Maxwell v. McWilliams

Mr. Justice Brown delivered the opinion of the court. It is manifest that the cross-error assigned in this appeal may conveniently he disposed of first, for if, as the learned chancellor in the Circuit Court held in the 12th paragraph of the decree, the prayer of the bill for a decree of “rescission”, which should vest in the three defendants the stock in the corporation which holds the leases and interests in lands which were the subject of the negotiations and business arrangements between them and the complainants, and give to complainants a decree against the defendants for all the money the complainants put into the business, with interest, is inadmissible, and the remedy prayed for impossible and inapplicable, the only relief possible on this bill, if its allegations are fully sustained, being the recovery by the complainants of the secret profits which the defendants are alleged to have received and retained in the course of the transaction, then we may properly, as did the chancellor, decline to decide between the sharply conflicting testimony as to the representations made by the defendants to the complainants prior to December 3, 1904, concerning the average daily production of the oil wells in question, or the machinery and appliances with which they were equipped. On the other hand, should we think that his decision on the possible scope of the.relief proper to be granted, if any, is incorrect, the question of these representations would be of very great and probably controlling importance. On the findings on the issues raised between complainants and defendants on these representations might well depend the question whether the present decree should stand as a sufficient and adequate remedy for the alleged misapplication of funds entrusted by the complainants to the defendants because of the misrepresentations of the latter as to price and equality of standing, or a more drastic and far reaching judgment should, without reference to any possible hardships to defendants, replace the complainants in the situation in which they were before the purchase of the oil leases by the syndicate which afterward developed into the H. G. & M. Oil Company. Counsel for the complainants’ argument on the cross-errors is made chiefly, if not altogether, on the theory that the defendants in fact and certainly in the view of equity, sold to complainants certain interests in lands, which the defendants had exercised an option previously held by them, to purchase; that this sale was effected through various fraudulent misrepresentations, and may and should be set aside, and the defendants and complainants put in as nearly as possible the position they occupied before the sale, which would leave, according to the theory of complainants, the defendants the owners of all the stock of the H. G. & M. Oil Company, and the complainants the possessors of the money they parted with in the venture which they now regret. It is true that the counsel for complainants say that the establishment of this relation of vendors and vendees, which they insist existed between defendants and complainants, is not necessary to their right to a “rescission”, but we are not convinced by their argument. If this relation did not exist, then the “rescission” in question—on the assumption that the misrepresentations which would justify it have been proven—would be, as the chancellor in his opinion said, “to compel the defendants to stand in the shoes of the syndicate because of their wrong doing”. It was not presumably because “of tender consideration for the consequences which would be visited on the defendants”, as complainants’ counsel suggests, that the chancellor found that this would be an improper thing for him to do, on the assumption that he should find for the complainants on all the controverted issues of fact, but because he thought— as we do also—that a court of chancery has no right,' under the mask of a legal fiction of rescission, to punish fraud. If “compensation has no place in the law of rescission” (Smith v. Brittenham, 109 Ill. 540), certainly punishment cannot have. Undoubtedly transactions other than sales, being vitiated by fraud, may be cancelled or set aside or held for naught, but “rescission” of a contract of sale has a defined technical meaning, and we are of the opinion that it cannot be decreed in the case at bar unless it is held that the theory of the complainants is correct that for practical and equitable purposes the defendants were at one time the owners of the oil leases which are now the property of the H. G. & M. Oil Company. But we are no more able so to find than was the chancellor. This is not the theory of the amended bill on which the decree was rendered, nor is it the fact shown by the evidence. The allegations of the bill are that the defendants requested the complainants “to join with the defendants in the consummation of an option” and “in the formation of a corporation which should receive assignments of the leases”, and that after and in consequence of certain representations the complainants paid to the defendants (or to Lord as their representative) certain sums of money, and that Lord took the money and procured from the owner of the leases an assignment to the corporation which had been, in accordance with their suggestions, organized. The evidence presented by the complainants bears out the allegations, and it is on this different theory that the complainants ’ counsel rests their argument in defense against appellants ’ attacks of the decree which was entered. In the contest over the errors assigned by the defendants, the position of the defendants is that while not vendors of the oil leases or interests in the lands to the complainants or to the corporation, they were vendors, dealing at arm’s length and on lawful principles with the complainants, of an option to buy these oil leases from Tait; that as owners of that option they sold it at a legitimate profit of $12,500 to the syndicate composed of the