79 F. 522 | 6th Cir. | 1897
(after stating the facts). The main error assigned is the action of the circuit court in refusing leave to Ritchie to file a pleading termed an amended answer and cross bill. It was a single pleading, in which no distinction was made between the answer and the cross bill. Such practice in the federal courts of equity is irregular, to say the least of it. Hubbard v. Turner, 2 McLean, 519, Fed. Cas. No. 6,819; Morgan v. Tipton, 3 McLean, 339, Fed. Cas. Mo. 9,809; Fost. Fed. Prac. (1st Ed.) § 172. The application for leave was not made until a year and a half after the case was at issue on the original pleadings, and only a few days before the time fixed for closing the evidence. Made at so late a day, the application was addressed to the legal discretion of the court, and was not to be granted as of course. The circuit court, in considering the propriety of granting the leave, properly examined into the legal sufficiency of the facts' averred as equitable defenses to the case made in the bill and the answers of Ritchie’s co-defendants, and as grounds for the affirmative relief asked. Certainly, if the tendered pleading-presented no defense on the merits, it would have been improper in the court, to allow it to be filed after the long delay. The circuit court also examined into the evidence already taken in the cause, to see whether the probability that Ritchie could support, by proof his new avermenis was sufficiently great to justify a delay of the case for this purpose. In taking the testimony on the original pleadings, Ritchie had adduced all the evidence he could bring to sustain the averments of his proposed amended answer and cross bill. It was clearly within the power and duty of the circuit court if, in its opinion, this evidence, taken with the other circumstances and testimony, failed to maintain the allegations made in. the answer and cross bill, to refuse leave to file the same. A material amendment of the answer changing the issues ought not to be permitted, after the evidence is closed, unless, either in the evidence already offered or in a showing uixm affidavits, it is at least made to appear to the court that the defendant can probably sustain by his proof the amendments offered. The sixtieth equity rule provides that the answer "shall not be amended in any material matters, as by adding new matters, facts, or defenses, or qualifying or altering the original statements, except by special leave of the court or of a judge thereof, upon motion and cause shown, after due notice to the adverse party, supported if required, by affidavit.”
Mr. Justice Story, speaking of applications to amend answers, in Smith v. Babcock, 3 Sumn. 583, Fed. Cas. No. 13,008, said:
“When the object is to let in new facts and defenses wholly dependent npon parol evidence, the reluctance of the court Is greatly Increased, since it has a natural tendency to encourage carelessness and indifference in malting answers, and leaves much room for the introduction of testimony manufactured for the occasion. * * * The whole matter rests in the sound discretion of the court. * * 4 It seems to me that before any court of equity should allow such amended answers, it should be perfectly satisfied that the reasons assigned for the application are cogent and satisfactory; that the mistakes to be corrected*530 or the facts to be added are made highly probable, if not certain; that they are material to the merits of the case in controversy.”
It has been held that, where the complainant proves by affidavit that the new matter sought to be introduced is false, leave to amend the answer will be denied. Hicks v. Otto, 17 Fed. 539.
It is manifest that the appellant Eitchie cannot complain of the action of the circuit court in looking into and weighing his evidence upon the issues he sought to raise by the amended answer before granting him leave to file it.
This brings us to the questions of law and fact which the circuit court decided in refusing the leave. The issues tendered by the answer and cross bill shortly stated were—First, that the judgment upon which the bill was founded had been obtained by fraud, and should be set aside; second, that, of Eitchie’s co-defendants Payne, Burke, and Cornell, each one had made a contract with him by which, in consideration of the delivery to each of a large amount of stock in two mining companies, each had agreed to aid- him in developing the mining enterprises," to lend to him large financial credit, to keep up the market value of the stock in the mining companies, and to assist in the consolidation of the railway with the mining enterprises; that each had not only failed "to keep his agreement, but had taken affirmative steps to destroy Eitchie’s credit, and the value of the stock, thereby entitling Eitchie to set off the damages foi; this breach of contract against the indebtedness claimed by each against him; third, that the same three co-defendants, Payne, Burke, and Cornell, had entered into a conspiracy to become absolute owners of Eitchie’s stocks pledged to each at much less than their real value, by assuming the management of the companies, and by preventing the development of their properties, by causing the companies to repudiate valuable contracts, by preventing the companies from earning and paying dividends, by refusing'for the companies the acceptance of valuable subsidies, and by publicly depreciating the value of the stock of the companies, for which wrongs he was entitled to damages against each of his pledgors to be set off herein against his indebtedness.
The circuit court held that the amended answer did not state facts sufficient, even if .proven, to justify the court in declaring the judgment of complainants void for fraud. In this conclusion we fully concur. The answer alleges that the McMullens and Eitchie entered into a contract by which the McMullens agreed to sell, and Eitchie j;o<buy, 210 bonds of the Central Ontario Eailway Company and coupons cut from the bonds of the same company, amounting in their face value to $71,250; that,«at the time of making the contract, the McMullens asserted that they owned the coupons, when in fact the coupons referred to were never obligations of the railway company, but were coupons accruing due on their face before the issue of the bonds, and were thus void and valueless; that afterwards the Mc-Mullens brought suit in the queen’s bench division of the high court of justice of Ontario, Canada, and without the production of the bonds and coupons, and without having tendered the same to Eitchie, procured a judgment in the action against Eitchie; that he (Eitchie)
> In U. S. v. Throckmorton, 98 U. S. 61, the supreme court held that the fraud for which a bill to set aside a judgment or decree could be sustained was that which was extrinsic or, collateral to the matter tried, and not a fraud which was in issue in the prior suit; that relief would be granted only in cases in which, by fraud or a deception practiced on the unsuccessful party, he was prevented from fully exhibiting his case, so that there never had been a real contest of the subject-matter of the suit. The case; made by the defendant Ritchie iu the amended answer is not within the foregoing requirement. The only fraud alleged is the false statement by the McMullens that they owned valid coupons, and were able and ready to deliver them. This was not an extrinsic or collateral fraud, it was a false statement in respect to a fact essential to the plaintiffs right 1o recovery, and the fact that it deceived the defendant as well as the court does not change its character, as being a fraud in respect to an issue of the former suit It was the duty of Ritchie, by inquiry, to learn the facts in respect to the plaintiffs’ cause of action; and if he contented himself with accepting the truth of plaintiffs’ averments in their pleading, and let the case go by default, he cannot afterwards have the judgment set aside in equity, ou the ground that the averments of plaintiffs in their petition were false. The answer states no excuse for Ritchie’s failure to learn the facts before permitting tbe default in the Canadian suit, and before the judgment iu the court below, and charges no act on plaintiffs’ part to prevent his discovering the truth, and pleading it. except the mere false statement concerning the ownership and validity of the coupons embodied in the original pleading. Clearly, the part of the amended answer attacking the McMullen judgment would neither be ground to set it aside by bill for the purpose, nor constitute a valid defense in equity to its enforcement.
