Waiver and inconsistent remedies.

8

for merchandise sold to the bankrupt. But if such a proof of claim is filed as for goods sold and delivered, after full knowledge of the fraud, such act would constitute an election of remedies. The presentation of a note not yet due, after the bankruptcy of the maker, is held not to be a waiver of

...

8. In re Stewart, 178 Fed. 463, 24 Am. B. R. 64. In re Kaplan & Meyers (C. C. A., 3rd Cir.), 39 Am. B. R. 367, 241 Fed. 459, the creditor inserted in his proof of claim: "That the filing of this claim is not construed as a waiver of the right of said claimant to follow any of their merchandise in whosesoever hands it may now be providing same was delivered through misrepresentation." The Appellate Court held: "We are unable to agree that the claimant made a final election when they filed their proof of debt. So far as appears, they did not then know that they had been the victims of a fraud and without that knowledge, or notice that would be equivalent thereto, an election was not required.”

9. In Standard Varnish Works vs. Haydock (C. C. A., 6th Cir.), 16 Am. B. R. 286, 143 Fed. 318, it was held that the right to reclaim is waived, where the claimant, with full knowledge of the material facts, participates in the election of a trustee in bankruptcy.

In Thomas vs. Taggart, 19 Am. B. R. 710, 209 U. S. 385, it was held that participation in the election of a trustee would not be a waiver of the right of reclamation, where claimants did not have full knowledge of the fraud and expressly reserved the right to reclaim.

It is held to be an election of remedies, and a reclamation is barred, where a creditor, after discovering the fraud and insolvency of the buyer, files an attachment suit against debtor's property as for a debt owing by debtor. The right to reclaim was held to be waived under these circumstances. Fowler vs. Britt-Carson Shoe Co., 27 Am. B. R. 232, 137 Ga. 40, 72 S. E.

407.

Laches as a defense.

the seller's right to reclaim for fraud of the buyer in inducing the sale by means of a false financial statement. However, if the creditor is cognizant of the fraud perpetrated upon him by the bankrupt, and with full knowledge of the facts, files his claim as for goods sold and delivered, knowing that the merchandise sold to the bankrupt is among the assets of the bankrupt's estate, this would seem to be a waiver of the right to rescind and reclaim the goods. Such a waiver, as in other cases, would have to be based on knowledge of all the material facts.*

§ 88. Laches as a defense.

Disaffirmance must in all cases be timely. What constitutes laches in asserting the right of reclamation, must rest on the particular facts in each case.*

1. Re Midland Motor Car Co., 37 Am. B. R. 364, 224 Fed. 368. 2. Full knowledge, in this connection, has reference merely to the material facts. Election and waiver follow, if the creditor knows of the falsity of the material facts on which delivery on credit was made to debtor and thereafter, the creditor goes on with the performance of the contract. In re Simon vs. Goodyear Rubber Shoe Co., 105 Fed. 573, 581.

In re Sweeney, 21 Am. B. R. 871, 168 Fed. 612, the court said: "They had no right to speculate by taking the chance of collecting their money after knowledge of evidence which tended to show that they had been deceived. Instead of at once disaffirming the sales, they proceeded to exact performance of their agreement for payment and made renewals even after their private investigation of September 5th had made them aware of a condition incompatible with the truth of the statement of December 28, 1906."

3. Re Midland Motor Car Co., 37 Am. B. R. 364, 224 Fed. 368 (C. C. A., 7th Cir.). The court held that by reason of the

Laches as a defense.

In bankruptcy cases where the assets of the bankrupt are held in status quo until the sale thereof, immediate assertion of the right of reclamation is not so imperative, although prompt action is advisable.*

character of the assets and the fact that everything remained in status quo in the bankruptcy proceedings, prompt action was not as essential as in other classes of cases. This case involved a number of motors. It was held that delay in filing the reclamation petition for six weeks was not fatal to a recovery. It must be noted that the goods in this case were not perishable, that no meeting of creditors had been held, and that no sale had been made by the bankruptcy court.