complainants and themselves, which afterwards developed into the H. G. & M. Oil Company. The complainants’ position, however, on these assigned errors is (as we cannot but view it, despite the disclaimers of their final reply brief) that the chancellor correctly decided that the defendants were neither “vendors” of oil leases or lands to the complainants, nor “vendors” of an option to purchase oil leases or lands to them, hut persons who as “promoters” induced the complainants, in conjunction with themselves, to exercise the option which they (the defendants) held, and having, by false representations, while in a fiduciary relation of agency, obtained from these complainants a larger amount of money than was necessary to consummate the option, divided the excess among themselves in violation of their duty and of the trust reposed in them. If the evidence hears out this latter position, the complainants are entitled to relief—not the relief of rescission or cancellation of a contract or of a sale, hut the recovery of misused and misappropriated trust funds. This is the relief the chancellor thought the complainants entitled to and the relief which he gave them, preserving expressly to them the right to pursue at law (since the purchase which they made—involving an innocent vendor as it did—could not be rescinded or set aside) the agents or promoters charged with deceiving them as- to the character of the property bought, as well as to its price, for a recovery of any further damage the purchase may have caused them. We think that even on the assumption that everything in the way of false representation of production and equipment which the complainants charge was proved by the evidence to the satisfaction of the chancellor and of ourselves, neither he nor we could, under the law and evidence in this case, do more, and therefore we shall dismiss from consideration in this opinion the conflicting and varying testimony concerning these representations and the elaborate, ingenious and very extended arguments in which the respective views of counsel are presented regarding them. There is, however, no such assumption of our belief in the charges of misrepresentation of production and equipment to be made. Like the chancellor below,, and for the same reasons, we decline to make any finding in regard thereto. Nor do we wish to discuss the testimony regarding them. It would be useless for the present purposes and injudicious if there should be a suit at law growing out of them. The disposition of the cross-error assigned, however, leaves us to pass on the objections made in the defendants’ assignment of error to the findings of fact and law in the decree. The findings of fact have been most elaborately and exhaustively discussed by counsel, the testimony having been analyzed by them from every point of view. We have as diligently and thoroughly examined it all as though it had been primarily presented before us, as it was our duty in an equity appeal like this to do. But it is to be remembered, nevertheless, that the evidence was, as is conceded, sharply conflicting, that the cause was tried before the chancellor on oral testimony chiefly, and that therefore on questions depending on conflicting evidence and the credibility of wit-' nesses, the finding of the chancellor should be upheld by us unless it appears to us clearly against the weight of the evidence. Judge Bailey said in Metcalfe v. Bradshaw, 145 Ill. 133: “So far as the testimony of these witnesses is at variance, all we need say is, that the court saw them and heard them testify and from all the evidence found the equities of the case to be with the defendant. That finding, so far as we can see, is entitled to the credit which is ordinarily given to the finding of. a court of chancery, where the evidence is given orally in open court, and on appeal it must be accepted as conclusive, unless it clearly appears to be against the weight of the evidence”. And Judge Magruder said in Blomstrom v. Dux, 175 Ill. 435, citing several prior cases to sustain his position: “The chancellor heard the testimony of the witnesses, observed their capacity and manner of testifying and could judge of the credibility of the witnesses and the weight of their evidence better than an appellate court, which sees only the cold record. Under such circumstances, the finding of fact made by the chancellor will not be disturbed unless it is manifestly against the weight of the evidence”. We are not unmindful of the rule invoked earnestly by the counsel for defendants, that fraud and fraudulent conduct should not be presumed nor lightly inferred, but made clear by the evidence. But in reviewing the decision and finding of a chancellor who has found the evidence sufficiently clear and unambiguous to justify his decree, we are still bound by the principle above stated, and to justify our interference it must be manifest to us from the evidence that it could not have been properly held that the ground for relief was clearly proven. We must remember too that, as the Supreme Court of the United States has said in a case relied on by the defendants, that although the evidence must be clear, satisfactory and persuasive to prove fraud, it may be circumstantial. Lalone v. United States, 164 U. S. 257. We are unable to say that it is manifest to us from the evidence before us in this case that the contentions of the complainants, or any one or more of them, as to the representations of the price that would have to be paid by the defendants for the oil interests in question, in buying them for the syndicate, were not sustained. On the principle that the chancellor was, from his position, the best judge of credibility in case of direct contradiction, it cannot be said that the evidence lacked sufficient clearness in this regard. Without the denials of the defendants—which the chancellor, in view of all the evidence, weighed and rejected—-there could certainly not he a doubt that the evidence that the defendants said to the complainants, or to