Edmonds v. Spanish River Pulp & Paper Co.

206 F. 92 | E.D. Wis. | 1913

GEIGER, District Judge

(after stating the facts as above). [1] Upon the trial the complainant urged his right to relief upon three grounds:

First. That the defendant had falsely and fraudulently misrepresented to him its title and ownership of the water power appurtenant to its mill property- — in substance, that it represented absolute ownership, when in truth and in fact it did not own it, but that the title to said water power rested in the provincial government of Ontario.

Second. That the defendant falsely and fraudulently represented that it had the right to flow or flood the lands covered by the provincial lease dated March 27, 1902, and thereby to maintain its dam to the height of 60 feet, in perpetuity, and suppressed the fact that it had such flowage privilege for the limited term of 21 years from April 1, 1902.

Third. That the defendant wrongfully declared a forfeiture of the rights of the complainant under the contract of April 20, 1907.

At the conclusion of an exhaustive argument, I expressed the opin- ■ ion that the complainant had failed utterly to establish his allegations of fraud, fraudulent representations, or concealment. A further examination of the evidence has satisfied me of the correctness of such opinion. While there is conflict between the witnesses on certain points, such conflict is reconcilable with other undisputed facts in the case; so that the application of certain elementary principles of law can be made readily, and to the exclusion of doubt.

The situation of the defendant company being as indicated, the complainant, with Brown and Edmonds, entered into negotiations with the defendant company in the month of November, 1906. These were conducted orally, not evidenced by memorandum other than the following :

“Toronto, December 10, 1906.

“Messrs. The Spanish River Pulp & Paper Co., Orillia, Out.

“Gentlemen: We agree, subject to being able to finance the proposition by the first oí March next, to purchase the entire assets, free from encumbrance, of your property, with the exception of your hook accounts and bills receivable, for the sum of §2,150,000, payable in cash on or before the above date, and agree to take over all contracts you have made In connection with the business of the company. [Signed] A. W. Brown.

“E. A. Edmonds.

“A. D. Daniels.

“We hereby accept the within proposition on behalf of the Spanish River Pulp and Paper Co. W. J. Shepard.

“James B. Tudhope, Secretary and Treasurer.”

Brown and Daniels assigned their rights under this memorandum to the complainant. They had all visited the plant and property of the defendant, inspected the same, and doubtless talked with the officers of the defendant in a general way respecting the property, the extent of the holdings, and probably the character of the titles. No doubt, the defendant having the concession agreements, having lands in fee, the parties discussed as business men would the subject-matter of the memorandum, with a view of reaching the general conclusion of purchase and sale therein expressed. The deal was not consummated, probably because of the inability of complainant to “finance it,” but during the time that it was pending under this memorandum he received a complete list and description of all of defendant’s holdings which became the subject-matter of the later contract entered into. He endeavored to interest persons to co-operate with him in carrying out the purchase, and his solicitor had drawn a form of mortgage or trust agreement upon which he proposed to borrow the money for that purpose. Although it was a matter of sharp controversy, there is no doubt hut complainant was apprised with reasonable certainty of just what the defendant professed to own. It is urged by the complainant that, when this original memorandum was entered into, he and his two associates, either upon inquiry or upon the volunteer statements of officials of the defendant company, learned that the latter owned the water power appurtenant to the land upon which the mill is situated, also, the so-called flowage rights. He therefore claims that, although the contemplated purchase under the memorandum of December 10, 1906, was never carried out, the representations made at that time, the information obtained in his negotiations, were not renounced or modified by the defendant company or by any of its officers, but in truth relied upon by him*when he personally resumed negotiations with the defendant company’s officers, which resulted in the making of the contract herein under- date of April 20, 1907, set out at length in the bill. It is immaterial whether negotiations were resumed at the solicitation of the complainant or of the defendant, but it is noteworthy that such formal engagement contains certain provisions, doubtless inserted for the protection of defendant, but respecting whose meaning there can be no doubt.

First. That the defendant company sell to the complainant its pulp-mill, “together with all its freehold and leasehold lands and water power now owned by the company” as of the 1st day of March, 1907.

Second. That the purchaser (complainant) “acknowledges that he has examined the property of the company and the concession agreement aforesaid and accepts the same and the company’s title thereto as it stood on said first day of March, 1907, the company agreeing only to transfer to the purchaser such title as they possess.”

