263 F. 847 | 8th Cir. | 1920
The facts as we find them to he from the record are as follows: Prior to December 10, 1913, Victor C. McGirr had been the owner of the land in controversy. On said date he ceased to be the owner thereof by virtue of the foreclosure of a mortgage thereon given by him to one Henry Schütz and the issuance of a deed pursuant to such foreclosure to the Burns National Bank of Durango, Colo. The land had also been sold subject to the Schütz mortgage to- pay a judgment of the United Securities Company. The Durango Bank, however, had agreed that the land in controversy might be repurchased by Ross EMcGirr, trustee, within a reasonable time. In this condition of the land Victor C. McGirr, with the intention of raising money to pay off the liens against the land, and of forming a corporation which should take over the same and such other timber land as could be purchased, for the purpose of cutting and, selling the timber thereon, visited Colorado Springs, Omaha, Topeka, Kansas City, Chicago, and finally Minneapolis, Minn. There he met Mason Spicer, Russell Spicer, and Carl Wallace, who were connected with the Meadow Valley Rand Company. McGirr estimated that it would require $50,000 to pay the indebtedness against the land, the expenses of incorporating a new company, and such stuns as would be required to purchase additional timber. After some weeks of negotiation, Mason Spicer, Russell Spicer, and McGirr went to Colorado for the purpose of examining the land. They visited Pagosa Springs and Durango, but on account of snow could not make a proper examination. The Spicers, however, from such information as they could gather, decided that they could not advance more than $40,000 with the land as security. After further negotiations on February 11, 1914, the Durango Bank and Schütz by quitclaim deeds conveyed the land to Ross E. McGirr for $15,000. February 17, 1914, the United Securities Company conveyed the land by quitclaim deed to Ross E. McGirr for $4,500. February 13, 1914, Ross E. McGirr conveyed the land to Russell Spicer in trust to secure
' There is no question of innocent purchaser in the case and none is claimed. The Investment Company took the title to the land with knowledge of all the transactions relating to the same which were had between the Spicers and McGirrs. Commencing with the negotiations at Minneapolis, and continuing on through the whole transaction prior to the commencement of this action, it was agreed between Victor C. McGirr and the Spicers that a corporation should be formed for the exploitation of the timber growing upon the land in question, together with such other timber land as Victor C. McGirr might purchase, to which corporation should be conveyed the land in question and such other timber land as should he purchased; that the interest of the Spicers and their associates and Victor C. McGirr in the new corporation should be represented by the issuance of stock; that the common stock should be equally divided between the Spicers and their associates and Victor C. McGirr; that the land in question should be suhject to the lien of a trust deed to be executed by McGirr to the Spicers, or one of them, to secure the payment of money to be advanced by the Spicers for clearing the title to the land.
It was also agreed, at the time of giving the trust deed hereinbefore mentioned by Ross E. McGirr, that the notes, the payment of which the trust deed was given to secure should be paid by the corporation which was to be formed, and that the McGirrs, or either of them, should not be liable for the debt thus secured; that the object of the trust-deed was to secure the Spicers, or whoever had advanced any money to pay off liens upon the land, or the purchase price thereof paid to the Durango Bank and the Securities Company, pending the formation of the new corporation. It was further agreed between the parties that Victor C. McGirr should organize the corporation and the land -in controversy should be conveyed to it; that the Spicers should advance the money to purchase such timber lands from the government or other parties as could be purchased; and that, if the treasury stock of the new corporation could not be sold for sufficient money to pay the indebtedness secured by the trust deed, then the Spicers would take care of the notes themselves. Victor C. Me
The trial court found the facts in substance as above stated, but we have stated them more in detail. There are certain items of evidence to which we desire to call attention. We quote the following from the letter written by Mason W. Spicer to Victor C. McGirr, dated March 21, 1914:
“Regarding the $1,800, if you will read your contract, you will notice that $1,300 was the agreed expense incurred, in the inspection of the property and $500 was to be used for the purpose of incorporating.
