158 F. 385 | 9th Cir. | 1907
W. Grant Whitney, a citizen of Oregon, appellant, brought this suit against E. H. Dewey, a citizen of Idaho, appellee, praying for a decree requiring Dewey to assign, quitclaim, and set over to appellant all his (defendant’s) right, title, and interest in and to certain real estate in the counties of Boise and Canyon, Idaho, as provided in an agreement dated September 7, 1899, between complainant and one Willard White, and for such other relief as is proper. Among the defenses set up by Dewey is the statute of limitations; that an action was begun and tried in a state court of Idaho, wherein Whitney, appellant here, was the plaintiff, and Dewey, appel-lee here, was the defendant, and that a judgment of the Supreme Court of the state of Idaho in the said suit has become final, and that Whitney is now estopped, by reason of said suit and judgment, from litigating any of the questions involved in this suit; that on January 25, 1900, one Beery and wife were the sole owners and seised in fee of the property involved, and that they conveyed the property by warranty deed to White, and at the time of the conveyance, no one else had any interest in the undivided half interest in said property now claimed by Dewey; that the conveyance of warranty to White was made with the full knowledge of Whitney, and that thereafter White conveyed to Cobban and Casey, who retained possession until sale to Dewey; and that' Dewey, for a valuable consideration, became the owner of an undivided half interest in the property; and that, when the conveyances to Cobban and Casey and Dewey were made, none of said parties had knowledge of any claim or equity of Whitney or any one else; and that there never was any combination and confederacy, as charged in the bill. There was a trial and decree dismissing complainant’s bill. Complainant appeals.
The essential facts are as follows: Complainant, prior to September 7, 1899, had located a water right on the Payette river in Idaho, whereby he appropriated a quantity of water for power and irrigation purposes, and had commenced proceedings to secure title to a right of way for á reservoir site in connection with his water appropriation. Complainant then met one Willard White, whom he heard was representing capital and could be of service to him. The two looked over the ground. In order to utilize a reservoir site, it was necessary to ac
“This agreement witnesseth: Whereas, W. G. Whitney and Willard White having acquired a dam, a log storage and power site on the Payette river, at a point called the Black Kock Canyon about six miles above the town of Emmett in Canyon county, Idaho; and
“Whereas, it is proposed to secure sufficient funds with which to erect a dam at said site, about 30 feet in height, with a view of creating a large water power to be used in sawing lumber, elevating water upon both sides of the Payette river for the purpose of irrigation, and for generating electric power to be utilized for railway and such other purposes as may be found feasible.
“Now, therefore, in consideration of the premises, each of the parties hereto agrees to give his best efforts to the immediate accomplishment of the above-mentioned project, and does agree that the parties hereto are to own an equal interest in such undertaking, share and share alike.
“It is further agreed that in the event the said White shall fail to raise sufficient funds to construct said dam or fail to make such progress as shall be satisfactory to said Whitney within one year from the date hereof, the said White agrees to assign all his right, title, and interest in the same to said Whitney.
“Witness our hands and seals this 7th day of September, 1899.
“W. Grant Whitney,
“Willard White.’’
After making this agreement, the parties, believing that it was necessary to secure title to the land involved in this suit, concluded to acquire the same from the owner, I. R. Beery, of Minneapolis, Minn. White, by agreement, was to obtain a contract from Beery for the purchase of the land. About December 26, 1899, White went to Minneapolis, and obtained a contract for purchase from Beery. This contract was between Beery and White. By its terms, in consideration of the covenants named in the contract to be performed by White, Beery agreed to sell, and White agreed to buy, the property now involved in this litigation. White agreed to pay to Beery $6,000 — $1,000 in cash was to be paid on or before February 1, 1900; and $5,000 in first mortgage bonds in a corporation to be formed for the purpose of developing a power plant at the site of the reservoir and dam, the bonds to be issued upon the property described, and improvements to be placed thereon. The contract also provided that in the event of a failure to comply with the terms thereof by White, Beery was to be relieved from all obligation to convey the property, and White should forfeit all right thereto at the option of Beery. It also provided that, upon payment in the time and manner specified, Beery was to execute to White and his assigns .a sufficient deed conveying to White the title to the property. No money was paid to Beery under the terms of the contract. White then went to New York and other places to try and secure money to carry out the plans of himself and Whitney, and on his way back to Idaho, about January 25, 1900, again saw Beery, and obtained from him a warranty deed to the property. No money was paid to Beery for this deed. When White returned to Idaho, he told Whitney that he had talked with Beery about forming the company,
On July 22, 1903, Whitney commenced an action against Dewey in the state courts of Idaho, praying for a decree quieting his title to the property herein involved, and for an injunction against Dewey from asserting any claim to the premises. Dewey denied Whitney’s right and title, and set up title in himself to an undivided half interest in the premises, claiming through the warranty deed of January 25, 1900, to White, and the deed from White to Cobban & Casey. On appeal the Supreme Court of the state discussed the contract of September 7, 1899, hereinbefore set out in full, referred to the agreement of December 26, 1899, between Beery and White, to the deed made
We look upon the agreement of September 7th as one of partnership. It was a contract where the parties contemplated, by joint effort, the. promoting of a project for building a dam so as to create and use and sell water power for electrical and other purposes. Each agreed to give his best efforts to secure means immediately. Corporate organization was undoubtedly in the minds of Whitney and White, for, in dealing with Beery, they were to pay him in part by first mortgage bonds to be issued by a corporation to be formed to build a dam. But, whether in one form or another, and no matter how much or how little was accomplished, each of the parties became an owner in all property that was contributed and acquired in connection with the execution o'f the purposes of the association. The rights that had been initiated by Whitney individually prior to September 7, 1899, became the joint property of Whitney and White, share and share alike. White contributed no property to the partnership, but was anxious to join with Whitney, as he believed the rights which Whitney had contributed were valuable and could be made much more so. White was really a promoter, agreeing to contribute his energy and time with an exclusive right for a year to secure a half interest, in the whole enterprise. But the parties provided for possible failure, and agreed that in ‘ case White should not be able to secure necessary funds to accomplish the undertaking within a year from September 7, 1899, or in the event of unsatisfactory progress on White’s part within a year, White was to assign to Whitney all his right, title, and interest in and to the dam site, lands, rights, contracts, and privileges connected with the whole project that had been acquired by the partnership or either partner for the partnership. The plain purpose was this:
There are some principles which are thoroughly well established that bear upon the case, and will furnish grounds of equity and law upon which our decision must be placed. The first and highest duty which partners owe to each other is perfect good faith. Each is under obligation to do what he can to promote the success of their partnership. In every purchase or bargain each is under a duty to use the property of the concern for the benefit of all. In the requirement of good faith between partners, naturally, deceit, concealment, and false representations are forbidden. Parsons on Partnership, 225, says;
“If lie (one partner) makes any private bargain with third parties for his own benefit, which either inflicts a loss upon the partnership, or turns to himself advantages which belong to all in common, he will be held to make compensation for this, or to restore these advantages to the partnership in some way. Thus, if the partnership have a valuable leasehold property, and, when it is about to expire, a partner privately gets a renewal of it to himself, he cannot take advantage of this to impose hard terms on his partners, but will be held to have obtained it for them as well as for himself.”
Judge Story writes as follows:
“In cases, therefore, where real estate is purchased for partnership purposes and on partnership account, it is wholly immaterial, in the view of a court of equity, in whose name or names the purchase is made and the conveyance is taken, whether in the name of a stranger alone or a stranger jointly with one partner. In all these cases, let the legal title be vested in whom it may, it is in equity deemed partnership properly not subject to survivorship, and the partners are deemed the cestuis que trust thereof. A court of law may, nay must, in general, view it only according to the state of the legal title. And if the legal title is vested in one partner or in a stranger, a bona fide purchaser of real estate from him, having no notice, either express or constructive, of its being partnership property, will be entitled to hold it free from any claim of the partnership. But if he has such notice, then in equity he is clearly bound by the trust; and he takes it cum onere exactly like every other purchaser of a trust estate.”
Equity will apply its broad principles to real estate so as to secure to all parties their rights by regarding the legal estate as held in trust for the purposes of the partnership. This doctrine extends to carrying into effect implied, as well as express, trusts; and as is frequently the case in partnership relations where property is purchased in the name of one of the partners and the conveyance in form vests the legal title in one, equity will hold that he takes clothed with a trust for the partners in their partnership capacity, so as to secure the beneficial interest to them until the purposes of the partnership are accomplished. The consequence is that partnership property so held cannot be conveyed away by the partner alone who holds the legal title, without violating the trust. A conveyance made by the one partner would be invalid against the other, unless made to one who purchased in good faith, without notice, actual or constructive, of the trust. One who, knowing that a piece of real estate is the property of a partnership, pays
The decision of the learned Supreme Court of the state, in the action to quiet title, heretofore referred to, was that, tested by rules of law, White became vested with such a title from Beery as would enable him to pass a perfect title, and that no evidence of parol conditions was admissible for the purpose of showing a failure to vest title in White. With the judgment of the court upon the question there decided we are in accord; and we proceed upon the premise that Beery alienated his entire legal interest in the property by the deed to White. But, even so, the case before us is a very different one from that decided by the state court. There the action was to quiet title, but the rights, if any there are, in Whitney to compel White, or his grantees with notice, to assign under the contract of September 7th, were expressly not determined. It is substantially the question referred to, but left undecided by the Supreme Court, that has become the foundation of this suit. We have then before us the question whether equity will decree a specific performance under the contract of September 7th. Det us here say that the evidence does not show that this is really a suit to enforce a forfeiture, as respondent contends. Nor is it to enforce the provisions of an unfair and unconscionable agreement. The consideration for the contract between White and Whitney was an exclusive privilege to White for 19 months of acquiring a valuable property interest, if he could successfully exercise his energy and secure necessary money to build the dam. Assuming, for the present, that White acted in good faith, yet equity will not refuse to Whitney the enforcement of the contract as made. If White had obtained the necessary money, and Whitney had refused to perform his part, White could have compelled him to do so. Forfeiture usually signifies loss of property by way of compensation for injury to the person to whom the property is forfeited, as well as punishment. Nothing of that kind is involved herein, inasmuch as the remedy that Whitney seeks is one by which White, who violated his primary duty to convey, when circumstances arose requiring conveyance, may be compelled to do the very act which his duty and Whitney’s primary right require from him. The case thus far, then, is this: On January 25, 1900, Beery had parted
White’s duty to convey under the contract then arose; but he failed to perform without excuse. In May, Whitney, erroneously but honestly believing that the warranty deed from Beery to White had conveyed no valid title to the partners or either of them, in good faith purchased Beery’s interest in the whole property (which was, at most, but an equity in the nature of a vendor’s lien), and thereafter promptly had his quitclaim deed put upon record. The taking of the quitclaim, which, in its terms, conveyed the lots involved, was really unnecessary on Whitney’s part, because, as we have said, Beery had already alienated his title by the warranty deed to White. The quitclaim operated to extinguish any possible lien that Beery might have had against the property for any unpaid price, and it also put the record title to the whole property in Whitney. It became notice to all that Whitney was a grantee of all the right, title, and interest
We have thus far considered the case without regard to the secret contract made April 25, 1900, by Beery and White. We regard White’s conduct in obtaining that conveyance, and in not advising his partner of it, as a willful fraud against Whitney. It was done in direct violation of every rule of good faith, and of the written obligations of their partnership articles. White’s purpose evidently was to get Whitney out, and, in trying to do so, he concealed- the truth and deceived his partner. But it does not appear that appellee or' Cob-ban & Casey knew of the willful fraud or participated in it; hence they should • not and cannot be charged therewith. Their attitudes are as heretofore explained — purchasers with knowledge of the quitclaim deed from Beery to Whitney and of the business association of White and Whitney, and of Whitney’s claim of exclusive ownership. These several pieces of information are sufficient, as we have shown, without regard to the willful fraud of White, to defeat appellee’s claim of right in the property. Consequently, ■ White’s willful fraud and the secret deed are not material to the decision of the case. It may be unfortunate for Cobban & Casey and Dewey that as White’s grantees and successors they will suffer some pecuniary loss as a result of their purchase, but they are none the less fortunate in being free from implication in those parts of his conduct which showed intent to defraud his partner.
Laches are charged. But Whitney has been active and persistent since May, 1902, when he intervened in the condemnation suit referred to, in seeking judicial determination of his claims. How, then, can it be said that he has slept on his rights ? He relied upon the statements of his partner, White, that no title was conveyed by the deed of January 25th, and knew nothing of the secret contract of April 25th between Beery and White until the action to quiet title was tried in the state courts.
One other point remains for consideration. It appears that in 1900 White, acting for the partnership, employed one Banister to make a report concerning the property. Banister was not paid, and thereafter obtained judgment against White, and attached the property of the partnership. When White sold to Cobban & Casey, Cobban paid to one Neil for Banister the sum of $561.75 — the amount of the judgment held by Banister. This sum was therefore paid for services rendered for the benefit of the firm, and we think it but equitable that it should be paid back to this appellee, who purchased from Cobban & Casey for more than they had paid. No other sum need be tendered or paid back to appellee by appellant, for the reason that appellant is only insisting upon the performance of his contract with White, under the terms of which appellant is entitled to a conveyance without paying any sum. Moreover, the evidence shows that all that complainant was obliged to do — and more, in fact, in that he advanced money for expenses, for which White alone was liable — was done by him. Appellee can occupy no better position than the most favored one which can be assumed for White, namely, that of a purchaser in trust for the person beneficially interested. Jackson v. Lynn, 94 Iowa, 151, 62 N. W. 704, 58 Am. St. Rep. 386; Pomeroy’s Equity Jurisprudence, § 422.
Finally, looking at the whole case, we think that the rule must prevail whereby appellee is liable in equity to the same extent and in the same manner as his vendors, Cobban & Casey, and Cobban’s and Casey’s vendor, White; that, having acquired with full notice of the trust, he became himself a trustee for Whitney with respect to the property, and is bound to assign as the original trustee, White, himself, would be.
The decree of the Circuit Court will be reversed, and the cause remanded, with directions to enter a decree that, upon payment to ap-pellee by appellant of the sum of $561.75, with interest thereon from August 1, 1901, at the legal rate allowed by the law of the state of Idaho, amount paid in satisfaction of the Banister judgment, appel-lee assign to appellant by quitclaim deed all his right, title, claim, and