83 F. 48 | U.S. Circuit Court for the District of Southern California | 1897
This is a suit in equity for the enforcement of a trust and an accounting thereunder. The admissions of the pleadings, together with the evidence adduced orally in open court on final hearing, show the following facts:
On the 21st of March, 1892, Samuel King, R. O. Hall, and James K. Patton were the owners of eight mining claims, situated in the Vanderbilt mining district, California, described as follows: The “Gold Bar,” the “Gold Bar Extension,” the “Gold Bronze,” the “Gold Bronze Extension,” the “Eig'hty-Poot Claim,” the “Chippy,” the “Lookout,” and the “Valley.” On that day said King, being ill and in expectancy of early death, conveyed his undivided one-third interest in said mines to said James K. Patton and Joseph P. Taggart; and at the same time said Patton and Taggart executed two instruments, of the same tenor and effect (Patton executing one, and Taggart the other), describing said Patton and Taggart as “parties of the first part,” and said King as “party of the second part,” and containing, among other provisions expressive of the consideration for said conveyance, the following:
“In case of said second party’s death before any reconveyance to him as herein provided, said first parties agree to account to the nephew of said second party, named, to wit, Henry King Whittle, for the gross profits or proceeds (whether derived by sale, working, or otherwise) of one-half (%) of said one-third interests in said mines; it being understood that first parties will pay all expenses connected with the working and care of said mines, and will not charge said expenses, or any proportion thereof, against the said gross proceeds to go to- said Henry King Whittle as aforesaid.”
Bamuel King died April 2, 1892, without any reconveyance of said mines having been made to him. Within a few days thereafter the above facts were communicated by mail to the mother of complainant, Mrs. F. L. Whittle, at Birmingham, Ala., in a letter written by Diehl & Chambers, attorneys at law, then representing said Joseph P. Taggart and James K. Patton; and afterwards, about the month of March, 1893, other parties wrote to complainant, with a view of purchasing
“That the said Anna M. Taggart, Henry T. Hazard, William Chambers, and Samuel T. Godbe at the time of said conveyance were not bona fide stockholders and directors in said corporation, and that they had no interest therein, but were only nominal stockholders and directors therein for the purpose of carrying out the plans and subserving the individual interests of the said Joseph P. Taggart and said James K. Patton, and had no interest in the management and conduct of the affairs of said corporation, except as the implements of the wills of said Joseph P. Taggart and James K. Patton, and that all of said directors at the time of the execution of said deed were entirely governed and controlled by the said James IC Patton and Joseph P. Taggart for the accomplishment of their individual purposes, and that all of the contracts, acts, and things leading up to, and forming a part of, the agreement and conveyance of said property and mining claim to said Vanderbilt Mining & Milling Company,*51 were dono, performed, and carried out by said James IC Patton and Anna M. Taggart (wlxo, as yoxir orator is informed and believes, was but the agent and instrument of said Joseph P. Taggart) as the managing agents and directors of said Vanderbilt Mining & Milling Company.”
The bill alleges also that the conveyance by defendants Patton and Taggart to the said Vanderbilt Mining & Milling Company was without consideration, and that said company accepted said conveyance with full knowledge of the interest of the complainant in the property so conveyed. The answer of said corporation is silent as to. the allegation that the conveyance was without consideration, but expressly alleges:
“That said corporation never had any notice of the equities or contracts of the complainant herein, or that said complainant had any claim in or to or upon said mining property, or in the production of the same, until this action was brought.”