“Regarding the incorporation of the company, it would be a very unwise move to incorporate the company in Colorado and expect to sell a dollar’s work of stock in Minnesota. This positively cannot be done, and there is no use entertaining that proposition. The more local people are interested, the better the proposition will be. We have even thought it would be advisable to have the secretary here until the company is fully organized, on account of issuing stock, which .would have to be signed by the secretary, as our deal will have to be closed immediately upon this sale; then, when the company is on its feet, to let you or your brother act as secretary from that time on. The same thing would probably be true regarding the treasurer of the company.
“I am glad to note that you are getting along so nicely with the bank connections (here, and trust that things will be in such shape that somebody connected with- the bank will be glad to act as treasurer a little later.
"Kindly keep us advised as to the progress you are making. We do not feel that a report every five or six weeks keeps us in touch with the proposition, to give us a chance to do much at this end, and in your next letter, I would appreciate it if you would be a little more definite as to the time when you anticípale closing the government contract, as wo are ready to go ahead and incorporate as soon as you have things lined up there.”
Also the lines from a letter written by the same party to Victor C. McGirr, March 24, 1914:
“Regarding incorporating, I have had tho matter up with the others here, and Ihey think that it would be a big mistake if we do not incorporate here, unless we get a chance to deal it on some satisfactory basis.”
In a letter dated December 7, 1914, to Mrs. Hattie McGirr, Pagosa Springs, Colo., the Meadow Valley Land Company, by Mason W. Spicer, used the following language :
“We are located so far from the property, and it is so expensive showing It, that we have not thought that we were at liberty to incur the expense neees*852 sary in showing this property under the present circumstances, as we are entitled to a deed for a one-half interest and have never been able to secure this.”
In a letter to Victor C. McGirr dated December 23, 1914, and signed, “Meadow Valley Land Co., by Mason W. Spicer,” the following language is used:
“I think that everybody who entered into this arrangement with you originally intends to go through with the deal, and would be very glad to go through with it now, if you are able to put it through along the lines which you claimed you could. If you could consider a new loan for a long length of time, I am satisfied that we could arrange to complete the negotiations which you were going to consummate last May. If you cannot complete things along this line, we think that you should send us a quitclaim deed to your one-half interest in the land according to our agreement as to our interest.”
At the time the last two letters were written, Russell Spicer had already bid in the land at the foreclosure sale. On July 9, 1914, Mason W. Spicer writes to Ross R. McGirr as follows:
“You will recall by our contract that there were a number of matters Victor promised to do, none of which, to our knowledge, has been complied with. You undoubtedly will recall that there is a payment this month or next month of interest on the mortgage. At the time this mortgage was made, it was expressly understood that some method would he used to meet the interest and to comply with the conditions of the contraet. It seems to me that, if you are unable to secure a loan to take care of the mortgage, as no steps have been taken for the organization of the company along the lines proposed, that this mortgage will have to be foreclosed.”
When Mason W. Spicer was called as a witness in this case, he said, among other tilings:
“All the time, before and after this matter came up, we talked about organizing a corporation; that was McGirr’s idea — to secure valuable timber holdings from the government which he could purchase.”
The witness was then asked the question:
“Q. How was he to secure these timber lands? A. He owned at this time 2,8S0 acres of land, over which had been constructed a railroad previously, or a roadbed, and to get at the government timber it was necessary to go across this land. If he could protect his title, he could make the contract; the government was going to lease him the timber at 5 per cent, increase each year for five years. He could secure it on a basis of two or three dollars a thousand. And we started to Denver with this understanding: That, if everything turned out satisfactory, Tallman and my brother would make the loan of $30,000, I would put in the $10,000 mortgage, and if they made this loan, and the thing lined%p in the proper kind of shape, Wallace and I were to interest ourselves with McGirr after he had secured the government contract. We talked over the question of incorporation, and agreed to put up $500 with Wallace to pay the expenses of incorporation, and McGirr was to be the attorney and organize the company. * * * As far as the loan was concerned, my brother figured that he could make the loan safely and the mortgage would be paid off, if McGirr secured the government contract and a company was organized and put upon an equitable basis. * * * We finally settled upon a corporation to be determined upon later, and Park drew up Exhibit A-50, which is as follows and which McGirr signed.”
