Driver v. Brunemer

Mr. Chief Justice Shepard delivered the opinion of the Court: The substantial allegations of the .bill were sustained by the evidence, the material facts of which are here stated. It appears that in 1890 one D. D. Stone organized a syndicate of eight persons to purchase the tract of 18 acres of land, known as Wesley Park. The land was then encumbered by a trust for $6,000, the validity of which has not been questioned. A second trust was executed to secure payment of certain notes amounting to $1,600 executed to one Burkett, a clerk in Stone’s office, which were indorsed to Stone. No money was advanced by Burkett, and the transaction was fictitious. • On November 1, 1890, the land, subject to the aforesaid encumbrances, was conveyed to D. D. Stone and George W. Driver, trustees, for a syndicate of purchasers. The purchase price named was $21,600, of which $13,600 were represented by the trusts aforesaid, leaving $8,000 to be paid in cash. Seven persons joining with Stone composed this syndicate, contributing $1,000 each thereto. They were Timothy D. Keleher, Abel Hart, David D. Stone, Genevieve Yeager,’ Theodore Davenport, H. J. Bounds, and Edwin C. Fitz Simons. Peter J. Meehan subsequently bought the share of D. D. Stone. — 118 — The defendants and some other members of this syndicate of eight conceived a' plan to raise a second syndicate for the purchase of this land. The value of the land was fixed at $40,100, of which the unpaid trusts represented $11,600. The number of shares to be represented in the new syndicate were fifty-seven. Dividing the part of the purchase price to be paid in cash— $28,500—by fifty-seven made the face value of each share $500. November 1, 1891, Stone and Driver, trustees, conveyed the land to Edwin C. Eitz Simons and Timothy D. Keleher, trustees for the new syndicate, subject to trusts aforesaid of $11,600. But ten cash subscribers, for one share each, could be secured. These were Cassius M. Park, Judson Knight, Francis H. McKevitt, Sarah Klock, James H. Brunemer, Thomas H. Smith, Charles I. Kent, and J. H. Busher, each of whom paid $500 to the trustees. The following account of the transaction was sent to the members of the syndicate of eight by Fitz Simons and Keleher, trustees: “Memoranda of Sale of Property Adjoining Methodist University Site.” Sold to E. C. Fitz Simons and T. D. Keleher, Trustees ...................................,. . $40,100 Cost ....................................... 21,600 Profit.......................... $18,500 New Syndicate formed consisting of 57 shares at $500 $28,500 Deeds of Trust on Property ................... 11,600 $40,100 Keceipts. Cash for 10 shares .......................... $5,000 The unsold shares in the new syndicate consisting of forty-seven were divided between the members of the syndicate of eight, alloting.to each, five and seven-eighths shares, which represented their respective interests in the land. — 119 — The ten new subscribers had confidence in the members of the old syndicate who induced them to subscribe; were unaware that any profits had been made in the sale, and believed that all parties were on an equal footing. It appears that the syndicate of eight received the benefit of the cash contributed by the new subscribers. It was used to pay off part of the mortgage, but the first syndicate members, instead of contributing to the payment in money, received the benefit of the same by way of credits to each upon the amount of the assessment that he should have paid in full. Moreover, $725 were charged as commissions, but to what person paid, or on what ground, does not appear. The trustees appear to have kept no book account of these transactions, or of others relating to the trust, from which information could have been obtained by the beneficiaries, had their suspicions been aroused. They were in possession of no information to put them upon inquiry, or to shake their confidence in the trustees and others of the syndicate of eight, upon whose representations they had entered into the new syndicate. The complainants, who sue on behalf of themselves and others similarly situated, held shares as follows: Brunemer, one share by subscription, one share by purchase from Keleher, and one and seven-eighths shares by purchase from the estate of Abel Hart; W. W. White, two shares by purchase from Hart’s estate; Cassius M. Park, one share by subscription; Mrs. O. M. Park, one share by purchase, apparently from one of the cash subscribers; Jennie W. Davenport, five and seven-eighths shares by purchase from her husband, Theodore Davenport, who was a member of the syndicate of eight. Hart and Stone are dead. Keleher has disposed of his shares, and is out of the jurisdiction, as are others of the syndicate of eight. None of the other subscribers to the new syndicate have made themselves parties. With this brief statement of the facts, the several assignments of error will be considered in their order. 1. Although years have elapsed since the formation of the new syndicate, we do not find that the delay in ascertaining — 120 — the facts and bringing this suit is inexcusable. The circumstances of the trust relations of the parties, the confidence of the plaintiffs, and the concealment of the fraud, furnished reasonable excuse for the delay. George v. Ford, 36 App. D. C. 315—332; see also New Sombrero Phosphate Co. v. Erlanger L. R. 5 Ch. Div. 73-117, 46 L. J. Ch. N. S. 425, 36 L. T. N. S. 222, 25 Week. Rep. 436. 2. The conduct of the trustees has been such that their removal was necessary and proper in the interest of all concerned in the affairs of the syndicate. Having’ removed them, it was, of course, necessary to appoint others. 3-. The actual profits made by the syndicate of eight to which the three defendants belonged, in the resale of the land to the new syndicate organized by them for the purpose, was $18,500. This profit was unlawfully made; and justice and equity demand that they should be held accountable for it; Ferguson v. Bateman, 1. App. D. C. 279—296; Las Ovas Co. v. Davis, 35 App. D. C. 372-381. The proportion of this profit received by the three defendants was $6,937.50, instead of $7,465, as recited in the decree; which sum they were declared liable for to the subscribers to the new syndicate, and ordered to pay to the newly appointed trustees, with interest at the rate of 6 per cent per annum from December 1, 1891, for distribution to the parties entitled thereto under the direction of the court. There was no error in holding that the other members of the syndicate were not necessary parties to the suit. Either one or all of the parties who participated in the secret profits could be sued. Las Ovas Co. v. Davis, 35 App. D. C. 372-379; Davis v. Las Ovas Co. 227 U. S. 380, 57 L. ed. —, 33 Sup. Ct. Rep. 197; Old Dominion Copper Min. & Smelting Co. v. Bigelow, 188 Mass. 315-329, 108 Am. St. Rep. 479, 74 N. E. 653. So much of the decree as awards recovery against the defendants for their share of the secret profits is correct, but it must be modified and corrected so as to make the principal amount decreed to be paid $6,937.50. 