Howard v. Leete

• Decision Date: 07 January 1919
• Docket Number: 3143.
• Citation: 257 F. 918
• Parties: HOWARD v. LEETE et al.
• Court: U.S. Court of Appeals — Sixth Circuit

257 F. 918

HOWARD v. LEETE et al.

No. 3143.

United States Court of Appeals, Sixth Circuit.

January 7, 1919

Frank W. Cottle, of Cincinnati, Ohio, for appellant.

John F Hager, of Ashland, Ky., for appellees.

Before WARRINGTON, KNAPPEN, and DENISON, Circuit Judges.

KNAPPEN Circuit Judge.

On September 26, 1914, appellant pur chased from the Mary Luck Coal Company its coal mine and mining properties, real and personal, at the price of $31,500, for which he gave, to the order of the coal company, his 21 negotiable promissory notes, each for $1,500, with interest, to secure which a vendor's lien was retained in the deed of conveyance of the coal properties. The coal company was to pay all its debts existing as of October 1, 1914. By agreement between appellant and the other interested parties, at least 9 of the notes were delivered to Gallie Friend, as trustee, to secure payment of indebtedness of the coal company. The latter's stockholders were to receive nothing on account of any of the notes until the company's debts were paid. Later certain of the company's creditors took proceedings in a state court of Kentucky for the appointment of a receiver over the coal properties, and for their subjection to the payment of asserted indebtedness.

Thereupon appellant filed his bill in the court below, alleging his purchase of the properties, their conveyance to him, and his consequent possession of the same, and asserting that the receivership suit resulted from the refusal of Friend trustee, to apply the 9 notes in question, or their proceeds to the payment of the company's indebtedness, averring appellant's readiness and willingness to pay into court the remainder of the purchase price as it became due, and asking for decree requiring the defendants (all of the individuals being stockholders of the coal company) to interplead for the settlement of their conflicting claims to the purchase money represented by appellant's notes, and for restraint meanwhile of the receivership proceeding.

Gallie Friend, individually and as trustee, and one other stockholder, answered, admitting the purchase by appellant on the terms stated, the conveyance to him of the coal properties, his possession thereunder, the coal company's agreement to pay its debts existing as of October 1, 1914, and the delivery to Friend, trustee, of the nine notes to secure such payment, but denying that the receivership proceedings were instituted on account of debts which it was the duty of the coal company to pay, or by reason of any failure of Friend, trustee, to perform his obligations, and asserting that appellant had already defaulted in the payment of about $6,000 of notes so far matured, and was attempting to induce the discounting of his notes at about 50 per cent. of their face value.

By counterclaim it was asked that appellant be required to pay into the court's registry the amount of his matured notes, that his bill be thereupon dismissed, and in default of such payment, or of payment of his notes subsequently maturing, that judgment be entered in the trustee's favor, and for disclosure by appellant of the names of those beneficially interested in his trust. The counterclaim also asked that the coal company's indebtedness be held to be in the amount asserted by defendants, unless appellant put such question in issue. Upon the maturing of further notes, an amended answer and counterclaim of the same nature were filed as to them. This counterclaim was followed by motion for judgment thereon. Appellant's motion to strike out the answers and counterclaims was denied. The other defendants seem not to have answered.

A few days after the filing of this bill, suit by another creditor was brought against the coal company in the Kentucky state court. As the result of these two creditors' suits (both for royalties under leases), the coal properties in question passed into the hands of a receiver appointed by that court on February 25, 1915, about a month after the filing of appellant's bill below. On June 13th following, appellant made and had recorded a deed of reconveyance of the coal properties from himself to the coal company. The coal properties were sold under the state court receivership proceedings to satisfy judgments against the coal company in the two cases named, at an unnamed date between July 13, 1915, and May 20, 1916, at which date appellant filed in the court below a new bill, in declared nature supplemental to the original bill, averring the receivership proceedings just mentioned, the possession of the coal properties thereunder and the making and recording of the reconveyance referred to; and asking that the contract of purchase and sale of the coal properties be canceled and that the 19 unpaid notes (2 notes had been paid) be delivered into court, canceled, and destroyed, upon grounds which, so far as material, we summarize as follows:

