Snyder v. Yakima Finance Corporation

Accepting the statement of the case as set forth in the prevailing opinion, I am utterly unable to agree with the conclusion therein reached. I am convinced that the respondent is, by his own acts and conduct, estopped from maintaining an action for the appointment of a receiver, except to the limited extent hereinafter indicated.

It will be observed that the sole basis for the appointment of a receiver in the present instance is the insolvency of the appellant; there is no element of fraud whatever in the case. The majority opinion frankly states:

"The only basis, in the findings, for the appointment of a receiver was the insolvency of the appellant. It may be observed that there was no allegation of fraud contained in thecomplaint and no finding of fraud made by the court. In fact, weare satisfied that no finding of fraud could have been made basedon the evidence that was adduced." (Italics mine.)

Proceeding from this setting of the case, it is to be noted that the plan under which appellant's business is now being administered and its assets liquidated, was adopted at a meeting of the creditors called for the specific purpose of considering such plan; that the respondent, who was the largest unsecured creditor, was present at, and participated in, the meeting; that he acquiesced in, and agreed to, the plan as proposed and adopted; and that he has accepted dividends under the trust arrangement and has in every way shared ratably with all other creditors in the fruits and results of the present operation.

With reference to respondent's knowledge of appellant's financial condition at the time that the plan was adopted, and his attitude toward the prospective arrangement, he testified as follows:

"Q. Did you have a general conversation about what the meeting was about? A. I realized what it was about without asking. Q. How did you realize that? A. They turned it over to the Trust Company. Q. You had heard that the Finance Company on account of the yield on some investments were not in very good condition? A. I had made application to the company for I believe it was $2,000 — $1,000 or something, about thirty days before they closed. Q. (The Court) That is before this May meeting? A. Yes. A little later, before the thirty days was up, Mr. Grommesch called me by phone and told me they were having a meeting about the tenth, as I remember, of May. Somebody told me they were getting in pretty bad straits, and I thought I would get my money if I could. Q. You heard rumor it was in pretty bad shape and you were trying to get your money out? A. Yes. Q. Whatever happened at the meeting or after the meeting, you agreed to take this new note which was to be secured by the property to be turned over to the Guaranty Trust Company? A. I agreed to take this note in place of the other notes. I think there was five or six, probably eight or nine of the other notes. I think they were in $1,000 amounts, the other notes, and they gave me this one note and taken up others with the interest added on the others. Q. You were to get interest on principal and interest in the future? A. Yes. Q. And you were to get your money from the Guaranty Trust Company? A. I was told the Guaranty Trust Company would liquidate the notes or take up the notes."

The evidence also discloses, without contradiction, that, immediately after the creditors' meeting, respondent and one of appellant's officers further discussed the matter of a possible receiver for appellant, and that respondent then emphatically expressed himself in favor of the proposed trust arrangement in order to avoid such a receivership. It also appears from the evidence, without contradiction, that the very fact that respondent, who was the largest single unsecured creditor, had agreed to the plan, was used to induce other creditors of the same class to give their consent to its adoption.

The sum and substance of the matter is that respondent, when he became advised of appellant's insolvent condition, feared receivership and the consequent loss that might be thereby entailed; that he was convinced, as were the other creditors, that the plan suggested afforded the best means for his and their protection, and therefore approved it; that, with the support afforded by respondent's joining in the arrangement, the appellant, through its officers, was enabled ultimately to get the unanimous consent of the unsecured creditors to the adoption and perfection of the trust arrangement. The majority say in the prevailing opinion that the respondent did not propose the plan or induce others to act upon it, but merely acquiesced therein. The fact is, as I have already stated, that he consented to it after full knowledge of its necessity and its effect. Though he may not have actively induced others to act upon the plan, the fact remains that his consent led others to join in the plan.

No contention is made that the affairs of the corporation under the trust arrangement, so far as they have gone, have not been conducted as wisely, expeditiously and economically as circumstances and existing conditions would permit. It is true that the plan has not worked out as successfully or as rapidly as was hoped in the beginning, but that is not chargeable to the fault of anyone. The difficulties attendant upon financial liquidations at the present time are too well known to call for further comment. No one will assert, I think, that a receivership is a specific for the cure of financial difficulties. The only question here is whether respondent may now repudiate a transaction to which he gave his consent, and by his repudiation disrupt the very proceedings to which he originally consented, and in the benefits of which he has ratably shared.

