In re W. A. Silvernail Co.

218 F. 977

• Court: District Court, D. Kansas
• Decided: June 15, 1914
• Status: Published

Opinion

POLLOCK, District Judge.

The facts are: The bankrupt company, a corporation of the state of Massachusetts, engaged in business at the city-,of Worcester, in that state, and, being desirous of removing the business of said corporation to the city of Wichita in this state, nnd being in.need of funds, on August 20, 1912, borrowed of claimant {Waterhouse) the sum of $6,000, in accordance with the terms of a .written agreement between the bankrupt and claimant, which, in substance, provides as follows:

: The bankrupt executed to claimant its promissory note for the ¡amount borrowed, due on demand, however, to run five years from date, without interest, unless sooner demanded by claimant. It was .further provided in said contract that certificate should issue to claimant for 60 shares, par value $100 each, of the capital stock of the bankrupt corporation, and it was therein provided claimant was to have his election to become the absolute owner of the shares and surrender the promissory note, or to surrender the shares and demand .payment of the note, at his option. Further, claimant was to become ■treasurer of the corporation and sign checks issued by it, all of which was done, The stock register of the corporation shows claimant to be the absolute owner of the 60 shares of its capital stock. An application. was made to the secretary of state of this state to do business as a foreign corporation in this state. This application was signed and sworn to by claimant, and showed the shares so issued to him to be his property. .The minutes of the books of the corporation showed the •transaction, to be that expressed in the written agreement.

In this condition of the records .of the corporation creditors represented by the trustee in bankruptcy became such after removal of the business of the company to this state. At the date bankruptcy intervened claimant had pot exercised his option to keep the stock and surrender the note, of to surrender the stock and rely upon his promissory note. The question presented is: Do these facts estop claimant from now demanding his claim from the estate as against other creditors ?

It is evident, from the terms of the written agreement entered into, the purpose was to allow claimant the right to exercise his option of relying on his promissory note as a creditor in the event the business ¡pf the company did not prove prosperous, or, on the contrary, of permitting him to assert the rights of a stockholder in the corporation if its business prospered and its shares came to be worth more than their par value — all this at his election, as time might demonstrate. MeanWhile, awaiting such developments, he, as treasurer of the company, had at all times the advantage of such position to advise himself as to the business affairs of the corporation, and during this time permitted himself to stand on the records of the corporation, of which he was an officer, as a stockholder. It is evident he could not in fact be both a stockholder .to the extent of the 60 shares and, at the same time, a creditor to the extent of the amount evidenced by the promissory note. As he did not elect which position he would assume under the terms of the contract until the indebtedness of the company had accumulated to such an extent as to render it in bankruptcy, in fairness and justice to the other creditors of the bankrupt corporation, he should now be estopped from demanding his rights as a creditor.

It follows the order of the referee in denying the demand of claimant as a creditor, to the prejudice of other creditors, was right, and, being right, must be affirmed.

It is so ordered.