Wilson v. Colorado Mining Co.

SANBORN, Circuit Judge (after stating the facts as above). [1] Under the laws of the state of Utah and under the law of its organization the Colorado Company had no authority to assess the 15,000 shares of its stock which are the subjects of these suits, to sell them for the assessment, or to appropriate them to itself. In the belief that it had that authority it did these things, and it has ever since insisted and still contends that it thereby acquired the right to own and hold them for its own use and benefit. But an owner cannot be lawfully deprived of his property without his consent and without due process of law, and the Colorado Company took Wilson’s interest in this stock without either. A corporation which, without lawful authority, appropriates to itself its stock owned by another, or the valuable interest of another, of which it is aware, in its stock, thereby becomes liable at the option of the owner to restore to him the stock or the interest therein and the dividends thereon, or to pay the dam — 725 — ages caused by the taking, and its ignorance of the law or belief in its right to commit the wrong is no defense to that liability. Telegraph Co. v. Davenport, 97 U. S. 369, 371, 372, 24 L. Ed. 1047; Geyser-Marion Gold Min. Co. v. Stark, 106 Fed. 558, 560, 45 C. C. A. 467, 469, 53 L. R. A. 684. This liability is not denied. The defense is that it was avoided by-Wilson’s abandonment and laches. The Colorado Company not only subjected itself to the ordinary liability of a corporation appropriating to itself without authority the stock of one of its stockholders, but when it took the stock here in controversy under the unauthorized assessment it had full knowledge that it held all Wilson’s stock in trust until the treasury stock was sold, and that he was the owner of the 15,000 shares, subject only to the pledge of 5,000 of them to the hospital to secure his debt of $80, and the pledge of 10,000 of them to Croxall to secure his debt of $150. It had withheld its certificates to the pledgees from their possession, and Brown, as its secretary, had given them written declarations that he held the certificates for them until the two debts were paid. In March, 1900, about two months before the assessment, the company had refused to deliver to Wilson any of' his stock or certificates, upon the express ground that it held them until the treasury stock should be sold under the agreement to that effect between it and the stockholders who paid for their stock with mining claims. [2] The test of abandonment of property is the existence or nonexistence of the intent to abandon. Manhattan Life Ins. Co. v. Wright, 126 Fed. 82, 89, 61 C. C. A. 138, 145; Saxlehner v. Eisner & Mendelson Co., 179 U. S. 19, 31, 21 Sup. Ct. 7, 45 L. Ed. 60; Dawson v. Daniel, 7 Fed. Cas. 215, 216, Fed. Cas. No. 3,669; Singer Mfg. Co. v. June Mfg. Co., 163 U. S. 169, 186, 16 Sup. Ct. 1002, 41 L. Ed. 118; Moore v. Stevenson, 27 Conn. 14; Livermore v. White, 74 Me. 452, 43 Am. Rep. 600; Judson v. Malloy, 40 Cal. 299; Hickman v. Link, 116 Mo. 123, 22 S. W. 472. The presumption is that the owner of property or of rights to property intends to preserve them, because this is the customary purpose of such owners, and the burden is on him who alleges abandonment dearly to establish the intent to abandon by evidence sufficient to overcome this strong natural presumption. Before Wilson left Utah, and in March, 1900, he demanded his stock of the company, and it refused to deliver it to him, because it held it in trust for him until its treasury stock was sold. When the company, without authority, appropriated to itself the property of Wilson in the stock in controversy in these suits in the summer of the year 1900, he was absent from the state of Utah, and he had no knowledge or notice of its action until the autumn of the year 1907, and he demanded his stock and brought his action at law against the company for all of it, except the 15,000 shares on November 27, 1907. He supposed these assignments of the 15,000 shares were absolute, and he did not learn that they were defeasible until June, 1908. lie redeemed the 5,000 shares from the Hospital Company, and brought this suit in equity to avoid the assessment and transfer to the Colorado Company and to secure the reissue of the stock to himself on September 8, 1908. tie assigned the 10,000 shares to Croxall, and the latter brought his — 726 — action at law to recover it, or the value of it, on September 6, 1908, and after the Colorado Company brought its suit in equity to enjoin that action Wilson and Croxall on August 2,- 1908, commenced their suit in equity now under review for the avoidance of the assessment and transfer to the company of these 10,000 shares, for the issue of the stock to Croxall and for the dividends. There is no other evidence of any intent of Wilson to abandon his stock, or his rights therein, and this evidence has produced a strong and abiding conviction that he not only never intended to abandon his interest in any of the stock or his rights of action against the company, but that his intention always was to hold and secure the full benefit of them. His suit cannot be defeated on the ground of abandonment. [3] But counsel insist that he was guilty of laches. How could he 'be? When he left Utah in-March, 1900, his stock was held in trust for him by