Reconstruction Finance Corp. v. TUOLUMNE GOLD D. CORP., 6192.

• Decision Date: 05 June 1953
• Docket Number: No. 6192.,6192.
• Citation: 137 F. Supp. 855
• Court: U.S. District Court — Northern District of California
• Parties: RECONSTRUCTION FINANCE CORPORATION, Plaintiff, v. TUOLUMNE GOLD DREDGING CORPORATION, a corporation, et al., Defendants.

137 F. Supp. 855

RECONSTRUCTION FINANCE CORPORATION, Plaintiff, v. TUOLUMNE GOLD DREDGING CORPORATION, a corporation, et al., Defendants.

No. 6192.

United States District Court N. D. California, Northern Division.

June 5, 1953.

COPYRIGHT MATERIAL OMITTED

Brobeck, Phleger & Harrison, St. Clair, Connolly & Cerini, San Francisco, Cal., for plaintiff.

DeLancey C. Smith, San Francisco, Cal., for defendant.

LEMMON, District Judge.

Courts administer justice, not alms. As has so often happened in recent years both in international and intranational affairs, the United States is here being asked to pay for the misadventure or the improvidence of others.

Fortunately, however, we have a Supreme Court that is steadily moving away from this eleemosynary philosophy of government. In Federal Crop Insurance Corporation v. Merrill, 1947, 332 U.S. 380, 383-384, 68 S.Ct. 1, 3, 92 L.Ed. 10, the Court said:

"It is too late in the day to urge that the Government is just another private litigant, for purposes of charging it with liability, whenever it takes over a business theretofore conducted by private enterprise or engages in competition with private ventures. Government is not partly public or partly private, depending upon the governmental pedigree of the type of a particular activity or the manner in which the Government conducts it. The Government may carry on its operations through conventional executive agencies or through corporate forms especially created for defined ends. See Keifer & Keifer v. Reconstruction Finance Corp., 306 U.S. 381, 390, 59 S.Ct. 516, 518, 83 L.Ed. 784. Whatever the form in which the Government functions, anyone entering into an arrangement with the Government takes the risk of having accurately ascertained that he who purports to act for the Government stays within the bounds of his authority. The scope of this authority may be explicitly defined by Congress or be limited by delegated legislation, properly exercised through the rule-making power. And this is so even though, as here, the agent himself may have been unaware of the limitations upon his authority. (Cases cited.)"

It is in this legal climate, then, that the instant controversy must be resolved.

1. The Agreed Statement of Facts

This is a civil action brought by the plaintiff to foreclose an indenture and chattel mortgage, for a money judgment, for an accounting, for a sale, and for an injunction. The defendant Walter W. Johnson Company, hereinafter referred to as Johnson, has filed a counterclaim, consisting of five "causes of counterclaim". According to the counterclaim itself, as filed on June 30, 1950, it is directed solely against the plaintiff. The Agreed Statement of Facts, however, recites that Johnson's counterclaim is "against plaintiff and against defendant Tuolumne Gold Dredging Corporation", hereinafter referred to as Tuolumne. Johnson's counterclaim asks for a money judgment and for a lien superior and senior to any lien that may exist in favor of the plaintiff on Tuolumne's property. The present opinion deals with Johnson's counterclaims alone, as directed against the plaintiff.

The plaintiff is a Federal corporation. All of its capital stock and assets are wholly owned by the United States.

Johnson is a Nevada corporation, duly qualified to transact business in California.

Tuolumne is a Delaware corporation, having a business office in Minneapolis, Minnesota, and having its principal California office and place of business in Stanislaus County.

On May 11, 1937, for the purpose of securing certain promissory notes, infra, Tuolumne executed and delivered to The Anglo California National Bank of San Francisco, hereinafter referred to as Anglo, as trustee, and to the plaintiff, as beneficiary, an indenture and chattel mortgage, whereby Tuolumne conveyed and mortgaged to Anglo as trustee all the property therein described. An original counterpart of that document was recorded on June 2, 1937, in Stanislaus County, as an instrument affecting real estate, and was also indexed as a chattel mortgage in the same County. On the same date, the indenture and mortgage was also recorded as a chattel mortgage in the City and County of San Francisco. Certificates of re-recordation were filed in Stanislaus County on May 7, 1941, May 5, 1945, and April 30, 1949, and in San Francisco on May 7, 1941, May 3, 1945, and April 28, 1949.

Pursuant to the provisions of the indenture and chattel mortgage, Tuolumne executed and delivered to the plaintiff sixty promissory notes, payable to the plaintiff's order in the principal sum of $10,000 each, with interest at 6 per cent. The notes bore varying dates of execution, and matured on divers dates. The execution dates ranged from June 11, 1937, to September 24, 1938, inclusive, and the maturity dates from January 1, 1939, to January 1, 1945, inclusive.

