Raybestos-Manhattan v. Asbestos Textile Co.

• Decision Date: 16 October 1935
• Docket Number: No. 2996.,2996.
• Citation: 79 F.2d 634
• Parties: RAYBESTOS-MANHATTAN, Inc., v. ASBESTOS TEXTILE CO. et al.
• Court: U.S. Court of Appeals — First Circuit

79 F.2d 634 (1935)

RAYBESTOS-MANHATTAN, Inc., v. ASBESTOS TEXTILE CO. et al.

No. 2996.

Circuit Court of Appeals, First Circuit.

October 16, 1935.

Edward K. Nicholson, of Bridgeport, Conn., for appellant.

Harry Olins, of Boston, Mass. (William M. Silverman, of Boston, Mass., Jack Lewis Kraus, II., of New York City, and Hermanson & Silverman, of Boston, Mass., on the brief), for appellees.

Before BINGHAM, WILSON, and MORTON, Circuit Judges.

MORTON, Circuit Judge.

The question is whether Raybestos-Manhattan, Inc., may prove against the Asbestos Textile Company, bankrupt, a claim on a promissory note for $25,000 given by the bankrupt to the claimant for an advance of that amount. The referee held that the claimant was not entitled to prove the claim and the District Judge affirmed the referee's order. The claimant has appealed. The complicated facts are stated by the referee and it is unnecessary to review them. We shall refer only to such as are involved in the points now in controversy.

The first point is whether the "Memorandum of Proposal made by Raybestos-Manhattan, Inc., to Arnold W. Koehler" was intended as an offer of a present contract when accepted by Koehler (or Kohler), or only as a basis for negotiations to be embodied in a later contract. The referee found, in effect, that it was intended as the offer of a present contract and that upon Koehler's acceptance of it a contract resulted. This finding was confirmed by the District Judge. The question presented was one of fact. While neither view of the matter is free from difficulties, we think that the weight of the evidence is decidedly in favor of the referee's conclusion. We are by no means prepared to say that he was clearly wrong. At the time when the memorandum of proposal was made, there was an outstanding contract between the Asbestos Company and the Borg & Beck Company looking to the acquisition of the former by the latter. In that situation Raybestos-Manhattan, Inc. (the claimant), and the Borg & Beck Company entered into negotiations for closer business relations between them. These negotiations contemplated the cancellation of the contract between the Asbestos Company and Borg & Beck Company just referred to. Raybestos-Manhattan and Borg & Beck were co-operating — the trustee says colluding — to secure that result. Conferences between the three parties concerned, i. e., Asbestos Company, Borg & Beck Company, and Raybestos-Manhattan, were in progress practically simultaneously. The arrangement made, while not in form tripartite, was practically so. It called for immediate action by the Asbestos Company canceling its contract with Borg & Beck (thereby leaving the latter company free to deal with Raybestos-Manhattan), and also in certain other particulars. Koehler promptly performed these requirements which were explicitly stated in the first two clauses of the "Memorandum." His action in so doing was known to Raybestos-Manhattan, and was for its benefit. The most reasonable view of what occurred is that he acted in accordance with what he and Raybestos-Manhattan understood to be an existing contract created by his acceptance of the "Memorandum of Proposal." The "Memorandum" itself obligates Raybestos-Manhattan to make the first loan of $25,000 on the performance by Koehler, not of the entire agreement, but only of the first two clauses, which, as has been said, required immediate action by Koehler and his associates.

The next point made for the claimant is that even if it was the intent of the parties to enter into a contract, its officers who attempted to act for it in making the contract were not authorized to do so. The claimant's president and other directors of that company participated in the negotiations which resulted in the memorandum of proposal. Whether they constituted a majority of the board of directors does not appear. At a meeting of the board held about a month later, the board voted, in substance, that it was inadvisable for the company to enter into such a contract as that contained in the memorandum of proposal. In the meantime, however, as has already been stated, Koehler and his associates had gone ahead on the assumption that a contract had been made and, relying on it, had canceled the contracts between the Asbestos Company and the Borg & Beck Company and exchanged mutual releases with that company, thereby relinquishing what might have been substantial rights; they had also given representatives of the claimant free access to their books, to their customers' lists, to their costs, etc., and on the financial side of their business had, according to their evidence, conducted it under instructions given by representatives of Raybestos-Manhattan — all this having been done with the knowledge and concurrence of the principal officers of the latter company.

The Raybestos-Manhattan Company having through its principal officers entered into what purported to be a contract with the Asbestos Textile Company and having accepted for its own benefit partial performance of that contract by the Asbestos Company in matters as to which the Asbestos Company cannot now be put in statu quo, is on the plainest principles estopped from setting up any informality or lack of authority on the part of its officers — if such lack of authority actually existed — to enter into the contract. Daniels v. Tearney, 102 U. S. 415, 26 L. Ed. 187; Union Pac. Ry. Co. v. McAlpine, 129 U. S. 305, 9 S. Ct. 286, 32 L. Ed. 673. We therefore hold that the claimant was bound by the contract contained in the memorandum of proposal. It is unnecessary to determine whether the contract was originally authorized, nor whether, as urged by the trustee, Raybestos-Manhattan, Inc., being a competitor...