Slaughter v. Mallet Land & Cattle Co.

PARDEE, Circuit Judge (after stating the facts). The jurisdiction of the Circuit Court was attacked on the charge that the transfer of the property from De Vitt & Flato to the complainant was colorable and collusive, for the purpose of bringing suit in the United States court • for the Northern District of Texas. The appellant states his conten — 286 — tion in this court in the second and third assignments of error as follows : “Second. The trial court erred by overruling respondent’s plea to the jurisdiction filed and presented in said cause, for tbe reason that it was made to appear by tbe proof taken and introduced on said plea that this cause did not involve a controversy substantially between citizens of different states; it appearing that complainant corporation was organized, and the property involved transferred to it by De Vitt & Flato for the sole purpose of giving the United States Circuit Court jurisdiction, which it otherwise did not have, and that this suit is being prosecuted substantially and in effect for the use and benefit of De Vitt & Flato, complainant’s vendors, who, on account of the residence of one of the partners in Texas, were not entitled to prosecute this suit in the United States Circuit Court. “Third. The court erred by retaining jurisdiction of this cause and not dismissing the same after it was made to appear on the trial that the complainant corporation was organized by De Vitt & Flato, and the conveyance of the property in controversy made by them to complainant corporation for the sole purpose of giving jurisdiction to the United States Circuit Court; the said court not having jurisdiction while the property was in the name of De Vitt & Flato. That said conveyance was wholly without consideration and was colorable only, the said De Vitt & Flato by their ownership of the stock of the corporation retaining substantially the same ownership in and dominion over the property, they therefore had the power to reconvey the same at their option.” The transfer by De Vitt & Flato to the complainant was an unconditional and apparently valid transfer of the title and ownership of the land in controversy, and, according to the evidence, the transfer was made under the following state of facts: De Vitt and Flato became partners in the cattle business in the fall of 1898, having their ranch in Hockley county, Tex., consisting of lands in Hockley and adjoining counties, cattle, horses, fences, and ranch equipment. De Vitt lived in Texas and Flato in Kansas City, Mo. In the course of time, up to 1903, the firm became indebted to a Kansas City bank in the sum of $43,000, and Flato became indebted to the same bank on his individual account. De Vitt and Flato had been contemplating the formation of a corporation for some time, to guard against trouble in the courts in case of the death of either of the members, and to facilitate the use of their assets not only in firm matters but in individual matters as well. The Kansas City bank, creditor of the firm and of Flato, desired the formation of a corporation that Flato’s stock might be placed with the bank as securitjL Some delay occurred in the formation of the proposed corporation, but finally on the 18th day of December, 1903, articles of incorporation of the Mallet Dand & Cattle Company in the state of Missouri were acknowledged with a capital stock of the company of $100,000, consisting of 1,000 shares of $100 each, of which 544 shares were assigned to De Vitt and 452 shares to Flato, and the other four shares assigned to O. G. Young and D. F. Deatherage, Oland Young and S. R. Hansell for legal services. On the 21st day of December the certificate of incorporation was issued by the Secretary of State of Missouri, and on the same day a deed was executed by De Vitt at Ft. Worth, Tex., in the partnership name of De Vitt & Flato, conveying to the Mallet Dand & Cattle Company all the lands owned or held under lease by the firm of De Vitt & Flato, including the lands in controversy. This deed was — 287 — mailed the same day to Flato at Kansas City. On the same date a bill of sale was executed by De Vitt for the partnership, conveying to the Mallet Land & Cattle Company all the cattle, horses, ranch and other personal property belonging to the firm. The property thus conveyed constituted the entire assets of the Mallet Land & Cattle Company. The Mallet Land & Cattle Company assumed all the indebtedness of De Vitt & Flato, and this constituted all the liabilities of the Mallet Land & Cattle Company. On the hearing De Vitt testified that the main reason for organizing a Missouri corporation and transferring to it all the partnership property was so that they, the partners, could get their interests in the business in the form of collateral and so use them in their private transactions. The matter was discussed at various times for over a year and they had decided to incorporate. Another reason was that one of the partners might die and that that might get the partnership property in the courts. Being asked if it is.not a fact that the said charter was obtained in great