the -Colorado Company until the treasury stock should be sold, with full knowledge on the part of that company that the only rights of the hospital and Croxall in the 15,000 shares were those of jDledgees. The company was without power to assess this stock, or-to sell it for any assessment-. It had never assessed any of its stock, or intimated any purpose so to do, and Wilson had no more notice or reason to suspect that it would do so than he hád to suspect that it would forge his name to a transfer of its stock, or would deprive him of it in any other unlawful way, and this condition of things continued until the autumn of 1907, when he learned for the first time of the company’s unauthorized appropriation of the stock to itself in the year 1900. Until the autumn of 1907 he had no knowledge, no notice of any kind, no notice of any fact which would put a person of ordinary prudence and diligence on inquiry for the unauthorized appropriation of this stock by his own company for its own benefit. Now the company pleads the laches of Wilson, pleads that he is estopped from recovering for its wrong, because he did not expect it to violate the law, because he did not stand by and watch for its wrongdoing and sue it quickly. It does not lie in the mouth of this company to make that plea. “If a person be ignorant of his interest in a certain transaction, no negligence is imputable to him for failing to inform himself of his rights; but if he is aware of his interest, and knows that proceedings are pending the result of' which may be prejudicial to such interest, he is bound to look into such proceedings so far as to see that no action is taken to his detriment.” Foster v. Mansfield, Coldwater & Lake Michigan R. R. Co., 146 U. S. 88, 99, 100, 13 Sup. Ct. 28, 32 (36 L. Ed. 899). Wilson had no notice of the pendency or probable pendency of the unlawful proceedings from which he suffered until the summer of 1907. The basis of laches is estoppel, and where there is no estoppel there is no laches. Layton Pure Food Co. v. Church & Dwight Co., 182 Fed. 24, 32, 39, 104 C. C. A. 464, 472, 479. Indispensable elements of such an estoppel are: (1) Wilson’s active of culpably -negligent misrepresentation of an important fact; (2) the defendant’s ignorance and lack of notice of the truth concerning it; (3) the action or inaction of the defendant induced by the misrepresentation; and (4) its injury by the presentation of and action upon the truth. The fact upon the misrep — 727 — resentation of which reliance must be had by the defendant to work the laches in this case is the plaintiff’s insistence upon his right to avoid the unauthorized appropriation of his stock by the defendant. But Wilson was ignorant of that right, and made no representation concerning it until he discovered the misappropriation in the autumn of 1907. He was guilty of no unreasonable delay thereafter, and he was guilty of no negligence before, for then he had no notice of the wrong of the company. The company was not ignorant, but knew all the facts about its wrong and about the rights of the plaintiff arising therefrom. It was not induced by his misrepresentation or his silence to act or to refrain from acting, and it will suffer no injustice or wrong if the truth be presented and the company be required to surrender that which it has derived from its unauthorized misappropriation to itself of the property of the plaintiff. All the essential elements of estoppel and of laches are wanting here, and Wilson may not be lawfully defeated thereby. The doctrine of laches is an equitable principle, which is applied to promote, but never to defeat, justice. An application of it to defeat Wilson would defeat justice and sustain in-j ustice. The analogous statute of limitations at law bars the action three years after the discovery by the aggrieved party of the facts constituting the fraud or mistake. Comp. Laws Utah 1907, § 2877. These suits were brought within that time. Mere delay and the increase in the value of the property are not such circumstances as entitle a wrongdoer to the application of the doctrine of laches within the time fixed by the analogous statute of limitations of the action at law (Indiana & Arkansas Lbr. & Mfg. Co. v. Brinkley, 164 Fed. 963, 969, 970, 91 C. C. A. 91, 97, 98), and there are no unusual circumstances or conditions, such as the interposition of the rights of innocent third parties, the death of important witnesses, or the loss of documentary evidence, combining with changes in the value of the property to invoke the application of the doctrine of laches. Kelley v. Boettcher, 85 Fed. 55, 62, 29 C. C. A. 14, 21; Brun v. Mann, 153 Fed. 145, 154, 80 C. C. A. 513, 522; Cook, Corporations (7th Ed.) § 731. Wilson was guilty of no laches. [4] But counsel argue that the pledgees, the hospital and Croxall, had notice of the assessment and of the sale thereunder in 1900 when they were made, that Wilson is estopped by their ladies, and they cite section 330 of the Compiled Statutes of Utah of 1907, which provides that the delivery of a stock certificate of a corporation and a wiitten transfer thereof, signed by the owner, to a bona fide purchaser or pledgee for value, shall be deemed a sufficient transfer of the title against any creditor of the transferor and all other persons whomsoever, but that for the purpose of voting, of receiving dividends, of