After said two last-mentioned mines were conveyed to the Vanderbilt Mining & Milling Company said corporation proceeded with and continued the working of said mines, until the appointment of the receiver heroin, June 15, 1895. During the time that said company was engaged in working the mines, it incurred large indebtedness; and its creditors, none of whom are shown to have any notice of complainant’s claims upon said mines, have intervened, asking sale of the company’s property, and distribution of the proceeds among themselves according to their respective priorities. The creditors so intervening, with the amounts of their debts and'dates of their liens, are as follows: John Hughes, $818.23. Alexander McKenzie, $381.-08. Ned Kinney, $53.75. • Thomas Phillips, $148.85. James P. Cummings, $79.50. John Phillips, $91.47. S. L. Ferguson, $1,187.96. John Hopkins, $384.98. (The last eight named parties having laborers’ liens, which date from January 10, 1894, and were foreclosed in one action, October 22, 1895, in the county of Ban Bernardino, state of California; the costs of the action being nine dollars.) A. J. Boone, $286; costs, $17, with laborer’s lien from February 10, 1894, and foreclosed April 11, 1895; Hall & Stillson Company, a corporation, balance due, $5,325.86; judgment obtained in the superior court of the county of Ban Bernardino, Cal., on June 15, 1895, with judgment lien from June 15, 1895. R. S. Seibert, $1,347.41; costs, $10; judgment obtained in tbe superior court of the county of Los Angeles, OaL, on July 20, 1895; the lien thereof fixed by record of transcript in San Bernardino county. Cal., August 1, 1895. Arthur Woods, $1,892.89; costs, $7; judgment recovered in the superior court of (he county of Los Angeles, CaL, on July 31, 1895; lien thereof fixed by record of transcript in the county of San Bernardino, OaL, August 3, 1895. Charles Kelly, $221.50; costs $6; judgment recovered in the justice’s court of Needles township, San Bernardino county, CaL, on November 14, 1890; the lien thereof fixed by record of judgment in the county recorder’s office of said San Bernardino county March. 20,1896. There is also a petition in intervention, filed by Jones Taylor May 1, 1897, resisting the trust, which complainant seeks to enforce against the Vanderbilt Mining & Milling Company. Said Taylor is the owner of 500,001 shares of the stock of said company, one-
“They are hereby made and declared to be a first lien upon all of the real and personal property of the defendant company in the charge and possession of said receiver, and in litigation in this cause, and more particularly mentioned in the receiver’s inventory on file herein.”
1. The main issue, if not the only controverted matter, in the case, is as to whether or not the legal title to the two mines conveyed to the Vanderbilt Mining & Milling Company is held by said company absolutely, or partly in trust, to account to complainant for one-sixth of the gross profits or proceeds of said mines. Complainant insists that the conveyance of said mines to said company was in violation of the trust created-by the contract between Samuel King and Joseph P. Taggart and James K. Patton, and was not made in good faith, nor for a valuable consideration, and, therefore, that the case falls within the provisions of section 22á3 of the Civil Code of California, which is as follows:
“See. 2243. Every one to whom property is transferred in violation of a trust holds the same as an involuntary trustee under such trust, unless he purchased it in good faith and for a valuable consideration.”
Defendants, on the other hand, contend, among other things, that the Vanderbilt Mining & Milling Company was a purchaser without notice, and for a valuable consideration, and, therefore, that the conveyance to said company must be deemed absolute, as provided in section 869 of the Civil Code of California, which is as follows:
“Sec. 869. Where an express trust is created in relation to real property, but is not contained or declared in the grant to the trustee, or in an instrument signed by him, and recorded in the same office with the grant to the trustee, such grant must be deemed absolute in favor of purchasers from such trustee without notice and for a valuable consideration.”
