Butler v. Watrous

MoCLELLAN, J. J. L. Watrous filed this bill against A. N. Butler, J. I. Butler, W. E. Crittenden, and the Montevallo Red Ash Coal Company, a corporation. As amended it sought to impress upon and enforce against certain lands, known in this litigation as the Howison lands, a trust in favor of Watrous. From the voluminous legal evidence noted on the submission, these conclusions of fact, after tailing due account of the inconsistencies appearing in the evidence, must result : (1) On January 7, 1909, Watrous owned 315 acres of coal-bearing land, known in this litigation as the Cary lands, and also certain claims, both arising out of or traceable to his purchase of assets of the Montevallo Coal & Railroad Company, a corporation. (2) Adjoining the Cary lands were the Howison lands, carrying coal. On the date stated Watrous secured from Howison, for a nominal consideration, a — 133 — three months’ option to buy the Howison lands at $15 cash. (3) Because of the favorably appearing outcrop of coal on the Howison land, and the absence of any practically profitable way to enter, from the surface, the Cary land for coal-mining purposes, the Howison land bore a very important relation to the value of and the availability of the mineral underlying the Cary land. With the Howison land and the Cary land subject to a common interest and ownership, the basis for a promising prospective enterprise of that nature was to be found. The Howison land was, in consequence of this prospect, the key to the best value and development of the Cary land in respect of its mineral. Without the Howison land, the mineral under the Cary land was practically unavailable and unattractive to persons interested in mining operations. (4) While this option was pending, Watrous discussed with A. N. Butler the former’s prospects in respect of these coal properties. The two came from their homes in Connecticut to the properties, and viewed them as an entity; Butler being fully advised of the described important relation the Howison mineral lands bore to the Cary mineral lands. (5) After Watrous had expended something over $100 in prospecting for coal on the Howison lands, Watrous and A. N. Butler made a verbal agreement to go in together, establishing a relation in the nature of partnership, to further test the Howison land for the coal outcrop indicated, to procure the extension of the option, and to share equally in the cost of the test, and, if the manifestation was confirmed by the test they were to make on the Howison land, Butler was to put up $15,000 to buy the Howison tract, and, with the Cary and Howison tracts as a basis, a corporation was — 134 — to be organized in which they should have equal stock; but, if the more extended test failed to justify the expectation, then each should bear the loss of one-half of the $1,500 required to be paid to Major Howison for the extension of the original option. .(7) In pursuance of this agreement the option was extended, but left, by its terms, to read in favor of Watrous, though Butler was recognized by him as being an equal beneficiary thereunder; Butler paying the $1,500 required. A considerable sum was expended by them on their joint account in driving a slope on the Howison tract, and materials, belonging to Watrous, suitable for that purpose, and of value, were moved from the Cary tract to the scene of operations on the Howison tract, and there used. (8) Subsequent to the verbal agreement Watrous and Butler executed a paper (without date) in the following language: “Exhibit A. This understanding and agreement entered into by J. L. Watrous and A. N. Butler in regard to buying Howison land, and forming a company to operate same. A. N. Butler agrees to take up option on said land at $15,000. Watrous is to put into the proposed company all property now remaining to him which was formerly of the Montevallo Coal & Railroad Company, and to receive therefor stock and bonds to the same amount as said Butler shall receive for the Howison land, which is to be put into the proposed company. Butler and Watrous agree with each other that each will give the other one month’s option to buy any or all his stock in proposed new company at lowest terms he will sell to any'one. A. N. Butler. J. L. Watrous. Filed in office Feb. 13, 1911. J. R. White, Register.” They also executed the following written agreement indorsed on the back of the above-quoted instrument: — 135 — “J. L. Watrous hereby assigns to- A. N. Butler one-half interest in all claims he may have against Mrs. Charles Cary and others, or against the Southern Mineral Land Co., or the Tennessee Coal & Iron Co., arising out of loss of land formerly held by the Montevallo Coal & R. R. Co., of Shelby county, Alabama, and said A. N. But ler hereby agrees to pay one-half of all costs arising out of any suits on said claims. A. N. Butler. J. L. Watrous.” (9) Consistently with the agreement, but before the extended option was availed of, the process of incorporation was effected by Watrous and Butler to the extent of fully preparing the papers therefor, except the omission of the name of the corporation therein, and of the filing of the papers in the appropriate office. The perfection of the incorporation was held up to settle upon a proper name, and, latterly, pending the possibility of a favorable, profitable sale of the common interest made by the combined Cary and Howison tracts, if the latter was