levying and collecting assessments, and other matters in which the corporation is interested, the holder of record shall be treated and considered as the holder in fact, and the transferee shall have no rights or claims as against the corporation until transfer thereof on the hooks of the corporation, or a new certificate issuing to hirn. But this section simply states the general law regarding lawful assessments, transfers, and dividends. It in no way relieves a corporation from its lia — 728 — bility at law or in equity for unauthorized assessments, sales, or appropriations to itself of the property rights or interests of pledgors or other parties in interest in its stock, of which it has full notice while the stock is in its possession and control. For the purposes of the discussion of these cases it will be conceded, but it is not admitted or decided, that the pledgees received notice in 1900 of the assessment and sale of the stock. They were not, however, aware of the fact that those proceedings were beyond the power of the corporation and wrongful. They gave the matter no attention, and brought no actions until'1907. If they were guilty of laches, how can that laches avail to estop Wilson, who was not guilty of laches, from recovering his interest in the stock from the wrongdoer that had full knowledge that he held this interest and appropriated it to its own use ? Undoubtedly, after the new certificates to the pledgees were executed, the pledgees, if they could have obtained delivery of those certificates from the Colorado Company, whose secretary still held them, might have so assigned and delivered them to a purchaser for value without notice of Wilson’s interest therein as to estop him from recovering that interest from such a purchaser. There is no less doubt that such a person, who had notice of Wilson’s interest when he purchased the stock, would take nothing but the liens of the pledgees. The Colorado Company knew that the only interest the hospital had in the 5,000 shares was its lien for $80, and that the only, interest Croxall had in the 10,000 shares was his lien for the $150, and that Wilson was the owner of the shares, subject only to those liens, when it misappropriated them to its own use by the unauthorized levy and sale. The appropriation to himself or the loss of collateral securities by a pledgee, either intentionally or by culpable negligence, is both a tort and a breach of the contract of pledge, and the .pledgor may maintain an independent action either in tort or upon the contract, at his option, against the pledgee for the value of the securities of which he is deprived. Brown v. First Nat. Bank, 132 Fed. 450, 453, 66 C. C. A. 293, 296; Colebrooke on Collateral Securities, § 131. And by the same mark the unauthorized and intentional appropriation to itself by a corporation of collateral securities in its possession or under its control with full knowledge of the interest of the pledgor therein, although with the voluntary transfer, consent, acquiescence, negligence, or laches of the pledgee, is both a tort and a breach of trust, and the pledgor may maintain at his option a suit in equity for their recovery, or an action at law for the value of his interest therein. Even if the Colorado Company had not been a trustee to hold the stock for the pledgor and the pledgee, before its appropriation to itself, that appropriation would have made it a trustee de son tort for tire pledgor. The pledgees cannot, by their silence, acquiescence, or laches, vest in the unauthorized appropriator, who has knowledge of the interest and rights of the pledgor, more than they could vest by their assignment, nor more than their liens. The laches of the pledgees, if it existed, did not deprive Wilson, who was guilty of no laches, of his right to maintain suits in equity against the Colorado Company for his stock, or actions at law for the value of his interest therein. And as Croxall by assign — 729 — ment has the rights of Wilson in the 10,000 shares, neither of these suits was barred by laches. [5] The next contention relates to the compromise judgment for $4,500 in Wilson’s action at law for the 58,334 shares of stock or their value and the dividends thereon. Counsel for the Colorado Company argue that this was a judgment of compromise of all the claims of Wilson on account of these 15,000 shares, as well as of the 58,334 shares for which he sued in that action, and there is testimony in the record to the effect that such was the understanding with which the stipulation for the judgment was signed. But there is also testimony to the contrary. In view of this contradiction in the testimony, the controlling evidence is in writing. In the complaint and in the answer it is expressly averred that these 15,000 shares had been previously assigned by Wilson, they are excepted from the claim of the complaint, the exception is emphasized by the averments of the answer, and the written stipulation of compromise is for judgment for the sum of $4,500 “in full satisfaction of all claims and demands of said plaintiff set forth in his said complaint.” The claims on account of these 15,000 shares were not set forth in that complaint, and the record convinces that they were not considered, compromised, or adjudged in that case. Counsel invoke the rule that one may not split his cause of action, and that if he conduct