Dexter v. McClellan

HEAD, J. Growing out of the acts and negotiations of the parties minutely set out in the hill as inducement, a contract, from which complainants derived the equity they- claim, was entered into by McClellan & Scheerer and complainants, by which it was agreed that McClellan & Scheerer, who had become invested with the legal title to the lands mentioned in the bill, in the manner and for the purposes therein described, should sell and convey said lands to the Cloverdale Land & Development Company, a corporation, at the price of $85,000. By virtue of the particular considerations alleged, McClellan & Scheerer were to have $70,000 of this sum, and complainants, Dexter and Coleman, and said McClellan & Scheerer, as the assignees of one LeBron, were to have the remaining $15,000, thus giving to Dexter and Coleman, each, $5,000. By the contract the Cloverdale Company, purchaser, was to execute its note to McClellan & Scheerer for said $85,000, and secure the same- by 105 of its first mortgage bonds, each for $1,000, and that the interest of complainants in the proceeds of the sale, viz., $5,000 to each of them, should be protected by said collateral (bonds) — the interests of complainants in said note and collaterals being placed on the same footing with the residue of the indebtedness, evidenced by said note. It was agreed that when the bonds should be issued the complainants’ proportion of them, to secure their interest in said purchase money, should be delivered to them by the agent of McClellan & Scheerer. The sale was made and note and bonds were executed and were taken and held by McClellan & Scheerer in trust for their own use to the extent of $70,000 of said amount, and for the use of each of complainants to the amount of $5,000, and for the use of themselves, as assignees of LeBron, to the extent of $5,000. Complainants applied to McClellan & Scheerer for an order on their agent for their share of said bonds, but they declined to give it, alleging as a reason therefor that they preferred to hold the entire collateral until the whole matter was settled. Com [48] plainants protested against this refusal, and afterwards made another demand upon them, which was refused. Afterwards, McClellan & Scheerer disposed of the entire collateral and acquired therefor, by means stated in the bill, a part of the lands of the Cloverdale Land & Development Company, which were included in the mortgage given to secure the bonds, thus appropriating to themselves the entire avails of the 105 bonds pledged, to the exclusion of complainants. The seines of first mortgage bonds issued by said company, consisted of the said 105, jdedged to McClellan & Scheerer, as aforesaid, and 224 pledged to respondents, Townsend & Brown, for an indebtedness due them, and the latter, Townsend & Brown, acquired, for their bonds, the residue of said lands, and other property of the debtor company. These acquisitions of the said lands by McClellan & Scheerer and Townsend & Brown were through the medium of decrees of a court of equity, on bill filed by Townsend & Brown against the insolvent company, to which the complainants’ were not parties, and were accomplished in pursuance of conventional arrangements between McClellan &■ Scheerer and Townsend & Brown. The latter, at that time, had notice of complainants’ rights. The bill seeks by appropriate prayer to establish their proportionate interests in said debt and in the said 105 bonds, and obtain equitable enforcement of their lien upon the lands. The Cloverdale Land & Development Company, having been divested of all their title and interest in the lands, have no interest in the subject matter of this suit. The suit, to this point, is defended only by McClellan & Scheerer and Townsend & Brown, who interposed demurrers to the bill, which the chancellor sustained. The appeal is from' that interlocutory order. The defenses mainly relied upon, in argument, 'are stated to be, want of consideration, and illegality of the contract. Of.the former, dissociated from the latter defense, little need be said- It is clearly shown that the $10,000 interest in the purchase money of the lands, and in the collateral bonds given to secure the purchase money, which were accorded to complainants by McClellan & Scheerer, were so accorded in consideration of services rendered and to be rendered by the complainants, in conjunction with LeBron, who was accorded a [49] like interest, in organizing tlie corporation and bringing about the sale of the lands. That such services, unless tainted with such fraud or illegality, as that a court of equity would repudiate them, constitute a valuable and lawful consideration for a contract, no one will gainsay. So, the real question is, ivas there such fraud or illegality in the contract, as these parties may avail themselves of, under the circumstances of this case? . The argument brought to its true analysis is, that the contract is illegal because LeBron and complainants, in rendering the services which brought into being the Cloverdale Land & Development Company, and effectuated the sale by McClellan & Scheerer to that company, of their lands, had, by