Third. That such agreement was subject to approval by the shareholders of the defendant company to be obtained with dispatch, and in case of nonapproval purchaser’s cash payment to be returned to him.

Fourth. That in the event the purchaser failed to carry out the agreement and make the payment agreed to be made January 1, 1908, the cash payment of $100,000 shall be forfeited to the company as ascertained and liquidated damages, the agreement terminate with no liability on the part of the defendant to account for the operation of the business and for any profit made therein.

The agreement thus dated April 20, 1907, having been executed at or about the same time, complainant very soon thereafter prepared to carry it out by, among other things, causing examination to be made of the company’s titles, and assuming direction of defendant’s business pursuant to clause 2 of said contract. The defendant claims to have given to complainant’s solicitor full information respecting the titles, delivering him its title deeds and papers, and he proceeded with such work of examination. Within a short time a discussion arose between complainant and defendant through their respective solicitors respecting the one phase of the title of the water power, suppression of the facts whereof is the gravamen of complainant’s claim of fraud upon which he bases his right to rescind. The water power in question is found in the Spanish river, where it traverses a tract of land owned by the defendant, which tract it obtained from its predecessors in title, the provincial government having originally granted the land on either side of the stream by one patent. Apparently, by virtue of such grant, the defendant and all its predecessors had assumed and enjoyed unquestioned title to the bed of the stream, and the consequent ownership of the water power created and developed as stated in the case. It appears, however, that in October, 1906, a decision had been ren-dcred by the high court of the province of Ontario, a court of general jurisdiction, in two .cases which are referred to in the record as the “Kenora Cases.” The decision, in effect, declined to follow what was supposed to be the common-law rule then in force in the' province, that, where a grant is made by the government of lands on either side of a stream, the full riparian rights vested in the grantee, that is, that the bed of the stream passed with the grant. It was held that, while at conunon-law such was the presumption, it was not the law of Ontario respecting streams tributary to the Great Rakes, and hence, unless the terms of the grant from the government, or other attending circumstances, disclosed an intention on the part of the sovereign to relinquish the title to the bed of the stream and the riparian rights, the presumption was against such intention. It may he admitted, as the fact was, that the decision occasioned surprise, and doubtless caused some apprehension respecting the stability of titles to which water power and riparian rights had theretofore been deemed to be appurtenant.

Soon after commencing his work of examination of titles, complainant’s solicitor, in a letter to complainant, exhaustively discussed the Kenora decision and its pertinency to the subject-matter of complainant's proposed purchase of the defendant’s water power; but, although he apparently advised the making of a requisition on the defendant which would clear the doubt created by such decision whether well or ill founded, he seems to have concurred in the attitude of defendant’s solicitors that the doubt was wholly eliminated by the supplemental contract made by the province of Ontario with the defendant in 1904, and the provincial lease of the so-called flood lands made March 27, 1902, both of which give unequivocal recognition to defendant’s ownership of the water power, and confer rights which could not be conferred except upon the hypothesis of ownership. Such letter is dated June 13, 1907. The complainant in a letter to his solicitor acknowledging the receipt of the former seems to fully appreciate the subject-matter thereof. The solicitor wrote a similar letter to the president of the defendant company, also its solicitors, making a formal requisition on the latter for a confirmation of defendant’s title.

In this situation, the only question between the parties was respecting the applicability of the so-called “Kenora” decision. That it was discussed between the parties is no doubt true; but it is equally true that the defendant and its officers from the inception of negotiations with the complainant in the fall of 1906 at no time represented or claimed the situation to be other than it in fact was, namely, the ownership of the water power by virtue of the ownership of the lands to which it was appurtenant, recognized as such by the government. In other words, the claim was made that, because the defendant owned pursuant to a grant conveying both sides of the stream, it owned the water power. This situation continued until July 11, 1907, on which day there was convened the shareholders’ meeting to act upon the ratification of the contract made with complainant. At this time each party recognized fully and precisely the subject-matter of the proposed contract, each conceded the title to the water power to be good, the complainant having suggested the possible doubt, which each regarded as remote, arising out of the “Kenora” decision. It appears without substantial dispute that on or before the date of such shareholders’ meeting the complainant and his solicitors had been and were urging the defendant’s officers and solicitors to submit to such shareholders the question respecting the title as affected by the “Kenora” decision, doubtless for the purpose of reserving to the complainant the right to cause the defendant to respond to him in the event that the government should at any time in the future succeed in assailing the title to the water power. This, however, was steadfastly refused; defendant’s officers and solicitors insisting that the title was good. They prevailed in their purpose, fully disclosed to the complainant, not to submit the matter of doubt arising out of the “Kenora” decision, and entertained by him, but not by them, to the shareholders in any form whatsoever; and complainant in such situation permitted the contract to go before the shareholders for ratification, which was done, and thereupon the $100,000 which'complainant had theretofore placed in escrow with the bank at Toronto, to be turned over upon ratification, was paid to the defendant.

