Hughes v. Charlton

Midler, Judge: These appeals were awarded upon the several petitions of the defendants, W. A. Charlton and D. J. Pancake, from the final decree pronounced in the cause on July 24,1926, whereby they were adjudged to be liable to pay to plaintiffs the sum o.f $17,400.00, the amount which the decree ascertains to remain due plaintiffs for purchase price of certain stock of the Pence Springs Water Company by virtue, first, of a contract between plaintiffs and W. A. Charlton, Trustee, dated June 1, 1923; second, of a contract between said Charlton, Trustee, and said Pancake, dated October 22, 1923, by which latter contract the said Charlton purported to sell to said Pancake all his rights under said contract of June 1, 1923; and by which decree the circuit court further adjudged that of the said balance of $17,400.00 there was then due and payable the sum of $16,004.80, and that the said plaintiffs do recover of said Charlton and Pancake the sum of $16,004.80, witli interest and costs and awarding executions against them unless paid within'thirty-days, and retaining the cause on docket for further decree against them for the balance. ■ ■ The contract of June 1, 1923, pleaded and exhibited with •the bill purports to be between Hatfield and Hughes describing themselves as owners of all outstanding stock of the Pence Springs Water Company, as parties of the first part, and W. A. Charlton, Trustee, party of the second part, and whereby in consideration of $10.00 cash in hand paid, the receipt whereof was thereby acknowledged, and the payments and covenants to be paid and performed as thereinafter provided, the said first parties did thereby agree to sell to the said second party the stock of the Pence Springs Water Company, namely, $44,000.00 issued of this date, upon the following terms, that is to say: “Total consideration for the purchase of said $44,000.00 stock shall be $2,500.00 cash *643 in hand paid, on the execution of this contract, receipt of which is hereby acknowledged; $2,500.00 to be paid on or before the 15th day of July, 1923, the residue of $20,000.00 to be paid at the rate of $500.00 per month, commencing on the last day of September, 1923, all of which deferred payments are to be evidenced by notes of the said company And thereby it was further “mutually understood and agreed that all cf the said outstanding stock of said company will be issued in the name of W. A. Charlton, Trustee, and placed in the hands of Z. Taylor Vinson, m escrow, to be delivered to W. A. Charlton, when paid for; it being understood that upon the payment of each one of the deferred payments, or the cash payment herein provided, such proportion of $44,000.00 of stock as represented by said $2,500.00 shall be issued forthwith to said W. A. Charlton, Trustee, that is to say; upon the payment of $2,500.00 in cash this day received, a certificate for $4,400.00 of stock of the said Pence Springs Water Company will be issued to the said W. A. Charlton, Trustee, and upon the payment of any of the ether deferred purchase money notes, above described, a like proportion of the stock will be issued to said W. A. Charlton, Trustee. ’ ’ By a subsequent provision the second party was given the right to anticipate the payment of any of said notes before maturity and, if he deems it necessary, it was thereby “further understood and agreed that he may increase thé capital stock of said corporation and sell sarnie for the purpose of liquidating the notes herein described.’’ Another provision supporting our construction of the contract is “that all of the cash payments this day received, and all subsequent payments, shall be applied to paying the accounts payable to the Pence Springs Water Company, amounting to $14,402.07, as of this date, before any distribution among the stockholders, and all balances of accounts receivable after settlements and adjustments, as of the 1st day of June, 1923, are to be turned over to the said party of the second part as part of the Water Company assets.” *644 The contract also contains some further provisions not material to the proper disposition of the ease as now presented. Supplementing this contract and signed by the same parties and pleaded in the bill, is a letter addressed to Z. T. Vinson, dated June 13, 1923, advising him that Hatfield and Hughes had that day “contracted to sell our stock in the Pence Springs Water Company to Mr. W. A. Charlton, Trustee, a copy of which contract ’ ’ was therewith enclosed to. him and providing “that all of the stock which is mentioned in said contract” was to be turned over to said Charlton, Trustee; and that the certificate therefor would be duly signed in blank and deposited with him, and that as the payments from said Charlton, Trustee, as provided in said contract, were made to him, he was to turn over to Charlton, Trustee, “the stock so deposited with him in the proportion stipulated in the contract ’ ’. And Vinson was further advised by said letter that it was “further understood that said Charlton, Trustee, will cause to be executed by the Pence Springs Water Company, notes for all the deferred payments mentioned in said contract, Which notes, likewise, will be deposited with you for