96 F. 133 | U.S. Circuit Court for the District of Nevada | 1899
(after stating the facts as above). The foregoing statement of facts was prepared for the'purpose of shedding a calcium light, by the rays of which the general nature and character of this suit might be more clearly seen and better understood. The statement will at least serve as an X-ray to enable the court the better to diagnose the conditions, troubles, and difficulties under which the respective parties acted. Under the free and unlimited strictures of counsel in their oral arguments, the respective parties and their witnesses have been presented to the court as “perjurers,” “swindlers,” “thieves,” “Shylocks,” “robbers,” “idiots,” and “fools,” who have been guilty of all the frauds in the catalogue of superlative rascalities. To such an extent did these charges and counter charges go, that the court was almost convinced that the case ought to be dismissed as one unworthy of consideration in a court of justice. A plain, unvarnished statement of the facts was all that was needed to enable the court to arrive at the truth. Much of the testimony seems to have been given for the express and only purpose of showing that the witness under examination was free from fault, and that all the blame and censure should be placed on some other person. The suit, disrobed of all the opprobious epithets which have been so freely interspersed, while in many respects peculiar, — exhibiting much incompetency and lack of practical knowledge upon the part of the men who had control of the business affairs, and involving a great outlay of money wholly unnecessary, — is but one of many where a mining enterprise has been inaugurated under bright hopes and overabundance of confidence, whereby the promoters, by floating the scheme abroad, and selling the shares of stock at their par value (on paper), expected to realize an immense fortune. Such wild and visionary schemes are generally detrimental to the community where the mines are situated, and often result injuriously to all parties concerned. No one connected with this enterprise seems to have thought, or even dreamed, of such a thing as failure. No precautions were ever taken by either party or any person to guard against' such a result. A moment’s consideration of the difficulties that might be
The contention of the defendant is that it was the duty of Good-body, as the superintendent of the syndicate, to see that Martino did not waste the money in an extravagant and useless manner; that defendant should have been allowed to inspect the plans of Martino before the plant was erected, as it was to be charged with the money expended for its construction, and had the legal right to examine the same in order to protect itself from fraud, imposition, or loss; that Noyes had no authority from the defendant to represent: or bind it by any declarations, acts, or conduct on his part in approval of the course which Goodbody pursued, either before or after Martino left; that the only authority he had in the premises was to deliver to Goodbody, as the syndicate’s representative, the possession of the property; that defendant cannot, in any event, be held responsible for the additional advances made by the syndicate, not provided for in the contract A, which it claims was procured by the false and fraudulent telegram sent by Martino and Goodbody with reference to the completion of the plant; that the syndicate must be held responsible for the acts of Goodbody, its superintendent; that Goodbody had no authority, under the terms .of the contract, to refuse to allow Martino to proceed with the smelting and reduction of the ores when the first furnace was completed; that Goodbody, without the consent or approval of the defendant, could not make it liable for the employment of Dorwin and Jewell, and the expenses incurred in the erection of the second furnace; that the syndicate did not, on its part, comply with the terms of the contract; that the contracts A and O are
Is complainant, under the pleadings and evidence herein, entitled to a decree? The original contract between the parties was not illegal. There was no fraud in its execution, no concealment of any fact, nor any hidden meaning in any of its covenants. Its terms were freely discussed and well understood by the promoters, who engineered the transactions, and who were the principal factors that organized the respective corporations. Four of the stockholders in the syndicate'were brothers of one of the promoters (W. K. Goodbody), two were his cousins, pne a brother-in-law, and the other their solicitor. Both of the promoters were stockholders and directors of the defendant corporation, and one of them (N°yes) was ⅛® confidential friend and trusted agent of John Leighton, the president and a director of the defendant. At a meeting of the directors held pursuant to a call of its president, as provided for in its by-laws, a resolution was unanimously passed authorizing the execution of the contract. Its proper officers thereafter, acting under the authority of this resolution, executed the contract, and affixed the seal of