reason of their relations to the company as its promoters, and two of them, LeBron and Dexter, as officers after its organization, special opportunity to commit a fraud upon the. company in the matter of the purchase of the lands; wherefore, because' of such antagonistic relations and special opportunity for committing such fraud, it was against public policy for McClellan & Scheerer to promise to compensate the services, and they were consequently under no legal obligation to perform the promise. It is not and cannot be claimed that the bill discloses any actual fraud or imposition practiced by the complainants and LeBron upon the purchasing company. So far as appears,, that company may have been fully cognizant of every circumstance and condition of the entire transaction, and have fully arid unequivocally confirmed its constructively fraudulent attributes, arising out of the relations of trust and confidence which subsisted between it and the complainants, and the antagonistic undertaking, on the part of the latter, to represent the interest of the vendors. The confirmation or repudiation of the purchase was at the election of the company. If, as contended, public policy, merely by reason of these relations, denounced the transaction as vicious, without regard to the election of the purchaser, who might or might not have been defrauded, it would be without the lawful authority of the purchaser to accept a highly advantageous bargain made for it by its officers, who at the same time, for personal aggrandizement, acted for the vendor ; and a court of equity would repudiate even a transaction of that character in whatsoever form and by whomsoever [50] it might be presented as a basis of relief. We cannot think there is authority for the contention that, a sale of land which a purchaser may rescind, at his election, on account merely of the fraud which the law, prima facie, imputes to it, when effected by, an agent of the purchaser, who at the same time represents the vendor, for a promised reward, is void against public policy — the transaction not appearing to be one of a public character; and so long as the purchaser does not complain, there is no cause for treating the contract of sale other than as valid, and no reason why the vendor who has enjoyed the benefit of the unrescinded sale, should not pay the selling agent his stipulated reward.- The present case does not call for consideration of .an actually corrupt agreement between vendor and the purchasing agent of the vendee, nor one which appears to be violative of the rights of the public. A case of that character might render apt and controlling the principles declared in the interesting case of Woodstock Iron Co. v. Richmond & Danville Extension Co., 129 U. S. 643, and authorities therein cited. The Cloverdale Land & Development Company accepted the purchase, and, it seems, went into the occupation and enjoyment of the lands ; built its railroad and entered upon and prosecuted the development of the lands. Becoming unable to meet its liabilities, its assets, consisting in the main of these lands and its railroad and franchises, were administered through the courts, and the lands subjected and appropriated to the satisfaction of the mortgage bonds held by McClellan & Scheerer ; McClellan & Scheerer holding the undisturbed possession of, and title to the 105 bonds pledged to them as security for the purchase price, upon the sale of the lands by them to the company — a sale in all things acquiesced in and validated by the company— realized upon them all that they found available for their satisfaction ; and it does not now become them to repudiate the trust upon which they received the share of the bonds agreed to be delivered to the complainants for their services, for no other reason than that LeBron and the complainants had, by reason of their relations to the company, peculiar opportunities to commit a fraud upon the company, in the interest of McClellan & Scheerer and themselves. We do not think there was an assignment of the pledge [51] without an assignment of the debt it secures, as is prohibited by section 1784 of the Code of 1886. Complainants had an independent, original interest in their specified proportions of the debt, and a like original interest in the bonds for its security. There was no transfer of the debt or securities within that statute. We can see no application of Article XIV, section 6 of the constitution to this case. The iand was sold to the company for $85,000. It gave $105,000 of its first mortgage bonds as collateral security, but it was liable for no more than the $85,000. There was no fictitious issue or disposition of the bonds within the prohibition of the constitution. If the boncls had been sold by McClellan & Scheerer for more than the debt, the company would have been entitled to a return of the surplus. It is very clear that the personal remedies- of the complainants at law, do not displace their l'ight to enforce their liens in a court of equity. The chancellor erred in sustaining the demurrers to the bill, and an order will be here rendered overruling the demurrers. Reversed, rendered and remanded.