collection, and upon all payments made to you, either before the execution and delivery of notes, or such payments as may be made upon said notes to you, you will distribute to the creditors of the Pence Springs Water Company, a list of whom, and all amounts due from the said company, will be filed with you, and with the exception of the amount due from the Pence Springs Water Company to the Pence Springs Company, the payments upon said debts shall be made as the said Hatfield and Hughes shall direct. And after all. of the debts of the Pence Springs Water Company have been so paid, then the residue of the purchase money arising from the sale of said stock, you are to pay the same all to Thomas Hatfield as and of the x’eeeipt of the purchase price as the same is paid to you by said Charlton, Trustee.” The defendant Pancake was brought into the cause and sought to be rendered liable to plaintiffs along with defendant Charlton personally by virtue of the second of the con *645 tracts pleaded, providing as follows: That for tbe consideration thereinafter mentioned, the party of the first paid, Charlton, Trustee, thereby sold and assigned unto the party of the second part the contract of June 1, 1923, and it was thereby further agreed between the parties thereto, that all of the stock of the Pence Springs Water Company, which had been paid for under the Hatfield contract by the first party thereto should likewise be assigned to the said Pancake. The consideration for the above assignment and transfer to be paid by the second party to the first party was as follows: “First: Five thousand dollars, two thousand dollars in three months, and three thousand dollars in sis months, represented by notes, and as a further consideration the second party is to have five thousand dollars of the paid-up capital stock of the company, the increased capitalization of which is provided for in an agreement entered into the 20th day of October, 1923, between D. J. Pancake, W. A. Charlton and A. I. Balacaier.” This contract further provided that Pancake should perform all the obligations undertaken by the first party in the Hatfield contract, and should receive all of the stock which the said Hatfield and Hughes therein agreed to sell to the said Charlton, Trustee. It was thereby further agreed that Charlton, Trustee, should pay all the obligations, bills and' claims of said Pence Springs Water Company incurred since the date of the IIughes-Hatfield contract, and was to receive all accounts due the company, and which had been carried since the date thereof, the same to be collected and accounted for by the company. The theory of the bill, according to its allegations, on which a personal decree against Charlton and Pancake was sought and obtained in the court below, was that by the terms of the contract of June 1, 1923, Charlton, Trustee, thereby intended to, and did, bind himself personally not only for the cash payment of $2,500.00'- and the second $2,500.00 payment, which the bill acknowledges have been paid, but also for the several deferred payments of $500.00 each, aggregating $20,000.00, and for which the defendant *646 Pancake by Ms contract of October 23, 1923, with Charlton, Trustee, likewise bound himself personally to pay said deferred installments notwithstanding- the specific provision in said first contract that such deferred payments were to be represented by the notes of said Pence Springs Water Company and not by the personal obligation of either Charlton or Pancake succeeding to Charlton’s obligation. Such was the whole theory of the bill, which agreeably to the provisions of the contract, were positively denied by the answers of both Charlton and Pancake. On the contrary, the answers affirm that Charlton’s contract with plaintiffs constituted a plan, thoroughly understood and thereby provided for, by which Charlton should acquire an interest as stockholder in the Pence Springs Water Company and be enabled through his trusteeship to sell and dispose of at least enough of the stock of said company which Hughes and Hatfield claimed to own, to pay off the debts of the Company, for wMch they had become personally liable, represented in the contract to be $34,402.07, but now conceded by Hughes to have been $19,000.00, and thereby also to effect a reorganization of the company; and that it was not the purpose or intention of Charlton or Pancake, his vendee, to become bound personally beyond the stock paid for by Charlton, but only by the notes of the company as stipulated in the contract. There was no attempt by the bill to plead around this specific provision of the contract of June 1, 1923, reiterated in the letter of advice to Z. T. Yinson, signed also by all parties to the contract, except only by the general charge that Charlton thereby bound himself to pay said deferred payments, not supported either by the contract itself, nor certainly by any evidence in the cause. It is contended that ■ the term ‘ ‘ Trustee ’ ’ appended to Charlton’s name was merely description persones; but this theory could not operate to change the obligations of the contract to execute the notes of the company for the deferred payment. Besides, the description persones theory seldom applies when it involves the parties to the contract. They are presumed to use the term advisedly and to have notice of what it implies, and to be bound thereby. Moreover, in the *647 present ease this would not relieve the parties to the contract from the specific provision providing how the deferred payments were to 'be made and represented. We must remember that we are in a court of equity where the parties are seeking an adjudication of their rights upon equitable principles. If a grantee in a deed for property is described as Trustee, all personal dealing with him in relation thereto ;would be charged with notice that the estate held by him might be charged with some trust. Hill, Trustees 41; Taylor v. Da-vis,. 