South Joplin Land Co. v. Case

• Decision Date: 11 May 1891
• Citation: 16 S.W. 390,104 Mo. 572
• Parties: The South Joplin Land Company v. Case et al., Appellants
• Court: Missouri Supreme Court

16 S.W. 390

104 Mo. 572

The South Joplin Land Company v. Case et al., Appellants

Supreme Court of Missouri, First Division

May 11, 1891

Appeal from Jasper Circuit Court. -- Hon. M. G. McGregor, Judge.

Affirmed.

L. P Cunningham and Thomas Dolan for appellants.

(1) There was not in law or equity any sale of the notes. Nothing but the land was sold. 1 Story on Contracts, pp. 40, 45; Chitty on Contracts, pp. 136, 591; Taylor v Williams, 45 Mo. 80; Underwood v. Underwood, 48 Mo. 527; Sitton v. Shipp, 65 Mo. 305; Benjamin on Sales [2 Ed.] 1; Williamson v. Berry, 8 How. (U.S.) 544. (2) Case was but a stockholder, and had a right to make $ 2,000 profit upon the land, and as much more as he could. He was not required to inform plaintiff or anybody else what he (Case) was paying for the land. He was the absolute purchaser of the land from Carter, and had a right to fix any price he saw proper. Hardwicke v. Jones, 65 Mo. 54; Angell & Ames on Corporations, sec. 313; Verplanch v Ins. Co., 1 Edward, Ch. (N. Y.) 87; Hodges v. Screw Co., 1 R. I. 351; Bayless v. Orne, 1 Freeman (Miss. Ch.) 174; Railroad v. Freeman, 37 Kan. 606; Railroad v. Wilkerson, 83 Mo. 237; Spurlock v. Railroad, 90 Mo. 200; 3 Parsons on Contracts [5 Ed.] p. 385, note; Medbury v. Watson, 6 Met. (Mass.) 259; Hemmer v. Cooper, 8 Allen (Mass.) 334; Bishop v. Small, 63 Maine, 12; Holbrook v. Connor, 60 Maine, 578; Cooper v. Levering, 106 Mass. 79. (3) It is not applicable to press that Redburn, being a director of plaintiff, held a fiduciary relation; for the sale was in fact made to the individuals by Redburn as agent for Case, and afterwards they formed themselves for convenience into the corporation plaintiff. Hogan v. Hogan, 71 Mo. 610; Chrisman v. Hodges, 75 Mo. 413; Pomeroy v. Benton, 57 Mo. 531; Attaway v. Bank, 93 Mo. 485. (4) Knowing that Redburn was Case's agent, and plaintiff then making him a director cannot now complain and say that Redburn thereby held a fiduciary relation to the plaintiff. Fitzsimmons v. Express Co., 40 Ga. 336; Rowe v. Stevens, 3 Jones & Sp. 189; Spyer v. Fisher, 5 Jones & Sp. 93; Lewis v. Slack, 27 Mo.App. 119; Attaway v. Bank, 93 Mo. 485; Rupp v. Sampson, 16 Gray (Mass.) 398; Muller v. Keetzleb, 7 Bush (Ky.) 253; Ins. Co. v. Church, 21 Ohio St. 492; Anderson v. Weiser, 24 Iowa 428. The circuit court erred in allowing the amendment of the petition by interlineation. R. S., secs. 3567, 3573, 3576, 3577; Skinner's Ex'r v. Hutton, 33 Mo. 244; Ins. Co. v. Ins. Co., 4 Mo.App. 578. (5) The finding and decree should have been in favor of the defendants upon the facts proved as to both the notes and $ 2,000. Benjamin on Sales [2 Ed.] 1; Williamson v. Berry, 8 How. (U.S.) 544; 5 Wait's A. & D., p. 539, and cases cited; Hardwicke v. Jones, 65 Mo. 54; Angell & Ames on Corporations, sec. 313; Verplanch v. Ins. Co., 1 Edward, Ch. (N. Y.) 87; Hodges v. Screw Co., 1 R. I. 351; Bayless v. Orne, 1 Freeman (Miss. Ch.) 174; Railroad v. Freeman, 37 Kan. 606; Railroad v. Wilkerson, 83 Mo. 237; Bank v. Aull, 80 Mo. 199.

