Steinbeck v. Bon Homme Min. Co.

Decision Date04 March 1907
Docket Number2,433,2,434.
Citation152 F. 333
PartiesSTEINBECK v. BON HOMME MINING CO. et al. BON HOMME MINING CO. v. Steinbeck et al.
CourtU.S. Court of Appeals — Eighth Circuit

(Syllabus by the Court.)

One who occupies a fiduciary relation to another in respect to business or property, and who by the use of the knowledge he obtains through that relation, or by the betrayal of the confidence reposed in him under it, acquires a title or interest in the subject-matter of the transaction antagonistic to that of his correlate, thereby charges his title or interest with a constructive trust for the benefit of the latter, which the cestui que trust may enforce or renounce at his option.

The test of such a trust is the fiduciary relation and a betrayal of the confidence reposed, or some breach of the duty imposed under it. One chargeable with a trust of this nature is a trustee de son tort, and, if he has not been guilty of wrong he is not such trustee.

There is an exception to the general rule. It is that an agent or trustee may lawfully buy the property of his principal or cestui que trust at a judicial sale caused by a third party which he has no part in procuring and over which he has no control.

The title of a purchaser chargeable with a constructive trust for the benefit of his correlate by reason of their fiduciary relation is not void, but voidable at the option of the cestui que trust only.

The absence of a prompt election to avoid it is an election to affirm it and estops from attack. Inaction for years after discovery of the title raises such an estoppel.

Courts of equity act or refuse to act in analogy to the statute of limitations relating to actions at law of like character. Radical changes in the condition of the property and its speculative character induce them to apply the doctrine of laches in a shorter time than that fixed by the statute of limitations.

Six years' delay in commencing a suit after discovery by a principal of a tax title in its agent to its mining property which was radically enhanced in value meanwhile by the labor expenditures, risk, and energy of the holder of the tax title, constitutes fatal neglect, and estops the principal from maintaining the suit.

An agent to accept service of process, to care for mining property and its title for a corporation of which he was a stockholder, but without funds of the company to pay taxes, and without authority to advance money for it to pay them or to incur any liability on its account, notified the corporation that its taxes were due and sent it an advertisement of its approaching sale for taxes in 1891. After nearly all of the property had been sold at the tax sale to a stranger, the agent purchased the tax certificate in January, 1892, and on the next day wrote the company of the fact and notified it of the amount required to redeem. He again informed it in August, 1892, of the amount required to redeem and to pay subsequent taxes. The company paid nothing, and made no redemption. He bought the remainder of its property at the tax sale of 1892, and paid the subsequent taxes. In 1894 and 1895 he took and recorded tax deeds. In December, 1896, and in January, 1897, he notified the corporation that he had the tax deeds and had leased the property, and offered to convey his title for a part of the amount he had expended for the tax title and in payment of subsequent taxes, but the company did not accept. The property was unproductive and speculative, and he prospected, developed, and sold it. A lessee under his grantee expended over $20,000 in running a tunnel into it which struck a rich body of ore in December, 1902. The company paid nothing and expended nothing during this time until after the strike, when it made a contract to give a portion of the amount that might be recovered to those of its stockholders who would subscribe to pay the expenses of this suit, and this suit was instituted in March, 1903. Held (1) The agent betrayed no confidence and violated no duty, and was not a trustee for the benefit of the company. (2) If he had been such a trustee the company by its silence and inaction for six years after January, 1897, when it knew he held the tax title, exercised its election to affirm it.

(3) By its silence for six years after it knew that he held the tax deeds, and had leased the property, it was guilty of such neglect as bars its suit.