4. The fourth paragraph of the decree declaring an equitable lien upon the defendants’ shares and interests in the syndicate — 121 — land, to the extent of the recovery before ordered, must also be modified and amended so as to make the amount of total lien $6,937.50, with interest, instead of $7,465, as therein recited. 5. The sixth paragraph of the decree relates to the shares of plaintiffs acquired not by original subscription, but by purchase of shares that had been issued to certain members of the syndicate of eight, of which, it will be remembered, each received five and seven-eighths shares in the new syndicate. Of these, White holds one share, Brunemer two and seven-eighths, and Jennie Davenport five and seven-eighths shares. The contracts by which they acquired these shares are declared rescinded. The defendants are declared liable to plaintiffs, respectively, for these shares, and reference is made to the auditor to ascertain the amounts paid by each of the aforesaid parties on account of their purchase of said shares, and assessments thereon, for which, with interest, the said defendants are declared jointly and severally liable. We are of the opinion that so much of the decree as is contained in paragraph six, which rescinds those purchases, is without support in the pleadings and evidence. The shares were not purchased from the defendants or either of them, and the parties with whom they made their contract of purchase are not before the court. Moreover, the defendants have been decreed to pay to the trustees their entire proportion of the profits received, and this recovery is in addition to that. Their burden will have been discharged when they comply with the decree requiring them to account therefor to the trustees. As it appears that White and Brunemer, having confidence in the representations made as to the purchase price and value of the land, purchased their said additional shares in good faith and for a valuable consideration, they are entitled to a proportional share in the distribution of the proceeds of the syndicate in the final settlement of its affairs. It seems equitable also that they should share in the distribution of the proceeds of the recovery of the secret profits decreed against the defendants, in proportion to the actual price paid for the additional shares together with the assessments paid them, if any, which can be ascer — 122 — tained in the accounting before the auditor, subject, however, to a preference of such of the shares of the ten subscribers as may be presented to the auditor. As to the shares held by Jennie Davenport the situation is different. Those shares were issued to her husband, Theodore Davenport, who was a member of the syndicate of eight, and shared in the profits of the same in the same manner as the defendants and other members did. She is not shown to be a bona fide purchaser from him for a valuable consideration. She as the assignee, and, standing in the shoes of one of the wrongdoers, is not entitled to share in the-money ordered paid by the defendants as their share of the proceeds of the wrong. The most that she is equitably entitled to is to share in the final distribution, when the lands of the syndicate shall have been sold and the net proceeds thereof ascertained. As the final account must be taken by the auditor under the direction of the court, it is proper to indicate as far as possible the manner in which final distribution shall be made. (a) The ten cash subscribers and their assignees are entitled to preference in the distribution of the amount decreed herein to be paid by the defendants as their part of the secret profits. If all of the ten shares are presented and represented in the accounting, the entire recovery from the defendants should be divided equally between the holders of the said shares according to the number held by each. If all be not represented, then one tenth of the said fund shall be allotted to each of said shares. If all of said shares be not represented, the remainder of said fund shall first be shared in- by the plaintiffs Brunemer and White, and by such others as may hold by bona fide purchase shares derived from members of the syndicate of eight, prior to the institution of this suit, who may present the same to the auditor with the necessary proof of valuable consideration and good faith. None of such shareholders shall receive allotment as the owner of a full share, but such proportion only as the purchase price paid by him for each share and any assessment paid thereon by him bear to the face value of a single share, together with interest from time of purchase and pay — 123 — ment. If there be a part of said fund remaining after the distribution as aforesaid, then the same shall be returned to the said defendants. (b) The members of the syndicate of eight and their assignees, who may not be able to prove bona fide purchase for a valuable consideration as hereinbefore provided, are not to be excluded from a participation in the proceeds to be derived from the sale of the remaining land of the syndicate when final distribution shall be made. But each share so presented shall have first deducted therefrom the proportion of secret profits properly chargeable thereto, with interest, as heretofore determined. (c) The defendants, after performing the decree heretofore made as to their share of the secret profits, shall be entitled to participate in the final distribution as full shareholders. But if any money shall have been returned to them from the fund heretofore ordered to be first distributed, the same shall first be deducted from their shares in the final distribution. 6. The paragraph of the decree providing for reference to the auditor is unobjectionable. The remaining paragraphs oi the decree affect Tait and Omwake, who have not appealed. Defendants are not affected thereby and have nothing to complain of therein. The decree appealed from is right in the main, and with the modifications indicated, will be affirmed. The cause will be remanded to the court below with directions to enter a modified decree not inconsistent with this opinion. The costs in this court will be taxed against the appellants. Modified and affirmed.