the corporation thereto. It is true that, like the bond of Sliylock, the contract was exacting in its terms, and, like a jug handle, was one-sided. It was so written that common knowledge would enable any person of ordinary understanding to see at a glance that the covenants and conditions therein contained were all in favor of the syndicate. There were no covenants that the plant should be erected in a workmanlike manner, or that any economy, care, or skill should be exercised in its construction, or that defendant should have any voice, control,-or knowledge as to the character of the materials to be used, or the kind of works that should be constructed. Everything was left entirely to an agent selected and named for that purpose. The defendant was powerless to interfere. The money advanced by the syndicate was to be handled and paid out by its own agent. There was no agreement on the part of the syndicate to erect any substantial buildings or any particular kind of a furnace, or whether the plant would be of any particular advantage or permanent benefit to the defendant, .beyond obtaining the 125 tons of contained nickel in matte, and upon that product the syndicate was to have a lien for all money it had advanced, and the bonus therein specified. It was also to have the exclusive possession and control of all the property belonging to the defendant, free and clear of all liens. F. W. Martino was the agent selected by both parties as a proper, suitable, and competent person to have the charge, management, and control of the "erection of the plant and the reduction of the nickel ore. Moreover, he was a man in whom the people interested in the purchase and sale of contained nickel in matte had confidence, and the evidence in this case clearly shows that this was the strongest
The facts leading up to the execution of the mortgage, B, are sufficiently stated in the general history of the case. It will be noticed, by a careful reading thereof, that Mr. Noyes, assuming to act for the defendant, claimed that the execution of such an instrument was not called for by the contract, and urged Goodbody to accept the; possession of the properly, on the ground that the contract only required that a certificate of the recorder should be first obtained, to the effect that there were no mortgage debentures on the property. But 11k; fact is that the contract contains provisions in clause 10 which permitted the syndicate to make demand, as it did, for more perfect security under the laws of. the state of Nevada. Was i he morí gage executed in such a manner as to make it binding on the corporation? When its execution was demanded by Goodbody, Noyes claimed that the demand could not be complied with,' — that it was impossible for the directors to meet and authorize it to be executed; but, after many consultations, he and Goodbody, two of the directors, stated that, if Leighton would execute it, they would do all they could to procure a ratification of his acts. Leighton stated to the solicitor of the syndicate that he had no authority from the defendant corporation to execute it, and that, to be binding upon the corporal ion, it would have to be ratified by the board of directors, and that lie would favor its ratification. From a legal standpoint it may be stated, as a general rule, that the power and authority of a corporation to execute documents is vested in a board of directors, and that this authority can only be exercised when duly authorized by its directors, and that this principle applies as well to the acts of the president of the corporation as to any other director or officer of the corporation. The individual directors, when not acting as a board, have; no general authority, unless conferred by the by-laws of the corporation, to execute; a deed or mortgage on it's behalf. Gashwiler v. Willis, 33 Cal. 11, 20; Alta Silver-Min. Co. v. Alta Placer-Min. Co., 78 Cal. 629, 632, 21 Pac. 373; Hay-Press Co. v. Devol, 72 Fed. 717, 721; Edwards v. Water Co., 21 Nev. 469, 34 Pac. 381; England v. Dearborn, 141 Mass. 590, 6 N. E. 837; People's Bank of City of New York v. St. Anthony’s Roman Catholic
“While the genuineness of the seal must be established as a fact in the mode elsewhere prescribed, yet when it is established it carries with it presumptive or prima facie proof of everything else which is necessary to the validity of the instrument. It is presumptive or prima facie evidence that the deed is the deed of the corporation, and that the officers who signed, sealed, and acknowledged it were duly authorized so to do; and the instrument is therefore admissible in evidence, if otherwise relevant. In other words, the seal carries with it prima facie evidence of the assent of the corporation to the deed. But the evidence is prima facie only. The effect of it is to shift the burden of overthrowing the deed upon the party objecting to it, and to require him to prove by clear and satisfactory evidence the want of authority to execute it.”
Numerous authorities are cited in support of the text.
See, also, Ang. & A. Corp. § 224; McDonald v. Chisholm, 131 Ill. 274, 281, 23 N. E. 596.