The next defense raised by tbe answer was that Payne, Burke, and Cornell had each agreed with Ritchie to aid him in developing the mining and railroad enterprises, by lending him financial credit, and by helping him to keep up the market value of the mining and rail
The further question remains whether the showing, by way of evidence, which Ritchie made of the existence of these contracts- and their breach, was sufficiently convincing to justify the court in allowing a new and formal issue to be made thereon, so late in the hearing of the cause. We shall postpone consideration of this question of fact until after we have examined the legal sufficiency of the next defense of Ritchie, which is that Payne, Burke, and Cornell, each holding in pledge a large amount of the stocks of the two mining companies and of the railway company belonging to Ritchie, conspired together to depreciate the market value of these stocks, so that they might acquire absolute title to them at much less than their true value, by forced sales under the pledges, and, in furtherance of this conspiracy, did many things in and about the management of the companies to depreciate the value of the stocks, which they were able to do because they owned stock in said companies, were directors and officers thereof, and controlled the stock of Ritchie pledged to them. Without going into too much detail, it will suffice to say that these acts charged consisted—First, in refusing to develop the mining property in such a way as to earn dividends; second, in refusing to accept subsidies voted to the railway and mining enterprises; third, in repudiating and breaking up profitable contracts made for and on behalf of the mining companies; fourth, in refusing to entertain a proposition for the treating of iron ore, which, if successful, would make the railway company and iron mines very profitable; fifth, in declining to unite the mining companies and railway company in one corporation; sixth, in declining .to grant an option to sell the mines for '$15,-
The learned circuit judge was of opinion that Ritchie could have no credit in the accounting between him and his pledgees for the loss suffered hv him from this conspiracy and the wrongful acts in pursuance thereof; that the wrongs committed were injuries to the corporations only, and that Ritchie, as a stockholder, could have no redress directly against the wrongdoers, and must ñnd a remedy, if at all, in the enhancement in value in his stock caused by a recovery of damages by the corporations. As the very object of the conspiracy and wrongs done was to cause Ritcliie to cease to be a stockholder, it might be difficult to point out how such an indirect remedy could benefit him after the wrong had been completed and he had parted with his ownership of the stock. It is undoubtedly true, as the circuit court held, that a stockholder, merely as such, cannot have an action in his own behalf against one who has injured the corporation, however much the wrongful acts have depreciated the value of his shares. Smith v. Hurd, 12 Metc. (Mass.) 371; Allen v. Curtis, 26 Conn. 456; Wallace v. Bank, 89 Tenn. 630, 15 S. W. 148;; Hersey v. Veazie, 24 Me. 1; Conway v. Halsey, 44 N. J. Law, 462; Porter v. Sabin, 149 U. S. 478, 13 Sup. Ct. 1008. But we are of opinion that this principle has no application where the wrongful ads are not only wrongs against the corporation, but are also violations by the wrongdoer of a duty arising from contract or otherwise, and owing directlv by him to the stockholders.
In Smith v. Hurd, 12 Metc."(Mass.) 371 (a leading case), Chief Justice Bhaw delivered the opinion, sustaining the principle relied on by the circuit court. His first and main reason for holding that a stockholder could not recover for injury suffered by the malfeasance of a director was that there was a want of privity between them. He said (page 384):
"There is no legal privity, relation, or immediate connection between the holders of shares in a bank ana the directors of the bank on the other. The directors are not the bailees, the factors, agents, or trustees, of sueli individual stockholders. The bank is a corporation and body politic,' having a. separate existence as a distinct person in law, in whom the whole stock and property of the bank are vested, and to whom all agents, debtors, officers, and servants are responsible for all contracts, express or implied, made in reference to such capital, and for all torts and injuries-diminishing or' impairing it.”
In the case under review there was a privity between Payne, Burke, and Cornell, on the one hand, and Ritchie, on the other, created by the pledges of the stocks. The bailee owes a direct duty to the pledgor to be reasonably careful that no harm shall-come through his custody to the subject-matter of the pledge. Jones, Pledges, §§ 403-405. A fortiori it is the bailor’s duty not to do any act with the intention of depreciating the value of the pledge. Hence, if Payne, Burke, aud Cornell- combined together, and wrongfully reduced the value of the stocks pledged, with the intention of buying them in at less than their value, they-diave done Ritchie an injury, for which he is: entitled to compensation.