Thus it will be seen that the questions here involved are two: First. Was the conveyance of said mines to said company made upon a valuable consideration? Second. Was said company a purchaser without notice? While it is. true that the bill alleges in terms that sáid conveyance was entirely without consideration, yet the facts, as alleged in the bill, connected with said conveyance, and which are determinative of its character, namely, that the Vanderbilt Mining & Milling Company was organized by Joseph P. Taggart and James K. Patton solely for the management of said mines, and did not acquire
“That until within a few weeks before the commencement of this action the plaintiff hail no notice of the pretended assessment, or of the pendency of proceedings in the tax suit; and, on information and belief, he avers ‘that no notice was given of said proceedings, or any of them, as required by law.’ ”
Manifestly, the allegation “that no notice was given of said proceedings, or any of them, as required by law,” was not an averment of a fact, but of a conclusion of law; and so the court held. In the case at bar, however, the situation is wholly different. Whether or not the Vanderbilt Mining & Milling Company had knowledge or notice of complainant’s claims is evidently an issue of fact, and, I think, squarely raised by the pleadings. Did said company, then, or not, have this knowledge or notice? There is no proof whatever that Hazard or Godbe, who were two of the company’s directors, knew anything about the contract between Samuel King and Joseph P. Taggart and James K. Patton. Nor is there any proof that Annie M. Taggart, also a director, knew of the terms or existence of said contract, while her answer specifically denies any knowledge on her part of the matter. Complainant’s contention, therefore, that said company had such notice, is maintainable only on the theory that the knowledge of Patton and Chambers, the other directors, is imputable to the company. Numerous authorities are cited by complainant to the effect that notice to the agent of a corporation is notice to the corporation. Phelps v. Mining Co., 49 Cal. 337; Jefferson v. Hewitt, 103 Cal. 629, 37 Pac. 638; Donald v. Beals, 57 Cal. 405. While this, unquestionably, is the general rule, yet it has no application where the officer or agent of the corporation deals with the corporation, for himself, personally. In such a case he is regarded as a stranger to the corporation, so far as concerns any uncommunicated knowledge which he may have in respect to the transaction. 4 Thomp. Corp. §§ 5205, 5206; Frenkel v. Hudson, 82 Ala. 158, 2 South. 758; Johnston v. Shortridge, 93 Mo. 227, 232, 6 S. W. 64; State Sav. Ass’n v. Nixon-Jones Printing Co., 25 Mo. App. 643; Innerarity v. Bank, 139 Mass. 332, 1 N. E. 282; Bank v. Chase, 72 Me. 226; Wickersham v. Zinc Co., 26 Am. Rep. 784; Mathis v. Pridham (Tex. Civ. App.) 20 S. W.
“The general rule is that notice of a fact acquired by an agent while transacting the business of his principal operates constructively as notice to the principal. This rule applies, of course, as well to corporations as to natural persons. Reid v. Bank, 70 Ala. 199. Tt is based upon the principle that it is the duty of the agent to act for his principal upon such notice, or to communicate the information obtained by him to his principal, so as to enable the latter to act on it. It has no application, however, to a case where the agent acts for himself, in his own interest, and adversely to that of his principal. His adversary character and antagonistic interests take him out of the operation of the general rule, for two reasons: First, that he will very likely in such ease act for himself, rather than for his principal; and, secondly, he will not be likely to communicate to the principal a fact which'he is interested in concealing. It would be both unjust and unreasonable to impute notice by mere construction under such circumstances, and such is the established rule of law on this subject.”
In Innerarity v. Bank, supra, the rule is stated thus:
“While the knowledge of an agent is ordinarily to be imputed to the principal, it would appear now to he well established that there is an exception to the construction or imputation of notice from the agent to the principal in case of such conduct by the agent as raises a clear presumption that he would not communicate the fact in controversy, as where the communication of such a fact would necessarily prevent the consummation of a fraudulent scheme which the agent was engaged in perpetrating.”