The witness further testified as follows:
“Q. What was your brother Russell to have in the proposed company? A. I had never settled on anything definite. We expected to have an interest*853 in the comiiany, and never had any idea what Wallace or I would do; bat wo expected to interest people in our share of the company, practical timber-people, and eventually I expected I could acquire some of that stock and participate in some of the profits to be made.
“Q. And, in const deration of making the loan, you were to have the $7,500 bonus, all of this expense, and more than one-half interest in the equity in the land; is that true? A. Yes.
“Q. And he was to pay all the expenses out of this money that teas borrowed? Then how was the loan to be paid? A. 'The company was to be organized, MeGirr was to get the government timber within six months, and he also talked of an additional 4,000 aeres of timber. 'The land was to be deeded to the corporation, subject to the mortgage; I presume the company was to pay the mortgage.”
“It is an established doctrine that a court of equity will treat a deed, absolute in form as a mortgage, when it is executed as security for a loan of money. That court looks beyond the terms of the instrument to the real transaction, and when that is shown to be one of security, and not of sale, it will give effect to the actual contract of the parties? As the equity, upon which the court acts in such cases, arises from the real character of the transaction, any evidence, written or oral, tending to show this is admissible. The rule which excludes parol testimony to contradict or vary a written instrument has reference to the language used by the parties. That cannot be qualified or varied from its natural import, but must speak for itself. The rule does not forbid an inquiry into the object of the parties in executing and receiving the instrument. Thus it may be shown that a deed was made to defraud creditors, or to give a preference, or to secure a loan, or for any other object not apparent on its face. The object of parties in such cases will be considered by a court of equity; it constitutes a ground for the exercise of its jurisdiction, which will always be asserted to prevent fraud or oppression, and to promote justice. Hughes v. Edwards, 9 Wheat. 489 [6 L. Ed. 142]; Russell v. Southard, 12 How. 139 [13 L. Ed. 927]; Taylor v. Luther, 2 Sumn. 228 [Fed. Cas. 13796]; Pierce v. Robinson, 13 Cal. 116.”
The same rule is stated in Brick v. Brick, 98 U. S. 516, 25 L. Ed. 256.
Michels v. Olmstead, 157 U. S. 198, 15 Sup. Ct. 580, 39 L. Ed. 671, was a case where Olmstead brought a bill in equity to enjoin Michels from prosecuting an action at law against Olmstead to recover damages for the breach of a contract in writing by which Michels agreed to furnish and to put into a building to be erected by Olmstead at Kansas City, Mo., the machinery necessary for manufacturing corn into a syrup commonly called “glucose.” The bill alleged that before the contract was signed Olmstead informed Michels that he did not desire ■to engage in the business of manufacturing syrup individually, but only as a member of a corporation which he and others contemplated forming, and as agent for whom he was negotiating, and that Michels promised him that, if he would sign the contract, he would permit him to see the operation of manufacturing syrup from corn by the dry process in the works of Michels at Detroit, Mich., and then return and report to his associates, and if he should be satisfied, and report that the process was in successful operation, and would accomplish the or
Under the facts as they appear in the record, the foreclosure of the trust deed under the circumstances was a fraud upon the McGirrs, and equity, having jurisdiction to grant relief in a case of fraud, may receive evidence, either oral or written, which tends to establish the fraud. Any other position would defeat a great portion of the remedial jurisdiction of a court of equity. It is not sought to impeach the trust deed or the notes, but simply to show the purpose and real nature of the transaction, that justice may be done. Schroeder v. Young, 161 U. S. 334, 16 Sup. Ct. 512, 40 L. Ed. 721. This suit, so far as the affirmative relief asked is concerned, is against the Investment Company, which is charged with full knowledge of the whole transaction.
The Investment Company, being charged with notice of the dealings of all the parties, does not occupy a position which would make the granting of the relief prayed for inequitable as to it. It is not in court with clean hands. The correspondence between the parties almost up to the time of this suit treated the agreement between the parties as still existing notwithstanding the foreclosure.
17, 8] It is further insisted that Victor C. McGirr is estopped from asking any relief from the foreclosure. There is no element of estoppel in tlie case. The Investment Company is not an innocent purchas