Lumbermen's Trust Co. v. Title Ins. & Inv. Co. of Tacoma

• Decision Date: 07 January 1918
• Docket Number: 3013.
• Citation: 248 F. 212
• Parties: LUMBERMEN'S TRUST CO. v. TITLE INS. & INV. CO. OF TACOMA et al.
• Court: U.S. Court of Appeals — Ninth Circuit

248 F. 212

LUMBERMEN'S TRUST CO. v. TITLE INS. & INV. CO. OF TACOMA et al.

No. 3013.

United States Court of Appeals, Ninth Circuit.

January 7, 1918

[Copyrighted Material Omitted]

In the year 1909 there were three incorporated companies engaged in the business of furnishing abstracts of title at Tacoma Wash.: The Commonwealth Title Trust Company, hereinafter called the Commonwealth Company, owned and controlled by the Foggs and Gove; the Title Insurance & Investment Company, of Washington, hereinafter called the Washington Company, owned and controlled by Willoughby and Smith; and the Wilson Title & Abstract Company, hereinafter called the Wilson Company owned and controlled by Wilson. These companies had carried on business in competition with each other for several years, and they owned and controlled the only abstract plants in Tacoma and Pierce county. In 1909 the competition between them was keen, and they were cutting prices. On December 6, 1909, the Wilson Company executed and delivered to Willoughby, the actual manager of the Washington Company, and to Franklin Fogg, the manager of the Commonwealth Company, a lease for five years of the plant of the Wilson Company, with an option to purchase the same within two years at an agreed price. The lease provided that the abstract plant should remain in the exclusive possession of the Wilson Company, but should not be operated, and that the Wilson Company and its officers should not, during the life of the lease, be interested in any other abstract plant in Pierce county. On December 7, 1909, Willoughby assigned his interest in the lease to Franklin Fogg. On the same day the Title Insurance & Investment Company of Tacoma, hereinafter named the Tacoma Company, was organized, with a capital stock of $5,000, and it purchased from the Washington Company the latter's abstract plant and business for the sum of $100,000, of which $10,000 was paid in cash, the remainder to be paid in deferred payments, with interest at 7 per cent., semiannually, to secure which notes of the Tacoma Company and a chattel mortgage of the property purchased, together with a set of current files complementary thereto, the property of the Commonwealth Company, of an estimated value of $25,000, were executed by the Tacoma Company to the Washington Company; the Commonwealth Company thereby contributing the current files to the security of the mortgage. The mortgage provided that the plant should be operated as a going concern, and kept up to date, and that every endeavor should be made to build up its business and increase its good will, and the mortgagee was empowered to name a competent person to be employed by the mortgagor to see that the plant was kept up to date and properly posted and indexed. The original stock of the Tacoma Company was subscribed to by Willoughby and two others, and they, on December 30, 1909, turned over all the stock to the stockholders of the Commonwealth Company, who divided it among themselves in proportion to their holdings in the latter company. Willoughby had received from Fred and Franklin Fogg an agreement to save him harmless by reason of his subscription. The result of these transactions was to place the abstract business in Pierce county in the hands of the Commonwealth Company and the Tacoma Company, in both of which the stockholders were substantially the same. The mortgage and the notes were assigned

by the Washington Company to the Traders' Trust Company of Oregon, as trustee, a company of which Willoughby and Smith and wife were the sole stockholders. The Tacoma Company paid on the notes and the interest due to June 7, 1911, the total sum of $29,100.

