration we think enough to turn the scale and to require that the certificates should be paid. [4] 3. It is. also said that the claim of the Steam Company, when it was procuring these certificates, was upon the theory that it had [417] a right to rescind the original contract, and it is urged—perhaps convincingly---that no such right of rescission existed. We think this interpretation misapprehends the real situation. The position of the Steam Company did not depend upon any right of rescission or theory of rescission. It was rather insisting upon specific performance, it did not propose to affect the executed portion of the contract. It did not suggest that the Findlay Company should give back the capital stock which it had purchased, or that the Steam Company should refund that part of 'the purchase price it had received. It only claimed that it should not be compelled to carry out the remainder of its contract and pay the rest of the Truck Company’s debts, unless the Find-lay Company would carry out the remainder of its contract and furnish the money it had agreed to furnish which could then he devoted to paying these debts. It is, of course, obvious that the right to discontinue further performance of a contract and to disregard the same for the future is quite a different thing from the right to rescind. Both parties had partly performed, and each had stopped further performance. They adjusted and compromised their executory obligations. There was no fraud and no gross unfairness. Both have acted upon the agreed basis, and one cannot be restored to his former position. The order appealed from is reversed, and the case remanded for proceedings in accordance with this opinion.