Finn v. George T. Mickle Lumber Co., 6066.

• Decision Date: 09 June 1930
• Docket Number: No. 6066.,6066.
• Citation: 41 F.2d 676
• Parties: FINN v. GEORGE T. MICKLE LUMBER CO. OF OREGON.
• Court: U.S. Court of Appeals — Ninth Circuit

41 F.2d 676 (1930)

FINN v. GEORGE T. MICKLE LUMBER CO. OF OREGON.

No. 6066.

Circuit Court of Appeals, Ninth Circuit.

June 9, 1930.

William B. Layton and N. Ray Alber, both of Portland, Or., for appellant.

Harrison G. Platt, Robert Treat Platt, Palmer L. Fales, Isham I. Fales, Arthur D. Platt, George Black, Jr., and Platt, Platt, Fales, Smith & Black, all of Portland, Or., for appellee.

Before RUDKIN, DIETRICH, and WILBUR, Circuit Judges.

RUDKIN, Circuit Judge.

This is an appeal by a trustee in bankruptcy from an order allowing a claim against the bankrupt estate. George T. Mickle Lumber Company was the claimant and Mickle Mills the bankrupt, and the parties will be so designated throughout this opinion. The case was submitted to the referee in bankruptcy and to the court below on an agreed statement of facts, which may be summarized as follows: The claimant was organized as a corporation, under the laws of the state of Oregon, in the year 1920, and has since been engaged in the business of lumber wholesaler, owning and holding substantial amounts of stock in other lumber and timber corporations as well as in the bankrupt. August 4, 1924, the claimant entered into a contract with the Forest Investment Company for the purchase of the Monarch Mills. The consideration for the purchase was the assumption of two mortgages, aggregating the sum of $300,000, and the payment of $450,000 at the rate of $1 per thousand for each thousand feet of lumber cut in the mill from that time forward, the time of final payment to be thereafter determined and inserted in the transfer. It was stipulated that $750,000 was the value of the Monarch Mills at the time of the purchase. August 8, 1924, the claimant caused the bankrupt to be organized as a corporation, under the laws of Oregon, with an authorized capital of 7,500 shares of no par value, the claimant subscribing for the entire capital stock, save three qualifying shares, and paying therefor the sum of $1,000. Upon the organization of the bankrupt, the contract for the purchase of the Monarch Mills was assigned to it. October 20, 1924, an agreement was entered into between the claimant and the bankrupt wherein the claimant agreed, conditionally, to loan to the bankrupt sums not exceeding in the aggregate $300,000 to aid the bankrupt in the operation of its mill and the production of forest products, such loans to be for amounts, maturities and renewals, and with such security as the parties might from time to time agree upon. It was further agreed that the bankrupt would sell to, or through, the claimant all of the forest products produced at its mills, and for all such products marketed by the claimant it was to receive the customary commission paid or allowed by producers to wholesalers upon the Pacific Coast. At all times since the organization of the bankrupt, the directors and executive officers of the two corporations have been the same. The claim allowed by the court below was for advances made by the claimant to the bankrupt pursuant to the agreement of October 20, 1924.

Under the foregoing facts the appellant contends that the claimant and the bankrupt were one and the same; that the bankrupt was a mere instrumentality or agent of the claimant, and that the advances made by the claimant to the bankrupt were, in truth and in fact, only a capital investment. This contention cannot be sustained. In Haese v. A. R. Demory Inv. Co., 38 F.(2d) 232, 233, this court said:

"The rule is quite elementary that a corporation is an entity separate and distinct from its stockholders, with separate and distinct rights and liabilities; and this is true even though a single individual may own all, or nearly all, of the capital stock. True, courts, in exceptional cases, will look behind the corporate form in order to redress fraud, protect the rights of third persons, or prevent a palpable injustice; but there is no reason for invoking any such exceptional rule here, because it is not claimed that there was fraud, concealment, or even ignorance of any material fact in the original transaction."

Under quite similar facts in Martin v. Development Co. of America, 240 F. 42, 45, this...