If it be admitted that the defendant has overcome the prima facie case established by the seal, it would not, under the facts in this case, destroy the validity or binding force and effect of the mortgage. It would serve no useful purpose to discuss the exceptions to the general rule that have grown into existence by the customs, usage, and methods of transacting corporate business in different communities, under the varied conditions and surroundings in which the respective parties may be placed. So extensive has this become, that the courts have often said:
“Tlie classes of cases wbieb constitute exceptions to the rule have become so numerous that the exceptions have almost abrogated the rule.” G. V. B. Min. Co. v. First Nat. Bank of Hailey, 95 Fed. 23, 30, and authorities there cited.
Moreover, the powers of officers of a corporation are so different in the different states and countries, owing partly to a difference in the statutes and partly in the general course and habit of dealing, that it may be said that the decisions of the courts in one state or country should have but little, if any, weight in another state or country, unless all the conditions of the cases are alike, and that questions of this character ought to be solved, not so much upon the principles of the general rule, as upon the peculiar circumstances of each particular case. If this be true, there are strong reasons why the defendant should, in the present case, be estopped from denying the authority of its officers to execute the mortgage, and to justify the court in holding that, if it did not actually consent to its execution, except in the method provided for in its by-laws, its conduct was such as to amount to a ratification thereof. To fully understand the position of the parties, we must put ourselves in their place. The defendant, being unable to erect a plant for the reduc
“We are not prepared, to admit tliat T. C. Henry’s declarations on this subject were not legitimate as original testimony. The testimony was certainly legitimate for the purpose of proving the knowledge of the directors, and therefore a ratification by the company. We cannot assent to the authorities which are cited by counsel in the petition for rehearing, that the knowledge brought home to the directors of the company is not legitimate for the purpose of establishing ratification, even though that knowledge be brought home to them individually, and not while sitting as a board. There are many authorities to the effect that notice to individual directors is not enough. But this is neither notice nor information conveyed to an individual director, nor to the members of the directory by a stranger. It must be remembered that T. 0. Henry was the president of the company. He was then engaged in the active management of all of the business affairs of the corporation, charged with the duty, not only of conserving its interest, but of advising the members of the directory of his acts, that he might have the benefit both of their advice and their approval. We think it quite within the range of legitimate testimony to prove that the president, who did the act, and had apparent authority to do it, told the members of the- directory what he had done, and that those directors, when thus informed of it by the president, approved of his acts. If, with this knowledge, no action whatever was taken to interfere with the contract, and the parties proceeded to its execution and completed it, it brings the case, as far as we are able to see, entirely within the range of the law of ratification.”
As before stated, it was the intent of the parties that the security should be properly given, and in this light the original contract, A, might in equity be regarded as an executory agreement for a mortgage, and a mortgage executed in pursuance of its terms as a security in accordance with the expressed intention of the parties, so that in equity it would be held binding upon the parties, although not duly executed in the manner and form prescribed by the by-laws of the defendant. A court of equity will not; yield to technical rules of law, by which the intention of the parties may be defeated, and it therefore can, and often does, declare that there is an equitable mortgage in cases where a court of law might be compelled to say that there was no mortgage. The mortgage, B, should therefore be upheld upon the ground that equity considers that as done which the parties agree to have done, and which in equity and good conscience ought to have been done.
In Daggett v. Rankin, 31 Cal. 322, 326, the court said:
“Tbe doctrine seems to be well establisiied that an agreement in writing to give a mortgage, or a mortgage defectively executed, or an imperfect attempt to create a mortgage or to appropriate specific property to tbe discharge of a particular debt, will create a mortgage in equity, or a specific lien on tbe property so intended to be mortgaged. 1 Am. Lead. Cas. Eq. 510; In re Howe,*151 1 Paige, 125. The maxim of equity upon which this doctrine rests is that equity looks upon things agreed to he done as actually performed, the true meaning of which is that equity will treat the subject-matter, as to collateral consequences and incidents, in the same manner as if the final acts contemplated by the parties had been executed exactly as they ought to have been. Story, Eq. Jur. §§ 64, 790; Will. Eq. Jur. 298, 209.”