In Walsham v. Stainton, 1 De Gex, J. & S. 678, the facts charged in the bill were these: Joseph Stainton was the manager, and Henry Stainton was the London agent, of the Carrón Company, a corporation. They appointed their nephews, Joseph Dawson and Henry Dawson, to confidential positions in the company. The Stain-tons and Dawsons entered into a conspiracy to secure to themselves the whole benefit of the company, “and, with that view, conspired together to procure the discontinuance of the committees of management, where proxies were not allowed, and to keep the accounts of the company fraudulently, so as to conceal from the shareholders the real value of the shares, in order that they themselves might buy up at an undervalue such shares as were offered for sale, and at the same time make themselves a majority of the votes at the meetings of the company.” To carry out this plan, the Stain-tons retained in their hands large funds belonging to the company, which never appeared in the earnings, and so reduced the dividends. By these means the market value of the shares of stock was kept much below their real value. As a result, Henry Stainton purchased 40 shares, and Joseph 15, at a price much below a fair value. When the facts were discovered, the company compelled the
We are therefore of opinion that if the averments of the amended answer and cross bill concerning the conspiracy of Payne, Burke, and Cornell to depreciate Ritchie's stock, in order to force a sale at less than its real value, are true, Ritchie is entitled to relief. What relief, it is perhaps not necessary exactly to say. Were Payne, Burke, and Cornell asking a sale of the stock, proof of such a conspiracy would justify a dismissal of their bill and a denial of all relief. But here the McMullens, as judgment creditors, are entitled to subject Ritchie’s interest in the stock to the payment of their judgment; and a-court of equity cannot inquire into their motives if their judgment is a valid one, as it is. The only mode of giving relief to Ritchie, therefore, would be to allow him to set off, against the debts of Payne, Burke, and Cornell, damages for this wrongful depreciation of his pledged stock, the measure of which would be the difference between the market, value now and what it would have been had not this conspiracy been set on foot, and had the wrongful acts in pursuance of it not been done.
We come now to determine how far the averments of the answer and cross bill are supported by the evidence. First, what, if any, evidence is there that Payne, Burke, and Cornell made and broke the promises, as the answer charges? Upon this subject, Ritchie testified:
“The real consideration, the positive, unqualified agreement between those parties and myself, was that, if those companies were organized and put in, they should he used to protect the road, and they would use their credit and other influence and their position as a. whole, and sell them as a whole. They never would have been in it, or had anything to do with it under any other consideration.”
Payne and Burke emphatically deny that they ever made any such agreement, and further deny that Ritchie gave them any stock
In order properly to weigh the conflicting evidence on this and other issues, it.is necessary to make a short statement of the history of these Canadian enterprises, and the connection which Ritchie, Payne, Burke, and Cornell had with them.
In 1881, Ritchie, then a manufacturer of Akron, Ohio, purchased, with J. B. and G-. W. McMullen, a large interest in a railway 40 miles long, running from Picton, on Lake Ontario, northwest to Trenton. The road lay wholly in Prince Edwards county, and took its name therefrom. Ritchie and the McMullens, after procuring the necessary legislation, projected an extension of the railroad to Coe Hill, in Hastings county, a distance of about 70 miles, and called the whole line the Central Ontario Railway. $2,200,000 in bonds were issued, and $750,000 in stock, of which $300,000 was preferred, and the remainder ■ was common. They acquired from one Coe an undivided three-quarters interest in 15,000 acres of mining land, in consideration of a payment of $100,000 and the extension of the road. H. B. Payne was a rich man, a citizen of Cleveland, and a senator in congress from Ohio. Stevenson Burke was also a rich man, and a citizen of Cleveland. He was largely interested in railroads. Thomas W. Cornell was a rich man of Akron, Ohio. They were all well acquainted with Ritchie, and he with them. Payne bought $100,000 of the railway bonds, and $100,000 of the preferred stock, both at par, and received $150,000 of the common stock as a bonus. He also bought a third interest in the mining lands for $50,000. Burke advanced $150,000 to pay for $150,-000 par value'of the bonds, reserving the right to- sell them back at par to Ritchie. Cornell advanced a considerable sum, but much less than Burke, to Ritchie, upon the railway bonds as collateral. The railroad was completed in 1885. Meantime Ritchie had bought out the McMullens, and the railroad was practically owned by Ritchie, Payne, and one McLaren. They had purchased a tract of mining land extending northwardly from the northern terminus of their road, and embracing 65,000 acres. After a good many thousand tons of the iron ore mined at Coe Hill had been carried to the rolling mills of Cleveland, it was discovered that the ore was so full of sulphur that it was practically useless. As the success of the railroad was largely dependent on the freight to be earned from the transportation of iron ore, the failure of the ore was the failure of the road. Ritchie, who had been the promoter of the railroad, at least so far as Payne, Burke, and Cornell were concerned, and who had in some manner, not disclosed by the record, acquired an intimate acquaintance with the leading men of Canada, and also with her mineral resources, learned that copper ore had been found in the construction of the Canadian Pacific Railway near Sudbury Junction, a point about 200 miles to the northwest of the northern terminus of the Central Ontario Railway, and separated therefrom by a rough, unbroken, -and uninhabited country. Ritchie went to
Ritchie, Payne, and McLaren deeded to the Anglo-American Iron Company, in 1886, an undivided three-quarter interest in 15,000 acres of iron land near 'Coe Hill, and the 65,000 acres of land to the north of that. They each received §500,000 par value in stock for this conveyance. Subsequently, in 1888, a valuable copper and nickel trad: near Sudbury was bought, and conveyed fo the iron company, but very little money has since been expended in developing the projierty.
In 1887, Ritchie attempted to interest New7 York and Canadian capitalists in the extension of the Central Ontario Railway, from Coe Hill to North Bay. a point on the Canadian Pacific Railway, about 40 miles east of Sudbury Junction. This would have required
Bitchie was the president of the copper company from its organization, in January, 1886, until 1887, when he resigned, and at his request Cornell was elected in.his place. He was a director and vice president in the Anglo-American Company from 1886 until 1891. He was president and director in the Central Ontario Bail-way from 1882 until March, 1892. He was exceedingly active in and about the concerns of the three companies until 1891. He gave much of his attention in 1888 and 1889 to an investigation of methods for eliminating the sulphur from the Coe Hill iron ore, so as to make it marketable. In 1889 he was also engaged in enlarging the market for nickel, by pressing the value of its use for armor on the navy department of the United States; and he went to Europe in 1889, to learn as much as' he could concerning its treatment and use in Europe. While in Europe, Bitchie conceived a plan, and discussed it with English merchants, of uniting the two mining properties, and selling them to an English company. He expresses the opinion that, had he been given a power of attorney to do so, he could have sold the two mining properties for $15,000,-000, with an additional sum for the railroad. The copper company’s board of directors declined to give Bitchie such a power of attorney. In the fall of 1889 Bitchie returned from Europe, and entered into negotiations with Thomas A. Edison for the treatment of ihe iron ore at Coe Hill, and received from Edison a proposition for the treatment that we shall have to consider more in detail later in this opinion. At this time congress was just assembling, and the formation of the new tariff bill, subsequently known as the “McKinley Tariff Bill,” had begun. It was of great importance to the copper company and the iron company, interested, as they both were, in finding a market for nickel, that the heavy duty then imposed on the metal in both its crude and refined condition should be removed or reduced in the new bill. Bitchie threw himself into the struggle with tremendous energy, and, with the assistance of the navy department, succeeded in having the duty on the nickel matte reduced to nothing. He was engaged in this till September, 1890.