to final judgment an action upon a part of an entire demand, such judgment is a bar to an action upon the remainder thereof, and argue that Wilson’s cause of action was the failure of the Colorado Company to perform its part of Wilson’s contract of subscription for its stock, that it was therefore single and indivisible, and that as he obtained judgment in his action at law for the value of a part of the stock for which he subscribed he is barred from maintaining suits in equity for the remaining 15,000 shares not included in that action. There are many reasons why these suits may not be defeated upon this ground. In the first place, if the claims to recover on account of the 15,000 shares were a part of the indivisible cause of action first brought by Wilson, the pleadings in that case that this stock had been sold and assigned to the hospital and to Croxall, and the testimony of Wilson that he did not know, during the pendency of these actions, that those assignments were defeasible, present such convincing evidence that the claims now in suit were omitted from Wilson’s first action by mutual mistake that a court of equity ought not to hesitate to exercise its immemorial jurisdiction to relieve from such a mistake, and to permit the suits upon these claims to be maintained. In the second place, the evidence has convinced that during the pendency of that action Wilson had forgotten and had no knowledge that his assignments of the 15,000 shares were defeasible, no knowledge that he had any cause of action on account of the misappropriation of the 15,000 shares. And claims which are part of an entire and indefeasible cause of action, but of which the plaintiff has no notice during the pendency of an action upon it for other parts thereof, are excepted from the general rule, and an action upon them may be maintained after judgment in the first action. Lord Bagot v. Williams, 3 Barn. & Cress. 235, 107 Eng. Reports Reprint, 721, 722, — 730 — 723; Kane v. Morehouse, 46 Conn. 300, 304; Gedney v. Gedney, 160 N. Y. 471, 475, 55 N. E. 1; Bendernagle v. Cocks, 19 Wend. (N. Y.) 207, 209, 32 Am. Dec. 448; Johnson v. Provincial Ins. Co., 12 Mich. 216, 222, 86 Am. Dec. 49. But, in the third place, if, as counsel contend, Wilson’s cause of action at law was the breach by the company of his contract of subscription, that was not his cause of action in these suits in equity, nor were these causes a part of his demand on account of that breach. The company had signed certificates to Wilson of the 15,000- shares of stock, had afterwards segregated these 15.000 shares from all his other stock, canceled his certificates for them, signed new • certificates for the 15,000 shares to- the pledgees, the hospital, and Croxall, with full knowledge that they were mere securities for the $80 and $150 which he owed to them, respectively, and those certificates were in the possession of its secretary before the unauthorized assessment and sale of this stock to the company was made. And the unauthorized appropriations by the company of the 5.000 shares pledged to the hospital and the 10,000 shares pledged to Croxall were Wilson’s causes of action in these suits. At the time his first action at law was pending, Wilson’s debts secured by this stock had not been paid, nor had his claim against the company been assigned. He had the option to sue the company at law for a conversion of the 15,000 shares of stock, or m equity for their restoration to him. To the suit in equity for the 5,000 shares the hospital was then a proper party, and to the suit in equity for the 10,000 shares Croxall was a proper party; but neither of them was a proper party to his action at law for the 58,334 shares, or their value, and. the conclusion is that the causes of action on which these suits in equity are based were not a part of Wilson’s indivisible demand for a breach by the company of his contract of subscription during the pendency of his action at law, but were separate causes of action for suits in equity for separate appropriations to itself by the company of the 5,000 shares certified to. the hospital and the 10,000 shares Certified to Croxall and that other parties than those proper in his action at law were then proper parties to such suits. The suits here under consideration cannot be defeated on the theory that Wilson has split his cause of action. [6] In the suit brought by Wilson and Croxall they seek to recover, in addition to the 10,000 shares pledged to Croxall, 2,000 shares which belonged to Wilson, but which were transferred from him to Brown, the secretary of the company, in 1898, without any authority from Wilson. But Wilson sued the company for this stock, or its value, and for the dividends thereon, in his action at law that was compromised and settled. He and his assignee, Croxall, pray that the compromise and judgment in that case be set aside, and that they recover these 2,000 shares of-stock, on the ground that Wilson was induced to make the compromise of his action at law by the representations, made by the agents or officers of the Colorado Company at the time of the compromise, that Wilson had signed an assignment of that 2,000 shares, when the truth was that he had never done so. Conceding that the misrepresentation pleaded was made, and conceding the fact that Wilson never authorized the transfer, these facts present no such — 731 — equity