Buchler v. Black

226 F. 703 | 9th Cir. | 1915

GILBERT, Circuit Judge

(after stating the facts as above). [1] By his amendment to the prayer of the bill, whereby he waived relief upon the ground that the sale of the mining properties to Black and Bell was void for alleged want of jurisdiction of the defendant corporation and other alleged defects in the proceedings in the state court, the appellant left his suit lo be determined upon his prayer for a decree that the defendants Bell and Black hold the property, the title to which they acquired by the proceedings in the state court, in trust for the corporation and its creditors and stockholders. The appellant denies that such is the effect of his amendment; but it seems very clear that, having expressly waived relief on the ground of defect of title in Bell and Black, and having confined the relief sought to a prayer for a decree that Bell and Black be held as trustees, he impliedly affirms the legal title so acquired in the proceedings in the state court by Bell and Black, and upon equitable grounds seeks only to charge the property with a trust All the allegations of the bill, so far as they relate to the relief which is sought, and which are supported by the evidence, are properly to be considered in determining the quest ion whether the appellant is entitled to the relief prayed for.

In substance those allegations are that the mortgages, which were assigned to Bell, were for the most part without consideration and fraudulent; that the claim of Black was illegal and exorbitant, and should not have been allowed; that Black and Bell and the president of the company colluded together for the purpose of acquiring fraudulently the title to the mining properties; that no bona fide defense was made by the company to the suit; that Locke, who appeared as its attorney, did not investigate the merits of the case, or the merits of any of the claims asserted against the corporation; that the value of the property greatly exceeded the sum of $40,000; that Black and Bell owned and controlled a majority of the stock of the corporation, and were in actual control of said corporation; that they carelessly mismanaged said corporation, and neglected their duties as trustees and officers thereof, aud committed various breaches of trust.

The record is searched in vain for any evidence to substantiate the charge that Black colluded with Bell, or that either or both colluded with the president of the corporation, to obtain the mining properties in controversy. So far from collusion between Bell and Black, the evidence is that there was antagonism between them up to the very time when they agreed to bid jointly on the property. There is no evidence whatever that the mining property was worth more than the sum which they bid. The testimony is conclusive that the corporation was then, and had been for some years, insolvent. There is no evidence that any information was withheld from the appellant, or that he was not aware of the condition of the company, and the steps which were taken in the foreclosure suit, and all the proceedings in the receivership in the state court. In fact, the appellant requested Bell to foreclose his mortgages more than a year before the foreclosure suit was commenced, and urged Black to use his influence with Bell to bring about a foreclosure. Nor is there any evidence to impeach the bona fides of the mortgage debt, or of the claim of Black. Both were adjudged to be valid by the state superior court. The evidence, moreover, fails to show that either Black or Bell, or any officers of the corporation, misapplied the funds of the corporation, and there is also total .absence of evidence that Black and Bell, or either of them dominated the corporation.

[2, 3] But it is urged that Black, being a trustee and the general manager, occupied a fiduciary relation to the corporation, which prevented him from purchasing at the receiver’s sale, and holding adversely the assets of the company, and that the same is true of Bell. The contention, so far as Bell is concerned, is disposed of in few words. Bell was not a trustee of the corporation, and he never had been a trustee, except for one day in the year 1904, when he was temporarily made trustee to fill a vacancy in the board. Nor had he been the attorney of the corporation since the year 1906. He was the assignee of the mortgages. There was no reason in law or equity why he should not 'foreclose his mortgages and bid upon the mortgaged property at the receiver’s sale. It is true that Black occupied a fiduciary relation toward the corporation. But he did not procure the commencement of the foreclosure suit. On the contrary, he had done all that he could to prevent or delay foreclosure. Said the Supreme Court in Allen v. Gillette, 127 U. S. 589, 596, 8 Sup. Ct. 1331, 1334 (32 L. Ed. 271):

“The principle that a trustee may purchase the trust property at a judicial sale brought about by a third party, which he had taken no part in procuring, and over which he could not have had control, is upheld by numerous decisions of this court and of other courts of this country.” ,