During the seven years preceding the 1st of May, 1890, Bitchie had called on Payne, Burke, and Cornell to help him in a financial way to such an extent that lie then owed, either directly or as surety, to Burke $280,000, to Payne $350,000, and to Cornell about $120,000.
As soon as Eitchie could leave Washington, in the fall of 1891, after the passage of the McKinley bill and the negotiations with the navy department for the sale of nickel, he took up the plan of uniting Sudbury Junction, where the copper and nickel mines were, with the Coe Hill Mines, the then terminus of the Central Ontario Kailway, by an extension of the railway about 160 or 170 miles; and lie attempted to induce the Canadian and Ontario governments to give subsidies for the extension, by promising the erection of-nickel-steel plants and the investment of large amounts of capital in developing the country. From this lime dates the dissension between Ritchie, on the one hand, and Payne, Burke, and Cornell, on the other. Ritchie’s plau was that, as soon as the extension was completed, the copper company, the iron company, and the railway company should be consolidated. Ritchie’s interest in the copper company, by reason of his sales of its stock, which was the only stock owned by him having a real selling value, had been materially reduced, while Ids heavy holdings in the collapsed railway and in the iron company remained. Consolidation was therefore much more likely to benefit Ritchie than Burke and Cornell, whose holdings in the railway were comparatively little. In September, 3890, Eitchie, in the glow of Ms success with the tariff bill, bad been elected an additional director of the copper company, at a special meeting. At the meeting in January, 1891, after he had manifested a desire to involve the copper company in his plan of extension and new construction, he was left out of the directory. A very sharp, and, on Ritchie’s part, an acrimonious, correspondence, followed a polite warning of him by Burke not to use the copper company’s name in Ms various plans of extension, and of the construction of nickel-steel plants. Ritchie thereupon went so far as to break up, by threats of litigation, a contract which the copper company was negotiating for the sale of its nickel matte, and this led to a circular letter from the company advising the public that Ritchie was not connected with the company, and had no authority to represent it. This was smoothed over to some extent by an agreement to arbitrate, and Burke and Payne and Cornell wrote a letter to some of the members of the Canadian government to assure them that both mining companies would regard the extension
It nowhere appears in the evidence that Ritchie ever applied to Burke, Payne, or Cornell for financial aid and credit that they did not extend it to him. He does not testify that they failed him in this regard, and, if he did, the very large sums of money which he procured from each of them during seven years would certainly refute such a claim. The burden of his complaint is that, at the outset, they agreed to consent to the consolidation of the companies and the treatment of all the investments as on exactly the same footing, so that success in the copper company would be used to lift the railway investment out of the slough. Burke and Payne do not deny that they were opposed to consolidation, and do not hesitate to accept the responsibility for defeating it. The only issue is therefore whether they bound themselves by contract to consent to it, and to bring it about, as alleged and testified by Ritchie. We have read this voluminous record of 2,000 pages with great care, and are convinced that no such contract as that to which Ritchie testifies was ever entered into by Burke, Payne, or Cornell, and that it has found a lodgment in Ritchie’s vivid imagination, because of the injustice he feels in the result by which the copper company is a great success, and the railway company is a great failure. It is quite clear to us that no contract whatever of a definite character was made by Ritchie with these three capitalists in respect to their joining him in the copper company enterprise,,, except such as appears in writing in the case. The railway investment had proved a failure, and Ritchie was hunting for something to offset the loss. He found some copper land. It could not be developed-except by the investment of a large amount of money, and he had none. What course did he pursue? The one always pursued in such cases. He gave to these men, wlm had money, a share in the enterprise, with the hope that it would lead
There is nothing in the evidence of Ritchie’s acts and letters for seven years disclosed in the record to show that: he believed that
It remains to consider the evidence in support of the charge that Burke, Payne, and 'Cornell conspired to manipulate the affairs of the three companies so as to depreciate Bitchie’s stocks held by them in pledge for the purpose of acquiring title to them at the depreciated value. None of the acts which are said to have been done in pursuance of this conspiracy happened before 1889. Down to that time it seems to be conceded that the associates were working in good faith for the good of all. The first conduct which Bitchie charges to be treacherous was the so-called refusal to sell the two mining properties at $15,000,000. We may properly begin with this charge, because its slight foundation in fact fairly illustrates the weight to be given to all the charges made. Bitchie and Cornell were in Europe in 1889. Bitchie saw a good many persons interested in nickel property in England, and conceived the idea that he might float on the
“Q. Now, tell me what parties you were negotiating with, and I want to know whether they were persons of credibility and responsibility, and what their standing was? A. They were believed to bo the most credible and responsible manufacturers of England. Q. Now, wliat was the result of your conference there to make a sale of these properties? A. Oh, it resulted in an agreement between a large number of parties, quite a number of parties agreeing to underwrite and put it at a rate that would give us fifteen million dollars for the two properties. We could not sell the one separate, because it would leave the other as a competitor. Q. Could you have closed that arrangement? A. There is no doubt in the world about it. Q. What would have resulted, after the closing of that arrangement to your company? A. The company would have had about ¡515,000,000. Of course, there Is always some expense coming out of these things, but we would have had substantially that for the property, and that is about the price put on it before, as shown hy the two papers already put in evidence.” He further says that Cornell’s agreement to go home and get the power of attorney was made in the presence of Sir Charles Tupper, and with his knowledge. Q. “Did you get the power of attorney? A. No, sir; none ever came at all. Q. Do you know why? A. They sent a telegram to mo that they unanimously declined the proposition, and I wrote them another letter, which I have a copy of here, which they professed not to he able to find, giving them the complete outline of this arrangement and thp agreement with Mr. Cornell. It was a very short affair, simply on the back of an envelope; and I inclosed that envelope to Mr. Mclnto^hi, saying he would return home, and would call the company together, and send me a power of attorney to place üiis prQperty on tlio market, and, In case the company did not see fit to go in and sell all their property, that I was at liberty to sell his interest with ray own, and signed that, and that was done just as we were leaving the hotel at Liverpool. Q. Why, if you know, (lid the company refuse to accept this §15,000,000 for that property? A. Well, they said to me they declined the proposition. I want to say, in addition to that, of course the road was to go with it In addition to the price and for that reason this report of Sir Charles Tupper recommended strongly that works should be built upon this property, and the road was to go to it, and the government should treat it very liberally.”
