McElhenny's Appeal, No. 69

No. 69 | Pa. | Feb 24, 1869

The opinion of the Court was delivered, May 11th 1869, by

Thompson, C. J.

The plaintiffs below claimed a decree against the defendants as administrators of their intestate Mc-Elhenny, on an allegation of fraud in a sale to them by the intestate and others, of a certain tract of land in Venango county, as and for oil territory. In order to bring the intestate’s estate into liability to the company for money received by him in payment for the land, it must be made to appear that he occupied some fiduciary relation to it, so that the receipt o'f the money, although received by him for his own use, was, by means of the fraud practised in his fiduciary relation, money of the company. It is not damages in a case like this that equity gives, it is restoration of the thing wrongfully taken, viz., the money received, or an equal sum and interest. The testimony shows that McElhenny offered the land in this city to certain parties— Messrs. Baird and others — as oil territory, and which the proof showed it was believed to be, some two or three months before the formation of the Hubert Oil Co. That he asked $12,000 for it (he said it had cost him that), and a share of the profits to be made by the purchasers from him, in case they put it into a company at the sum of $40,000. An association of several persons was formed and they agreed to take the land from him on these terms, and subscribed in shares of different amounts, to make the sum up. Before offering the land to a company, a committee of these promoters visited the land and reported favorably as to the probability of its being oil territory. The description in the deed and papers show that it was situated between Eranldin, Yenango county (where the first oil discoveries were made), and Oil Creek (where the greatest developments of oil have occurred), at about three miles distant from the former, and six or seven from the latter. Geographically considered there was good reason for the belief that on this lot were oil deposits, as well as on either side of it. The testimony was, that parties were boring for oil on the land when the committee went to view it, and that there was a good show for oil upon it.

Mr. Boyd, one of the buyers from McElhenny, and a promoter of the Hubert Oil Company, states the contract between McElhenny and his associates thus : “ The land was to cost us $12,000. McElhenny said the land cost $12,000. That’s what he was to charge us. We were to sell it for $40,000, and were to make the profit: the difference between $12,000 and $40,000 he was to have a share of.” This is substantially what all the witnesses agree was the arrangement. The manner of disposing of the property, no doubt was by a sale intended to be made to a company, but not necessarily so, if the same price could be obtained otherwise. These purchasers from McElhenny soon got up a subscription for the purpose of raising the sum of $40,000, to pay for the land, and beyond that a sum sufiicient to commence operations upon. Eorty-seven thousand dollars were subscribed and paid in money and checks to the associators, and an association was formed for the incorporation of the Hubert Oil Company, the capital of which was fixed at $500,000 — 100,000 shares, of the par value of $5 per share.

It nowhere appears that McElhenny, the purchaser from Hubert, the original owner, did it as the agent of Messrs. Baird, Boyd & Co. and others, although he bought it to sell again, no doubt. He had a perfect right therefore to deal with them at arm’s length, as it seems he did, and what he said about the cost of the property does not appear to have been relied upon as the inducement on their part, for they sent a committee to examine the land, who reported favorably to a purchase on the terms proposed, and they contracted as already stated. McElhenny did not become an associate. It is true his name appears as a subscriber to the ..extent of $2000, to raise capital to found the company. It is doubtful whether he subscribed himself or not, but if he did, there is not a particle of evidence to show that he subscribed with any doubt of the character of the land as oil territory. The witnesses agree that from location and appearance, the property could have been sold as oil territory, after the purchase from McElhenny, to others for from $40,000 to $50,000. But it is not for deceit nor for a rescission of the contract that this hill is filed, hut for a restoration of money wrongfully obtained from the company, in the shape of profits. If the property was not purchased by McElhenny for the use and as agent of the company, but for his own use (and this is the proof in the case), he might sell it at a profit most assuredly. No subsequent purchasers from his vendees would have any right to call upon him to account for the profits made on his sale. The parties to whom he sold, have never asked him to account to them for the profit at which he sold to them. They have not pretended that he was their agent in making the purchase, and I am unable to understand the ground of a right in the company to demand it. The difference between the sum he paid, and that at which he sold, he was as fairly entitled to as to the sum paid. Seeing no evidence of agency, or of a trust, or a fiduciary relation between the plaintiff and the defendants’ intestate thus far, we are of opinion that there was error in decreeing payment of any portion of the profits made by him in the sale to the promoters of the Hubert Oil Co.; and to the extent of $7000, this decree is to be modified.

There was nothing to be made by the charge in the bill, that “McElhenny was not the owner of the land when he sold it.” The company got it by a deed of conveyance from the vendor of McElhenny, by arrangement between it and its vendors, and they have it. They obtained what they bargained for, and the manner of conveyance must have been their own choice. It resulted from the contract with McElhenny.

At this point another inquiry arises, is the estate of McElhenny liable in equity to refund to the company the share of the profits received by him over the sum of $12,000? We are inclined to think it is. After the contract and - sale to Baird, Boyd and others, he associated with them, as purchaser at $40,000, on which to found a company; thus they became buyers and sellers to and for the company. The rule seems to be settled in numerous cases, not necessary to be cited, as they have to some extent been referred to, in Simons and Weeks v. The Vulcan Oil Co. (postea p. 202), that the promoters of such companies, when they buy to form a company, and their purchases are taken by the company, they cannot make profits on these sales. Their position must be regarded as one of trust and confidence. McElhenny, by his subscription, whether made or authorized by him, contributed to give the appearance of a purchase of the land that was not real, and was far beyond what he and the other associators gave for it if it had been real. After selling to Baird, Boyd and others, and then joining them in selling to the company, he assumed their position and liabilities, and if they could not make a profit, he could not. That they could not, results from the fact that they professed to buy for the company in purchasing from McElhenny. Good faith requires that they be held to that position, and he with them. His estate should therefore be required to contribute from its assets, if they be sufficient, a sum equal to the profits received by him from the company, in the sale by the promoters to it, namely, the sum of $2083.34, with interest from 12th Dec. 1864, and to pay costs, excepting the costs of this appeal, which the appellee is ordered to pay. Let a decree be entered in form to this effect.

Sharswood, J., dissented.