after stating the case as above, delivered the opipion of the Court.
It will be observed that the proceedings brought against the Dold Company by the receiver were not for the purpose of obtaining-an order relieving him from performance of the lease contract during receivership, as a burden on the estate in administration detrimental to the rights of others having superior claims to the assets in his hands and which might be jeopardized if he were required to, perform. Railway Co. v. Lusk, 224 Fed. 704, 140 C. C. A. 244; Peabody Coal Co. v. Nixon, 226 Fed. 20, 140 C. C. A. 446. What the receiver sought and what the court granted was a striking down of the contract, with its obligations, duties, rights and burdens, as though it had never been executed. It is further apparent from .the facts in the case that the Skinner Packing Company was, at the time the receiver was appointed and at the time of the' hearing, amply solvent. It had assets many times more in value than all of its indebtedness. The procedure instituted both by the receiver and stockholders cannot therefore be said to have been brought in behalf of or for the protection of creditors, nor can the order and decree of the court be regarded in any sense as having been made for that purpose. The largest creditor was the Dold Packing Company for money expended by it in additions and changes made in the plant under the terms of the contract; and while the court, on cancelling the contract, held that the Dold Company was not entitled to repayment of those sums in accordance with the contract, it did decree that the Skinner Packing Company should be held indebted to it for their reasonable value.
[1-3] It is obvious that the sole purpose of the proceedings brought by both receiver and stockholders was to get rid of the lease contract for the supposed benefit of the Skinner Packing Company and its stockholders, and the decree can have no other purpose and effect. The distinction between the right of a receiver to elect not to bind the receivership to the performance of existing executory contracts and thus burden assets in his hands, to the detriment of those having superior rights thereto, and his right to maintain an action to cancel and annul such a
[4] The last subject-matter complained of by the receiver was not, as we will attempt to show, a subject of which he could make complaint, because the Skinner Company could not have done so. The charge of fraudulent conduct and false representations is out of the case, because there is not a particle of evidence that tends in the remotest degree to sustain that charge, and the Master found it unsustained. The record shows that the management of the Skinner Packing Company was wholly inexperienced in the industry. After the plant was constructed, a few weeks’ trial demonstrated to them that they could not operate it. It was shut down, a large part of the employees and the organization were retained and kept going at heavy expense for several months in an effort to dispose of the product on hand, and then the president of the company sought to find some one who understood the business and would take over the plant. After consultation with packers in other cities, he went to Buffalo and sub
[5] It is the general rule that a contract will not be set aside for improvidence unless the improvidence or inadequacy of consideration is so great as to furnish, of itself, convincing evidence of fraud. 9 C. J. 1174. We must hold that the finding of the Master, approved by the court, that the lease contract was inequitable and improvident to the Skinner Company, is without support. The other matters complained of in the receiver’s petition consist of alleged breaches of the contract by the Dold Company which, if proved, would afford ground for recovery of damages. But they are not true. The contract provided that the Skinner Company, promptly following its execution, should fully complete its plant and equipment for the proper and economical conduct of the packing business, so that the plant should be in readiness
“Additions, betterments and changes made in the plant by the Dold Company were made, without securing the prior consent of or any notice to the Skinner Packing Company, and since the appointment of the receiver he has received no notice of any character from the Dold Packing Company regarding any proposed alterations, changes, etc.”
As a matter of fact, the record shows that immediately on the execution of the contract the Dold Company brought an experienced naan from Chicago, who made a complete inspection of the plant in company with the representatives of the Dold Company and at tire request of the president of the Skinner Company to ascertain what changes and improvements should be made, and early in November, 1920, the Dold •Company submitted to the president of the Skinner Company a written •statement showing in detail the changes and improvements in the plant necessary for its proper and economical conduct. The list divided the proposed improvements and changes into three classes: those immediately needed, those needed in the near future, and those which might be installed later on, and, in a letter from the Dold Company to the Skinner Company accompanying the list, it urged immediate action and stated that the Dol'd Company expected to start killing in a very few days. The Skinner Company received the letter and list. Again, on February 5, ' 1921, a list of needed changes and improvements was submitted to the Skinner Packing Company. It failed to make any of them and the Dold Company put them in at its expense and charged the cost to the Skinner Company, all of which remains unpaid. After the receiver was appointed, the Dold Company submitted to him its accounts for improvements that it. had made.
[8] Complaint is further made, and the Master found, that the Dold Company did not notify the receiver, after his appointment, of any further improvements or changes that it desired to have made in the plant. Some improvements may have been made during the receivership, but it does not appear what they were. Neither does it appear that the receiver ever took the trouble to make inquiry on that subject. He notified the Dold Company in July, 1921, that he would not carry out the contract. It would appear to have been an idle performance to have asked him to make any improvements after that date. There was uncontradicted evidence on the part of the Dold Company that all improvements that were made in the plant by it were necessary to the proper and economical operation of’the plant. The Master also found that the Dold Company had broken the contract because it did not notify the Skinner Company of the additions and improvements that it had made in the separate buildings constituting the plant and the amount expended for each; he said that the lease did not contain a reqúirement that such notices should be given, but that, inasmuch as it was necessary for the Skinner Company to know those facts in order to protect itself under the 80% coinsurance clause of its policies, in event of loss by fire, which has not occurred, he would construe the contract as requiring the notices to be
“But. it is a clearly recognized principle, that if there be only partial failure of performance by one party to a contract, for which there may be compensation in damages, the contract is not put an end to. And the right to abandon the contract vests only in the party who has been guilty of no default; for a man cannot take advantage of his own wrong in order to put an end to a contract into which he has entered. So, such right, when it does exist, must be exercised within a reasonable time. Nor can a contract, in general, be rescinded in toto by one of the parties where both of them cannot be placed in the identical situation which they occupied when the contract was made.”