The doctrine of equitable estoppel has been variously defined. The following statement is set forth in 10 R.C.L., p. 689, as constituting the sum of all the cases:

"That a person is held to a representation made or a position assumed, where otherwise inequitable consequences would result to another who, having the right to do so under all the circumstances of the case, has, in good faith, relied thereon."

In Peterson v. Bergman Cabinet Mfg. Co., 145 Wash. 664,261 P. 381, 55 A.L.R. 989, this court, speaking through Judge Main, said on p. 669:

"The general rule, which is well recognized, is to the effect that, where a person with actual or constructive knowledge of facts induces another, by his words or conduct, to believe that he acquiesces in or ratifies a transaction, or that he will offer no opposition thereto, and that other, in reliance on such belief, alters his position, such person is estopped from repudiating the transaction to the other's prejudice."

I can hardly conceive of a case to which the rule thus announced would more aptly apply than the case at bar. With the knowledge that appellant was headed for a receivership, the respondent, by his words and conduct, in fact, by his express agreement, acquiesced in, ratified and adopted a transaction that took the business of the appellant out of its immediate control and placed it in the hands of a trust company, which is now administering the trust. The respondent is now permitted, by the majority opinion, to alter his decision, repudiate the transaction, and do the very thing that he himself was anxious to obviate. He is permitted to impose his will upon all other unsecured creditors, who are satisfied with the present arrangement and who still share the belief, which he himself at one time also entertained, that a receivership would be unwise and expensive. Respondent, by altering his decision, compels all of the other creditors to alter theirs against their own will.

The prevailing opinion assigns as another, and apparently as the primary, reason for the appointment of a receiver, the fact that such appointment is necessary in order to make available certain assets "which the trustee has no power or legal right to collect." In my opinion, this conclusion of the majority begs the whole question. The assets referred to consist of the liability,if any, of stockholders for unpaid subscriptions, and the liability, if any, of the trustees of the appellant for the unlawful declaration and payment of dividends. But there is no showing in the record that there is any such liability, and the trial court expressly refused to make any ruling to that effect. In the opening remarks of the court's oral decision at the conclusion of the evidence, the following language was used:

"The case when first presented to the court was somewhat confusing, and my first thought was I would be compelled to pass on the question of stockholders' liability for unpaid subscriptions, if any, for liability for the distribution of the dividend in December 1929. I am persuaded now that in this proceeding, at least, that is not a matter for adjudication. And being persuaded further that the plaintiff is entitled to its judgment, I have but the one question, it seems to me, for disposition and that is, is he entitled likewise to have a receiver appointed, it being admitted that the corporation is insolvent."

It is apparent, therefore, that the majority are deciding a question that the trial court did not pass upon, but expressly declined to decide. Whether, as a matter of fact and of law, there were such liabilities, was a question that might have been determined in this proceeding had the proof warranted it, and it may still be established in some other proceeding, if the proof warrants it. But such liabilities have certainly not yet been established, nor even brought forward to such a degree of probability as to make the appointment of a receiver a justifiable disposition of the case as a whole.

Under the conclusion reached by the majority, the interests of the creditors are to be sacrificed, or at least jeopardized, merely for the purpose of affording a single dissatisfied creditor an opportunity of inquiring whether possibly other assets do exist. Should that inquiry succeed, it will have accomplished nothing that could not be accomplished in a direct proceeding brought by any creditor for that specific purpose. Should the inquiry fail, much of what has already been done will have become abortive and the assets of the appellant, as now conserved, will have been frittered away in extensive and expensive litigation. The loss or expense, whatever it may be, will not be confined to the respondent, but will have to be borne by the entire body of creditors, who, with the exception of the respondent, appear to be satisfied with the present arrangement.

I think that the case should either be dismissed entirely, or, at most, should be remanded to the trial court to hear, consider and pass upon the question whether there is any liability, either on the part of the stockholders for unpaid stock subscriptions, or on the part of the trustees of appellant for unlawful declaration and payment of dividends, thus necessitating the appointment of a receiver for the limited purpose thereby required.

I therefore dissent from the conclusion reached in the majority opinion.