See, also, Racouillat v. Sausevain, 32 Cal. 376, 389; Peers v. McLaughlin. 88 Cal. 294, 26 Pac. 119; Ice Co. v. Meader, 18 C. C. A. 451, 72 Fed. 115, 118; Chase v. Peck, 21 N. Y. 581, 583; Payne v. Wilson, 74 N. Y. 348, 351; Fidelity Insurance, Trust & Safe-Deposit Co. v. Shenandoah Valley R. Co., 33 W. Va. 761, 771, 11 S. E. 58; Margarum v. Christie (Fla.) 39 South. 637, 630; Cummings v. Jackson (N. J. Err. & App.) 38 Atl. 763, 765; Jones, Mortg. (4th Ed.) § 162; Walker v. Brown, 165 U. S. 654, 664, 17 Sup. Ct. 453; 10 Am. & Eng. Enc. Law, § 127; and authorities there cited.
In Payne v. Wilson the court said:
“An equitable mortgage may be constituted by any writing from which the intention so to do may bo gathered, and an attempt to make a legal mortgage, which fails for the want of some solemnity, is valid in equity. Miller, Eq. Mortg. 1, 2. And it has been held that an agreement for a mortgage is, in equity, a snecific lien upon the land. In re Howe, 1 Paige, 125; Chase v. Peck, 21 N. Y. 581.”
The vital question is whether the syndicate has fully complied with its agreement, so as to entitle it to recover from the defendant the amount of money it advanced, together with the bonus as specified in the contract. The original contract necessarily implied that suitable works should, be erected. The syndicate was bound to exercise reasonable care in the erection of the buildings, in the purchase of necessary machinery, and the construction of the furnace. The testimony does not show that the machinery purchased by Mar-tino was defective or unsuitable, nor that the furnace, as constructed, but for the accident, would not have proved effective in the reduction of the ore. But, be that as it may, one thing is certain: For the extravagance and incompctency of the men in charge both parties were equally at fault, and, the defendant having expressly covenanted that the men selected should have the charge and management of the work, it cannot dejirive the syndicate of the rig]it to recover the amount of money actually expended by it because the men selected by both parties were incompetent.
The moneys obtained under the supplemental contract, C, and money actually expended by Gtoodbody after Martino left, present a further question, by no means as easy of solution. It is earnestly contended by counsel that defendant cannot be held responsible for tbe money advanced under the supplemental contract, because the defendant was induced to sign this contract upon the statement contained in a telegram as follows:
“4 Mo. 26, 1895. To Goalee, Solicitor, Cannon Street: Plant completed. Capital expended. Martino’s corrected measurements show eleven hundred tons good ore. Fifteen hundred pounds necessary to make and ship matte. Martino. Goodbody.”
This telegram was sent before the first furnace was completed, and its contents were not absolutely true. But, from all the testi
But how about the bonus? While a court of equity endeavors to promote and enforce justice, good faith, uprightness, fairness, and conscientiousness on the part, of the parties who occupy a defensive position in judicial controversies, it no less stringently demands the same from the parties who come before it as complainants. Whoever comes into a court of equity must come with clean hands. The contract contemplated that 125 tons of contained nickel in matte should be produced. The money was advanced for that purpose. This was the inducement for the defendant to sign the contract. This part of the contract was never complied with. The contract A, as before stated, does not contain any covenant touching the conditions that might arise by the failure of the enterprise. It was drawn upon the theory that success was sure to crown their efforts, provided the money as specified therein was advanced by the syndicate. Such was evidently the view entertained by the syndicate, as well as the defendant, and by John Leighton. It was the intention of all the parties to the agreement that 125 tons of contained nickel in matte should be produced, and, when this matte was ready for shipment, then the bonus provided for became due. This is to be implied by a fair and reasonable construction of clauses 3 and 4 of the original contract, A, and the interpretation to be given them necessarily controls the provisions contained in the supplemental contract, C. The reasons heretofore given for holding defendant liable for the money advanced by the syndicate do not apply to the bonus. After carefully reading the contract A, and especially clause 3, can it be said that it was the intention of the parties, if the 125 tons of contained nickel in matte was not produced, that the bonus mentioned therein was to be paid? I think not. When the object and purpose of the agreement, the situation and surroundings of the parties, are considered, it seems to me that the construction given to these clauses is within the intent