First, that appellant was induced to take the conveyance of the coal properties by certain material misrepresentations as to their character, quantity, and value, made by the defendant B. P. Friend, the secretary and former manager of the coal company, while acting, as alleged, for the coal company and under authority from the other defendants to negotiate the sale on their behalf; that by the agreement with said Friend appellant was to and did hold the legal title to such property as trustee, and as such was to convey the same under such terms and conditions, at such price above $31,500, and to such persons or corporation, as Friend should direct; appellant to pay to Friend, or under his direction, the proceeds of such resale, less expenses of operation, the balance, if any, due on the notes (which he alleged were made by him as such trustee), and reasonable compensation to appellant for his services as trustee; second, the company's agreement to pay all its debts existing on October 1, 1914, and representation by defendants Gallie Friend and another stockholder that such debts were small; third, the transfer and indorsement to Gallie Friend, trustee, for the purpose before stated, of appellant's 21 notes, in accordance with resolution of the company's directors; fourth, the carrying on of the business of the coal company after October 1, 1914, in the company's name and under the direction and management of B. P. Friend, and the payment from the proceeds of operation of the first two maturing of appellant's notes; and, fifth, the sale of the coal properties for liabilities of the company existing October 1, 1914.

The contract of purchase and sale was alleged to be broken by defendants' breach of their agreement to pay all liabilities of the company existing on or before October 1, 1914, and of their covenant to deliver possession of the properties free from liens or obligations of the company as of that date.

The defendants, other than B. P. Friend, answered, fully controverting all equities and merits alleged in the bill; denying generally and specifically all fraud and misrepresentation charged on their part, or that of the coal company, or on the part of B. P. Friend, so far as they had information and belief, specifically denying that the latter represented the company or its stockholders, other than himself, in the negotiations for the sale of the property, or that he made any misrepresentations while acting in such representative capacity; denying all knowledge and information of the alleged agreement relative to the nature of plaintiff's holding of the properties, and his agreement to sell and convey as directed by B. P. Friend, or of any agreement not embraced in the coal company's deed of conveyance to plaintiff; alleging unsuccessful attempts to induce plaintiff to pay his notes; denying any right on his part to rescind the contract of purchase; alleging that the execution sale was due entirely to his own fault, in his deliberate election not to pay royalties after October 1st. Defendants also asserted that plaintiff, in his holding of the properties, was a mere dummy for certain others, not parties to the suit, who were alleged to have full knowledge of all the existing facts and equities. There was prayer for affirmative relief substantially as contained in the answer and counterclaim to plaintiff's original bill.

Plaintiff's renewed motion to strike out the counterclaims was denied. His motion to dismiss his own bill without prejudice was granted, but without prejudice to the maintaining of the counterclaims. Plaintiff having failed to deny or reply to the answers and and it appearing that plaintiff had not paid the 19 notes in question, in whole or in part, there was interlocutory decree fixing the amount due thereon, with award of personal judgment in defendants' favor, unless plaintiff should pay the amount into the registry of the court within a specified period. Plaintiff having failed to make payment, judgment was entered in favor of Gallie Friend, as trustee, against the plaintiff, for the amount so due and unpaid on the notes in question.

1. The motion of appellees to dismiss the writ of error (which under the act of September 6, 1916, we treat as an appeal), on the ground that it was taken by 'D. R. Howard, as sole trustee,' and so was abated by his death, and cannot be revived in the name of his personal administrator, must be denied. The notes were signed by 'D. R. Howard, trustee,' and the conveyance apparently ran to appellant under that designation, and without disclosure of his principal, if any. The decree below did not run against appellant in a representative capacity. He is styled therein 'D. R. Howard, trustee,' which prima facie indicates that the word 'trustee' is merely descriptive. Moreover, the order for execution, while in favor of Gallie Friend 'as trustee,'...