310 U. S. 330. While generally when after his signature one used the word “trustee”, it is regarded simply as descriptia. persones, but where it is appended to his name as grantee in a deed, some trust relationship is thereby implied. So> where, as in this case, the deed or contract implies some active duties with respect to others involved or to be involved in the property, a trust is created thereby. The very terms of the contract of June 1, 1923, show that plaintiffs were to place in escrow, the stock held by them to be issued in the name of Charlton, Trustee. Trustee for whom? Manifestly for Hatfield and Hughes, or whoever owned it, until sold and after that for whomsoever might purchase it. The contract did not limit Charlton to the stock placed in his name as trustee in the hands of Vinson. It undertook to give him power to “increase the capital stock of said corporation and sell same for the purpose of liquidating the notes herein described”. After being issued in the name of Charlton, Trustee, and placed in the hands of Vinson as provided, the legal title would be in Charlton for Hatfield and Hughes. He would be trustee for them as to the legal title at least. On the very day of the contract and before it was signed by Charlton, he had with him and had succeeded in interesting in the purchase of some of the stock, as plaintiffs well knew, the defendants, Lively, Hiner, Walker and others, and who actually paid for some of the shares of stock which plaintiffs had agreed to deposit with Vinson, transferred to Charlton, trustee. Charlton got their money and was entitled to the stock from Vinson, which he never did get. He had a duty under the contract to pay the money over to Vinson and take up the stock, have it transferred, and turned over to the *648 purchaser. To this extent at least Charlton was trustee for Hughes and Hatfield and these purchasers of the stock; and according to the evidence, Vinson, who got the money, has not turned over to Charlton or the purchasers the stock. The record shows that the only stock delivered or claimed to have been delivered to Charlton for the six to seven thousand dollars received by him was fifty shares owned by M. Z. White, assigned to Hatfield. Vinson claims to have sent this certificate to Charlton by mail, but Charlton denies having received it. In a copy of Vinson’s letter he purports to say that this certificate was part of the stock included in Hatfield’s sale to him. But the contract calls for shares “this day issued and signed in blank to Charlton, Trustee’’. Significant is the fact that an auditor who subsequently audited the books of the Pence Springs Water Company reported that he found .the stock all standing on the books in the names of the original stockholders, not transferred to Hatfield or Hughes, nor to Charlton, trustee, signed in blank or otherwise. • And outside the written contract, the record shows Hughes and Hatfield at once put Charlton in possession of the property of the company; and by some irregular method, without an adequate amount of stock, record or otherwise, for a majority thereof had not been acquired, Charlton became nominal President and others Secretary and Treasurer, and this organization was apparently recognized by Hatfield. And the query presented is, why, if not to try and to work out a new organization of the company? Hatfield and 'Hughes who had been operating the property, and had, it ■' appears, succeeded in running it hopelessly in debt and rendering themselves personally liable for much of it, were evidently ready and quite willing to get out of the management, and getting in some new money, and assist Charlton, entered into the contract of June 1, 1923. And they thereby did get out of Charlton and others altogether around $7,000.00, which was apportioned on debts for which they or none of them were liable. While so operating the property, was not Charl-ton representing them as Trustee? We cannot see how there can be any question about Charlton’s representative capacity, *649 nor why he was not properly dealt with as trustee in the contract. He recognized his fiduciary capacity. The purposes of the contract of June 1, 1923 : That it was for the purpose of reorganization of the company and liquidating its debts by means of Charlton’s agency or trusteeship seems obvious. The contract by its very terms seems quite persuasive, on this proposition, and the .reason for the provision respecting the notes for the deferred payments is thereby explained. Of course with