In 1910 a new company, the Tacoma Title Company, entered into the abstract business in Pierce county. In July, 1911, the Foggs complained of the general depression and falling off of the abstract business, and the competition of the Tacoma Title Company, and the inability of the Tacoma Company to meet the payments, and proposed an amalgamation of the companies, the mortgagee to take preferred stock in place of the mortgage and notes. After prolonged negotiations a new arrangement was made on December 2, 1911, of which the following is the substance: The mortgage and the notes were surrendered. The Tacoma Company executed a new series of notes, aggregating $80,000, bearing interest at 5 per cent. payable semiannually, to secure the payment of which it was agreed that the abstract plant of the Washington Company should be boxed and delivered to a trustee in Portland, to remain in pledge until the indebtedness was satisfied, or a court should decree a foreclosure. For further security the Commonwealth Company agreed to guarantee the payment of the interest to and including December 7, 1915, and the payment of principal and interest to and including the year 1921, and agreed to make and to deliver to the trustee the necessary take-offs to keep the plant up to date. To secure this undertaking the Commonwealth Company made a mortgage of its real property in Tacoma in the sum of $15,000, and all the stockholders of the Commonwealth Company ratified the undertaking, and guaranteed that their corporation had such powers, and that its agreements were for a valid consideration, and were binding on the corporation. Following the execution of these instruments, Willoughby and Smith, in consideration of the agreements already made between the various corporations, covenanted with the Tacoma Company that, as long as the agreements theretofore made were kept and performed, they would not, directly or indirectly, transact any abstract business or title insurance business in Pierce county.

In compliance with its guaranty agreement the Commonwealth Company paid the semiannual installments of interest up to and including June 7, 1914, amounting in all to $10,000. Owing to the condition of the abstract business, which continued to decline after December 2, 1911, the Commonwealth Company found that it could not continue to fulfill its guaranty agreement without loss, and an unsuccessful effort was made to adjust matters between the parties. Thereafter the present suit was brought by the Lumbermen's Trust Company, trustee, as assignee of the Traders' Trust Company, the original trustee, to enforce the agreement of December 2, 1911, and to foreclose the mortgage. To that suit the Commonwealth Company in its answer alleged that the agreements were void as creating a monopoly in violation of the Constitution and laws of Washington, and against public policy. The Tacoma Company made a similar answer. The court below found upon the pleadings and the facts that the guaranty given by the Commonwealth Company was invalid, as prohibited by article 12, Sec. 6, of the Constitution of Washington, which forbids corporations to 'issue any bond or other obligation for the payment of money, except for money or property received or labor done,' and that it followed therefrom that the individual guaranty of the Foggs and Gove was also invalid; that the suit upon the mortgage was prematurely brought, and that the notes and the mortgage were void, for the reason that they were given for the purpose of creating a monopoly; that the taint of the transaction wherein they were executed attached to the sale and mortgage of 1909, and that all subsequent agreements were in furtherance of the original unlawful purpose. The bill was dismissed.

Frank H. Kelley, of Tacoma, Wash., John H. Hall, of Portland, Or., and Robert M. Davis and Frank C. Neal, both of Tacoma, Wash., for appellant.

Charles O. Bates, Charles T. Peterson, and Edward Fogg, all of Tacoma, Wash., for appellees.

Before GILBERT and HUNT, Circuit Judges, and WOLVERTON, District judge.

GILBERT Circuit Judge (after stating the facts as above).

We turn first to the question whether the original sale of the Washington Company to the Tacoma Company and the contemporaneous lease of the Wilson Company created a monopoly in the vendee and the lessee within the prohibition of the Constitution of Washington. The Commonwealth Company was the first corporation to engage in the abstract of title business in Pierce county. For a time it had a monopoly of that business, so far as such a business could be monopolized; but, of course, the monopoly cannot be said to have been unlawful. On December 6, 1909, there were three corporations engaged in the business. One of them, the Commonwealth Company, by means of a new corporation which it organized for that purpose, bought out the Washington Company, and at the same time took a lease of the plant of the Wilson Company. When the Washington Company sold out, it sold out absolutely. It acquired no interest in the purchasing company, and it retained no interest in the property sold. The transaction did not diminish production nor did it serve to increase prices. It was unattended by any agreement of the selling company or its members not to enter into competition. The fact that the Washington Company reserved the right to have a competent person employed at the expense of the vendee to see that the plant which the vendor sold was continually kept up to date until the purchase price was paid was not a retention by the vendor of an interest in the property sold. It was but a provision for the protection of the property, which was mortgaged as security for the deferred payments of the purchase price. Nor is evidence of a retention of interest by the Washington Company or its stockholders in the property transferred to the Tacoma Company to be found in the fact that Willoughby became temporarily a stockholder of the Tacoma Company or the fact that he was temporarily one of the lessees of the Wilson Company. The whole transaction indicates but a purpose, in which...