At and prior to this time the complainant had assumed direction of the defendant’s business under the terms of such contract, and continued therein until about December 16, 1907. The matter of the doubt respecting the title to the water power received attention in various ways. The defendant’s officers, while protesting that the title was good, offered, in order to enable, complainant better to promote the scheme for financing his undertaking, to assist him in prosecuting with the commissioner of crown lands of Ontario, an application for a patent or grant confirming the title. It is claimed by the complainant that the government officials, on the strength of the “Kenora” decision, declined to admit full title in the defendant company, but that they expressed a willingness to give a long time lease, provided the govérnment’s ultimate title to the bed of the stream were concurrently confirmed. Defendant’s officers, however, refused to entertain any such proposition, because by doing so they would give recognition to an infirmity of their title. It does not appear that th.e defendant or its officers presented any such matters before the government, other than as stated, by way of assisting the complainant.

The testimony shows that, after the ratification of the contract,' complainant devoted much of his time toward promoting the ultimate consummation of his contract, by endeavoring to raise the money through mortgage or trust agreements, but that success did not attend his effort. On November 29, 1907, doubtless having represented his inability to raise the funds necessary to make the payments maturing on January 1, 1908, he induced the defendant to agree to a modification of the terms of the original contract, whereby the deferred payment, instead of being in cash to the amount specified in the contract, was to be covered by a large amount of second-mortgage bonds to be taken in lieu thereof, and the cash balance was in other respects modified as to terms. :Such proposed modifying agreement was in writing, and in all other respects expressly ratified the original agreement. It- was mailed to complainant, who, on December 7, 1907, acknowledging receipt, wrote to one of the defendant’s officers:

“I feel that it is not wise for jne to accept the agreement sent me as it is worded, and this makes it necessary for me to endeavor to arrange with yon some other method of extension of the present agreement. I hope this can be done without delay and to our mutual advantage.”

Accordingly, on or about December 21, 1907, after a conference, in which complainant, defendant, and their respective solicitors participated, a further and different proposed extension agreement, reduced to writing, was left with complainant for signature and acceptance; this also in express ratification of the first agreement, particularly with reference to the property to be conveyed, provided for a modification of the time of performance, the terms of payment of the cash balance increasing by a very considerable amount the deferred payments to be accepted by the defendant secured by second mortgage on the property. Doubtless the parties agreed upon the terms, but without any explanation discoverable in the record, complainant, having this assurance from defendant thus to modify the agreement, suddenly terminated all further connection with the management of the business, and on January 1, 1909, failed to respond in any way to the terms of the original contract, or to enter into the proposed modified contract, assented to as stated. Thereupon, on or about January 10, 1908, the defendant served him with a notice requiring that he meet the terms of the contract of April 20, 1907, by February 15, 1908, in default of which his rights thereunder would be declared forfeited; doubtless intending thereby to assert its rights under clause 7 of such original contract.

It is to be noted that during all this time complainant not once claimed or suggested to the defendant or its officers that it or they had been guilty in any manner of misrepresentation or suppression of facts. On the contrary, as hereinafter noted, he maintained the attitude of performance, doubtless requesting and receiving defendant’s agreement to modify the terms of payment to enable him to meet the stress of financial situation in which he found himself, or expected to find himself January 1, 1908. No response was made by the complainant to the demand for performance served upon him, but immediately thereafter, and on or about January 16, 1908, complainant’s solicitor addressed a letter to defendant’s solicitors inquiring whether the defendant would be able to convey a fee-simple title to the water power on February 15th, as stated in the notice theretof-ore served. To this defendant’s solicitor replied that it would be ready on the day mentioned, as it always had been, to comply with all the terms of the contract entered into April 20, 1907. In the meantime, however, nnd during the months of December and January, as late as January 31, 1908, complainant, although having ignored defendant’s assurances that it would accede to his request for a modification of the terms of payment, was nevertheless in communication with various persons interested in the paper and pulp business, soliciting and importuning them to become associated with him in his venture, and giving in detail estimates of the advantages of the same. It may be noted that in these communications, written when he was in actual default (except for the period of grace given him by defendant’s notice), he represent.ed to third persons that his then existing rights under the contract were in fact such as they would have been and as it was sought to confer upon him by the extension agreement which he had ignored and refused to sign. No request was made of defendant- for further time, no intimation that, because of the financial situation, further indulgence should be granted him; but, on the contrary, the defendant was wholly ignored, excepting by the letter of complainant’s solicitor above referred to. It further appears that on January 22, 1908, the so-called “Kenora” decision was reversed by the appellate judicial tribunal of Canada, and that the complainant learned thereof within a day or two.

