In re 35% Automobile Supply Co.

247 F. 377 | S.D.N.Y. | 1917

AUGUSTUS N. HAND, District Judge.

One Shatz owned 97 per cent, of the stock of the bankrupt corporation and had a claim against it. amounting to $34,847. Under these circumstances he signed an agreement with the company to extend the time of payment and to receive his pay out of "actual and net earnings.” The agreement recited that the company would be unable to meet its obligations to Shatz at the time of maturity, and that by reason of Shatz’s “inability to properly manage and operate the affairs and business” of the corporation he had “procured and induced other and various persons to purchase one-half of the capital stock owned by him.” The company, some time after the agreement was executed, filed a voluntary petition in bankruptcy, and was subsequently adjudicated a bankrupt without having made any net profits applicable to the payment of the claim of Shatz under the terms of the above agreement. The receiver in bankruptcy of Shatz seeks to prove the face of his claim, and the referee has rejected it on the ground that it was not a fixed liability at the time of the filing of the petition. Section 63 of the Bankruptcy Act. The claim was rejected as a matter of law upon the above facts to which the trustee in bankruptcy in effect demurred.

[1] I think the referee was right in holding that the claim could not be allowed if the agreement I' have mentioned was valid. That instrument attempted to substitute something resembling a bond payable only out of income for an absolute obligation; and while the Supreme Court-in Central Trust Co. v. Chicago Auditorium Association, 240 U. S. 581, 36 Sup. Ct. 412, 60 L. Ed. 811, L. R. A. 1917B, 580, held that an adjudication in bankruptcy, whether involuntary or voluntary, creates an anticipatory breach of the bankrupt’s contracts, it did not hold that an agreement to pay out of an uncertain fund which might never come into being was a fixed liability. Colman v. Withoft, 195 Fed. 250, 115 C. C. A. 222; In re Roth & Appel, 181 Fed. 667, 104 C. C. A. 649, 31 L. R. A. (N. S.) 270.

[2, 3] The claimant, however, raises a much more serious point in his contention that the agreement was without consideration, and therefore did not cancel the absolute obligation of the company to pay Shatz the $34,847 due him before the instrument was executed. It is to be noted that there has been no proof that the persons who took one-half of the stock of Shatz did so upon his promise to them to extend the time of payment of his claim and to receive payment only out of the net earnings of the company, nor was it shown what, if anything, they paid for the stock. Even if this were shown, the rights of these stockholders to insist that he -adhere to his agreement in proving his claim against tire company would rest upon estoppel, and would hardly be operative in a case where the company was so insolvent that nothing would be left for stockholders, even if the Shatz claim were not proved. But no element of estoppel has been shown. Nor can I discover any agreement 15y Shatz with the company that Shatz would waive his original rights if the stockholders should take stock from Shatz. I therefore find no promise made for the benefit of a third partv, and no opportunity to invoke the rule in Lawrence v. Fox, 20 N. Y. 268.

[4-8] The argument of lack of consideration is not, however, persuasive. The agreement provides for a return of the original notes, and this agreement was carried out. The return was obviously intended to operate as an extinguishment of the old indebtedness, and was a discharge of the chose in action by means of a symbolic delivery of the evidence thereof; that is to say, the return of the notes. The delivery of a certificate of stock with the intention of making a gift of the shares evidenced thereby is in most jurisdictions in the United States treated as a valid, completed gift, and the courts will enforce the transfer in a suit in equity. Westerlo v. De Witt, 36 N. Y. 340, 93 Am. Dec. 517; Ridden v. Thrall, 125 N. Y. at page 577, 26 N. E. 627, 11 L. R. A. 684, 21 Am. St. Rep. 758; Gilkinson v. Third Avenue R. R. Co., 47 App. Div. 472, 63 N. Y. Supp. 792. In the same way an indebtedness may he canceled by a surrender of the bond or notes, or by a receipt in full, if such is the intention of the parties. Brink v. Stratton, 112 App. Div. 299, 98 N. Y. Supp. 421, affirmed 188 N. Y. 620, 81 N. E. 1160; Gray v. Barton, 55 N. Y. 63, 14 Am. Rep. 181.

The discharge of the indebtedness evidenced by the old series of notes was sufficient consideration to support the new agreement to pay out of income. The proof of claim for a general indebtedness was therefore of an extinguished obligation and could not be made.

Counsel for the creditor urges upon reargument of this motion that the cases which I have cited relate to discharges of an entire obligation. Here the entire obligation was discharged. It is immaterial that a new one to pay the same amount was substituted, because it was to be paid from an entirely different source, if that source ever came into being, and consequently was a new and different obligation.

[7] The second point urged by counsel for the creditor is equally untenable. It is based apparently upon the theory that the agreement to take payment out of future income can be rescinded because the corporation did not continue in business, but went into voluntary bankruptcy. It is certainly true that if the bankruptcy had been involuntary the point would not be well taken, and I cannot regard a voluntary petition, which, under the circumstances, was evidently justifiable, as a breach of contract which would entitle the corporation to rescind the entire transaction from the beginning. There was an obligation to pay, but no obligation to remain in business under circumstances which rendered payment hopeless.

The motion to expunge the proof of claim was properly granted, and the decision of the referee is affirmed.