The notes were delivered to the plaintiff by Tuolumne on the dates of their execution in consideration of the plaintiff's advance to Tuolumne of $10,000 for each thereof, making a total of $600,000. Prior to delivery, each note was certified by Anglo as trustee. All of the notes were, and those not previously paid in full are, secured by the indenture and chattel mortgage.

On April 14, 1944, the plaintiff and Tuolumne entered into an agreement by the terms of which the time for payment of the then-existing principal balance of $550,000—five of the notes having been paid in full—and of the interest then due and unpaid to January 1, 1944, amounting to $170,167.20, was extended to January 1, 1945, with interest on such principal indebtedness from January 1, 1944, to the date of payment, at 4 per cent.

Although each note provided for interest at 6 per cent, interest was charged at 6 per cent only from July 1, 1938, to January 1, 1943. Thereafter interest has been charged on the principal balance remaining unpaid at the rate of 4 per cent. No interest has been charged on interest in default.

No part of the principal or of the interest has been paid, except that the first nineteen notes have been paid in full, together with the interest thereon, and except that the interest on the remaining notes has been paid to July 1, 1938. There is now due from Tuolumne on the notes numbered from 20 to 60, inclusive, the principal sum of $410,000, with interest at 6 per cent from July 1, 1938, to January 1, 1943, amounting to $110,309.59, and interest from January 1, 1943, to June 1, 1949, at 4 per cent, amounting to $105,274.52, making a total of interest to June 1, 1949, of $215,584.11; and interest from June 1, 1949, upon the principal amount, at 4 per cent.

Under the terms of the chattel mortgage, Tuolumne agreed to pay, with interest at 6 per cent, all collection expenses that the holder of the notes might incur, including attorneys' fees.

The plaintiff also advanced to Tuolumne, under the same indenture and chattel mortgage, the additional sum of $30,000, of which $15,000 was lent on April 7, 1947, and $15,000 on May 13, 1947. The $30,000 was in addition to all loans and advances made to Tuolumne on account of the above-mentioned notes. Interest on the two advances just referred to has accrued from the dates thereof, at 4 per cent. No part of these two later loans has been paid, and there is now due thereon the principal sum, $30,000, together with interest at 4 per cent to June 1, 1949, amounting to $2,513.42, and interest from June 1, 1949, at 4 per cent.

On or about November 27, 1939, Tuolumne executed and delivered to Anglo, as trustee, and the plaintiff, as beneficiary, an indenture and chattel mortgage, which has been duly recorded in Stanislaus County and in San Francisco City and County. Under this 1939 mortgage, Tuolumne executed and delivered to the plaintiff certain promissory notes in the total principal amount of $120,000. Thereafter Tuolumne paid to the plaintiff the principal and interest due under that 1939 indenture and chattel mortgage, the payments being made from Tuolumne's operation of the dredge hereinafter mentioned.

From the early part of January, 1940, Johnson knew of the execution of the second indenture and chattel mortgage.

Prior to May 11, 1937, with the knowledge and approval of the plaintiff, Johnson and Tuolumne negotiated for an agreement between them for the construction of a gold dredging machine to be built for and used by Tuolumne upon the real property referred to in the first indenture and chattel mortgage, supra. On or about the said date, Tuolumne and Johnson executed a written contract for the construction of the dredge. Either originals or executed copies of the contract and the bond referred to therein were delivered to the plaintiff on or about May 11, 1937. The contract provided that the parties thereto would be bound by the terms of the indenture and chattel mortgage from Tuolumne to the plaintiff.

The chattel mortgage just referred to provided for certain uses of the money advanced thereunder, including the establishment of a fund in the custody of Anglo, known as the "construction fund". This fund was subject to withdrawals by Tuolumne with the approval of certain representatives of the plaintiff, or by Anglo upon certification of a representative of the plaintiff.

Withdrawals could be made from the construction fund in accordance with the provisions of the first indenture and chattel mortgage, particularly Article II thereof, which reads in part as follows:

"All sums disbursed by R. F. C. against the Notes, and the $50,000 advanced by the Trustor (Tuolumne), shall be deposited with and held by Trustee as a special demand trust deposit called the "Construction Fund", constituting a part of the Trust Estate hereunder. Trustee is authorized and instructed to honor checks or drafts drawn upon the Construction Fund (a) by Trustor in amounts and payable to parties specified in requisitions of, or other instruments presented by, Trustor bearing or accompanied by the written approval of the Chief

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