EVAN A. EVANS, Circuit Judge
(after stating the fgets as above). Appellant’s reclamation proceeding was to recover all of the property turned over to appellee by appellant at the time of the reorganization. In his petition appellant alleges:
“That * * * on the 1st day of July, 1921, * * * said Union Food Stores Company entered into possession 'of, and converted to its own use, unlawfully, and, as your petitioner is informed and believes and alleges the fact to be, without' the knowledge or consent of any of the preferred stockholders of said Waukegan Tea Company, all of the assets, cash, credits, and effects of said Waukegan Tea Company, ® * * and that said Union Food Stores Company thereupon took over the management of all of the said stores.”
Upon appellant’s own theory, then, the trustee in bankruptcy, upon the adjudication of the Food Company as a bankrupt, lawfully came into possession of the real and personal property here the subject of litigation, and should administer the estate, unless appellant can satisfy this court that the estate or some part of it should be returned to him.
Upon oral argument it was urged that the hearing had broadened the issues, and appellant, if denied possession of the property should at least be awarded an accounting. We approach the question from the standpoint of (a) the common stockholders of the Tea Company; (b) the preferred stockholder of the Tea Company; (c) the creditor of the Tea Company. Appellant asserts that he represents them all.
The evidence, due to the hopeless confusion that existed in the affairs of these companies, is not as satisfactory as it might be. But, inasmuch as the petitioner carries the burden of proving his right to possession of the goods, or to an "accounting, he must rely upon the record as presented. Without detailing all of the evidence that supports our conclusion, we will merely say that we find all the common stock of the Tea Company had been surrendered before the plan of reorganization was approved by the Securities Division of the Railroad Commission of Wisconsin. There is no holder of common stock interested in this controversy.
The situation in reference to the preferred stockholders is not so clear. We conclude, however, that on the occasion of the hearing before the state authorities above referred to, when permission to sell the stock in order to carry out the plan of reorganization was granted to the Food Company, the preferred stockholders acquiesced in or were bound by the action of the officers and agents of the Tea Company, and cannot now com[739]*739plain. A part of the preferred stock was surrendered. General Manager Berry, a director in both companies, testified:
“The Union Food Stores Company was organized about July 1, 1921, and was on that date licensed to transact business. It started selling stock and operated its stores as fast as it could get the required allotment in each town. They got the money for the stores they conducted from the stock sold. They started new stores, and also operated the Waukegan Tea Company stores. They did not take over the Waukegan Tea Company. They operated some stores. For a while they kept books separately. I could not recall how many of the Waukegan Tea Company stores were taken over the 1st of July. I do not know whether they took over any at that time. The records would show that. They were supposed to be in charge of the stores on November 1, 1921. That was the time they were supposed to take over the stores previously operated by the Waukegan Tea Company; that is, between July 1st and November 1st the Union Food Stores Company took over the stores previously operated by the Waukegan Tea Company and continued to operate them. In taking over the stores, they took over all of the merchandise that was in the stores, the shelving and counters and fixtures and apparatus, such as scales, etc. The Union Company assumed ownership and control. My stock and that of the other gentlemen who were directors was transferred. I do not recall the date. After that there was no new election of directors of the Wauke-gan Tea Company, nor of officers. I became a director of the Union Food Stores Company.”
In appellant’s brief the names of three and possibly four small preferred stockholders are given, and it is asserted that they never consented to the transfer of assets. As to them, it is sufficient to say (a) that their consent was not necessary; (b) that they are estopped to disavow the reorganization plans; and (c) their noneonsent is not satisfactorily established.
As the District Judge briefly stated: “When, as further appears, this situation continues, month after month, and with the sanction of the corporate articles and the state tribunal above adverted to, the shareholders of neither company should be heard to urge, against innocent creditors of either, that because the ordinary formal corporate assent to a transfer is not shown, the situation should not be found and dealt with as the referee determined.”
Moreover, in view of the facts as disclosed by this record, neither ^ the common stockholders nor the preferred stockholders are interested in this controversy. The Tea Company was insolvent in July, 1921, and its insolvency became more pronounced thereafter. The Food Company was at the time of its adjudication hopelessly insolvent. Only the creditors of the two companies are in fact interested.