Ritchie then produced this letter from Sir Citarles Tupper to substantiate Ms statement:
“September 23, 189-3.
“Dear Mr. Ritchie: In reply to your inquiries, I beg to say that I remeraoer that after you and I had visited Erance and Germany in company with • Mr. T. W. Cornell, making inquiries in connection with nickel, on our return to London, in the latter part of September, 1889, Mr. Cornell said that he would return to America, and obtain and send you a power of attorney from the Canadian Copper Company, of which lie was then president, authorizing you to put the property of that company on the London market. We were all of the opinion that it was a favorable time for such an operation. With best wishes, I remain,
“Yours faithfully, Charles Tupper.”
Weighing Ritchie’s glowing- statement of the prospect of a sale in the light of Ms character as a promoter, hereafter to be commented
The next circumstance upon which Eitchie relies is the failure of the iron company and the railway company to accept the proposition of Thomas A. Edison to erect a plant at the' iron mines for the treatment of the refractory iron ores of Coe Hill. In Edison’s letter of November 26, 1889, to Eitchie, he expresses the opinion that he can sepárate the sulphur from the ore sufficiently to make the ore marketable, and he proposes to erect a plant at the mines with a capacity of treating not less than 1,000 tons daily at 70 cents a ton. It is said that the refusal of the iron company to accept this proposition is evidence of bad faith. It appears from Eitchie’s statement that there was a further negotiation between Edison and the directors, the details of which are not given in evidence. Burke says (and we do not think his construction of Edison’s proposition unreasonable) that its acceptance would have obligated the company to furnish Edison 1,000 tons of ore a day, and to pay him $700 a day for treating it, without any certain market for the ore after it was treated, and that, even assuming that Edison had solved the difficult problem of ridding the ore of sulphur, Burke and his associates were not willing to enter into a certain liability of $200,000 a year, with grave doubt as to the probability of disposing of the ore at a profit. Certainly, we cannot say that such a conclusion as to the proper policy of the company could not have been reached by the directors without tending to show bad faith towards Eitchie as a stockholder and their pledgor. Nor are we by any
Appellant finds another ground for his charges of fraud against appellees in respect to the sale of nickel matte to the navy department and to Carnegie, Phipps & Co. It is said that Burke and his associates deliberately broke up the immediate prospect of a contract for the sale of $750,000 of nickel to the United States government, and repudiated another valuable contract for the sale of a large amount to Carnegie, Phipps & Co. Eitchie testifies that the contract for the sale of 5,000 tons of nickel, at $150 a ton, was just about to be signed, when the directors of the copper company telegraphed not to close the contract before Burke’s arrival; that Burke came, visited the secretary of the navy in company with Eitchie,.discussed the contract, objected to the price as too high, and said that his company did not think it well to charge a price so much above the cost of the nickel; lhat thereupon the secretary declined to close the contract, and the sale fell through; that some time thereafter the company did sell to 1'he navy department a much less quantity of nickel, at a much less price; and that, if the sale had been allowed to go through on the terms first agreed upon, enough would have been realized to enable the copper company to declare dividends so large that Eitchie might have rid himself of much of his indebtedness. Burke denies Eitchie’s account of their interview with the secretary of the navy in toto. He says that the contract proposed involved the sale of nickel matte to the department; that the matte contained both copper and nickel, and that the contract provided for the elimination of the copper at a cost of some cents per pound; that the secretary suggested that it could be done for less, and that the department ought to get the benefit of reduction in that cost, if there were any. To this, Burke assented, and in this respect only did he differ from Eitchie in the presence of the secretary. He said the contract was drawn up with the price of the nickel at $150 a ton, and was to be signed the next day, but that the next morning the secretary had learned from other sources that the price was too high, and refused to sign. Burke concedes that, at the hotel, he did say to Eitchie that he thought $150 was too high a price to charge, when it cost them less than $60, and that his suggestion angered Eitchie exceedingly. Were we called upon to decide as to the comparative credibility of these two accounts, we should be inclined to credit the latter, because the record in this case shows to us that Eitchie’s intensity of purpose and tendency to exag
The charge of fraud in respect to the copper company’s dealing with Carnegie, Bhipps & Co. has so slight a basis that it surprises us that it should be made. Ritchie, on behalf of the copper company, agreed with Carnegie, Phipps & Co. to furnish to that company 2,000 tuns of nickel matte at a good price whenever it should order the same. There was no obligation on the part of the Carnegie Company to take a pound, whereas, if it wished to do so, it could have required the delivery of an amount which might have taxed the capacity of the copper company. The directors did not like the terms of the so-called contract, and objected that under it they might be called upon ro do more than they could do. Accordingly, a new arrangement was entered into for the sale, upon the request of the Carnegie Company, of a less quantity of matte at the same price. As it lurned out, the Carnegie 'Company did not purchase a (on of nickel matte from the copper company. It is absurd to say that the directors’ action interfered with the sale of the nickel, and still more so to contend that if was actuated by fraud. But the claim made only illustrates Ritchie’s inability in painting the probabilities to distinguish between a completed sale and the mere taking of an option.
