State Trust & Sav. Bank v. Hermosa Land & Cattle Co.Hermosa Land & Cattle Co. v. State Trust & Sav. Bank

Decision Date26 September 1925
Docket NumberNos. 2893, 2899.,s. 2893, 2899.
Citation30 N.M. 566,240 P. 469
PartiesSTATE TRUST & SAVINGS BANK et al.v.HERMOSA LAND & CATTLE CO.HERMOSA LAND & CATTLE CO.v.STATE TRUST & SAVINGS BANK et al.
CourtNew Mexico Supreme Court

OPINION TEXT STARTS HERE

Syllabus by the Court.

Circumstances of a case may sometimes require a court of equity to ignore the separate entity of a corporation, and to look to the sole owner of its capital stock as the real party in interest.

In a contract of sale, tainted with constructive fraud, if the vendee elects to retain the property and recoup his damages, the doctrine of “unclean hands” cannot serve to deprive the vendor of the equitable remedy of foreclosure of the mortgage securing a part of the consideration.

A contract of sale specified, among other properties, “6,000 head of neat cattle, more or less, being all of the cattle owned by the H. L. & C. Co. and bearing one or more of the brands hereinafter set forth, and contracted to be conveyed.” As an inducement to the sale, the vendor surreptitiously paid to the vendee's agent having charge of the negotiations a substantial sum of money, held:

(1) While this language imports in law a mere estimate, it imports an estimate in good faith.

(2) If there is fraud or bad faith in making the estimate, the expression cannot be considered a mere estimate, but is to be treated as an actionable representation.

(3) The surreptitious dealing with the vendee's agent was a constructive fraud.

(4) Such constructive fraud has the same effect as actual fraud, negatives the essential element of good faith in the estimate, leaving an actionable representation.

By waiving the right to rescind an executed contract of sale tainted with constructive fraud, the right of recoupment not necessarily waived.

Specific findings of fact, supported by substantial evidence, are conclusive on appeal.

Error in sustaining demurrer waived by answer over.

A contract of sale of ranches and live stock specified among the properties to be conveyed “250 miles of wire fence wherever situated.” Proof merely that there was only 50 miles of fence, and that the vendee had, after taking possession, constructed certain 4-wire fence at a cost of $200 per mile, was insufficient to warrant substantial damages.

Review is for correction of erroneous result, rather than merely to approve or disapprove the grounds on which it is based.

Cause not reversed for error in refusing damages for shortage of fence contracted to be sold, on the ground of laches in making demand therefor, where the proofs of the amount of such damages were too uncertain to warrant allowance of substantial damages.

One recovering judgment on promissory notes, but reduced in amount by damages awarded in recoupment, is the “prevailing party within meaning of section 4282, Code of 1915, and should recover costs.

Where judgment is rendered upon promissory notes for a balance, after deduction of amount allowed in recoupment, an allowance of attorney's fees at the rate per cent. specified in said notes, computed upon such balance, is proper.

The fact that a demand is unliquidated is not conclusive against allowance of interest as damages from date of default.

In a suit for purchase price, where damages are awarded in recoupment because of shortage in cattle sold, an allowance of interest on the sum recouped from date of default in delivery, as damages, not erroneous, where the date of default is certain, and the demand is of a nature reasonably ascertainable in amount; there having been no objection to such allowance except that the demand was unliquidated.

Error to District Court, Sierra County; Owen, Judge.

Action by the State Trust & Savings Bank as trustee, and another, against the Hermosa Land & Cattle Company, in which defendant filed a claim in recoupment. Judgment for plaintiffs, and both parties bring error. Cases consolidated in proceedings in error. Reversed and remanded, with direction.

A contract of sale of ranches and live stock specified among the properties to be conveyed “250 miles of wire fence wherever situated.” Proof that there was only 50 miles of fence, and that the vendee had, after taking possession, constructed certain 4-wire fence at a cost of $200 per mile, was insufficient to warrant substantial damages.

E. W. Dobson, of Albuquerque, for plaintiffs in error in No. 2893 and defendants in error in No. 2899.

John F. Simms, of Albuquerque, and Snyder, Henry, Thomsen, Ford & Seagrave, of Cleveland, Ohio, for defendant in error in No. 2893 and plaintiff in error in No. 2899.

WATSON, J.