that end in view Charlton would be unwilling to become personally bound for $20,000.00, and he did not undertake to so bind himself by his contract. And the record of the subsequent acts and dealings of the parties with the stock and property, after Charlton had exhausted his personal efforts to dispose of more stock, and -to successfully operate the property, and the proposal participated in by Hughes and Hatfield to organize a new company, is significant. The initial step in furtherance of this new corporation was Charlton’s sale and transfer of his contract to Pancake, pleaded and exhibited with the bill. And we observe in this connection that two days before Charlton had entered into his contract -with Pancake on October 22, 1923, namely on October 20, 1923, another contract was entered into between Pancake acting as trustee for the proposed new Pence Springs Water Company, W. A. Charlton acting as trustee for the present Pence Springs Water Company, and I. A. Balacaier, present owner of the Tri-Pure Water Company of Charleston, whereby the three parties agreed .to enter into an agreement to organize and form a new corporation to be known as Pence Springs and Tri-Pure Water Company, and prescribing the basis of capitalization on which the three several properties should be taken over, including the Tri-Pure Water Company of Huntington, and stipulating that all three properties should be delivered free from debt or any incumbrances. And further providing that said A. I. Balacaier should be President and General Manager, W. A. Charlton, Vice President, and D. J. Pancake, Secretary and Treasurer, and the three of them constitute and act as a finance committee for the first year. This proposed company had the active cooperation of Hatfield and Hughes. They *650 knew about it, consented thereto, and Vinson, tbeir attorney and trustee, actually subscribed for $1,000.00 of the stock on which he paid $250.00 in cash, and Hughes agreed to take $3,000.00, and Hatfield proposed to take in stock all over and above the amount of the debts of the company for which he was bound, which he would be entitled to under the Charlton contract. Pancake never took charge of the Pence Springs Water Company under his contract with Charlton. It was at once turned over to Balacaier, a practical water man it seems, to operate for the company pending an effort to complete the organization of the new company pursuant to the contract referred to, of October 20, 1923. .His testimony in this case after having operated the property three months in effect is that it was old, the machinery practically worn out, and that it was impracticable to operate it without repairs of the old and the installation of new; that he had since he bought it from Hughes installed $8,000.00 to $9,000.00 worth of new machinery; that after .the property was sold under a distress warrant and purchased by Hughes he had bought it from Hughes for $6,000.00 which was about all it was worth. The principle of practical constructions of the contract by the parties, we think, is more pertinent to the theory of the defendants Charlton and Pancake, that it was simply a plan of reorganization, than to the theory of an absolute purchase by Charlton of all the stock, which plaintiffs pretended to own of control. It is suggested by counsel that Charlton could not bind the company by executing its notes for the deferred payments. As well could he bind the company in that way, when those professing to own all the stock authorized it, as he coidd with only the right to a small minority of the stock elect a board of directors, or appoint new officers and take charge of the physical property, and so also be authorized by the terms of the contract to increase the capital stock, and sell the same to pay debts incurred by plaintiffs. The irregularity of these dealings and provisions all go to strengthen the theory of defendants that the contract was simply a plan of reorganization, lastly emphasized, by the aid which plain *651 tiff gave to the contract between Charlton, Pancake and Balacaier. It is argued also against the defendants’ theory that the notes were never executed, and it is replied with greater force that plaintiffs never issued or caused to be issued or transferred to Charlton, Trustee, any of the shares of the stock called for. The certificate for fifty shares which Vinson testifies he mailed to Charlton was described as fifty shares of M. Z. White assigned to Hatfield. This was not stock which was said to be in Vinson’s hands issued to Charlton, Trustee, and not a share of any kind was ever issued to Lively, Hiner or Walker, who paid their subscription through the checks of the treasurer to Vinson. Moreover, assuming personal liability of defendants, to whom are they liable under the contract to plaintiffs? Is the obligation not to Vinson for the specific creditors of the Company ? But their obligation by the contract, if anything, is to cause the notes of the company to be executed and delivered to Vinson for the creditors. Such is not the relief sought. The pleadings and proofs do not justify such relief. The decree below should be reversed and the bill dismissed. Reversed; Mil dismissed. Litz, Judge, dissented.