E. O. Brown, Galen Spencer and Karnes, Holmes & Krauthoff for respondent.

(1) One occupying a trust relation can make no secret profit by reason of his position, and this principle applies to the promoter of a corporation. Calico Co. v. Green, L. R. 5 Q. B. Div. 109; Twycross v. Grant, L. R. 2 C. P. Div. 469; Phosphate Co. v. Erlanger, L. R. 5 Ch. Div. 73; Hinchens v. Congrev, 4 Russ. Ch. 562; Hinchens v. Congrev, 1 Russ. & Myler, 150; Beck v. Kautorowitz, 3 Kay. & J. 230; Benson v. Hearthorn, 1 Yo. & Col. 326; Rawlins v. Wickham, 3 DeGex. & J. 304. (2) The rule has always been that any question as to the fairness of the bargain was immaterial; although what the company received was worth all or more than it paid, this constitutes no reason why the trustee should not disgorge. Railroad v. Blakie, 1 Macq. 461; Pearson's Case, 5 Ch. Div. 336, 341; Calico Co. v. Green, L. R. 5 Q. B. Div. 109; Tyrell v. Bank, 10 H. L. Cas. 26; Michoud v. Girod, 4 How. 503; Coal Co. v. Sherman, 30 Barb. 553. "The rule governs cases where there was no fiduciary relation at the time the contract was made, but where the person who makes it afterwards becomes a promoter and the company becomes entitled to the benefit of his contract or liable to perform its provisions." The leading opinion was delivered by Lord Chief Justice Cockburn and the conclusion reached that the rule applies to all contracts entered into with an intention that a corporation shall be formed to carry it out. And this view was affirmed on appeal to the House of Lords. Twycross v. Grant, 25 W. R. 586; Iron Co. v. Bird, 33 Ch. Div. 85, 94; 60 L. T. Rep. 501; Cornell v. Honey, 8 C. P. 328; Phosphate Co. v. Hartmont, 5 Ch. Div. 394. (3) In a New York case based upon similar facts, it was held that there was no difference in principle between a purchase made by one on behalf of the corporation after it is formed and a purchase made with the design to form a corporation to carry out the contract. Getty v. Devlin, 54 N.Y. 403; Miller v. Barber, 66 N.Y. 558; Getty v. Devlin, 70 N.Y. 504.

OPINION

Black, J.

This is a suit in equity brought by the plaintiff corporation against Geo. C. Case and F. M. Redburn to recover the value of certain notes amounting to $ 2,060. During the trial the petition was amended so as to include a demand against Case alone for the further sum of $ 2,000. There was a decree according to the prayer of the petition as amended.

Dr. Carter who resided at Carthage owned three hundred and twenty acres of land adjoining Joplin. Part of the land had been laid off into an addition, and Carter had sold some of the lots, but he held notes for the deferred payments on the lots so sold. These notes were supposed to aggregate $ 3,000 or $ 4,000. In March, 1887, Carter gave Case a written option contract by the terms of which he agreed to convey and transfer to Case the land and unsold lots, the notes and a right-of-way claim against a railroad company, for the consideration of $ 32,000, one-third cash and the balance in deferred payments to be secured by deed of trust on the land. The contract had thirty days to run, and if not performed by Case within that time he forfeited the $ 500 paid at the date of the contract. Though this contract stated a consideration of $ 32,000, it is shown beyond all doubt that Case was to pay only $ 30,000 for all the property. When Case procured the contract he had in contemplation the organization of a corporation to take the property so purchased and this was known to Carter, for he then agreed to take two shares of stock, if the stock should not all be taken by other persons.

In April, and a few days before the option contract expired, Case employed the defendant Redburn to organize a corporation with a stock of thirty-two shares of $ 1,000 each for the purpose of taking the property of Carter. Joplin then enjoyed what is commonly called a boom, and Redburn succeeded in placing all the stock in an informal way in one day, reserving to himself and to Case each a share. Redburn represented to the persons agreeing to take the stock that the price to be paid Carter was $ 32,000, and that the proposed company would get the land, unsold lots and the notes held by Carter amounting, he said, to $ 3,000 or $ 4,000, and also the claim for right of way; and it was on these representations that the parties agreed to take the stock. Most of the persons agreeing to take stock knew that Redburn represented Case, and that Case held the option. Some of them did not know, at that time, that Case had anything to do with the matter. Case resided in Joplin and was perfectly cognizant of all that Redburn had done and of the representations that he had made.

The evidence of Redburn and Case is to the effect that on the next day Case told Redburn the notes would not go in and he must go and notify the parties to that effect. Case says he did not give Redburn authority to say the notes would be turned over to the company, and Redburn gives us to understand that he misunderstood Case's directions in that respect. Redburn says he did then notify some of the parties that the notes and right-of-way claim would not go in as part of the sale. There is a uniformity of statement on the part of the persons who agreed to take stock that they were not informed that the notes would not be included, until after the articles of association had been signed and they had paid for their stock. Our conclusion from the evidence is, that this notice that the notes were not to go in the transaction with the company was an afterthought on the part of Case, brought about by the fact that the stock commanded a premium. In a day or so after the stock had been thus informally placed, many of the stockholders met, signed articles of association, formally subscribed for stock, and paid their subscriptions. Directors were then elected, Redburn being one of them, and he was also made secretary. He and Case each took one share of stock. In a few days after this the board met to close up the transaction.

The evidence shows beyond doubt that on this occasion Redburn representing Case, said the company would not get the notes. Mr. McClelland who was president and the largest stockholder objected, so that the project was about to be abandoned. Redburn, however, stated that he had been mistaken, and that Carter would not let the notes go in as part of the sale by him; that the time was close at hand when the option contract expired, and that Case would lose his $ 500 unless the matter was closed up at once. On these representations the directors finally concluded to take the land and unsold lots without the notes. On the same day a deed of trust to Carter was executed, and the directors constituted Redburn an...