Approaching the controversy from the standpoint of the creditor, we find the outstanding obligations of the Tea Company on November 1, 1921 to be $484,735.18. For the previous 10 months it showed an operating loss of $321,000. The Food Company, after November 1st, paid (or had the obligations transferred to it) on these outstanding obligations $407,240.89. This would leave a balance of approximately $77,500 unpaid obligations of the Tea Company. But $83,000 of this sum was the unpaid purchase price of certain real estate in Milwaukee, the purchase price being $100,000. The vendor is secured, and this indebtedness must ultimately be paid by appellee, or the property lost. The remaining creditors, save one, were closely connected with the company, and must have known of the reorganization plans, and must have acquiesced in their consummation.
But, if we assume that there is one or more unsecured creditor of the Food Company who is in a position to assert his rights, he cannot, without offering to do equity, seek the relief here sought by the receiver. That the Food Company, having relieved the Tea Company of over $400,000 of its debts, shall now be required to turn back the assets by it received as a consideration for such assumption of liability, because, perchance, the officers and directors of the Tea Company did not, before acting, obtain the consent of the stockholders (though they held or represented practically all of the preferred stock, and all the common stock had been surrendered), and leave the creditors of the Food Company unprotected, is a contention hardly worthy of serious consideration.
Lot us take a somewhat analogous case. Assume A. (a corporation acting through its officers and directors without the authorization of the stockholders) sells all its assets consisting of a piece of real estate to B. for $100,000. Upon the real estate is an outstanding mortgage of $90,000. B. pays the balance of the purchase price ($10,000) to A., and later pays off the $90,000 mortgage. May the noneonsenting stockholders [740]*740or creditors of A. repossess the real estate without paying to B. the $10,000 by A. received, or the $90,000 B.
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EVAN A. EVANS, Circuit Judge
(after stating the fgets as above). Appellant’s reclamation proceeding was to recover all of the property turned over to appellee by appellant at the time of the reorganization. In his petition appellant alleges:
“That * * * on the 1st day of July, 1921, * * * said Union Food Stores Company entered into possession 'of, and converted to its own use, unlawfully, and, as your petitioner is informed and believes and alleges the fact to be, without' the knowledge or consent of any of the preferred stockholders of said Waukegan Tea Company, all of the assets, cash, credits, and effects of said Waukegan Tea Company, ® * * and that said Union Food Stores Company thereupon took over the management of all of the said stores.”
Upon appellant’s own theory, then, the trustee in bankruptcy, upon the adjudication of the Food Company as a bankrupt, lawfully came into possession of the real and personal property here the subject of litigation, and should administer the estate, unless appellant can satisfy this court that the estate or some part of it should be returned to him.
Upon oral argument it was urged that the hearing had broadened the issues, and appellant, if denied possession of the property should at least be awarded an accounting. We approach the question from the standpoint of (a) the common stockholders of the Tea Company; (b) the preferred stockholder of the Tea Company; (c) the creditor of the Tea Company. Appellant asserts that he represents them all.
The evidence, due to the hopeless confusion that existed in the affairs of these companies, is not as satisfactory as it might be. But, inasmuch as the petitioner carries the burden of proving his right to possession of the goods, or to an "accounting, he must rely upon the record as presented. Without detailing all of the evidence that supports our conclusion, we will merely say that we find all the common stock of the Tea Company had been surrendered before the plan of reorganization was approved by the Securities Division of the Railroad Commission of Wisconsin. There is no holder of common stock interested in this controversy.
The situation in reference to the preferred stockholders is not so clear. We conclude, however, that on the occasion of the hearing before the state authorities above referred to, when permission to sell the stock in order to carry out the plan of reorganization was granted to the Food Company, the preferred stockholders acquiesced in or were bound by the action of the officers and agents of the Tea Company, and cannot now com[739]*739plain. A part of the preferred stock was surrendered. General Manager Berry, a director in both companies, testified:
“The Union Food Stores Company was organized about July 1, 1921, and was on that date licensed to transact business. It started selling stock and operated its stores as fast as it could get the required allotment in each town. They got the money for the stores they conducted from the stock sold. They started new stores, and also operated the Waukegan Tea Company stores. They did not take over the Waukegan Tea Company. They operated some stores. For a while they kept books separately. I could not recall how many of the Waukegan Tea Company stores were taken over the 1st of July. I do not know whether they took over any at that time. The records would show that. They were supposed to be in charge of the stores on November 1, 1921. That was the time they were supposed to take over the stores previously operated by the Waukegan Tea Company; that is, between July 1st and November 1st the Union Food Stores Company took over the stores previously operated by the Waukegan Tea Company and continued to operate them. In taking over the stores, they took over all of the merchandise that was in the stores, the shelving and counters and fixtures and apparatus, such as scales, etc. The Union Company assumed ownership and control. My stock and that of the other gentlemen who were directors was transferred. I do not recall the date. After that there was no new election of directors of the Wauke-gan Tea Company, nor of officers. I became a director of the Union Food Stores Company.”
