In re Neff

• Decision Date: 20 November 1907
• Docket Number: 1,673.,1,672,1,671
• Parties: In re NEFF.
• Court: U.S. Court of Appeals — Sixth Circuit

157 F. 57

In re NEFF.

Nos. 1,671, 1,672, 1,673.

United States Court of Appeals, Sixth Circuit.

November 20, 1907

These petitions present the same questions, and will be considered together.

The petitioners, as creditors, proved claims against the bankrupt, which were allowed but afterwards were expunged upon the ground that they were not provable. They were expunged upon the petitions of the trustee, which were submitted to the referee upon an agreed statement of facts which reads as follows:

'We agree that the makers of the promissory note or contract filed as the basis of this claim were promoters of the Avery Caldwell Co.-- that in order to induce the claimant to purchase or subscribe for shares of stock in said company they agreed to execute and deliver to claimant the note or contract filed-- that claimant paid the full sum of $ . . . and received therefor the . . . shares of stock filed with his claim and the said note or contract--that at and before the filing of the petition in bankruptcy the . Co. was insolvent.'

The following are copies of the promissory notes or contracts:

The following is the opinion of the District Court by Thompson District Judge:

'$2500.00 Bellaire, Ohio, April 14th, 1905.

'April 15th, 1908, after date, I, we or either of us promise to pay to the order of Allen Chaney Twenty-five Hundred Dollars at The Office of The Avery Caldwell Mnfg. Co. upon surrender of 2500 shares of Preferred Stock of The Avery Caldwell Mnfg. Co. Interest at 7 per cent. Value received.

'J. Brent Harding,

'Theodore Neff,

'Anson C. Lamb.'

'$2500.00 Bellaire, Ohio, Fed. 7, 1905.

'Two years after date I, we, or either of us promise to pay to the order of Miss Emily M. Nichols Twenty-five Hundred and no-100 Dollars at The Office of The Avery Caldwell Mnfg. Co., upon surrender of Certificate No. 38 for 2500 shares of Preferred Stock of said Company. Interest at 7 per cent per annum. Value received.

J. Brent Harding,

'Theodore Neff.'

'$1000 Bellaire, Ohio, January 20, 1905.

'Two years after date I, we, or either of us promise to pay to the order of J. D. Lyle One Thousand Dollars at The Dollar Savings Bank, Bellaire, upon surrender of 1000 shares of stock of The Federal Casket Co. Interest 7 per cent per annum.

J. Brent Harding,

'Theodore Neff,

'Chas. P. Lee,

'Anson C. Lamb.'

'$1500.00 Bellaire, Ohio, April 1, 1905.

'On demand April 1, 1907, after date we promise to pay to the order of James D. Lyle Fifteen Hundred Dollars at the office of The Avery Caldwell Mnfg. Co., Bellaire, Ohio, upon surrender of Certificate No. 61 for 1500 shares of The Preferred Stock of The Avery Caldwell Mnfg. Co. 7 per cent Dividend guaranteed from April 1, 1905, to 1907. Value received.

'J. Brent Harding,

'Theodore Neff.'

Before the filing of the petition in bankruptcy herein, the two corporations failed and their stock became and is now utterly worthless. Neff was adjudged a bankrupt January 20, 1906, and the claimants proved their claims within 30 days thereafter. The question presented is, were these claims provable?

The agreed statement of facts is meager and leaves much to conjecture. The circumstances suggest different yet plausible views of the character of these transactions, but the best supported is that the stock was subscribed for upon the agreement of the promoters to redeem it. It may be that the promoters needed the use of the money, and that the names of the claimants added to the list of stockholders, would aid their enterprise, and that in consideration therefor they agreed to redeem it. Those agreements were evidenced by writings, upon which these claims were founded, which fixed the times and places for the payment of the prices agreed upon and for the delivery or surrender of the stock. In substance, if not in form, these transactions may have been loans of money at 7 per cent., secured by collateral (the stock) which, upon payment of the loans, was to be surrendered or delivered up with the notes. If so, then these claims represent fixed liabilities, evidenced by instruments in writing, absolutely owing at the time of the filing of the petition in bankruptcy, although not then payable, and are provable claims against the estate of the bankrupt, under section 63a (1) of the Bankrupt Act of July 1, 1898, c. 541, 30 Stat. 562 (U.S. Comp. St. 1901, p. 3447).