If the matte had been produced as specified in the contract, it would have been worth about $50,000, and there could have been several strong rea,sons advanced on behalf of Lhe syndicate as to its right to recover the bonus. Such compliance with, the contract as was contemplated by the parties would have put the defendant, financially, on iis feel, and might have enabled the promoters to have successfully carried out their scheme of disposing of the stock of the company at par, and all of defendant’s stockholders might have been benefited thereby. In such an event, considering the conditions existing at the time the contract was made, the defendant could have well afforded to pay the bonus, and, there being no usury laws in this state, it may be that lhe syndicate would he entitled to recover it, although it would have been, even then, “a windfall, like a prize in a lottery”; but to allow the syndicate to recover the bonus without complying with this part of the contract would he giving something for nothing; it would be giving it outright the sum of $57,008.22, for which it had not paid any adequate consideration, or performed any act to entitle it to recover it, as a matter of equity. The defendant has received n’o benefit whatever from the contract. It would he contrary to the principles of eternal justice, and in violation of all the rules of equity in the exercise of its extraordinary powers, to allow the syndicate to recover the bonus. The rule is universal that a specific performance will always be refused “when the contract itself is unfair, one-sided, unconscionable, or affected by any other such inequitable feature, and when the specific enforcement would be oppressive upon the defendant, or would prevent the enjoyment of his own rights, or would in any other manner work injustice.” 1 Pom. Eq. Jur. § 400, and numerous authorities there cited; Dalzell v. Manufacturing Co., 149 U. S. 315, 325, 13 Sup. Ct. 886, and authorities there cited. As was said in Railroad Co. v. Cromwell, 91 U. S. 643, 645:
*154 “The court is not bound to shut its eyes to the evident character of the transaction. It will never lend its aid to carry out an unconscionable bargain, but will leave the party to his remedy at law. This has been so often held on bills for specific performance, and in other analogous cases, that it is unnecessary to spend argument on the subject.”
A specific performance is not a matter of absolute right. It is always within the sound judicial discretion of the court, to be exercised according to the settled principles of equity, with special reference to the facts of each case. See Willard v. Tayloe, 8 Wall. 557, 567; Hennessey v. Woolworth, 128 U. S. 438, 442, 9 Sup. Ct. 109; Manufacturing Co. v. Gormully, 144 U. S. 224, 236, 12 Sup. Ct. 632; Waite v. O’Neil, 72 Fed. 348, 359; 1 Story, Eq. Jur. § 742. In Earl of Chesterfield v. Janssen, 2 Ves. Sr. 125, decided in 1750, the court had under consideration a contract made by John Spencer, whereby he obtained £5,000, for which he obligated himself to pay £10,000 at, or soon after, the death of his grandmother, from whose estate he had an expectancy, if he survived her, but to be totally lost if she survived him. He survived her for a short time. About two months after her death he executed a bond in the penalty of £20,000, conditioned for the absolute payment of £10,000 at or before a specified date, and executed a confession of judgment thereon, which was duly entered. Spencer paid £2,000 thereon, and, after his death, Janssen applied for an execution. The executors of Spencer’s estate applied to the court for relief upon payment of the £5,000, with interest from the time of advancing it. The case was disposed of upon the ground that there had been a confirmatory contract after the contingency mentioned in the first contract had happened, wherein Spencer bound himself to execute it, and the court gave relief only against the penalty of the bond. But the opinions therein upon the nature of unconscionable bargains are interesting, and have some bearing upon the principles involved in this case. Burnett, J., after discussing the question of usury and bottomry, said:
“The next point is, supposing it not a contract within the statute, whether it is not such an unconscionable bargain, obtained of an expectant upon his-expectancy, as the court is warranted, on precedents, to relieve on paying the sum advanced, with-interest from the time of advancing. * * * On one hand, I should apprehend it would be too large to say in no case an heir or expectant could borrow money on his expectancy; and yet to let him borrow without any advantage to the lender seems to put him under difficulties. * ⅜ ⅜ A.n heir, if hindered from supporting himself by these means, might starve in the desert, within view of the land of Canaan. On the other hand, I should dread the consequence of giving the sanction of this court to future bargains.”