Bishop on Contracts (Enlarged Ed.) § 828, after announcing that there cannot be rescission if there is only partial failure of performance by one party to a contract for which there may be compensation in damages, says:
“And, in general terms, the doctrine is, that the breach, to justify a re-eisfdon, must be of a dependent covenant or willful or in a substantial part comprehending the root of the whole.”
Eor a list of cases sustaining this fundamental principle, see 9 C. J. 1181.
[7] There is another principle that should have been applied in this case. As a condition to the rescission and cancellation of a contract, the complaining party must make restitution of the benefits which he has received under the contract. The Dold Company made extensive and valuable improvements to the Omaha plant. The parties recognized that they were needed. They were made in accordance with the provisions of the contract. The receiver did not tender to that company the amounts which it had expended in making those improvements, nor does the decree provide that he shall make payment therefor as a condition to its cancellation. It puts the Dold Company to the necessity and expense of having a judicial ascertainment of the reasonable value of those improvements. It does not provide that the cost and expenses thereof to the Dold Company shall be paid to it. 9 C. J. 1207 ; 24 A.
[0] Another ground on which the receiver asked for cancellation, and sustained by the Master, was the failure of the corporation to give notice to stockholders that the lease contract would be considered at the meeting at which it was ratified. A statute of Maine, where the Skinner Packing Company was incorporated, reads thus:
“No corporation shall sell lease, consolidate or in any manner part with its franchises or its entire property or any of its property, corporate rights or privileges essential to the conduct of its corporate business and purposes otherwise than in the ordinary and usual course of its business except with the consent of its stockholders at an annual or special meeting, the call for which shall give notice of the proposed sale or consolidation. All such sales, leases and consolidations shall b.e subject to the provisions of this and the eleven following sections and to the prior liens of stockholders as therein defined.”
The eleven following sections of the Maine statute demonstrate that their purpose is solely for the protection of stockholders. They provide a remedy and mode of procedure to each dissenting stockholder by which the value of his stock may be judicially ascertained, which must be paid to him by the corporation, and if not .paid each dissenting stockholder is given a lien on the corporate assets for the amount so adjudged in his favor. A prerequisite to the right and remedy so given is that he shall have voted in the negative and shall file with the president, clerk or treasurer of the corporation, within one month from the day of such vote, his dissent. The corporation is then given one month after the dissents are filed to enter its petition with the Supreme Judicial Court, sitting in equity, setting forth the facts and names and residences of all dissenting stockholders whose dissents have been filed, making them parties, and praying that the court determine the value Of the share so dissenting. On failure of the corporation to file the petition, any dissenting stockholder may, within one month thereafter, enter such petition for the same purpose. After the value of the dissenting shares has been determined, the corporation is given an opportunity to deposit the amount, whereupon said dissenting shares become the property of the corporation. The statute provides that any stockholder who fails to file his dissent shall be deemed to have assented. This statute does not give, and does not pretend to give, to the corporation any rights whatever. They are given solely for the benefit of stockholders. Westerlund v. Black Bear Mining Co., 203 Fed. 599, 121 C. C. A. 627. It seems too clear for argument that the corporation could not be heard to maintain a suit to cancel this contract because the specific notice required by the statute was not given, nor can the receiver, who sues in its behalf. Moreover, in the contract between the Skinner Company and the Dold Company we find this:
“The Skinner Company shall cause this agreement to be submitted to and ratified by its Board of Directors and its voting stockholders.”