The Bon Homme Mining Company, a corporation of the state of Louisiana, owned certain mining claims in the state of Colorado in the year 1888, and appointed James F. Steinbeck, who was one of its stockholders, at a salary of about $100 per month, to develop and operate a mine upon them. It also appointed him its agent to accept service of process upon it in the state of Colorado. Steinbeck operated the mine about 15 months, until October, 1889, when the company directed him to cease business because it had lost all the money it could raise, which was about $20,000. Steinbeck at that time and repeatedly thereafter urged and implored the company to resume and continue the work of developing this mine; but it refused to do so. He had reported the taxes upon the property for the years 1888 and 1889, and had paid them with money which the company had furnished him for that purpose. During the year 1890 he had received a small amount of money from and paid a few obligations of the company, repaired its buildings, and performed some assessment work upon one of its claims. For these services he received wages. His salary had ceased in October, 1889. On November 5, 1890, his account with the company was balanced and closed. After that date he had no money of the corporation to expend, no authority to pay taxes or any other obligation for it, to incur any liability on its account, to sell, convey, mortgage, lease, incumber, clear of incumbrances, or otherwise affect for it the title to its property or to do anything for it except to care for and protect its property and report its condition as he had theretofore done.

The capital stock of this company was $1,500,000, but only $1,080,000 of this stock had been issued, of which Steinbeck held $125,000 at this time and $289,500 after November 10, 1891. The company owed $1,500 upon 10 promissory notes for $150 each. It endeavored to sell its bonds and its treasury stock, but was unsuccessful. The stock it had issued was nonassessable. It had no money and no way to raise any, and in this moribund condition it continued until the faith, persistence, and energy of Steinbeck developed in December, 1902, a rich body of ore in one of these claims, when the corporation sufficiently revived to make an agreement to pay a share of the amount that might be recovered for the prosecution of this suit. No meeting of its board of directors was held from July 11, 1892, until February 14, 1903, after the news of the development of this vein had undoubtedly been communicated to the directors of the company.

On April 1, 1890, Steinbeck had written to the secretary of the corporation that the taxes of 1890 were due and were drawing 25 per cent. per annum. In September, 1891, he had sent to the secretary of the company, and the latter had received the newspaper in which the advertisement of the sale of its property for the taxes for 1890 was published. On October 10, 1891, one Le Fevre purchased all the company's mining claims but one at the sale for the taxes of 1890, and took a certificate of sale thereof. On January 28, 1892, Steinbeck purchased and paid for an assignment of this certificate to himself, and on the next day wrote to the company that he had done so; that the original purchase price of the certificate was $83.19; that he had paid $109.80 for the assignment of it to himself; that it was 'particularly urgent that the company take some step to redeem'; that the sale was for the taxes of 1890; that the taxes of 1891 were due and probably amounted to $75 or $80; and that it would require close to $200 to remove the incumbrances. The corporation sent no money, took no step to redeem, and made no answer. On July 23, 1892, the secretary of the company wrote to Steinbeck that he had succeeded in getting a meeting of the board of directors of the company on the 11th, and that he was directed to request him to send his account of all taxes paid on the company's property so that he might be reimbursed for his outlay. On August 15, 1892, Steinbeck answered and specified $210. On August 20, 1892, the secretary wrote him that he had figured up what the proportions of the large stockholders would be; that he had the consent of the New Orleans people to put up $100 toward paying the taxes; that the proportion of Steinbeck and of his brother, who was also a stockholder, would be about $110, and added: 'Please draw on the Bon Homme Mining Company for the amount of $100 accordingly.' Steinbeck's proportion of the stock of the company was less than three-tenths and his proportion of this $210 was less than $63. He was not responsible for the proportion of his brother; and he declined the offer. In making this offer and subsequent suggestions of this nature the secretary trusted entirely to voluntary action by certain stockholders of the corporation and not to any action or funds of the company; for the stockholders were many, their stock nonassessable, and the company had no funds. Neither the company, the secretary, nor any of the stockholders paid, or offered to pay, the $210 or any taxes upon the property of the company or communicated with Steinbeck about it until December 24, 1896, and then only in answer to a letter of Steinbeck of December 2, 1896. Meanwhile, in November, 1892, Steinbeck had bought at the sale for the taxes of 1891 the remaining mining claim which had not...

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