If, however, these instruments be regarded as contracts to purchase the stock at the prices and times and upon the terms specified (and one or the other of these two views must prevail), the adjudication in bankruptcy disabled Neff from performing these contracts and was equivalent to an anticipatory breach thereof, and, coincident therewith, rights of action arose in favor of the claimants to enforce these contracts, and the claim became provable under section 63a (4) and the proof and filing thereof, accompanied by the stock and notes, was a sufficient delivery or surrender thereof in compliance with the requirement of the contracts. Rochester v. Delatur, 2 E. & B. 678; Frost v. Knight, 7 Exch. 111. Roehm v. Horst, 178 U.S. 1, 20 Sup.Ct. 780, 44 L.Ed. 953; In re Swift, 7 Am.Bankr.Rep. 374, 112 F. 315, 50 C.C.A. 264; In re Pettingill & Co. (D.C.) 14 Am.Bankr.Rep. 728, 137 F. 143; Watson v. Merrill, 14 Am.Bankr.Rep. 454, 136 F. 359, 69 C.C.A. 185, 69 L.R.A. 719; Dunbar v. Dunbar, 190 U.S. 340, 23 Sup.Ct. 757, 47 L.Ed. 1084.

The contracts were in writing and signed by the parties to be charged, and were delivered to and accepted by the claimants, which was a sufficient compliance with the statute of frauds, and takes the case out of the operation thereof. Thayer v. Luce, 22 Ohio St. 62; Himrod Furnace Co. v. Cleveland, Id. 451; Brown, Stat. Frauds, Sec. 345c.

The findings and orders of the referee will be reversed, and the claims allowed.

E. E. Clevenger and Cook Danford, for appellants.

A. H. Mitchell, for appellees.

Before LURTON, SEVERENS, and RICHARDS, Circuit Judges.

LURTON Circuit Judge.

These three appeals have been heard together, as they involve the provability of a number of claims against the bankrupt of like character. In tenor and substance the contracts are alike. That presented by Emily M. Nichols is an example and is as follows:

'$2,500.00

Bellaire, Ohio, Feb. 7, 1905.

'Two years after date, I, we, or either of us promise to pay to the order of Miss Emily M. Nichols twenty-five hundred and no 100 dollars at the office of the Avery-Caldwell Mfg. Co., upon surrender of certificate No. 38 for 2,500 shares of preferred stock of said company, value received interest 7 per cent per annum.

J. Brent Harding, 'Theodore Neff.'

Some of these contracts related to the stock of a manufacturing corporation, known as the Avery-Caldwell Company, and others to the stock of the Federal Casket Company. It was agreed, as a fact, that the contract set out and others of like character were made by the persons signing the same as promoters, and to induce sales of the stock of the corporations named, and that in consideration of this agreement the claimants became subscribers to the stock of said companies paying therefor the amount named in each contract, and received therefor the shares of stock mentioned. It was also agreed that both of these corporations were 'insolvent' before the bankruptcy of said Neff, and that this stock was of no value. The stock certificates were filed as part of the proof in each case and tendered to the trustee. The contracts are plainly agreements to purchase the shares of stock named at the time and price stated. They rest upon a sufficient consideration, and are written agreements to take and pay for the shares named and signed by the parties to be charged and delivered to and accepted by the promisees. There is, therefore, nothing in the objection as to the contracts being invalid under the statute of frauds because not signed by claimants also. Thayer v. Luce, 22 Ohio St. 62; Himrod Furnace Co. v. Cleveland, 22 Ohio St. 451; Lee v. Cherry, 85 Tenn. 707, 4 S.W. 835, 4 Am.St.Rep. 800; Brown's Statute of Frauds, Sec. 345c. The status of a claim must depend upon its provability at the time the bankrupt petition was filed. At that time it must come within the definition of section 63 of the bankrupt act; it cannot be benefited by its status at a later date. ...