Carlisle v. Smith

• Decision Date: 17 July 1916
• Docket Number: 28.
• Parties: CARLISLE v. SMITH et al.
• Court: U.S. District Court — Northern District of Georgia

234 F. 759

CARLISLE v. SMITH et al.

No. 28.

United States District Court, N.D. Georgia.

July 17, 1916

Anderson & Rountree, of Atlanta, Ga., and W. C. Wright, of Newnan Ga., for plaintiff.

H. H Dean, of Gainesville, Ga., and Robt. C. & Philip H. Alston of Atlanta, Ga., for defendants.

NEWMAN District Judge.

The business of the court is such and my time is so occupied with official business that I cannot go as extensively into the facts and law of this case as perhaps the character of the case and the rather extensive argument of counsel and the voluminous briefs furnished me would justify. I simply state my conclusions briefly but, I trust, so that they may be understood. These conclusions are:

First The conclusion of the special master that there was no agreement between Carlisle and Smith and Ashley by which they entered into a partnership or 'joint adventure,' to divide among them any profits that might arise from the reorganization or rehabilitation of the North Georgia Electric Company, must be upheld.

The evidence in the case is sharply conflicting, and the special master, after hearing it all and weighing it, decided favorably to Smith and Ashley. Under any rule with reference to the weight to be given a master's report I think the court would be required to sustain the master in this respect. No attempt is made anywhere to impeach any of the witnesses testifying on this subject. Ashley and Smith are apparently business men of good standing where they live, and Carlisle is a man of excellent repute in this state. It is to be hoped that expressions here and there in the many conversations between the parties were misinterpreted and that all of them are trying to tell the truth about the thing as they understood it. It is hard to believe that men like these would willfully and deliberately swear to a falsehood to make money, and I do not think it is necessary to find that they did that, nor can I see that any of them willfully testified to anything they did not believe to be true at the time.

Of course the presumption in any case of reference such as this is in favor of the master's report, especially where he finds on conflicting testimony. All of the exceptions to the findings of the master with reference to this, therefore, are overruled.

Second: I am satisfied that, under the law, with Carlisle's relation to the North Georgia Electric Company, being most of the time during which these transactions occurred the president and for a short time vice president, and all the time being officially related in some way to the company, a contract between him and other people, to do work for and accept compensation from other parties dealing with his company, the dealings on behalf of the third parties seeming to be antagonistic to the rights of the electric company, would be illegal and nonenforceable. It is claimed here, as I understand it, that what Carlisle did, while he was purchasing the stock of the North Georgia Electric Company for other people and for interests represented by Smith and Ashley, was really benefiting the stockholders of that company because the company was in such a situation at the time the dealings were entered into that their stock was valueless, and that he really gave them more for their stock than they could have expected to realize otherwise. Even if this should be true and conceding it, it is not what really occurred in a transaction like this, where an officer of a corporation undertakes to assist parties who are dealing with the corporation, but it is the principle which controls; it is what the sanctioning of such transactions could lead to and necessarily in many, if not in most, cases would lead to. That is to say, where a person is an officer of a corporation and undertakes to assist others who are attempting to acquire control of the corporation, whether the results are beneficial to the stockholders or not, the consideration is what the result of sanctioning such transactions would be.

In the opinion in McMullen v. Hoffman, 174 U.S. 639, 19 Sup.Ct. 839, 43 L.Ed. 1117, the part I am referring to being on page 647 of 174 U.S., on page 842 of 19 Sup.Ct., 43 L.Ed. 1117, Mr. Justice Peckham says:

'The question is not whether in this particular case any member of the water committee did or did not remember the fact that the bridge company had made a bid or that such bid had no effect upon his mind. The question is not as to the effect a particular act in fact had upon a member of the water committee, but what is the tendency and character of the agreement made between the parties; and that tendency or character is not altered by proof on the part of a member of the committee, given several years afterwards, that he had no special recollection that such a bid had been made.'