In May, 1908, without further intercourse between complainant and defendant, this suit was started, the bill in which, apparently for the first time, conveyed to tire defendant any claim of fraud or suppression of facts respecting the subject-matter of the contract. Granting that there is a possibility of spelling out of the evidence in the case a failure on the part of the defendant’s officers originally to disclose the precise situation respecting its title to the water power because it failed to communicate to the complainant the doubt growing out of the “Kenora” decision, the material and conclusive fact against the complainant is that long before the contract had become operative he was fully apprised of the situation. The contract did not become operative, so far as he was concerned, because of his reliance upon the nonexistence of a situation such as he now claims was credited by the “Kenora” decision. Knowing and appreciating it fully, and knowing that the proposed contract was tentatively entered into, with the disclaimer on the part of the officers of the defendant company of authority to enable its execution by them on the defendant’s behalf, it seems to me absurd for the complainant now to assert that whatever representations were made by such officers prior to ratification should be imputed to the defendant when, to the knowledge of complainant, the ratified contract was intended to be and is repugnant to such representations. It seems idle to contend that the-defendant’s officers, disclaiming authority to bind the defendant to the written stipulations of the contract which provide for a conveyance merely of the defendant’s interest, could still bind it by their oral representations that such written provisions would not be insisted upon >after ratification. Complainant has indicated in no way the possibility of removing this incongruity, and it seems to me to be conclusive against his contentions of suppression, misrepresentation, or overreaching. He was precisely informed respecting the situation as it went to the shareholders of the defendant company, and by his own acquiescence foreclosed complaint against the terms of the contract.

With respect to complainant’s second contention, that the defendant concealed the fact that certain of the so-called flowage rights were held only under a lease, it is urged that not only was the fact of such lease suppressed, but also the fact that through such lease, for a limited period, the company was enabled to maintain its dam- at a greater height than-without such lease, and hence the maintenance of the dam at a 60-foot head was dependent very substantially upon a mere leasehold.

The facts are in my judgment as clear and free from doubt as are those respecting the title to the water power dependent upon ownership of the bed of the stream. After complainant and his associates Brown and Daniels entered into the- memorandum of December, 1906, and particularly during the month of January, 1907, complainant’s solicitor, although disclaiming making an examination of titles, was put in possession, as defendant insists, of all the title papers of the latter company. It was sharply disputed in the case whether such solicitor ' obtained knowledge of the so-called lease of flowage rights until the day after the meeting of shareholders in July, 1908. I am satisfied that he leartied of the state of all the defendant’s titles as early as January, 1907. In the latter month complainant, in his endeavors to finance the deal, had opened negotiations with third parties looking to the execution of a trust deed or mortgage to raise the requisite funds to carry it out. His solicitor at that time prepared a proposed trust deed which contained accurate descriptions of all of the lands of the defendant company which it was then contemplated should be transferred under date of March 1, 1907. The description and phraseology respecting titles therein are identical with the language of title papers testified to have been given complainant’s solicitor in January, 1907, and, under the system of registration of titles, such description as pertained to mortgages of water-power lands could have been obtained from no source excepting from papers in the possession of defendant’s solicitor and claimed to have been given to complainant’s solicitor. In a letter addressed to complainant under date of June 13, 1907'— a month prior to the ratification of the contract — in discussing defendant’s claims respecting title to ownership of the water power because it owned both sides of the stream, that the province of Ontario by supplemental agreement and lease, had fully recognized such ownership, the solicitor states:

"The company (defendant) found on examination of engineers, etc., that they required to build a dam to increase the power at the falls, and in order to do so would have to .flood certain lands further up the river, and in fact it has affected certain falls on the Vermillion river claimed by the Manitoulin & North Shore Railway. The government in dealing with that matter felt that in order for the undertaking to be carried out by the present company (defendant) these grants and right to flow lands further up the river should be granted, and although there was opposition to that by parties interested, the government granted these privileges to the present company, thus showing that at all times they treated this water power as belonging to the present company, and that the present company should be protected and encouraged in their undertakings.”