At the time of the sale Black, as trustee, exercised no control over the property of the corporation. It had all been placed in the control of a court through its duly appointed receiver, and Black, holding a claim against the corporation, was as free to bid as a purchaser of the property as was any other creditor. Cases applying that principle are Starkweather v. Jenner, 216 U. S. 524, 30 Sup. Ct. 382, 54 L. Ed. 602, 17 Ann. Cas. 1167, Anderson v. Messinger, 146 Fed. 929, 77 C. C. A. 179, 7 L. R. A. (N. S.) 1094, and Steinbeck v. Bon Hpmme Mining Co., 152 Fed. 333, 81 C. C. A. 441. The appellant cites the recent decision of the Supreme Court of Waslnngton `in Stewart v. baldwin, 149 Pac. 662, But the important distinction between that case and the ease at bar is found in the material fact that in that case the administrator, the vahclity of whose sale of land was in conh-oversy, had flied the petition for the sale of the land, conducted the sale, and purchased the same at his own sale. The opinion in that case, with winch we are io accord, has, oti account of the dis-iiucdon we have noted, no application to the case at bar.

[4] I lut even if the corporation had ground for impeaclnng the tit Ic acquired by Black at the receiver's sale on account of his fiduciary relation to the coinpany~-and the appellant is in no stronger position to attach it than would have been the corporation~-~the right to the relief roaght is barred by the appellant's laches. Said the court in Twin Lick Oil Co. v. Marbury, 91 U. S. 587, 23 L., Ed. 328:

"Tin' doctrine is well settled that the option to avoid such a sate must he `n'reme within a reasonable time. This has never been held to be any tiet unoined maaber of days or years as applied to every case, like the statute (>1 Iheitations, lint naist be decblod in. each case upon all the elements of it `a P in `h a Ii'eet l:bat qucetien. Tuliese are generally the presence or absence of the parties at the place of the transaction, their knewledge or igneranee of tie as Ia tad of the facts which render It voidable, the permanent or fluctuating ci- racte of the subjeelaniatter of the transaction as affecting its value, and the actual rise or fall of the property in value during the period within iii -h this option ndght have been exercised. In fixing tins period in any pa rticula r case, we are hut little aided by the analogies of the statutes of iuinitaoe'l. `~` ~`` In tins class of cases the party is hound to act with rca sotiahle diagence as seen as the fraud is discovered, or his right to rescind is gone."

Jo that case a delay of "nearly four years" was held a bar to the snh. The appellant in the case at bar had, as we have seen, full notice of nil the proceedings. I-fe waited more than three years after the date of the sale before bringhig ins suit. In the meantime Bell and Black had expended $25,000 in assessment work on the claims. in Hoyt v. Latham, 143 U. S. 553, 569, 12 Sup. Ct. 568, 574 (36 L. Ed. 259) in a similar case the court said:

"ifader the eircnxashnices, we tienk the plaintiff should have taken inuae~ diale at lien."

In Patterson v. Hewitt, 195 U. S. 309, 319, 25 Sup. Ct. 35, 37 (49 L. Ed. 214) the court said:

"Thdeed, in seine cases the diligence required is measured by months, ntinev I Pta by years. " ~- And in ethers a delay of two, three, or fear years has been held fatal."

In Pittsburg & I. Co. v. Cleveland I. M. Co., 178 U. S. 270) 20 Sup. Ct. 931, 44 L. Ed. 1065, a delay of 2½ years was held fatal; and hi Rothschild v. Memphis & C. R. Co., 113 Ped. 476, 51 C. C. A. 310, the Cin:nit Court of Appeals for the Sixth Circuit, in a case quite similar to the case at bar, held that an objection made to the sale 17 mnon~hs after the dale thereof 1~~5 too late.

Again, the rule which req: tires Prompt action is held especially applicable to cases in which a sale of mining property is involved. Twin-Lick Oil Co. v. Marbury, supra; Johnston v. Standard Mining Co., 148 U. S. 360, 370, 13 Sup. Ct. 585, 37 L. Ed. 480; Pittsburg & I. Co. v. Cleveland I. M. Co., supra; Patterson v. Hewitt, supra. In Twin-Lick Oil Co. v. Marbury, the court said:

“Property worth thousands to-day is worth nothing to-morrow; and that which to-day would sell for $1,000 at its fair value may, by the natural changes of a week, or the energy and courage of desperate enterprise, in the same time be made to yield that much every day. The injustice, therefore, is obvious of permitting one holding the right to assert an ownership in such property to voluntarily await the event, and then decide, when the danger, which is over, has been at the risk of another, to come in and share the profit.”

In Johnston v. Standard Mining Co. the court said:

"The duty of inquiry was all the more peremptory in this case, from the fact that the property of itself was of uncertain character, and was liable, as is most mining property, to suddenly develop an enormous increase in value.”

We find no error. The decree is affirmed.