Allen v. Commercial Nat. Bank of Detroit

• Decision Date: 07 November 1911
• Docket Number: 2,109.
• Citation: 191 F. 97
• Parties: ALLEN v. COMMERCIAL NAT. BANK OF DETROIT et al.
• Court: U.S. Court of Appeals — Sixth Circuit

191 F. 97

ALLEN v. COMMERCIAL NAT. BANK OF DETROIT et al.

No. 2,109.

United States Court of Appeals, Sixth Circuit.

November 7, 1911

The Humphrey Book Case Company was a Michigan corporation, doing business at Detroit. In October, 1906, it desired to increase its capital, and its sole directors, Messrs. Humphrey Dickinson and Moore, solicited Charles T. Allen, of Battle Creek, to become a stockholder. On October 16th Allen signed a writing, subscribing for 1,000 shares of the common stock at $10 per share, and agreeing to make payments as called. In that connection he received a paper bearing the same date signed by Humphrey, Moore and Dickinson, reciting the subscription, and agreeing to protect Allen from any loss on the stock, and to relieve him from it, by purchase or by finding a buyer, on or before July 1, 1907, providing Allen should give notice to them within 30 days after receiving the January 1, 1907, statement.

Later and by a formal written instrument bearing date November 1 1906, Allen and the company and the three directors joined in an agreement reciting the same subscription, and saying that Allen 'reserves the right as his option, and said subscription and payment by him are upon the express condition that within thirty days after said first parties (the company and the three directors) shall furnish him (Allen) with the annual, 1906, statement of the condition and resources of said corporation, he might elect to withdraw from said corporation,' and containing the further agreement that the first parties, in case of the withdrawal by Allen under the option specified, will refund and repay to him within six months from his notice his $10,000, or so much thereof as he might have paid, upon his surrender to the corporation of the stock so issued. The agreement also contained the separate and additional promise of the three individual directors to repay the money to Allen on the contingency named, and concluded: 'This contract and agreement supersedes and is to annul all former contracts and agreements between the parties, whether verbal or written.'

About October 16th Allen received a stock certificate for the $2,500 which he then paid. On December 7th he attended and participated in a stockholders' meeting, and as early as January 1, 1907, he had paid up the full $10,000 and received stock certificates for the full amount. January 22, 1907, he gave written notice exercising his option to withdraw and demanding a return of his money. He thereafter consistently maintained this position, but from time to time postponed enforcing his demand, and on August 27, 1908, a petition in bankruptcy was filed against the corporation and adjudication followed. Allen filed his claim for $10,000, and interest, as for borrowed money; other creditors objected. The referee found that the papers dated October 16th, which did not seem to bind the corporation to a return of the money, but only to bind the three individual directors, became the complete agreement of the parties, which was not superseded by the contract of November 1st, because there was no consideration moving to the corporation for its joinder in such later agreement, and because the three directors, who were also officers, could not bind the corporation to a change in the existing agreement where such modification shifted the primary responsibility from themselves to the corporation. It was Allen's contention that the agreement of October 16th was only tentative; that he always understood the corporation was to be bound; that he was not satisfied and refused to proceed under the situation created by the papers of October 16th; and that the making of the paper of November 1st was only the correction of a misunderstanding. On appeal the District Court confirmed the conclusions of the referee, and ordered that Allen's claim should not be proved. Allen brings this appeal, insisting upon the same positions which he took before the referee.

Henry B. Graves, for appellant.

H. H. Barlow and Boynton, McMillan, Bodman & Turner, for appellees.

Before WARRINGTON and DENISON, Circuit Judges, and HOLLISTER, District judge.

DENISON Circuit Judge (after stating the facts as above).

If it should be assumed that Allen was right in his substantial position that the paper of November 1st binds the corporation as completely as if it had been executed under the fullest authority from a stockholders' meeting, and as if it was not affected by any precedent contract (assumptions which we do not make), we are met by a difficulty which we think insuperable. We then find a contract between a Michigan corporation and an investor, by which the latter becomes a stockholder, reserving to himself the right, at his later option, to change himself from a stockholder to a creditor and we are satisfied that such an option right is in violation of the established Michigan policy as declared by and derived from the statutes of that state regarding corporations and their stockholders, and that any agreement purporting to give such right is pro tanto void. True, the option term here was short, continuing only 30 days after the indefinite time of receiving the 1906 statement; but the length of the option period cannot be important, nor be a matter which should be determinative, one way or the other, according to its reasonableness between the parties under the varying circumstances of the particular cases. If there may be such an option for three or four months while the business is passing perhaps a critical stage, there may be one for two or three years while some plan is being developed or while the investor goes abroad, and will not, until his return, have time enough to look into the merits. We see no middle...