4. In Openhynn & Sons vs. Blake, 19 Am. B. R. 639, reclamation petition was filed after a dividend had been declared. It was held that inasmuch as no one would be injured by an order allowing the return of the goods of the vendor, the petition for reclamation would be allowed.

In Fowler vs. Britt-Carson Shoe Co., 27 Am. B. R. 232, 137 Ga. 40, 72 S. E. 407, the court laid down the rule that the seller, upon discovery of the fraud, must promptly rescind and reclaim the goods.

In re Watmough, 32 Am. B. R. 59, 210 Fed. 539, twelve siphonic water-closets were sold to the debtor on December 6th; delivery was made at the railroad depot where debtor lived, on December 9th; on December 9th debtor filed his petition in bankruptcy; on Dec. 12th notice was received by the petitioner in reclamation, of debtor's bankruptcy. The petition for reclamation was filed January 13th, more than a month after notice of bankruptcy was received by the seller and after sale of the bankrupt's assets in bulk. The goods in question could not be traced and the trustee was never able to identify these particular goods as being in the assets sold on the bankruptcy sale.

The court, in disallowing the reclamation petition, said:

Filing claim for goods not recovered.

§ 89. Parties must be placed in statu quo.

In order to make a complete rescission of an executed contract of sale by a vendor, it is necessary for him to tender back, everything of value received by him from the vendee. The parties must all be placed in statu quo." This rule is of course subject to the qualification that where part of the seller's goods are no longer on hand, a court of bankruptcy will allow a reclamation of those goods which are on hand and allow the seller to retain so much of the debtor's payments on account, as are necessary to cover his damages for the conversion of goods not found among the bankrupt's assets.

§ 90. Seller may reclaim goods and also file claim for conversion of goods not recovered.

The seller has the right to prove a claim for the conversion of his property, and also to reclaim so (J. Day) "A claiming creditor should be required in the first instance to be diligent in the pursuit of his remedy, where he desires to rescind the contract of sale and recover the property passing under his contract. The vendor had the undoubted right, on learning of fraud practised upon him, to rescind the contract of sale, to recover the particular property if it could be found, or, if it had been sold, to recover the proceeds if known and not lost and so intermingled with other funds as to be indistinguishable either in kind or amount."

In the matter of Gay & Sturgis, 35 Am. B. R. 417, 224 Fed. 127, it was held that the referee has the right to fix a time for customers to file petitions to reclaim securities left by them with their stockbroker who had become bankrupt.

5. In the Matter of Murphy Burke, 11 Am. B. R. 429.

6. John Silvey & Co. vs. Tift, 17 Am. B. R. 9, 123 Ga. 804, 57 S. E. 748.

Pleading and practice.

much of his property as he can identify. The proof of claim must, however, be one for damages for conversion.

Generally, however, the petition in a reclamation proceeding should make the offer to return all moneys, received on account, upon the return of the goods, and thereafter the court will, after a hearing, make an appropriate order to cover payments made by the debtor and reimbursement to the seller for such of the seller's goods as are not found among the debtor's assets."

§ 91. Pleading and practice.

A case of fraud must appear from the facts set forth in the petition. The demand made on the receiver or trustee should appear in the petition, together with the rescission of the contract, and the tender to the court's representative of all things of value received from the debtor. It should likewise appear that the petitioner's property in the original

7. In Silvey vs. Tift, supra, the court said: "If a vendor in reliance upon material misrepresentations has made a sale, and has rescinded it on discovery of the fraud, but all of the property sold is not in the possession of the purchaser, and some of it has been sold or disposed of by him so as to be beyond the reach of the vendor, the latter may reclaim all the property which can be recovered. As to that which he cannot recover, he may have a right of action against the purchaser, not upon the contract, but based on the theory of the conversion of the goods not found, or an action based upon the contract implied by law where a vendee has disposed of the goods for money and the seller has waived the tort."