bought under the option, or if such a sale was effected with the Howison tract represented by the right to buy it under the option. (10) By subsequent agreement between Watrous (in whose' name alone the extended option stood by its terms) and Butler, the conveyance under the option was to- be made to Butler, who, as appears, was to furnish the $15,000 (less the $1,500 already paid to- Howison) to effect the option. There is nothing about this agreement itself, or the agreement in connection with the established circumstances in relation to which it may be considered, to justify the conclusion, as of fact, that the, in nature, partnership arrangement was then intentionally abrogated or abandoned. The motive for Watrous’ consent to the conveyance being made by Howison to Butler, when the extended option should be — 136 — availed of, appears to have been to pacify Butler, and to give him assurance that the payment by him to Howison of his money to effect the right raised by the extended option would be faithfully protected, and the engagement binding them would be carried out. It cannot be found as of fact, from this record, that Watrous contemplated, much less intended, the annulling of the agreement and the thereby unrequited sacrifice of his interests in the premises, to- promote which he had shared, with Butler, his means, and in the process had fully uncovered to Butler his general hopes and plans, and therein had allowed Butler to- become, as a practical matter, a coequal participant in prospects that appeared to them, after thorough investigation, flattering. Subsequent acts of these parties leave no- room for doubt that there was no mutual purpose to abrogate the engagement, and thereby relegate them to a relation in the premises inconsistent with their joint enterprise. (11) When the stated consenting of Watrous that the Howison conveyance might be made to A. N. Butler is considered in the light of preceding circumstances, and of the status of obligation and relation assumed by Watrous and A. N. Butler toAvard each other, and m comiection with subsequent acts and conduct of A. N. Butler, and circumstances attending such acts and conduct, particular in respect of the availing of the option to buy the Howison tract, of the destruction by A. N. Butler of the incorporation papers prepared, at the instance of Watrous and A. N. Butler, by Mr. Leadbeater, and of the later preliminary processes to- the creation by A. N. Butler with J. I. Butler (his brother), and W. E. Crittenden (his brother-in-law), of the respondent corporation, all as strongly colored by the fact that Watrous was not advised by A. N. Butler as fair candor and due recognition of their relation and the rights — 137 — of Watrous naturally required, lead to the conclusion that A. N. Butler entertained the purpose, when the stated consent of Watrous was thus innocently given, and manifestly later acted in accordance therewith, to defeat Watrous’ right in the premises, and to avoid the obligations of his engagement with Watrous, and thereby secure (under the option) for his own free control and personal advantage the Howison tract. (12) J. I. Butler and W. E. Crittenden are shown to have had notice of Watrous’ relation to the Howison' tract, and of the general object and effect of the agreement between Watrous and A. N. Butler with respect to the testing out of that tract, and of their engagement looking to the combining of the two tracts for their future joint advantage. Hence J. I. Butler and W. E. Crittenden cannot rely upon the doctrine that protects innocent purchasers for value. The object of the bill has beén stated. It is not a bill for specific performance, or one seeking vainly under settled doctrine to compel the organization of a corporation. The chancellor’s conclusion established and directed the effectuation of the trust prayed. We concur with his view. If in divesting out of Watrous the title to an undivided half interest in the Gary land, and investing that in A. N. Butler, pursuant to the obligation to that end resting upon the respective parties under the engagements assumed by them, the error (if so) is without prejudice to appellants. That provision is so manifestly just, under the law and the facts as they prevailed to conclusions below, and as found here, it is not apprehended that A. N. Butler could desire the correction of the decree by the elimination of that feature of it — a feature that administers, with equity’s customary completeness, full justice in the premises. Aside from this, however, our view is that Watrous’ un — 138 — qualified submission to tbe jurisdiction of tbe court afforded ample basis for the manifest equity tbe decree recognized and enforced with respect to tbe undivided half interest in tbe Gary lands. . ■ Tbe evidence in tbe case shows that Watrous was tbe owner in fee of tbe Cary lands. If bis legal title to a minor part thereof — a 40 — was in fact defective, appropriate point thereon should have been taken before the chancellor. Tbe chancery court or this court cannot review tbe action of tbe District Court of tbe United States in respect of tbe method pursued thereby in tbe sale of tbe Gary lands. It bad jurisdiction in tbe premises. Tbe sale, if made without conformity to federal statutes requiring a particular character of notice, or method, of sale, is not void. — Godchaux v. Morris, 121 Fed. 482, 57 C. C. A. 434. See, also; Pewabic Mining Co. v. Mason, 145 U. S. 349, 12 Sup. Ct. 887, 36 L. Ed. 732; Nevada Syndicate v. National Co. (C. C.) 103 Fed. 391. Assuming for tbe occasion only that no express trust and no basis for tbe implication of a resulting trust are shown by this record, no doubt is entertained, under tbe facts inducing tbe conclusions stated before, that a constructive trust was established in favor of tbe complainant. And in reaching this conclusion we have not been unmindful of tbe rule, stated in many deliverances here, that a mere breach of parol promise does not alone suffice to avert tbe application of tbe statute of frauds, and alone gives no basis for tbe invocation of equity to relieve or vindicate in tbe premises. But nevertheless “tbe fact of such breach,” as said in Brock v. Brock, 90 Ala. 93, 8 South. 