293 F. 294 | 9th Cir. | 1923
This appeal is from qualifications attached to allowance of appellant’s claim against the estate in bankruptcy. In review of the referee’s disallowance of the claim, the District Court determined in substance and effect that by reason of fraud imputable to the corporation bankrupt, and that induced appellant’s purchase of some of its preferred capital stock, he is entitled to rescind and to assert a claim against the estate; that the consideration he paid is not traceable into certain bonds in the estate, nor into the general mass thereof, and neither bonds nor estate is chargeable with trust or lien in his behalf; that, during, the 17 months between purchase and adjudication of corporate bankruptcy, claims accrued against the corporation, that are now asserted against the estate, in excess of the as-
Accordingly a Mrs. Etheridge received all the preferred stock. In January, 1920, to enable the new corporation to issue, as it then did, certificates to purchasers of preferred stock, including appellant, Mrs. Etheridge to it transferred sufficient of the stock. Tn consideration she received credit, for $102,200 in her account with the new corporation. At the same time the corporate preferred stock sales account was debited in like amount. This credit to Mrs. Etheridge was offset by bonds subsequently sold to her by the new corporation, which bonds for unknown reasons, though probably to replace assets improperly diverted, she returned to the new corporation subsequent to adjudication of its bankruptcy, and-they are now in the estate and are the certain bonds in respect to which appellant asserts a particular trust or lien. The adjudication of bankruptcy was "on December 27, 1920. Both corporations dealt extensively in stocks and bonds, though both were insolvent at all material times.
The only evidence of the course of the consideration appellant paid for his stock is furnished by his accountant witness that from entries in the corporate books he deduces the consideration went into the old corporation’s general funds and was used in general operations, There is no evidence when, where, how, or by which corporation the certain bonds now in the estate were originally acquired. In these circumstances it is very clear that the consideration appellant paid, his Canadian bonds or their proceeds, or substitutes for them, are not traceable into the certain bonds in the estate, nor in recognizable form into the estate itself. His Canadian bonds or proceeds were expended in general operations. The certain bonds in the estate, not only may have been acquired prior thereto, but for consideration of which appellant’s was no part.
The book entries in connection with the transfer of the bonds last aforesaid to Mrs. Etheridge afford no support to appellant’s argument otherwise. He fails in proof of a particular trust or lien in respect to said bonds — fails in proof of his title. So, too, in respect to his claim of general trust or lien upon the assets of the -estate in their entirety.
' That the consideration he'paid for the stock may have some time entered into the old corporation’s property, and to which, in so far as to
In that interval corporate debts were incurred, for which are now claims that exceed the assets in the estate. In these circumstances the principles of equity upon which appellant relies have no application. Their purpose is a more effective remedy in cases of fraud, but not when inconsistent with the defrauded person’s duty or obligation, not when‘inconsistent with others’ rights. In general, they do not extend to stockholders. They do not supersede-the settled law that all the property of an insolvent corporation, and including 'amounts unpaid on stock subscriptions induced by corporate fraud, is a trust fund for creditors to the exclusion of stockholders.
The law of the domicile of this bankrupt corporation in which appellant is a stockholder, and the great weight of authority, are that, given a corporation insolvent and unpaid subscriptions, corporate fraud inducing the subscriptions affords no stockholder a defense to collection, or ground for rescission, or basis for trust or lien, to the prejudice of corporate creditors. A fortiori, nor in respect to stock subscriptions paid. See Morgan v. Ruble, 81 Or. 641, 160 Pac. 543; Lantry v. Wallace, 182 U. S. 548, 21 Sup. Ct. 878, 45 L. Ed. 1218; Ratcliff v. Clendenin, 232 Fed. 61, 146 C. C. A. 253; and the numerous cases of reference in 1 Cook, Corp. § 164; 8 Fletcher, Corp. § 5041; 14 C. J. 600; and notes in L. R. A. 1915D, 792. A like claim of trust or lien was rejected in Schwarz v. Bowler Mfg. Co., 177 Ill. App. 294. In England the rule is absolute; in this country, some time mod-'fied in furtherance of justice.
Appellant’s case is not bettered, for that the District Court found him free from laches or want of diligence, for the court also found subsequent claims in excess of assets, and it virtually and properly held that, though entitled to rescind so far as the corporation is concerned, he is not so far as creditors are concerned. His quiescence during 17 months of stockholding, dividends received, and accrual of debts, is laches and want of diligence in respect to creditors.
That is this case. By the laws of Oregon creditors of insolvent corporations are entitled to be paid before stockholders, whose status is due to corporate fraud, can by rescission change to the status of creditors and receive payment out of corporate property. And this priority invokes the sanction of section 64b (5), supra, and justifies the District Court’s subordination of appellant’s claim to payment of creditors. Unlike Globe Bank v. Martin, 236 U. S. 288, 35 Sup. Ct. 377, 59 L. Ed. 583, therein the appeal to section 64b (5), supra, was rejected, for that the priority claimed by virtue of state law was inconsistent with other and controlling provisions of the Bankruptcy Act» there are none of said act inconsistent with the priority of the creditors here.
There is no merit in appellant’s contention that by reason of the fraud the status of stockholder at no time attached to him.
The decision of the District Court is right, and its decree is affirmed.
&wkey;sFor other cases see same topic & KEY-NUMBER in .all Key-Numherea Digests & Indexes