most of them, that they had an option for $70,000, was neither ‘‘ vague ’’ nor ‘‘ ambiguous ’’. But still more clearly, if that were possible, does it appear to us that if the credibility of contradictory witnesses is to he left to the chancellor, nothing can be urged against the clearness and definiteness with which the evidence establishes the fact that the defendants represented that “the investors were being offered a chance to come into a good thing at the ground floor price”. (Fourth paragraph of the Decree.) This latter proposition is the core of the whole matter. It applies as well to the complainant Nathan as to the others, who swore that they never heard of the “small commission” that Nathan says McWilliams told him he expected to get. It applies to Conrad and Woodland, to whom the representations of McWilliams were repeated by Maxwell. It applies to Hamilton and Schnitzler, whose actions were consistent only, as it seems to us, with the belief that it also seems to us plain the other investors had, that they were going in practically “on the level”, and that this meant in proportionate parts of a purchase price of $70,000. To go over the testimony in detail, to discuss and analyze it from our point of view, as it is discussed and analyzed in the arguments of counsel from theirs, would, as we have had occasion to say in similar cases, undoubtedly he unnecessary for one party and unconvincing to the other. It would therefore serve no useful purpose. But taken as a whole, particularly when leaving direct questions of conflicting credibility to the chancellor, the evidence seems to us, as clearly as it did to him, to establish the proposition that the “investors” all believed, and by the words and actions of the defendants were led to believe, and from them had a right to believe, that they were “in on the ground floor” with the defendants, that they were partnership or syndicate associates “in a good thing”, in which they were all interested in the same manner, and without profit to any which the others did not share. If Nathan’s knowledge or notification that McWilliams was expecting “a small commission”, “an ordinary brokerage”, as he calls it, was an exception to this, nevertheless the additional profit which Nathan thought or was given to understand that McWilliams was expecting, was a very different “profit” from that taken by McWilliams and the other defendants and now claimed by them to be the legitimate result of the sale of the option to the syndicate as “arm’s length” vendees at an advance of more than twenty per cent. Not only the testimony concerning what was said, but the evidence of what was actually done and the manner in which it was done, the actions of the various parties at, before and after the payment of the money all seem to us consistent with the theory that the investors thought, that the defendants knew they thought, and allowed them to think, contrary to the fact, and indeed induced them, by their speech and actions (whatever the exact words used may have been), to think, that the syndicate were all proportionate partners, without any special or peculiar advantages to the defendants in their purchase. It is, in connection with the other evidence, an entirely fair inference, from the selection of Mr. Lord to make the examination of the property to ascertain or verify its productivity and equipment, that those present at the meeting of December 3rd, except McWilliams and Kimball, had no knowledge or suspicion that Lord was to be a special beneficiary to the extent of $4,000 and more if the sale went through, but was to get none of this profit if the property was rejected. It is also a fair inference that Lord, when accepting the duty confided to him, must have been fully aware that it would not have been so devolved on him had the actual facts been known. Business men do not act that way. It is the oldest of maxims that no man is a proper judge in his own case, on the determination of which he is to reap or lose a profit. Had Mr. Lord then intended or wished that the syndicate should be fully and fairly advised of the matters on which they were acting, he would have declined the appointment, told them that they had unwittingly selected the wrong man, exposed then the profit that he and his associates were expecting to make, and abided the result. Such would have been the natural action even of persons dealing at arm’s length, when the other party plainly showed that he was laboring under a misapprehension. If we accept the findings of the chancellor as to the facts, it only becomes necessary to determine how the law should be applied to them. The chancellor did it in the most obvious manner to secure the natural and proper relief for the complainants, by making a money decree against the defendants in favor of each complainant for the portion of the additional cost to him of his holding which resulted from the illegitimate secret profit, providing for contribution among the defendants so. that each should be obliged to refund what he actually secured of this profit, and leaving to the complainants, for any other claims for damages for misrepresentations and deceit of which they may be advised, their action at law. We think this method equitable and logical and in accordance with correct principles of chancery jurisdiction. The first objection to it made by the defendants was that,, assuming the facts to be correctly found by the court, “rescission, which was the only relief sought by the bill, having been denied on the facts, the court acquired no jurisdiction of the case on any equitable ground, and should have remitted the parties to the law for the relief by way of repayment of profits which was not prayed in the bill, was not incidental to the real relief sought, and for which an action at law afforded a full' and adequate remedy”. We understand this position to be definitely abandoned by the counsel for appellants in their later argument, in which they say: “In order that this court may not be misled, as we