haste about the time it was obtained in order that a suit might be brought in the United States court against C. C. Slaughter for the Edwards county school lands, he answered: “No, sir; it is not a fact that that was the purpose of it.” And, on renewal of the question, reiterated his answer. He, further, answered that he was acquainted with the circumstances connected with the litigation between De Vitt & Flato and C. C. Slaughter over the Edwards county school lands, but he denied that the defeat of De Vitt & Flato in that litigation on or about the 18th of December, 1903, prompted the acquisition of the charter of the Mallet Land & Cattle Company at the time it was obtained. Being further inquired of as to the object of, and what led to, the agreement to incorporate at that time, he answered, “Our principal object was so that each one of us could get in a tangible form and separate our interest in the business in the form of collateral, that we could use it for private matters.” Further, that the taking out of the charter was delayed for want of settlements between the parties as to their individual interests, and because they had a contract of purchase from Edwards county of their school land and they did not know what effect it might have to incorporate and transfer their claims to the new corporation without having first secured a deed from the county. He says the charter was written up the latter part of September, 1903, in Kansas City. The evidence of De Vitt is fully corroborated by that of Flato, and is not disputed or contradicted by any witness nor by any circumstances proved in the case. On this state of facts, we conclude that the transfer of De Vitt & Flato to the complainant of the title and ownership of the lands in controversy was in good faith and for a valid consideration, was unconditional, and passed full title for all lawful purposes. The appellant relies upon Lehigh Manufacturing Co. v. Kelly, 160 U. S. 327, 16 Sup. Ct. 307, 40 L. Ed. 444, but we find the case inapplicable because the facts and circumstances are different from those in the present case. In no just sense can we say that the organization of the Mallet Land & Cattle Company, and the transfer thereto for stock of all the property of De Vitt & Flato, including incidentally, and as — 288 — only a small part thereof, the lands in controversy, was all -a sham transaction. If it was not a simulation—a sham—then, so far as jurisdiction is concerned, the purposes of De Witt and Flato in the transaction are immaterial. See Lehigh Manufacturing Co. v. Kelly, supra, for authorities. Irvine Co. v. Bond et al. (C. C.) 74 Fed. 849, was a case very similar in many respects to the present case, and it was there held that as the transaction was real and no reconveyance contemplated, the jurisdiction of the court properly attached, citing Lehigh Manufacturing Co., v. Kelly and authorities there cited. In his fourth, thirteenth, eighteenth, and twentieth assignments of error, the appellant raises, in different aspects, the question of jurisdiction in equity to grant the complainant relief, insisting that the complainant has a full, complete, and adequate remedy at law. The bill seems to be one to prevent trespass and to remove cloud from title, and the turning question as to jurisdiction is whether the complainant was, at the institution of the suit, in possession of the lands in controversy. The case shows that originally De Vitt & Scharbauer entered into lawful possession under a lease from Edwards county; that De Vitt & Flato succeeded to the rights and possession of De Vitt & Scharbauer, and from that time on held possession under that and a subsequent lease, which expired June 1, 1903; from which time they continued to hold under contract of sale and actual sale from Edwards county; that in the fall of 1903 their possession was disturbed by the claims of Slaughter, who, with more or less violence, undertook to take possession of the said land, resulting at best in a disputed joint occupancy. The attempts of Slaughter, no matter how successful, to take forcible possession of the land, cannot be recognized as giving him actual and lawful possession, nor be made the foundation of any right between him and complainant, nor deprive the complainant from proceeding with a bill to remove cloud, with preventive relief against the attempted disturbances of title and possession. See Thomas v. Nantahala Marble & Talc Co., 58 Fed. 485, 7 C. C. A. 330; Pokegama S. P. Lumber Co. v. Klamath Lumber & Imp. Co. (C. C.) 86 Fed. 528; Pittsburg Railroad Co. v. Fiske, 123 Fed. 760, 60 C. C. A. 621. We conclude, therefore, that there was no error in overruling the demurrer and pleas to the equitable jurisdiction of the Circuit Court. The appellant, as respondent in the Circuit Court; filed a plea in abatement based on a former suit pending between complainant’s vendors and the defendant, and introduced in evidence in support thereof the original petition filed by De Vitt & Flato in the district court of Lubbock county, Tex., on the 24th day of October, 1903, and also an amended petition presented in vacation on hearing