In appellant’s brief the names of three and possibly four small preferred stockholders are given, and it is asserted that they never consented to the transfer of assets. As to them, it is sufficient to say (a) that their consent was not necessary; (b) that they are estopped to disavow the reorganization plans; and (c) their noneonsent is not satisfactorily established.
As the District Judge briefly stated: “When, as further appears, this situation continues, month after month, and with the sanction of the corporate articles and the state tribunal above adverted to, the shareholders of neither company should be heard to urge, against innocent creditors of either, that because the ordinary formal corporate assent to a transfer is not shown, the situation should not be found and dealt with as the referee determined.”
Moreover, in view of the facts as disclosed by this record, neither ^ the common stockholders nor the preferred stockholders are interested in this controversy. The Tea Company was insolvent in July, 1921, and its insolvency became more pronounced thereafter. The Food Company was at the time of its adjudication hopelessly insolvent. Only the creditors of the two companies are in fact interested.
Approaching the controversy from the standpoint of the creditor, we find the outstanding obligations of the Tea Company on November 1, 1921 to be $484,735.18. For the previous 10 months it showed an operating loss of $321,000. The Food Company, after November 1st, paid (or had the obligations transferred to it) on these outstanding obligations $407,240.89. This would leave a balance of approximately $77,500 unpaid obligations of the Tea Company. But $83,000 of this sum was the unpaid purchase price of certain real estate in Milwaukee, the purchase price being $100,000. The vendor is secured, and this indebtedness must ultimately be paid by appellee, or the property lost. The remaining creditors, save one, were closely connected with the company, and must have known of the reorganization plans, and must have acquiesced in their consummation.
But, if we assume that there is one or more unsecured creditor of the Food Company who is in a position to assert his rights, he cannot, without offering to do equity, seek the relief here sought by the receiver. That the Food Company, having relieved the Tea Company of over $400,000 of its debts, shall now be required to turn back the assets by it received as a consideration for such assumption of liability, because, perchance, the officers and directors of the Tea Company did not, before acting, obtain the consent of the stockholders (though they held or represented practically all of the preferred stock, and all the common stock had been surrendered), and leave the creditors of the Food Company unprotected, is a contention hardly worthy of serious consideration.
Lot us take a somewhat analogous case. Assume A. (a corporation acting through its officers and directors without the authorization of the stockholders) sells all its assets consisting of a piece of real estate to B. for $100,000. Upon the real estate is an outstanding mortgage of $90,000. B. pays the balance of the purchase price ($10,000) to A., and later pays off the $90,000 mortgage. May the noneonsenting stockholders [740]*740or creditors of A. repossess the real estate without paying to B. the $10,000 by A. received, or the $90,000 B. paid on the mortgage? Obviously not. Railway Co. v. McCarthy, 96 U. S. 267, 24 L. Ed. 693; Rankin v. Emigh, 218 U. S. 27, 35, 30 S. Ct. 672, 54 L. Ed. 915; 7 R. C. L. 677.
In the present.ease, instead of a mortgage upon the property, there were outstanding claims aggregating $475,000. B., the purchaser, satisfies $407,000 of the claims, and adequately secures another claim of $60,000. Can the remaining creditors of A. ask that the property be returned without offering to repay B. the $467,000 which B. either paid or secured to the creditors of A? The answer must he in the negative.
Other reasons supporting this conclusion need hardly he mentioned. However, we do say upon the evidence before us that the acts of the directors of the Tea Company in dealing with B. were not ultra vires.
Respecting appellant’s urge that, if the goods he not returned, an accounting should be ordered, it is perhaps sufficient to say that no such relief was sought in appellant’s petition, nor was the hearing sufficient to justify the determination of such an issue, assuming the pleadings be amended so as to permit of its consideration.
In passing, we may say, however, that, inasmuch as the action of the Tea Company was not ultra virés, its creditors and the nonconsenting preferred stockholders (if any there he) have only one remedy; that is, to file their claims in the bankruptcy court, and take such dividend as upon all of the evidence they are entitled to receive. If aggrieved by the determination, they will, of Course, have their right to appeal. The District Judge gave the creditors of both corporations ample protection through the amendment he- made to the referee’s order.
The decree is affirmed.