To permit it, or the receiver in its stead, to set up the regulatory requirements of the statute on corporate procedure is but to concede to it the right to take advantage of its own neglect of duty in
[9] In the suit brought by stockholders, the principal fact relied on by them for cancellation of the contract was the failure of the Skinner Packing Company to embody in the notice calling the annual meet-' ingof common stockholders, at an adjourned session of which the lease contract was ratified, a specific statement that the lease contract would be submitted at that meeting for ratification. Of the five stockholders who brought that suit, only one of them owned common stock and he held only eight shares; the other four could not vote and could not have availed themselves of the provisions of the Maine statute. They alleged that they brought the suit in their own behalf and in behalf of all other citizens of Nebraska similarly situated. The Dold Company’s offer to show that their suit was collusive, that they had been indemnified against all costs and expenses in bringing and maintaining it, was denied. No other stockholder joined them in that suit or came forward to aid them in its prosecution, but stockholders owning 466 shares of common and 312 shares of preferred intervened and protested, against the proceedings. One of the five complaining stockholders was a creditor holding bonds of the Skinner Packing Company secured by mortgage on its property. Besides that, the Skinner Company was amply solvent. The value of its property was many times in excess of its liabilities. The Master found that it owed about $250,000 when the receiver was appointed, and at the time of the hearing about $350,-000. The receiver testified that some of its indebtedness was not found out until after his appointment. A part of the increase was cost and expenses in receivership. It cannot be believed that there was any cause for a suit by him as bondholder or that any lawyer who had a proper regard for his rights as such would have advised him to sue on that account. However that may be, that fact gave him no status as a complainant under the Maine statute on which he and his coplaintiffs relied. As already pointed out, that statute was clearly for the protection of stockholders who are entitled to vote, and the remedy which it provides is extended to them only. It regulates corporate procedure in a particular respect, but it imposes no penalty for noncompliance. Of course, a stockholder entitled to vote cannot bring himself within the terms of the statute if he does not vote or is not given an opportunity, contemplated by the required statutory notice, to vote.
We will consider the stockholders’ complaint on the assumption it makes that both common and preferred stockholders can avoid the contract if the statutory notice is not given. They brought their suit fourteen months after the Dold Company took possession of the plant and began operation. During those months it did a large business, in which it had invested all of its capital and surplus and had borrowed
“There is no principle better established, in this court, nor one founded on more solid considerations of equity and public utility, than that which declares, that if one man, knowingly, though he does it passively, by looking on, suffers another to purchase and expend money on land under an erroneous opinion of title without making known his own claim, shall not afterwards be permitted to exercise his legal right against such person. It would be an act of fraud and injustice, and his conscience is bound by this equitable estoppel.”
On the plainest principles, by their laches, they were estopped to bring this suit, and should be held to have acquiesced in the lease contract, Westerlund v. Mining Co., 203 Fed. 599, 121 C. C. A. 627; Elder v. Mining Co. (C. C. A.) 280 Fed. 569; Watt’s Appeal, 78 Pa. 370; Hill v. Railroad Co., 143 N. C. 539, 55 S. E. 854, 860, 9 L. R. A. (N. S.) 417; Rabe v. Dunlap, 51 N. J. Eq. 40, 25 Atl. 959; Bishop v. Kent & Stanley Co., 20 R. I. 680, 41 Atl. 255; Sturm v. Wiess (C. C. A.) 273 Fed. 457; 2 Pomeroy’s Eq. Jurisp. §§ 816-820, 965; 16 Cyc. 158, 162.
[11] We have considered the case, both as to the receiver and the complaining stockholders, as though.the procedure against the Dold Company was proper. We have no doubt that it was improper. The Dold Company was never made a party to the receivership proceedings, and not being a party to those proceedings it had a right to have the controversies raised with it by the receiver and stockholders litigated in plenary actions, separate and apart from the proceedings in receivership. It was in possession of the plant under claim of right thereto, when the receiver was appointed. In Davis v. Gray, 16 Wall. 203, 21 L. Ed. 447, it is said:
“Where property, in the possession of a third person, is claimed by the receiver, the complainant must make such person a party by amending the Mil, or the receiver must proceed against him by suit in the ordinary way.”
For other cases announcing the same principle, see Wheaton v. Daily Telegraph Co., 124 Fed. 61, 59 C. C. A. 427; Mississippi Valley Trust Co. v. Railway Steel Spring Co., 258 Fed. 346, 354, 169 C. C. A. 362; Fidelity & Deposit Co. v. Johnson (D. C.) 275 Fed. 112; Horn.v. Railroad Co. (C. C.) 151 Fed. 626.
We think the position taken by the intervening stockholders was the right one. They insisted that when the receiver, within two months after his appointment, succeeded in removing the president of the company and his associates on the Board of Directors who had been utilizing the company for their personal advantage and benefit, the purposes for which the receivership was instituted had been accomplished, that there was nothing else that could be made the subject of judicial determination in the receivership cause; and that the receivership should be wound up and the company and its affairs restored to its stockholders. In Pusey & Jones Co. v. Hanssen, 261 U. S. 491, 43 Sup. Ct. 454, 67 L. Ed. 763, it is said:
“Whether the debtor be an individual or a corporation, the appointment of a receiver is merely an ancillary and incidental remedy. The receivership is not final relief. The appointment determines no substantive right; nor is it a step in the determination of -such a right. It is a means of preserving property which may ultimately be applied toward the satisfaction of substantive rights.”
See also Brictson Mfg. Co. v. Close (C. C. A.) 280 Fed. 297; Myers v. Occidental Oil Corporation (D. C.) 288 Fed. 997.
[14] Property in receivership is in the custody of the court, and while the court may approve a reorganization of the business affairs of the property which it holds in receivership, made and agreed to by those who are interested in it, we do not understand that it is the duty or province of a court to take into its possession and hold the business affairs of others for the primary purpose of reorganizing that business. This record discloses that to be the remaining purpose in the receivership cause, and, however well the receiver might discharge the assumed duty, we think it properly belongs to the stockholders of the company, whose judgment ought to dictate what shall be done in that regard.
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