of the motion to dissolve the injunction granted upon the original ¿petition, which amended petition was presented without filing under an agreement between counsel for the plaintiff and defendant in that cause. The original petition was for an injunction against the defendant, Slaughter, and three of his employés, to restrain them from digging a well on the land and building a fence on the lands herein in controversy. The amended petition, in addition to the prayer for injunction in the — 289 — original, prayed for enlargement of the injunction so as to require the defendant, Slaughter, to remove a fence that he had been erecting upon said lands. The writ of injunction issued on the original petition on the 24th day of October, 1903, served on the defendant in that case, was in evidence, as also the answer of the defendant, which consisted of a plea in abatement setting up the pendency in the county court of Lubbock county, Tex., of a suit against the defendants to restrain them from the same trespass which the injunction in the suit of the district court was sued out to restrain, exceptions to the petition, an answer under oath, and an amended answer setting up more fully the facts in relation to the title and trespass complained of by the plaintiff. There was also in evidence a motion by the defendant to dissolve the injunction issued out of the district court of Lubbock county, Tex., in above-styled case, presented to Judge Morgan in vacation, which motion was presented without filing, as were the amendments in the case, under the agreement before mentioned, also the order of the judge of the Fiftieth judicial district court, made on the hearing of said motion in vacation on the 18th day of December, 1903, by which said writ of injunction was dissolved and the case continued on the docket for trial. This order of the judge made in vacation was filed in the district clerk’s office of Lubbock county on the 23d day of December, 1903, and entered in the minutes of the court. The pleadings presented to the judge on hearing of said motion, referred to in tfie agreement aforesaid, were subsequently filed in the office of the clerk of the district court of Lubbock county January 6, 1904. The defendant also put in evidence a cross-bill filed by defendant in the said cause, De Vitt & Flato v. C. C. Slaughter, in the district court of Lubbock county, on the 31st day of December, 1903, praying for affirmative relief by removing cloud from title to the -lands in controversy. The plaintiff put in evidence in the same connection what is styled “plaintiff’s first amended original petition in lieu of original petition filed the 21st day of December, 1903.” This amendment purports to be filed in vacation, and is practically a copy of original petition filed in the case, except that it recites at the conclusion that: “The plaintiffs had sold the land to the Mallet Land & Cattle Company, and that said Mallet Land & Cattle Company are now and were on the 21st day of December, 1903, the legal and equitable owners of all of said property, and that plaintiffs disclaim any right or title or ownership in or to said property in any manner whatever.” As we understand the pleadings and proof, the suit in the state court was, at its inception, one for an injunction to prevent trespass, and by the first amended original petition was converted into a suit to recover damages for trespass; the plaintiff entering a disclaimer as to the ownership and title to the lands in controversy. Whether the answer and cross-bill of Slaughter operated to convert the case into one of trespass to try title and to remove cloud from title is strongly argued by counsel on both sides, citing very pertinent authorities to sustain the propositions advanced. As we view the matter, however, the pendency of the proceedings in the state court, even if proved to the fullest extent, pleaded by the appellant, and conceding that the complainant here — 290 — in is bound thereby as though a party by name and process, constitutes no sufficient ground to abate the present suit. Where property is in possession of a state court, suits thereafter brought in the United States courts to recover or affect the same should be stayed, but not necessarily abated. See Weaver v. Field (C. C.) 16 Fed. 22; Gates v. Bucki, 53 Fed. 961, 4 C. C. A. 116. The pendency of a suit in the state court is not necessarily a bar to a suit in the United States court between the same parties involving the same issues. Hyde v. Stone, 20 How. 173, 15 U. Fd. 874; Stanton v. Embey, 93 U. S. 548, 23 L. Ed. 983; Insurance Co. v. Brune’s Assignee, 96 U. S. 588, 24 L. Ed. 737; Short v. Hepburn, 75 Fed. 113, 21 C. C. A. 252. In Gordon v. Gilfoil, 99 U. S. 168-178, 25 L. Ed. 383, Mr. Justice Bradley, for the Supreme Court, said: “It has been frequently held that the pendency of a suit in the state court is no ground even for a plea in abatement to a suit upon the same matter in the federal court.” For the converse rule, see International & G. N. R. R. Co. v. Barton (Tex. Civ. App.) 57 S. W. 292, containing an extended citation of adjudged cases basing the rule on