Iu yet another case the same doctrine has been enunciated thus:
“The general proposition is undoubtedly true, that notice of facts to an agent is constructive notice thereof to the principal himself, where it arises from, or-is at tire time connected with, the subject-matter of his agency. The rule is based on the'presumption that the agent has communicated such facts to the principal. Story, Ag. § 140. On principles of public policy, the knowledge of the agent is imputed to the principal. But the rule does not apxrly to a transaction such as that under consideration; for in such a transaction the officer, in making the sale and conveyance, stands as a stranger to the company. Stratton v. Allen, 16 N. J. Eq. 229. His interest is opposed to theirs, and the presumption is, not that he will communicate his knowledge of any secret infirmity of the title to the corporation, but that he will conceal it. Where an officer of a corporation is thus dealing with them in his own interest, opposed to theirs, he must be held not to represent them in the transaction, so as to charge them with the knowledge he may possess, but which he has not communicated to them, and which they do not otherwise possess, of facts derogatory to the title he conveys.” Barnes v. Gaslight Co., 27 N. J. Eq. 36.
It is true that some authorities seem to suggest a distinction between the knowledge of a director who, though personally interested, also represents the corporation, and the knowledge of a director who only acts for himself, the corporation being represented by other directors or agents. Bank v. Christopher, 40 N. J. Law, 437. This distinction, however, I think, is not well founded. The reason, as shown by the last two extracts above quoted, why the knowledge of a corporate director, relating to a transaction with the corporation, in which he is personally concerned, and acts for himself, will not be imputed to the corporation, is that his adversary interests are such that he will not he likely to communicate to the corporation a fact which he is thus interested in concealing. This reason applies as strongly when the interested director acts for the corporation as when he does not so act, and therefore the cases are indistinguishable.
“When, therefore, the president of a corporation, acting in his own interest, conveys land to the company in payment of his stock subscription, the company is not affected with notice of any equities affecting the title to the land of which the president may have knowledge. In such a case the knowledge of the president is not the knowledge of the company, because tiie president is acting in a character adversary to the company, and in his own interest. So. where the general superintendent of a corporation conveyed to it, 'with warranty, lands which ho had purchased in his own interest, and which wore subject to a lease executed by a prior vendor, of which the superintendent had actual notice when he purchased, and which was recorded, but not acknowledged and certified as required by law, it was held that the knowledge of the superintendent could not be imputed to the corporation.” 4 Thomp. Oorp. § 5207.
It is true that Chambers was not one of the grantors in the conveyance to the company, but the bill alleges that he was a mere agent and “implement of the wills” of Joseph P. Taggart and James K. Patton in the accomplishment of their plans; so that, on this question of notice, Chambers stands in the same relation to the corporation as Patton. Their knowledge is not the knowledge of the corporation.
There is another view of the case, strenuously urged by defendants, which I think also bars the relief complainant seeks against the Vanderbilt Mining & Milling Company, and it is this: That since either complainant or Jones Taylor, both innocent persons, must suffer from the wrongful acts of Taggart and Patton, complainant should be the sufferer, since it was only through his negligence that said wrongful acts were possible of accomplishment. The doctrine which defendants here invoke i|s familiar, and in California has become a statutory enactment. Civ. Code Cal. § 3543. This rule was declared by Chief Justice Parker, of Massachusetts, as follows:
“It is a general and just rule that when a loss bas happened, which must fall on one of two innocent persons, it shall be borne by him who is Hie occasion of the loss, even without any positive fault committed by him, but more especially if there has been any carelessness on his part which caused or contributed to the misfortune.” Somos v. Brewer, 2 Pick. 201.
The same rule is enunciated by the supreme court of Pennsylvania thus:
“Where one of two innocent persons must suffer by the fraud or negligence of a third, whichever of the two has accredited him ought to bear the loss.” Mundorf v. Wickersham, 63 Pa. St. 87.
The supreme court of California, 911 the same subject, says:
“In this caso, plaintiffs and defendant were both innocent. Neither knew that the fraud was being practiced: but, if that fraud was productive of injury, the injury must result to Hie plaintiffs, for they placed it in the power of the wrongdoer to perpetrate the fraud.” Schultz v. McLean, 93 Cal. 357, 28 Pac. 1053.