have been, into thinking that this bill is one for rescission, by reason of its prayer for that relief, and for that specific relief only, we point out * * * that a careful examination of the bill fails to disclose a single allegation of fact showing a sale of oil properties or of stock by defendants to complainants. * * * The examination of the amended bill, apart from its specific prayer, convinces us that in its allegations of fact it proceeded upon a theory of joint purchase in line with the chancellor’s decree, and that the relief actually granted was covered by the prayer for general relief upon the facts, though wholly inconsistent with that specifically asked and therefore in no way incidental to' it. We do not therefore further urge a dismissal of the bill upon the mere question of pleading, that the decree entered was not justified by the allegations of the bill”. If this last sentence is not, however, to be construed as wholly abandoning the position previously taken and hereinbefore quoted, we have no hesitation in saying that we think the characterization of the bill in the later excerpt from defendants’ argument is accurate, and that for the reasons therein set forth the objection made that the relief granted was neither specifically prayed, nor within the frame of the bill, fails of all force. It was not specifically prayed, because the prayer did not fit the allegations of the bill. It was properly granted under the prayer for general relief, because the facts set up in the bill plainly pointed to it, and showed it both to be the proper measure of relief and the only relief possible in this proceeding. The learned chancellor expressed in his opinion some doubt whether equity was the proper forum for the recovery which he granted, but we do not share it. While it is true that under the law of Illinois a mere bailment will not raise a trust cognizable in equity, we think it is recognized by the decisions in Illinois, as elsewhere, that syndicate or association subscriptions to purchase land or interests in land, or perhaps any other purchasable commodity, establish, if not a partnership, at least such fiduciary relations between the associates as impose a trust character on funds confided by the others to the purchasing agents, and entitle them to ask in equity an accounting and the restoration of money improperly diverted from its intended purpose. McDowell v. Joice, 149 Ill. 124; Bunn v. Schnellbacher, 163 Ill. 328; Salsbury v. Ware, 183 Ill. 505. Nor do wé think the further argument forceful, that the decree in any case should be restricted to Lord, who was alone the agent in the disbursement of the money and who alone therefore improperly received and improperly diverted the money of the associates. It would be a halting jurisprudence which did not give against the two other associates who were in the secret with Lord, who were cognizant of his plan and took an equal portion of the profit, the like remedy given against him, simply because he was given the physical control of the funds. If on no other ground, the trust character of the funds in Lord’s hands, given to him for one purpose and partially diverted by him to another, authorizes a court of equity to follow the diverted moneys into the hands of persons taking it with notice that, not being required for the purchase of the oil leases, it belonged to, and should have been returned to, the investors. On the other hand we do not regard as any better taken the point made in favor of Lord, that as he has paid $4,000 into the treasury of the H. Gr. & M. Oil Co., under the belief that he was thereby doing all and more than all that could be properly asked of him, he should not be decreed to pay a similar sum to the complainants, especially as a part of it is to be paid to complainants who acquiesced in and, as it is claimed, approved and encouraged, the payment to the corporation. The question is not one of Mr. Lord’s belief or intentions when paying the money in question. If he paid it into the treasury of the corporation under a mistaken view of his legal obligations, or without such a mistake, purely as a gratification to his sense of business honor, or with the hope and belief that it would remove irritation and resentment, well or ill-founded, against him in the minds of those with whom he desired to live in friendship, he must take the consequences of his voluntary act, modified only by the right, expressly reserved to him by the decree, to test whatever right he may have at. law or equity to recover from the corporation the sum paid to it. The corporation is a distinct entity. It was organized after the transactions which are the subject of this suit, although it was then in prospect. But it was the complainants who were primarily and directly injured by the unwarrantable conduct of the defendants, not the corporation. The right of action here enforced rested with the complainants individually, and not with the corporation. Payment to the corporation did not and could not release it. Nor, in our opinion, is there any estoppel shown in the evidence against Maxwell’s or Gilbert’s recovery from Lord as from McWilliams and Kimball their portion of the diverted funds. They did not object to Lord’s payment to the corporation; they indeed reservedly commended it. But they did not propose it, urge it, or recur to it after the interview in which Lord • stated his intention. They expressly demanded other and much farther-reaching action of a very different sort—action the right to which in this cause has been refused them. We do not think they can be held to have estopped themselves from securing the relief which has been granted them, by not constituíing themselves advisers and counsellors of Lord to caution him against a contemplated voluntary action which they did not regard as satisfying his obligation to them. As we have before indicated, the decree of the Circuit Court commends itself to us as the logical and proper one on this record, and it is accordingly affirmed. Affirmed.