It is said that Burke, Payne, and Cornell purposely prevented subsidies for the extension of the Central Ontario Railway, and the sending of the circular letter of March 16, 1891, to influential Canadians is pointed to as their chief act effecting their object. We have already traced the cause of the letter of March 16, 1891. Ritchie’s unwarranted interference in the business of the company required it to protect itself in some way, and perhaps this was as summary a way as any. The letter was improperly phrased, in that it said that Rite,hit; had no connection with the copper company, even as a stockholder. He was not a stockholder of record, but, as he had an equity in a very large amount of the stock, the letter was calculated to mislead. In so far as it denied him any authority to represent the company, it was certainly justified by his hostile altitude towards the company, and his officious and resentful intermeddling in the transaction of its regular and lawful business. As soon as tbe possible effect of the letter in preventing Ritchie from obtaining a subsidy for the railway extension was brought to Burke’s attention, he and his associates promptly wrofe a letter to neutralize any such effect, by expressing their hope that the extension would be built, and their belief that it would benefit both mining companies. There is ample proof in the case, especially in Ritchie’s letters, to show that the subsidies
It is further charged, as an evidence of their fraudulent management, that the directors haw not declared dividends for the copper company. It does appear that the directors used, in developing the plant, over $500,000, raised by the sale of stock, and a sum only less than this derived from undistributed profits on the sales of matte, and that, until a short time before the entry of the decree below, no dividends had been declared. Until January, 1891, Ritchie was fully cognizant of everything done by the copper company, and had access to their books and accounts, and yet we find that he made no complaint whatever of the policy thus pursued. Since January, 1891, because of his obviously hostile attitude, he has not had access to the books, or any control of the company’s affairs. The statement of the company’s condition September 1, 1893, seems to show that the company has been very well managed, and that the capital stock is worth more than par, and the declaration of a dividend of 7 per cent, on a capital stock of $2,500,000 for the year 1894 would indie,ate that it was only a properly conservativa* policy, in accordance with which the first profits had been used, not to pay dividends, but to improve the plant. It might have assisted Ritchie more to have profits all turned into dividends at once, but the other stockholders were under no obligation to do this. It must not be forgotten that all that Ritchie can complain of is a fraudulent policy adopted for the intention of depreciating his stock, and clearly tin; policy shown is not such a one. The improvement of the mining; plant and the accumulation of a, comfortable surplus would not depreciate the value of the stock, but would tend to have an opposite effect.
Another transaction, of which Ritchie complains in his amended answer and cross bill, as evidence of the combination to defraud and overreach him in the management of the copper company, is the arrangement by which nearly the entire capital stock in the Vermillion Copper Company wras purchased and transferred to the copper company. The Vermillion Company owned some valuable copper and nickel mining land very near that of the copper company, and it was regarded by all, especially by Ritchie, as of great importance to the copper company to buy out the Vermillion company. In order to do this, it was necessary to expend about $70,-000 cash. It was agreed among the directors that, if Cornell would advance this money, the company would issue stock to him for it at the rate of 40 per cent, of par. Ritchie denies knowledge of or acquiescence in any such agreement; but the evidence that he not only knew of this agreement, but was most adive in securing
Complaint is made of the failure to develop the property of the Anglo-American Iron Company, and that is pointed to ,as an evidence of fraud. It is quite clear that the heavy advances of Burke, Payne, and Cornell to develop the (topper company were all that they felt willing or able to make. They owed no obligation to any one to do this with respect to the iron company, ana it would be ridiculous to predicate a charge of fraud on their unwillingness to do it. Ritchie remained a director and vice president of the iron company from its organization until January, 1891; and the record does not show that, he made any effort to secure money for the development of its property, or that he ever complained that the others did not do so, or that he found any fault with its management. His charges on this hejad are mere afterthoughts.
Another act said to he in pursuance of the conspiracy against Ritchie was the beginning of a suit by the railway company to annul all its bonds and stock as illegally issued in June, 1892. When Ritchie was ousted from the presidency of the railway, an in ves ligation was made into ihe accounts of the railway, and some of the directors were disposed to question the validity of many of Ihe bonds and shares of the stock which had been issued; and, to clear up the hiatter, the board of directors directed a suit to be brought: to annul the entire issues. The resolution was opposed by Burke; and McIntosh, and in a very short, time the resolution was rescinded at their instance', and the suit dismissed. It was an ill-eonside'red action, growing out of heat against Ritchie and suspicion of him, but: it lends no support to the claim that it was an act: in furtherance of a conspiracy against him, because it harmed him in nothing, and only involveel the company in blind and foolish litigation.
We have thus reviewed, with undue prolixity perhaps, the charge; against Burke, Payne1, and Cornell that their corporate management of the companies was fraudulently calculated to depreciate and temporarily to destroy the value; of Ritchie’s stock, and we find that the charge is wholly groundless, and that the acts complained of were the result of their honest differences in opinion from Ritchie as to the proper poliedes for the companies t.o pursue.
A consideration of the indictment framed against these former associates of Ritchie would neither be complete nor fair which did not also include an inquiry into the direct relation of these mem to Ritchie;, as pledgees of his stocks and bonds, and their acts as such. We' have already referred to the fear of Ritchie and his pledgees that the McMullens, as soon as they obtained their judgment in the court below, would make an effort, by garnishment or otherwise, to reach the interest which Ritchie retained in the stocks pledges! Payne seems to have been as anxious as Ritchie to avoid (his. Ritchie owed the; Savings & Loan Association 8171,500, to secure which were pledged 418 bonds of the Central Ontario Railway and 2.000 shares of copper stock, as well as two notes of Payne himself, one for 825,000, and the other for
Frequent reference is made in the briefs of appellant’s counsel to the fact that Burke, Payne, and Cornell had transferred all the
Another source of complaint against Payne and Burke is their «attempt to enforce collection of the railway bonds and coupons. The supplemental answer and cross bill aver that, since the filing of the bill below, Payne and Burke have each taken judgment against the railway company for the amount due on its bonds and coupons held by them as collateral from Ritchie,—Payne in the sum of $030,000, and Burke in the sum of $130,000,—and that this was done, not merely to collect the amount due Ritchie on these securities, but for the purpose of depressing the value of the securities of the company, by procuring the appointment of a receiver for the road and its sale. As Payne and Burke held these bonds and coupons as pledgees, they had the right to collect the same, and apply the proceeds thereof on Ritchie’s debts to them, now long since due. Jones, Pledges, §§ 604, 665, 668. The usual mode of collecting such large mortgage debts against a railroad is to procure the sale of the road, and to secure the earnings pending the proceedings by the appointment of a receiver; and we see nothing in the conduct of Burke and Payne in this matter, as alleged, upon which an inference of a fraudulent motive can be predicated". The railway company is confessedly bankrupt. A. sale and reorganization are the only means by which the property can he made useful or profitable to the bondholders who are its real owners. Of course, Payne’s executors and Burke hold the bonds and coupons in trust to apply the proceeds to their debts, and to hold the surplus, if any, for the use of Ritchie. The decree orders the sale of these bonds and coupons. If they have been put in judgment, the purchaser or purchasers of them will take with them all the rights secured by these proceedings of Payne and Burke. In other words, he or they will buy a judgment on bonds «and coupons, instead of the bonds and coupons; and, if any such change has taken place in the form of the securities, the circuit court, when it is brought to its attention, will, if it deems it necessary, have the power to modify the order of sale to conform to the present condition of the collaterals.