Again, the same authority quotes with approval from. Judge Story as follows:
“ ‘Whenever the equities are unequal, there the preference is constantly given to the superior equity.’ See, also, Jeremy, Eq. Jur. 285, 286.” Salter v. Baker, 54 Cal. 143.
There is no fact or circumstance in the case at bar that subjects Taylor to the criticism of having been negligent. When he bought
“Even in those cases in which only corporate rights and obligations are involved, and the corporation is nominally interested only as an entity, the courts are constantly obliged to consider that the real persons in interest are, the individual shareholders. This is especially true in dealing with the rights of creditors, and the obligations existing between a corporation and its shareholders by reason of their contract of membership. The courts of equity will often take notice of the real character and constitution of a corporation, in applying the doctrine of laches against persons asserting equitable claims against the company’s property or assets. The shareholders in a corporation are undoubtedly bound by the corporate acts, and cannot set up their several equities against persons who have claims against the corporation; but the fact*57 that shares represent undivided interests in the corporate concern, and are freely transferable in the open market, passing from day to day into the hands of innocent purchasers, may be a good reason why persons having equitable claims, the enforcement of which would impair the value of the company’s shares, should be diligent to assert their rights. Thus, if a corporation should obtain title to property through a fraud on the part of its agents, the rightful owner of the property would certainly be entitled to set aside the transfer, although innocent shareholders and creditors should suffer thereby, provided lie was not guilty of inexcusable delay in asserting his rights; but any negligence or unexeused delay until innocent persons iiave acquired an equitable interest in the property, as shareholders or creditors of the corporation, would be a sufficient reason for refusing relief in a court of equity.”
Manifestly, the equities of Jones Taylor are superior to those of the complainant, and, since the relief complainant seeks against the Vanderbilt Mining & Milling Company cannot be afforded: without the destruction or impairment of those equities, such relief should be refused.
2. From the foregoing views it results that the complainant is entitled to judgment against the defendants Joseph P. Taggart and James K. Patton for one-sixth of the capital stock of the Vanderbilt Mining & Milling Company; said stock being the consideration received by said Taggart and Patton for the Gold Bronze and Gold Bronze Extension Mines. There is no dispute but that complainant is also entitled to judgment against the defendants Joseph P. Taggart and James K. Patton for one-sixth of $40,000, with interest from February 8, 1893 (said sum of $40,000 being the purchase price received by said defendants on the sale to William S. Lyle of the Gold Bar Mine and of the Gold Bar Extension Mine), and also for one-sixth of $300, with interest from February 21, 1893 (said sum of $300 being the purchase price received by said Patton and Taggart on the sale to William S. Lyle of the Eighty-Foot Claim), and also for one-sixth of the gross profits or proceeds realized by them from the working of the mines described in the bill of complaint, up to December 27,1893, the date of the conveyance by Annie M. Taggart’ and James K. Patton of the Gold Bronze Mine and Gold Bronze Extension Mine to the Vanderbilt Mining & Milling Company, and to an accounting by Joseph P. Taggart and James K. Patton for such profits and proceeds.
3. The circumstances of the case manifestly require that the property belonging to the Vanderbilt Mining & Milling Company, now in the possession of the receiver, be sold, and the proceeds distributed among those entitled thereto. Since the intervening creditors are asking that said property be sold without further delay, and since the accounting to complainant by Joseph P. Taggart and James K. Patton for the gross profits or proceeds derived by them from the working of the mines described in the complaint, which accounting is the only undetermined matter herein, cannot in any way be affected by said sale, the receiver should proceed at once, in the manner prescribed by law, to advertise and sell said property at the courthouse of San Bernardino county, Cal.; the proceeds of such sale to be applied as follows: (1) To the payment of the expenses and charges of the receivership, including receiver’s certificates. (2) To the pay
Some questions other than those to which I have adverted were raised at the oral argument, and are also urged in the briefs subsequently filed. My rulings, however, already announced, render further notice of such questions unnecessary. A decree conformable to this opinion will be entered.
