French v. Long
| Citation | 42 F.2d 45 |
| Decision Date | 26 June 1930 |
| Docket Number | No. 2931.,2931. |
| Parties | FRENCH v. LONG et al. |
| Court | United States Courts of Appeals. United States Court of Appeals (4th Circuit) |
Lockett C. Ely, of Knoxville, Tenn. (Walter B. Phipps, of Clintwood, Va., on the brief), for appellant.
C. R. McCoy, of Clintwood, Va. (George C. Sells, of Johnson City, Tenn., and Roland E. Chase, of Clintwood, Va., on the brief), for appellees.
Before PARKER and NORTHCOTT, Circuit Judges, and HAYES, District Judge.
This is an appeal from an order in bankruptcy refusing to reconsider and strike out the claim of appellees which had been previously proven without objection.
The validity of the claim depends on the proper determination of whether the notes, the basis of the claim, were without consideration and were ultra vires acts of the bankrupt. Many collateral questions are presented which we deem unnecessary to discuss.
The Cumberland Elkhorn Coal Company, the bankrupt, was a corporation, chartered by, and doing business in, Virginia, whose stock was owned by appellees. July 28, 1922, appellees sold their stock to G. G. Croley, W. G. Peterson, T. P. Witherspoon, Sam T. Buffat, and W. C. Whittaker for $100,000, $25,000 being paid in cash and the $75,000 balance was settled by the corporation executing its notes to appellees and securing same by a mortgage on its property by authority of all the stockholders and directors. Appellees assumed the payment of the company's outstanding indebtedness amounting to $56,000 and secured in its name a lease of the value of $15,000.
Croley and associates operated the mine about eleven months, making approximately $27,000 above all expenses, and abandoned the property.
The mortgage was foreclosed in August, 1923, when the appellees became the purchasers at the price of $26,500, which was credited on the notes. Subsequently, August 29, 1923, an involuntary petition in bankruptcy was filed against the company and the order of adjudication was filed September 19, 1923. G. Mark French was elected trustee.
Appellees sued Croley and associates in Tennessee for the fraudulent dissipation of the assets of the corporation, in which suit the trustee by order of the bankrupt court became a party complainant, which resulted in a judgment in favor of the trustee for $14,250. This recovery constitutes the only asset for distribution among several creditors whose claims amount to $3,500 and the claim of appellees which is between $45,000 and $50,000. Appellees employed counsel and paid the expense of the trial and the appeals to the Court of Appeals and the Supreme Court of Tennessee. The trustee's participation in the litigation was nominal. After the failure of Croley and associates in the courts of Tennessee to retain the assets of the corporation which they had wrongfully dissipated, they entered into a contract with a creditor whose claim amounted to $115 to permit them, in its name, to employ their counsel in the bankruptcy court to defeat the claim of appellees and to remove the trustee. They entered into a bond with this creditor to pay its claim in full at the end of the litigation and to pay all expenses including attorney's fees, regardless of the outcome of the litigation. Their counsel next succeeded in inducing the trustee to permit them to use his name in an effort to defeat the claim of appellees, entering into a bond with him to save the estate any expense involved in the effort. Succeeding steps in the litigation have been prosecuted by the unsuccessful defendants in the Tennessee court but in the name of the trustee by the counsel of those defendants. No other creditor manifested any interest in it.
Motion was made to reconsider and strike out the claim of appellees under section 57k of the Bankruptcy Act (11 USCA § 93(k):
"Claims which have been allowed may be reconsidered for cause and reallowed or rejected in whole or in part, according to the equities of the case, before but not after the estate has been closed."
The reasons assigned for striking out the claim were as follows: (a) Because the claimants had estopped themselves to insist upon their claim in this court by virtue of their having sued the individuals in Tennessee courts on the same notes alleging that they were fraudulent as to the corporation; (b) because the claimants came into this court with unclean hands; (c) because the claimants had received and retained a preference; (d) because the notes forming the base of the claim were without consideration; (e) because the act of the corporation in executing said notes was ultra vires; (f) because the deed of trust foreclosed by the claimants was void because there was included therein a shifting stock of merchandise and because said deed of trust was void for the further reason that it violated section 167 of the Constitution of Virginia 1902.
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In re Jayrose Millinery Co.
...was brought up by appeal. Rosenbaum v. Dutton, 203 F. 838 (C.C.A.8); In re El Dorado Ice & Coal Co., 290 F. 180 (C.C.A. 8); French v. Long, 42 F.2d 45 (C.C.A.4), without indication whether the appeal was by leave or as of right. For the reasons already advanced, we think an appeal lies as o......
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In re Franklin Equipment Co.
...of an ultra vires contract cannot later interpose the defense of ultra vires to avoid liability under the contract. See French v. Long, 42 F.2d 45, 47 (4th Cir. 1930) (holding that where the corporation enjoyed benefits derived from the notes, the corporation cannot avoid liability on the g......
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