13, 9 L. R. A. 287, “may, of course, be looked to, in connection with tbe other circumstances of the case, as sometimes constituting one of several links in a chain of facts going to prove — 139 — fraud.” Subsequent acts, conduct, or dealings by A. N. Butler “may be looked to as aid in determining what her (his) intention was when she (he) obtained” the consent of Watrous that Howison might make the conveyance to Butler. If fraud, as has been found from the whole evidence, affected his intention, it vitiates “the transaction, and remits the complainant to the rights he had before the” agreement for such conveyance by Howison was made. And in such case equity will declare Butler a trustee ex male-ficio, and divest the title to a moiety for the fraud in acquiring it.- — Manning v. Pippen, 86 Ala. 364, 5 South. 572, 11 Am. St. Rep. 46. This broad doctrine, Pomeroy’s statement of which is quoted approvingly in Kent v. Dean, 128 Ala. 609, 610, 30 South. 546, is controlling upon the conclusions of .fact necessarily resulting from the evidence: “Whenever the legal title to property, real or personal, has been obtained through actual fraud, misrepresentation, concealments, or through undue influence, duress, taking advantage of one’s weakness or necessities, or through any other siimlar means or under any other similar circumstances which render it unconscientious for the holder of the legal title to retain and enjoy the beneficial interest, equity impresses a constructive trust on the property thus acquired in favor of the one who is • truly and equitably entitled to the same, although he may never perhaps have had any legal estate therein; and a court of equity has jurisdiction to reach the property in the hands of the original wrong-doer or in the hands of a subsequent holder, until a purchaser of it in good faith, and without notice, acquires a higher right, and takes the property relieved of the trust.” If the only other evidence in this record bearing upon the issue of fraud vel non, in the securing by Butler of . — 140 — Watrous’ consent that the deed, under the option, might be made to Butler, was the naked fact of Watrous’ consent thereto-, the argument would doubtless be persuasive. But the securing, under the circumstances shown, of that consent cannot be dissociated from the many elucidating facts and circumstances that give color and effect to that act. The relation of trust in the premises between Watrous and A. N. Butler, created by the nature of their negotiations leading up to obligations assumed by them toward each other, and the engagement itself required of each the highest good faith, the utmost fidelity. Upon the face of these obligations each gave and took valuable considerations and rights, and subjected themselves to correlative duties that equity cannot ignore or conscionably avoid. Watrous no more than Butler could, with fraudulent intent, establish independent rights in the subject-matter of their joint enterprise. When Butler received the title to the Howison land, consistent with Watrous’ consent that it might be transmitted to him alone, that land was still impressed with the highly equitable obligation and trust which the chancery court has established. This consent, as the whole evidence clearly shows, was entirely without the purpose of Watrous to sever the basis of the joint enterprise — the community of prospect and operation that a common ownership of both the Gary and Howison lands inspired, and with reference to which they each, with the clearest of intention, engaged and parted with values. It is impossible under this evidence to conclude that Watrous, in so consenting, even remotely contemplated the complete destruction of all basis for the enterprise that, under the evidence, was at least a matter of pleasing prospect — an enterprise that had induced their accord and invited their joint outlay in time, attention, and values. Butler did not — 141 — intimate or express, in advance or at the time Watrous’ said consent was given, an intent or purpose to- that end on his part. If his desire and intent to establish in himself an independent relation to the Howison lands prevailed, the obvious effect would have been to attribute to Watrous the wholly unrequited surrender of what, under this evidence, was the only practical means to the development of his Cary lands, as Avell as the loss of what had been contributed by him, and also the, to him, manifestly valuable option to buy the Howison lands. The decree enforces manifest equity between the parties under established equitable principles. It is affirmed. Affirmed. Mayield, Sayre, and Somerville, JJ., concur.