As has already been stated, the real dissension between Ritchie, on the one hand, and Burke, Payne, and Cornell, on the other, began late in 1890, and continued to grow more bitter during the year 1891. During that year Ritchie began a suit to dissolve the two mining companies, on the ground that they had not earned dividends. Soon after the episode concerning the Trenton subsidy. in October. 1891, it is clear that Burke and his associates concluded that it was of no advantage to them further to obstruct the McMullens in collecting their judgment out of the collaterals
We have considered at great length the circumstances of this case, to discover Avhether there is any justification for the wholesale charges of fraud made against Burke, Payne, and Cornell, and we can find none. There may be some circumstances set forth in a supplemental answer and cross bill, tendered long after the evidence was concluded and the cause was submitted, which we
The next important assignment of error is based oxx the holding by the circuit court that Ritchie is not entitled to any compensation for the services rendered by him to the two mining companies. It is not contended by Ritchie 'or his counsel that there was any express agreement by these companies to pay for his services. If he can recover, it must be upon an implied contract. There ax<e many circumstances tending to show that what Ritchie did for the benefit of tin» companies he did with the knowledge and acquiescence of the directors of the companies, and possibly in some instances at their request. The only issue really is whether what he did was done under such circumstances as to show that he expected to receive and the companies expected to pay compensation for it.
That Ritchie rendered most valuable services to these two companies in enlarging the1 nickel market, and in reducing the tariff on nickel matte, there can be no doubt. That he worked unceasingly for nearly five years in many directions to make them successful, no one who reads the correspondence in (his record can for a moment question. And, if there is any obligation of a legal character on these companies to compensate him, the court would not hesitate to fix a large amount as his dxie, But the difficulty
The next error assigned,is to the finding of the court that Ritchie did not assign to Cornell, on January 29, 1890, as additional collateral for Ritchie’s debt to him, the collateral held by the savings and loan association to secure Ritchie’s debt to it of $171,500. This was the collateral which Ritchie had assigned, subject to the rights of the loan association as pledgee, to Payne, in 1887, to secure Ritchie’s indebtedness to Payne, and which, by the writing of March 10, 1890, he purported to sell outright to Payne, in consideration of his assuming the loan association debt. It appears that Ritchie did have drawn up in triplicate such an assignment to Cornell. It further 'appears that Cornell paid one installment of interest on the loan association debt in February, 1890, on the faith of the assignment. It further appears that he declined to make any further payments, because in some way he learned that the assignment had not been made to him, and that he communicated these circumstances to Payne before Payne assumed the debt of the loan association, and took title to the collateral. It further appears that no such assignment can be found among Cornell’s papers. The witness whom Ritchie calls to prove the assignment is a lawyer named Allen, in whose office it was drawn. Allen says that the paper was not delivered in his presence, but that there was something said by Ritchie at that time indicating that the assignment would be useful to avoid the McMullen judgment. Ritchie says the assignment was delivered, and that he produced it to the county auditor when summoned as a witness in the matter of Cornell’s taxes. The issue made is not free from doubt, but we reach the same conclusion as the court below, namely, that the assignment was never completed by delivery. It is difficult otherwise to see what motive Cornell would have to repudiate it, within a month after its execution, in a confidential communication to Payne, when he must have known that Payne intended to take action with respect to the same collateral. A desire to escape taxes furnishes no explanation for this. Ritchie’s delay in setting up the assignment in this suit until after Cornell’s
The action of the court below in fixing the amount of Ritchie’s debt to Payne at $(>05,382.00 is assigned for error, on the ground that a payment of $60,000 was made on the same, which the circuit court refused to credit. Ritchie’s statement is that Payne asked him to procure a note from the railway company as evidence of its indebtedness to him, and to transfer the note to Payne in reduction of his indebtedness to Payne; that he did procure such a note for $60,000, and assign it to Payne as requested, thus reducing Payne’s claim against him by the amount of the note. The note w'as given and assigned in 3887. Subsequent to that time, Ritchie admitted, in writing, his indebtedness to Payne to be such a, sum that he could not have taken credit for the $60,000 note. Payne says he took the note at Ritchie’s suggestion, to enable Ritchie to deny an indebtedness of the railway company to him in Canada, in transactions in which the issue was material, and emphatically denies that it was anything but collateral, if, indeed, it could be considered that. The note was worth nothing, and it is absurd to suppose that Payne accepted it as payment for the amount of the face. The assignment is not sustained.