In Richardson v. Crandall, 48 N.Y. 348, 362, the court said, as quoted by Mr. Justice Peckham in McMullen v. Hoffman:

'In all cases where contracts are claimed to be void as against public policy, it matters not that any particular contract is free from any taint of actual fraud, oppression or corruption. The laws look to the general tendency of such contracts. The vice is in the very nature of the contract, and it is condemned as belonging to a class which the law will not tolerate'-- citing Atcheson v. Mallon, 43 N.Y. 147.

The case of McMullen v. Hoffman was a case in which McMullen undertook to recover from Hoffman a share in the profit which Hoffman had made and received on a contract with the city of Portland, Or., for the manufacturing and laying of certain pipe in the construction of waterworks for the city of Portland. McMullen and Hoffman entered into an agreement that they should both bid for the work for which the city was receiving bids, and that they should jointly do the work and share the profits or loss. McMullen's company bid $50,000 more for the work than Hoffman's company. The way the bids were put in is described by the court in the opinion in this way (174 U.S. 645, 19 Sup.Ct. 841, 43 L.Ed. 1117):

'The complainant McMullen, living in San Francisco and being a large stockholder in and manager of the San Francisco Bridge Company, came to Portland for the purpose of giving his attention to the matter, and if possible to make an arrangement with the defendant by which they might together become bidders for the work. He and the defendant had many interviews before the time of delivering the bids arrived, and they finally agreed that each party should put in separate bids in his own or his firm name, or in the name of his company, for certain classes of the work, but that they both should have a common interest in each bid if any were accepted. This community of interest was to be kept secret and concealed from all persons, including the water committee. Each was to know the amount of the other's bid, and all bids were to be put in only after mutual consultation and agreement. Bids for the various classes of work were put in as above set forth, and among them the bid for the manufacture and laying of the pipe, which was accepted by the water committee. All of them were put in pursuant to this agreement, part of them in the name of Hoffman & Bates and part in the name of the San Francisco Bridge Company. The bid in the name of the San Francisco Bridge Company for the manufacture of the pipe was nearly $50,000 higher than the amount bid in the name of Hoffman & Bates, and was put in after consultation with and approval by the defendant. This last bid was put in, as stated by Mr. McMullen in his evidence, as a matter of form only, and to keep the name of his company before the public, but it appeared on its face to be a bona fide bid. The water committee received the bids in ignorance of the existence of this agreement and in the supposition that all the bids which were received were made in good faith, and they all received consideration at the hands of the committee. After the computations were made by which it appeared that the bid of the defendant was the lowest for the manufacture and laying of the pipe, the contract was awarded him, and afterwards that portion of the agreement which had been made between the parties to this combination, viz., that relating to the partnership, was reduced to writing, and is set out.'

It is then stated, in substance, that the effect of the bid of McMullen's company would be to cause the water committee of the city, who were considering the bids, to think that that company, bidding in good faith, considered the work worth nearly $50,000 more than Hoffman's company had bid, and in this way would deceive the committee acting for the city.

Further along in the opinion the court says, in reference to the right to recover in a case like this (174 U.S. 654, 19 Sup.Ct. 845, 43 L.Ed. 1117):

'The authorities from the earliest time to the present unanimously hold that no court will lend its assistance in any way towards carrying out the terms of an illegal contract. In case any action is brought in which it is necessary to prove the illegal contract in order to maintain the action, courts will not enforce it, nor will they enforce any alleged rights directly springing from such contract. In cases of this kind the maxim is Potior est conditio defendentis.'

The court then cites, considers, and discusses a number of cases bearing upon the question of the right of McMullen to recover his share of the profits made by Hoffman's company under the contract referred to, among the cases being several which have been cited here for the plaintiff. Perhaps the principal one of these cases relied upon by the plaintiff is that of Brooks v. Martin, 2 Wall. (U.S.) 70, 17 L.Ed. 732. The first headnote will show what was decided in that case. It is this:

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