the different sovereignties from which the courts derive their powers. Under the pleadings and proof made in this case, there is no reasonable ground to contend that the lands in controversy herein are in any wise in the exclusive possession of the state court, nor can it be pretended that the proceedings herein-will in any wise clash with any regular proceedings had in the state court. There was no error in overruling the defendants’ plea in abatement. Having disposed of the questions affecting the jurisdiction of the court, we pass to the merits of the case. Under the evidence, we find that the relations existing between the defendant and Kaye, Ferrell, and Oxsheer were such that Kaye should be treated as a subagent of the defendant, and that the defendant and Ferrell are to be charged with notice of all the recitals relating to the lease and option contained in the contracts between Edwards county and Kaye in relation to the sale of the property. In fact, the recitals in the deed of Edwards county to Ferrell and in the deed of Ferrell to defendant are such that the defendant was by his title papers charged with -full notice of the rights and claims of De Vitt & Flato. The appellants’ fourteenth assignment of error is as follows: “Fourteenth. The decree of the Circuit Court, if based on any preference right or vested interest claimed by complainant as arising out of the alleged option contained in lease from the county judge to De Yitt & Flato, was erroneous for the reason: (a) The county judge was without authority from the commissioners’ court to grant the option, (b) There was no ratification of said grant by the commissioners’ court, or no sufficient-ratification thereof to make it binding on Edwards county, (c) The alleged option was void for uncertainty, (d) The alleged option was not performed in accordance with its terms, (e) The alleged option was abandoned and rescinded by new contract between De Vitt & Flato and the commissioners’ court in order of date February 12, 1902. (f) Complainant’s claim of title is not under the option and was not acquired in accordance with the terms of the option, but under contract with the commissioners’ court of date November 14, 1903.” — 291 — (a) The judge of the county court testified that there was an order of the commissioners’ court of Edwards county authorizing the county judge to make the lease contract with the preference right to buy, but through some oversight this order was not entered on the minutes of the court, and there is no evidence to the contrary. The failure to enter the order upon the minutes did not, in our opinion, affect the validity of the acts thereunder. See Waggoner v. Wise Co. (Tex. Civ. App.) 43 S. W. 836. (b) The county commissioners recognized the lease and received rentals thereunder, and specifically ratified the same in the very first contract made with Kaye, under whom appellant claims title. See American Waterworks Co. v. Farmers’ Loan & Trust Co. 73 Fed. 956-964, 20 C. C. A. 133; Corzine v. Williams, 85 Tex. 506, 22 S. W. 399; Boydston v. Rockwall Co., 86 Tex. 234, 24 S. W. 272. (c) The option given to De Vitt & Flato is not void for uncertainty. Willard v. Tayloe, 8 Wall. 564, 19 L. Ed. 501; Hayes v. O’Brien (Ill.) 37 N. E. 65-77; Hitchcock v. Page, 14 Cal. 331-444; Marske v. Willard, 169 Ill. 277, 48 N. E. 290. Hayes v. O’Brien, supra, was a suit for the specific performance of a contract of lease, in which an option was granted and the price was to be determined by subsequent offers to buy. The court held that: “Where no price is fixed in a lease contract, a provision is valid which gives the lessee a preference right to buy at a price offered by another.” In Marske v. Willard, supra, it was held: “A contract giving one party the privilege of purchasing lands upon certain conditions is not void for want of mutuality, on the ground that though the seller is bound upon those conditions the other party is not bound to purchase unless he desires.” “A written contract giving one party the first opportunity to purchase land, ‘provided he will pay as much as any other person," is not invalid as being partly in writing and partly in parol, on the ground that the written contract does not specify the price to be paid or the terms and time of payment.” (d, e, f,) There is no evidence of any intention at any time on the part of De Vitt'& Flato to abandon their option nor of any actof abandonment, nor is there shown any intention on the part of Edwards county to rescind the same; on the contrary, in the contracts with Kaye March 19, 1899, and May 8,1899, and in the deed to Ferrell May 17,1899, as well as in subsequent contracts with De Vitt & Flato, the original contract containing the option agreement is fully recognized as an existing obligation. That the terms of sale were somewhat changed in the final contracts between the county and De Vitt & Flato on February 13, 1902, and November 14, 1903, seems to be immaterial. If the obligations of the county to convey to De Vitt & Flato existed, the modification of terms by special agreement is of no interest to parties whose rights, if any, had already