In the mortgage prepared by the complainant’s solicitor in January, 1907, the lands thus referred to in his letter are described by him in the language contained in the former mortgage made by the defendant company, and particularly as a lease, giving the right to pen up and, dam hack the waters, notwithstanding that it might affect the Vermillion Falls. In a letter written by him to defendant’s solicitors under date of July 18, 1907 — and which would be six days after July 12th, when it was claimed he for the first time learned of the existence of the so-called lease, he says:

“In reference to the lease with the crown of the lands in the township of Foster, or the right to dam or pen back the river giving the company a head of 60' at their mills, we may say that we examined this crown lease in your office some time ago and in writing Mr. Shepard and Mr. Tudhope in reference to the defect in title, we xjoinfed out to them that we considered the rights given in that lease to be the strongest elaim which the company had the government to force them to give absolute title as in that lease they have practically recognized the company’s title to the water power.”

The testimony shows that the correspondence with Shepard and Tudhope, last before referred to, was approximately at the date of the complainant’s solicitor’s letter dated June 13, 1907.

It was not until Janúary 18, 1908, and after defendant1 had served a notice on complainant requiring him to perform his contract, that any intimation or claim was ever made of suppression of knowledge of defendant’s actual rights under this so-called lease or the existence thereof. The letters written by complainant’s solicitor to defendant’s solicitor under date of December 14th and January 18th, wherein it is assumed, apparently without foundation, that the defendant was proceeding in the discharge of some obligation to perfect titles, are strongly at variance with the complainant’s own silence toward the defendant and with his letters to third parties seeking their co-operation and interest in promoting the venture. I think his contention is clearly an afterthought, and there is no testimony whatever to support it, much less to overcome the positive provisions of the contract requiring him to purchase the interest of the defendant company as it stood on March 1, 1907.

[2] Complainant’s third contention, in substance, is that, the defendant being guilty of an attempted wrongful forfeiture, he thereby has the right to rescind the contract and to have the payment made by him restored. It is urged that the $100,000, which the complainant paid, should be treated as security, and hence, although the contract provided that the amount could be retained as ascertained and liquidated damages, a court of equity should relieve as against a forfeiture, and limit the defendant to actual damages. But the amount paid by the plaintiff was not security — it was a part payment on the contract to purchase the defendant’s property — and the mere fact that the defendant notified him after he was in default that, unless he would perform within a stated time, it would treat the contract as at an end, did not transform the payment of $100,000 into anything else. It was an escrow, and became an.actual, part payment for the use of the defendant, upon ratification of the contract; and the pleadings, complainant’s testimony, his correspondence with third parties whom he importuned to assist in promoting the venture, treat it as such and nothing else. That the loss of $100,000 is burdensome to the complainant may be conceded; that the defendant’s right to retain it is unconscionable is an entirely different question. We know of no rule in the construction or enforcement of ordinary contracts of sale which gives to the vendee the -right to recover payments made by him whenever he is in default and the vendor seeks to enforce the contract, either by insisting upon its terms, or by proceedings to foreclose. The complainant here did not seek to be relieved from the terms of the contract and to have the defendant’s damages assessed. He did not seek the aid of a court of equity to enable performance after he was in default. Even after he had defaulted, and after defendant demanded that he perform, he took the position with third persons of asserting his rights under the contract as though he were not in default. But, when he Anally failed in his efforts to finance the deal, he severed all relations with the defendant, and some months later instituted this suit, seeking to rescind the entire contract upon the ground of a fraud, which on the face of the bill was none other than a deliberate deceit and suppression of facts. He was not in a position, not having offered to perform or to do equity, to face about when he found that the facts did not substantiate his bill, and to complain because the defendant adopted the course which his own conduct compelled it to adopt. He has urged that the defendant, although offering to perform, could not perform because the title to the water power still remained defective —the so-called lease being nonassignable- — without the assent of the province. He did not, however, on that ground, refuse to perform. He did not demand performance, but, on the contrary, ignored defendant’s offer to perform. In any event, there is nothing to show that defendant was not able and willing at the time fixed to perform fully the contract which it had made with complainant.

A decree may be entered dismissing the bill.