American Biscuit & Mfg. Co. v. Klotz
| Decision Date | 08 January 1891 |
| Citation | 44 F. 721 |
| Court | U.S. District Court — Eastern District of Louisiana |
| Parties | AMERICAN BISCUIT & MANUF'G CO. v. KLOTZ et al. |
T. J Semmes and Bayne, Denegre & Bayne, for complainant.
W. S Benedict and Rouse & Grant, for defendants.
Before PARDEE and BILLINGS, JJ.
This cause is submitted upon an application for a receiver. Some time in May last, the defendant Klotz, and Fitzpatrick, his partner, composing the firm of B. Klotz & Co., sold to the complainant their biscuit and confectionery manufactory for the price of $259,000, and an assumption of the debts of B Klotz & Co., amounting to $42,000, which it was understood and agreed should be paid out of the income from the future business. The visible property was estimated to be of the value of $101,000, and the good-will of the business to be of the value of $200,000. The price was paid in stock of the complainant's corporation, estimated to be of value at par; that is, to be worth 100 cents on the face value. The purchase was completed price paid, property delivered, the factory and good-will transferred by Klotz & Co. to the complainant. Klotz leased his bakery premises to complainant for the term of years, and contracted in writing to become, and did become, the agent of the complainant, at a salary of $ . . . per year. Klotz continued to carry on the business as agent for the complainant down to some time in November, when he repudiated the sale and the lease, erased the name of complainant from the bakery, as agent, transferred the policies of insurance from the complainant to himself, as an individual, then to B. Klotz & Co., and, for and in the name of the late firm, resumed the possession of all the property he had sold to the complainant, and the conduct of the business of the bakery and the confectionery establishment. He did this without resort to any legal proceedings. He thereafter held possession adversely to the complainant, and excluded it from the bakery. In this state of things, the complainant filed its bill for an injunction, and for an account and for a receiver, against Klotz and W. A. Schall, who was alleged to be co-operating with him in the possession adverse to the complainant. Klotz has filed an answer, and he, together with his former partner, Fitzpatrick, who intervened by petition pro interesse suo, have filed a cross-bill asking a rescission of the entire transaction, i.e., the sale and the lease, and tendering the stock which had been received by them as the consideration of the sale. Numerous exhibits and affidavits have been adduced by each party upon this hearing. The recital thus given shows that, in an order inverted from what would be expected, we have before us a cause in which a party who has sold and delivered a business to another, and become his agent, and, as such agent, was in possession of the property sold, sets up a possession adverse to his principal, asks for a cancellation of the sale, and the purchaser and principal asks that the agent shall account, shall be enjoined from asserting any claim hostile to his principal,-- in a word, for a confirmation of its rights under the purchase.
The immediate question before us is, what disposition shall be made of the res, the business of the bakery and manufactory, pending this contest? The vendor and agent asks that he be allowed to remain in adverse possession. The purchaser and principal asks for a receiver. It is clear that, as to this provisional disposition of the res, the defendant Klotz cannot be allowed to gain anything by his ouster of his vendee and principal. He must stand with those equities, and none other, which existed before the ouster. The case as to the appointment of a receiver must be reviewed and determined as if he (Klotz) had filed his bill averring possession as agent, which he asked to have changed by a decree into a possession as owner, through the cancellation of the sale and the lease; that is, he must aver a legal title in the American Biscuit & Manufacturing Company, which he seeks to have avoided and annulled. If, as in this case, he seeks to do all this by reason of fraud, and he establishes the fraud, a court of equity will not refuse to hear him. He would not be estopped, for fraud vitiates and sets aside even estoppels. Herm. Estop. par. 22, p. 244; Pendleton v. Richey, 32 Pa.St.
St. 58, 63. But, while he is not estopped from proceeding to set aside the sale and the lease into court assailing and seeking to cancel a legal title; for until that is done his possession is that of the complainant. Under these circumstances, until the hearing, the practice in the courts of chancery is not to disturb the possession under the legal title prior to the final decree, unless a case of monstrous wrong is established. Stilwell v. Wilkins, Jac. 280, reported in full in Edwards on Receivers, p. 28, Lord ELDON, when a similar question was presented, observed:
'The point that struck me was whether, on a bill to impeach a sale for fraud, the court interposes so strongly before the hearing as to take away the possession from persons holding it under the effect of deeds not yet set aside by decree.'
-- And he holds that 'it was not the general habit of the court. ' There the case was so monstrous, and the proof was so strong, that 'it was hardly possible that the transaction could stand,' and the legal title was interfered with.
This is a leading case, and gives what we find is the rule. The possession under the title is not disturbed unless the proof of fraud is so strong as to lead the court to the clear conviction that it will, on the final hearing, be established. The fraud set up and relied upon by the defendant and intervenor is false and fraudulent representations by the agents of the complainant in this that they represented that the stock was fully paid-up stock, whereas, in truth and fact, it was none of it paid up in money, and only paid up in part, and, to the extent of that part, by transfer of plants or bakeries and manufactories...
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