September 28, 1921, State Trust & Savings Bank, as trustee, and Anna W. Hopewell commenced suit against Hermosa Land & Cattle Company, a New Mexico corporation, upon three promissory notes, bearing date August 11, 1917, in the principal sum of $25,000 each, maturing, respectively, October 1, 1920, October 1, 1921, and October 1, 1922, bearing interest at 6 per cent., and the usual provision for attorney's fees. These notes were given by Hermosa Land & Cattle Company to Willard S. Hopewell, trustee, and were secured by a mortgage given by this company to said State Trust & Savings Bank, as trustee, under its former corporate name of American Bank & Trust Company. In the lower court, defendant was allowed to recoup damages in the sum of $33,635, with 6 per cent. interest from the date of the notes, and judgment was rendered for plaintiffs for the difference between the principal and interest of the notes and the principal and interest of the recoupment, and for 10 per cent. of such difference as attorney's fees, for the amount of which judgment foreclosure of the mortgage was decreed. Both parties have brought the case here by writs of error; the cases, Nos. 2893 and 2899, having been consolidated. The parties will be referred to herein as plaintiff and defendant as in the court below.

Some time prior to the execution of the notes and mortgage, Mr. J. A. Wigmore, then residing in New York, desiring to purchase a ranch and cattle, became acquainted with W. G. Hamilton, whom he commissioned to find a ranch for him. Among the properties examined by Mr. Hamilton were those of the Hermosa Land & Cattle Company, situated in Sierra county, N. M. At that time plaintiff Hopewell was the majority stockholder in defendant corporation, of which Col. W. S. Hopewell, her husband, was the president.

As the result of negotiations between Col. Hopewell, representing the defendant corporation, and Hamilton, representing Mr. Wigmore, a contract was signed on June 20, 1917, by defendant corporation, by Col. Hopewell as its president, and by Wigmore, by Hamilton, his agent. The contract provided for the sale by the defendant corporation and the purchase by Wigmore of the ranches and cattle of the corporation for $225,000, of which $10,000 was to be and was paid in cash, and $90,000 was to be paid upon the delivery of abstracts showing good title to the lands. The deferred payments were to be represented by five promissory notes of $25,000 each, maturing one each year for five years thereafter, and to be secured by mortgage on the property conveyed.

The title to said property proving satisfactory, and the $90,000 having been paid, Mr. Wigmore, through Hamilton, his agent, interposed the objection that he did not wish to give his personal notes for the unpaid purchase price, and it was thereupon agreed that, instead of a conveyance of the properties in question from the corporation, Wigmore should receive transfer of all of the corporate stock of the corporation, and that thereupon the notes and mortgage in question should be executed by the corporation. This agreement was carried out, and the notes made payable to W. S. Hopewell, as trustee, for the old stockholders. From that time until the trial, Mr. Wigmore remained the holder and owner of all the stock of defendant corporation, except two shares held by others that they might qualify as directors.

While negotiations were proceeding between Hopewell and Hamilton, the former paid to the latter a substantial sum of money, about $10,000, as an inducement to bring about the sale. Hopewell had knowledge of Hamilton's agency for Wigmore, but Wigmore had no knowledge of this payment to Hamilton.

The first two of the notes were paid at about the time they matured, together with the accrued interest on all of the notes, but, when the third note matured on October 1, 1920, and payment was demanded, it was refused; it being claimed that, by reason of false representations as to the number of cattle and the quantity of fence, damages had been suffered which must be adjusted before further payments would be made. Before the maturity and payment of the second note, Mr. Wigmore had learned of the payment of the commission to his agent, and had become satisfied that there was a substantial shortage of cattle, and, as the trial court found, knew, or should have known, that there was a shortage of fence. Mr. Hopewell died August 13, 1919, prior to which time Wigmore had made claim that there was a shortage of cattle, but had never mentioned any shortage of fence; no claim as to the fence having been made until about 2 1/2 years after the date of the contract. Further facts and the contentions of the parties will be hereinafter stated.

The written contract out of which this litigation arises was in form an agreement by Hermosa Land & Cattle Company to sell to J. A. Wigmore certain ranch properties, improvements and cattle. However, in closing the trade it assumed a different form. There was no conveyance of the properties, the subject-matter of the original contract; but, instead, all of the capital stock of the corporation was transferred to Wigmore. The deferred payments, originally to have been represented by Wigmore's notes and secured by mortgage on the properties to have been conveyed to him, were, in the closing, represented by the notes of the corporation and secured by its mortgage on the properties,...

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