attached. The appellant further contends that the option to purchase granted De Vitt & Flato by the commissioners of Edwards county was void, because the commissioners were without authority in law to execute such contract, and the same was contrary to public policy. In Falls County v. De Laney, 73 Tex. 464, 11 S. W. 492, the Supreme Court — 292 — of the state holds that the commissioners’ courts have the authority to lease the county school lands; and, in Waggoner v. Wise County, supra, it was held that the county commissioners’ courts are general trustees for selling or otherwise disposing of the county school lands, upon such contracts, terms, and conditions as they may deem proper to adopt or provide. We are cited to no prohibition in any Texas laws against giving to a lessee the preference right to buy. On the contrary, we find that it has long been the public policy of the state of Texas to encourage the settlement and development of the public free school lands by suitable provisions giving the lessee the preference right to buy. See article 4218w, Rev. St. Tex. 1895 ; Gen. Laws Tex. 1901, p. 292, c. 125. We notice that, prior to the time the lessees were given the preference right to purchase, they were given the preference right to re-lease. Gen. Laws Tex. 1887, p. 87, c. 99, § 14; Gen. Laws 1889, p. 50, c. 56. It is plain that a lessee having the legal right to re-lease or to buy is induced to make fences and buildings, dig wells, plant trees, and make other improvements—all inuring to the interest of the owner and the public. The object of these laws being to bring about the sale, development, and general improvement of the public lands belonging to the state, we see no reason why the same policy should not prevail with regard to the public lands awarded to counties for school purposes. We therefore conclude that the option granted De Vitt & Flato of the right to purchase at the expiration of their lease was fully within the authority of the commissioners’ court of Edwards county, and the option as granted was not void as contrary to public policy. The appellee contends with great force that the conveyance by the commissioners’ court of Edwards county to R. S. Ferrell of its public school lands is null and void, and that the appellant Slaughter has no rights thereunder. The commissioners’ court of Edwards county on May 8, 1899, executed an agreement with W. E. Kaye whereby Kaye, as the agent of Edwards county, was to sell the lands in controversy at the net rate of 85 cents per acre under certain conditions of sale and within a certain time, and therein it was especially agreed and understood that the said Kaye was to have as his compensation and commission any sum realized over and above the price of 85 cents per acre. To secure the performance of the said contract, said Kaye deposited the sum of $1,000 as evidence of good faith and to guaranty that he would sell and complete the sale of said lands on or before the 1st day of August', 1899, and in the contract it was provided that, if said Kaye refused or failed to make said contemplated sale on or before the said date, the said $1,000 deposited should be forfeited. The conveyance to Ferrell on May 17, 1899, was under and in pursuance of this contract, and the record shows that Kaye retained for himself for his services from the price paid by Ferrell the sum of $2,656.80, the difference between the amount at 85 cents per acre stipulated in the Kaye contract, and the amount paid by Ferrell. The Supreme Court of the state has repeatedly held that the commissioners’ courts were without authority to sell or convey the public school lands except for money, the gross proceeds of which were to — 293 — go to the public school fund of the county. Dallas County v. Club Land & Cattle Co., 66 S. W. 296; Tomlinson v. Hopkins, 57 Tex. 574; Cassin v. La Salle Co. (Tex. Civ. App.) 21 S. W. 124; Pulliam v. Runnels Co., 79 Tex. 369, 15 S. W. 277. Upon these authorities it would seem to be clear that, if the contract with Kaye was one giving him commissions as agent to be paid out of the price of the lands, the contract was void. On the other hand, if the contract with Kaye was practically and substantially a conditional, sale to Kaye of the school lands at 85 cents per acre, the full amount of which was to be paid over to the county, then the contract cannot be said to be void by reason of the above cited authorities. If the contract with Kaye was void, then it would seem to be immaterial whether Slaughter was or not an innocent purchaser. See Sampeyreac v. United States, 7 Pet. 241, 8 L. Ed. 665; Bryan v. Crump, 55 Tex. 13; League v. Rogan, 59 Tex. 430. From the view we have taken of the case above we do not feel called upon to pass further upon this issue. There are other assignments of error raising minor issues not necessary to consider, as their decision would not materially affect the conclusion we have reached; which is, that under all the facts and circumstances of the case, and for the reasons herein given, the decree of the Circuit Court was substantially correct, and should be affirmed. And it is so ordered.