There remains to be considered but one other objection to the decree of the court below. It is not made the subject of a specific assignment, but may, perhaps, be included in the assignment, in which it is said the court erred in fixing the amount due Payne from Ritchie at $605,382.06. In order to reach this sum, the circuit court charged Ritchie with $100,000 and accrued interest from 1887, for failure to comply with a contract made by him with Payne on July 9, 1893, by which Ritchie agreed to buy from Payne 100 $1,000 bonds of the Central Ontario Railway at par and accrued interest, being the same bonds which Payne liad bought in 1888. Payne avers a tender of the bonds to Ritchie, and a refusal by him to pay for the same. The point made by counsel for Rjtchie is that this agreement of Ritchie was without consideration, and not binding on Ritchie. To this it is responded that the counter promise of Payne to deliver the bonds for the price is quite enough consideration to support Ritchie’s promise. We think that there is another principle enforced in equity, which, under the circumstances of this case, requires us to hold that Ritchie should not be held bound by this contract.
On July 7, 1890, Ritchie and Payne -entered into a contract curiously worded, the reason for which is not entirely clear. By it, Payne agreed to sell and deliver to Ritchie all the stocks and bonds acquired by Payne from the savings and loan association, and also those stocks and bonds held by Payne to secure Ritchie’s ■ original debt to him, on condition that Ritchie would, on or before September 7, 1890, pay the amount paid by Payne to the loan association, and about $170,000 paid by Payne on account of Ritchie to other persons and banks. Payne’s statement is that this paper agreeing to sell to Ritchie shows that he (Payne) was then the absolute owner of all these securities, and that he was merely giving Ritchie a chance to buy them back, because Ritchie said he would be in funcls before the day fixed. Ritchie’s statement is that, when Payne claimed to own the securities, there was a serious dispute as to the title of the stocks, and the matter was put in this doubtful form by Payne. Nothing was paid before September 7, 1890, and Payne extended the time until November 1, 1890. No payment then being made, Payne notified Ritchie that the contract was forfeited, and that he would put up for sale 1,000 shares of copper stock, at $125 a share. Ritchie had not paid, and Payne had not sold, when, on the 9th of July, 1891, they came together again, and entered into their third and last contract, as follows:
“Dear Sir: X will take up and pay all my indebtedness to you, with lawful interest thereon until time of payment, amounting in the aggregate to about $400,000. I will also purchase back from you $100,000 of the bonds of the Central Ontario Railway, which you originally bought from the company at par, and the unpaid interest. You are to surrender to me $033,000 of those bonds of the Central Ontario Railway, now held by you, and §200,-000 of the stock of said company, and also $300,000 of the stock of the Canadian Copper Company. The above payments to be made within sixty days from its date. S. J. Ritchie.
“Approved and accepted. H. B. Payne.”
“Mr. Kit chic. I think, was inclined to regard it. all the way along—probably does to this time—as still an indebtedness, and as not having transferred the property; and this was in Ms own language. He sat down in my office, and wrote it; in liis own terms, without any limit. I allowed Mm to express himself as he pleased. I was willing' to agree, while I owned it as the absolute owner, to hold it as pledgee. I was willing to do anything for him in consideration of his doing so and so.”
Payne was asked, in respect to the agreement to buy back the §100,000 of railway bonds, “'whether there was any consideration ever passed from you to him.” To this he answered:
“I stated to you a little while ago it, was Ms own generous offer. I did not solicit nor expect that offer. He wrote it down, and put it into that agreement himself.”
“Q. What do you say forms that considerationV A. Í don’t think it was due to a consideration. I am not certain, but there was some pricking of conscience back of it. 1 have heard—I don’t care to have it go down as testimony—that. he got those bonds of the company at seventy-live cents, lie turned them over to me at par. So there might have been some little pricking of conscience. Q. That is the only thing you can ‘think of that would bind this bargain? A. He bought those bonds, and 1 agreed to sell them. * * I am setting up my claim on that agreement, $100,000, and the interest on the bonds. * * * He insisted upon putting it in, and it was one of the most generous things 1 ever knew him to do. I mention it more cheerfully, for I think he deserves all the credit for it.”
Payne denies that the consideration for the agreement to pay par for §100,000 of bonds was Payne's agreement to consent to a consolidation of the companies.
It is very clear to ns that, whatever the words oí Otese contracts, a court of equity would refuse, under the circumstances, to give either of them effect: as a sale of the stocks and bonds. Payne’s naive admission, that while he supposed that Ritchie thought the paper of March 10, 1890, was a mere colorable transfer, he was careful to say nothing which should bind him to such an interpretation, itself stamps the transaction as nothing more than a change of debtors. It is clear, however, that Payne, subsequent to this, insisted to Ritchie, down to the writing of July 9, 1891, that he was the absolute owner of the stocks and bonds, and that this permission to buy them back was a mere matter of grace. Indeed, this is the position he took upon the stand. We may reasonably infer that a large part: of the consideration for Ritchie’s agreement: to buy hack the bonds was the concession in f lie contract of July 9, 1891, that the relation of Ritchie to Paine was that of debtor and creditor, and not of vendee and vend- or. The bonds and coupons were not: worth more than ,'50 cents on the dollar, and yet Ritchie agreed to pay 100 cents. In other words, Ritchie was agreeing to pay from seventy to eighty thousand dollars for the privilege of redeeming, without a contest, stocks and bonds which were incontestably his. A court of equity scrutinizes with great care the contracts made between pledgee and pledgor; as to the transfer of title to the pledgee, and does not hesitate to set aside such a contract if there is any ground for thinking that it is a harsh contract, and one brought about by the position
. As the. agreement to buy back these bonds was, in our opinion, the price paid by Ritchie to retain his equity of redemption,—a right which must have been accorded him without price,—we think that the bargain was an unconscionable one, and one which, considering the relation of pledgee and pledgor existing between Payne and Ritchie, and the latter’s straitened circumstances, cannot be permitted to stand. The debt of Ritchie to Payne, as fixed in the decree below, must therefore be reduced by as much as was included therein, on account of the obligation of Ritchie to buy back the bonds. In other respects, the decree of the court below must be affirmed, except that the circuit court is directed to credit dividends .declared and received by the pledgees since the entry of the decree below. The order of the court will be, therefore, that the decree of the court below be modified in accordance' with this opinion, and the decree be enforced according to its provisions for advertisement and sale, as if entered upon the date upon which the mandate of this court shall be filed in the court below. The appellants will pay five-sixths of the costs of the appeal, and the executors of Payne will pay one-sixth.