Lee, C. J., said:
“I think it will be well worth the consideration of a court of equity whether they will not interpose in case of these hazardous bargains to pay double, so as to prevent the lender’s going away with such an exorbitant gain. * * * By the cases cited and stated in courts of equity, it appears they have used a sagacious attention to discover whether there is any -fraud expressed, or, from the nature of the transaction or person concerned, anything carrying on the-face of it an appearance of imposition-. ⅜ * ⅜ A court of equity has disabled them from taking advantage thereof, and interposed to prevent unconscionable bargains.”
“It cannot be said that such contracts deserve to be encouraged, for they generally proceed from excessive prodigality on one hand, and extortion on the other, which are vitia temporis and pernicious in their consequences; and then it is the duty of a court, if it can. to restrain them. This court has an undoubted jurisdiction to relieve against every species of fraud.”
He liten arranged the cases of frauds that would avoid contracts under four heads. The second he states as follows:
“It may he apparent from the intrinsic nature and subject of the bargain itself, such as no man in his senses and not under delusion would make, on the one hand, and as no honest and fair man would accept on the other, which are unequiíahle and unconseientious bargains; and of such even the common law has taken notice.”
See, also, 1 Story, Eq. Jur. § 188.
There are numerous cases, both of ancient and recent date, which hold that upon certain contracts the jury may give less damages than the debts amount to. James v. Morgan, 1 Lev. 111; Thornborough v. Whitacre, 6 Mod. 305, 2 Ld. Raym. 1164; Cutler v. How, 8 Mass. 257; Same v. Johnson, Id. 266; Leland v. Stone, 10 Mass. 459; Baxter v. Wales, 12 Mass. 365; Greer v. Tweed, 13 Abb. Prac. (N. S.) 427; Russell v. Roberts, 3 E. D. Smith, 318; Scott v. U. S., 12 Wall. 443, 445; Railroad Co. v. Cromwell, 91 U. S. 643, 645; Hume v. U. S., 132 U. S. 406, 412, 10 Sup. Ct. 134.
In Scott v. U. S., the court said:
“In cases like this it is the duty of the court to assume the standpoint occupied by the parties when tlie contract was made, to let in the light of the surrounding eircuinshmces, to see as the parties saw, and to think as they must have thought in assenting to the stipulations by which they are bound. This process is always effective. When the terms employed are doubtful or obscure, there is no surer guide to their intent and meaning. * * * If a contract be unreasonable and unconscionable, but not void for fraud, a court of law will give, to the party.who sues for its breach, damages, not according to its letter, bui only such as he is equitably entitled to.”
In Hume v. U. S., the court of claims, having under consideration an agreement, to pay $1,200 a ton for shucks actually worth not more than $35 a ton, after citing some of the cases above quoted, said:
“These citations are sufficient to show that in suits upon unconscionable agreements the courts of law will take the matter in their own control, and will, without the intervention of courts of equity, protect the, parties against their enforcement. * * * There is no iimling by the court of actual fraud by any of ilie persons engaged in making the contract now under consideration. The unconscionable price inserted for shucks was, no doubt, a mere accident. * * * liiu. however it may have happened, we hold, as was held hi the case of Leland v. Stone, from which we hare quoted the words of the court, that a contraer may be held unconscionable without proof of actual fraud at its inception,’if its enforcement would he unconscionable:”
Judgment was accordingly rendered in favor of the claimant, for the actual value of the shucks. This judgment was affirmed by the supreme court.,
Whatever conclusion might have been arrived at as to the bonus if the syndicate had fully completed its contract, and produced the 123 tons of contained nickel in matte, it seems clear to my mind that
Defendant Smith obtained a judgment against the syndicate on April 22, 1897, for the sum of $263 principal, and $13.15 costs, which has never been paid. The interests of the other defendants are subsequent to the rights of the syndicate. Let a decree be entered in accordance with the views herein expressed.