as would sustain a decree for the avoidance of the judgment of compromise and the recovery of the 2,000 shares. Wilson alleged in his complaint in his action at law that he had never assigned or authorized the assignment of these 2,000 shares, and he verified that complaint. The Colorado Company answered that Wilson had sold and delivered these shares to Brown for services performed by the latter at Wilson’s request, and this answer was verified by the president of the corporation. Now, if any agent or officer of the corporation represented at the time of the settlement of the action 'that Wilson had signed an assignment of the 2,000 shares of the stock to Brown, this was not a stronger representation than the sworn statement of the president to the same effect found in the answer. The fact undoubtedly is that throughout the pendency of that action Wilson asserted, and the company denied, that he had authorized the transfer of this stock to Brown. No doubt the assertion of eacli was one of the inducements that caused the other to assent to the compromise; but that fact is insufficient to sustain a suit to avoid it, although subsequent to the compromise it clearly appears that one was right and the other wrong. If the opposite rule were adopted, no compromise of issues in litigation could stand. The compromise and judgment bar any relief to Wilson or Croxall on account of the 2,000 shares. In the year 1906, the capital stock of the Colorado Company was increased from $125,000, divided into 250,000 shares, of the par value of 50 cents a share, to $200,000, divided into 1,000,000 shares, of the par value of 20 cents a share. And in their complaints the plaintiffs ask to recover 15,000 of the additional shares and the dividends thereon on account of the 5,000 shares, and 30,000 of the additional shares and the dividends thereon on account of the 10,000 shares. But the evidence persuades that the additional shares and their proceeds were applied to the use and benefit of the corporation, and that none of them was distributed to any of the stockholders as a dividend, or a part of a dividend. There is, therefore, no proof to sustain any relief on account of the increase of the capital stock. Let the decrees below be reversed, and let a decree be rendered in Wilson v. Colorado Mining Company that the attempted assessment, sale, and appropriation by the company to itself of the 5,000 shares of stock were unauthorized, and are set aside and for naught held; that the company issue and duly register in its books in the name of Wilson as owner 5,000 shares of its stock, and issue and deliver to him a stock certificate in the usual form to the effect that he is the owner thereof, and extend lo him the usual rights of owners of stock to vote, act, and receive dividends; that in case it has issued all its stock, or for any other reason cannot without further action issue such stock, it purchase the necessary amount of its stock to enable it to comply with the foregoing requirement, cause this stock to be duly transferred to Wilson, and then register, record, and issue to him the 5,000 shares and the certificate thereof, and otherwise comply with the foregoing requirement (Pratt v. Taunton Copper Co., 123 Mass. 110, 112, 25 Am. Rep. 37; Pratt v. Boston & Albany R. R. Co., 126 Mass. 443; Boston & Albany R. R. Co. v. Richardson, 135 Mass. 473, — 732 — 474, 477, 478; 1 Cook, Corporations [7th Ed.] § 284; 2 Cook, Corporations [7th Ed.] § 367); that Wilson recover of the Colorado Company an amount equal to tire sum of the dividends that the company has declared on 5,000 shares of its issued stock intermediate between 1900 and the date of the decree, and interest on such dividends from the respective times when they became payable, and his costs and disbursements in this case, and that he have judgment and execution therefor; that in ease the Colorado Company fails to vest in Wilson, or to duly record in its books in his name as owner, or to issue and deliver to him, its stock certificate for 5,000 shares of its valid stock within 90 days after the entry of the decree, then said Wilson recover of it, in addition to the foregoing amounts, a further .amount equal to the highest intermediate value of the 5,000 shares of stock between July, 1900, and January 1, 1909, a reasonable time for Wilson to have purchased the 5,000 shares after he discovered their misappropriation and his interest in them as pledgor, and interest on that amount from that date (Telegraph Co. v. Davenport, 97 U. S. 369, 371, 24 L. Ed. 1047; McKinley v. Williams, 74 Fed. 94, 103, 20 C. C. A. 312; 2 Cook, Corporations [7th Ed.] § 581, p. 1727, note 1; Baker v. Drake, 53 N. Y. 211, 217, 13 Am. Rep. 507; In re Swift [D. C.] 114 Fed. 947, 949; Walley v. Deseret National Bank, 14 Utah, 305, 315, 47 Pac. 147); and that he have judgment and execution to collect the' same. Let the decree also contain such further provisions, consistent with the views expressed in this opinion, as may commend themselves to the judgment of the court below. Let a like decree regarding the 10,000 shares be rendered in favor of the plaintiff Croxall in the suit of Wilson and Croxall against the Colorado Mining Company. Footnotes [1] <&wkey;>For other cases see same topic & KEY-NUMBER in ail Key-Numbereil Digests & Indexes [2] <&wkey;> For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes