Sunny Brook Zinc & Lead Co. v. Metzler

• Decision Date: 13 March 1916
• Citation: 231 F. 304
• Parties: SUNNY BROOK ZINC & LEAD CO. v. METZLER et al.
• Court: U.S. District Court — Southern District of New York

231 F. 304

SUNNY BROOK ZINC & LEAD CO. v. METZLER et al.

United States District Court, S.D. New York.

March 13, 1916

This is a suit in equity to impress a trust upon certain real property in Joplin in the state of Missouri, held by the defendant formerly belonging to the plaintiff. The property which was a mine with attendant machinery, was conveyed to the plaintiff on June 27, 1912, at which time it was already incumbered with a purchase-money mortgage in the face value of $24,000 in favor of one Luke, the vendor upon a former sale. The plaintiff's vendor was itself a mining company known as the 'Hackett Mining Company' which had operated the mine unsuccessfully and had come to an end of its resources. Its capitalization was $121,000, which was represented in the purchase or reorganization by the plaintiff by a substantially corresponding amount of debenture bonds, issued to the former stockholders of the vendor. In order to clear away the debts of the vendor one Isaac Rosenfield advanced to the plaintiff $25,000 upon the security of a mortgage, which was junior to Luke's mortgage, but prior to the debenture bonds. The plaintiff's own capitalization was $121,000, of which Rosenfield or his agents held 51 per cent. for control; this being a condition of his advance. At the time of the conveyance, therefore, the property stood incumbered by Luke's mortgage, then reduced to $18,000 Rosenfield's mortgage of $25,000, the debenture bonds of $120,000, and the capital stock of $121,000. In November 1912, the company issued another mortgage for $5,000, not all of which, however, was paid in. The amount of this incumbrance is not definitely stated.

The defendant Metzler had been a stockholder in the Hackett Mining Company, and with parties affiliated in interest with him held over $100,000 of the debenture bonds, and a substantial part of the minority stock. He was a director of the company, the sole local manager at Joplin, Mo., during the operation of the mine as hereinafter set forth, its treasurer, with power to draw money upon his own name alone and the only person interested in the property in the state of Missouri.

The original purchase from Luke had been for $36,000, and the Hackett Mining Company had put upon it machinery and tixtures of about $80,000 or $90,000 in value, which had not been substantially impaired by use. However, the property was always run at a loss. Hackett, after whom the vendor company was named, had run it much into debt, though he was thought to be a capable engineer, because the cost of recovery much exceeded the price that could be obtained for the concentrates. After the purchase by the plaintiff, the ill success continued until in January, 1913, at which time, as it had become apparent that under Metzler's management the mine was a failure, it was leased for a period of some months to the Federal Lead Company, which was thought to have exceptional capacity to exploit the mine successfully. Nevertheless, after some five months' trial, the mine continuing to run behind, the Federal Lead Company announced that it would not continue with the lease, and all operations ceased. Meanwhile an installment of $6,000 upon Luke's mortgage was coming due on July 1, 1913, which it was necessary to meet to avoid foreclosure.

In this posture of affairs, there being substantially no cash in the treasury, Metzler came to New York to try to raise money, and first visited Rosenfield, the president, a man of ample means. Rosenfield told Metzler that he had put all the money into the property that he wished, and that he refused to advance anything, except $100 to cover the expenses of an effort by Metzler to get a better sale for the machinery than at auction under foreclosure. Thereupon Metzler saw all the directors, but Hollander and the two Bernheimers, who merely represented Rosenfield upon the board, and tried to get them to rescue the company from its embarrassment. They were unwilling to help, and Metzler tried to persuade all the New York stockholders within reach to make some advances, but also without result. He had therefore tried out nearly all the stockholders, as well as Rosenfield, the majority owner. Finally, he left New York for Joplin, with the understanding that he would try to sell out the property for what he could in advance of the foreclosure sale, sharing with Rosenfield anything above the mortgage to Luke. Rosenfield denies this agreement, but it is extremely probable that something of the kind took place. In any case, there can be no doubt that Rosenfield deputed Metzler to try to sell the property at private sale, in the hope that it would thus bring more than it would at foreclosure. That he should, in addition, have agreed to share the balance the plaintiff claims to be the insinuation of a corrupt bargain, but there is no reason to think that any one could very seriously have supposed that the property at that time would bring more than the sum of the three mortgages. If, not, it is not apparent that the agreement was in any way in fraud of the plaintiff, though it was undoubtedly of an informal character. This consideration should be borne in mind throughout the negotiations between Metzler and Rosenfield in which they treated the property as disposable between them. On his return to Joplin Metzler in pursuance of his agreement made serious efforts ineffectually to sell the machinery, and, finding that impossible, was obliged to let it go in foreclosure.

The trustee under Luke's mortgage was one Boggess, a banker in Joplin, and the owner of practically all the stock in the Boggess Land Company and upon the foreclosure sale, August 15, 1913, the property was bid in by the company. Before the sale Metzler obtained an option from Boggess of 10 days within which he could redeem from the mortgage and reclaim the property. Acting upon the strength of this option, Metzler entered into a contract with the United Iron Works to purchase all the machinery from the land for $16,000, which he hoped might induce Rosenfield to advance the sum of $18,000 sufficient to redeem the whole mine from the mortgage. It seems fairly clear that at this time Metzler intended to buy in the property for himself and Rosenfield to the exclusion of the plaintiff, but his plan miscarried because Rosenfield declined to accept the notes of the United Iron Works, which were to be given in part payment, and advised Metzler in the most categorical way that he was free to take over the property and make from it for himself anything that he could. In consequence Metzler's option from Boggess expired without any result. Shortly thereafter, and early in September, 1913, Rosenfield seems to have changed his mind and wired Metzler that if he could arrange the matter with the United Iron Works and would share equally with him in paying the balance, he would take it on, great care to be exercised to secure Rosenfield even against the stockholders. Although Metzler hoped that he would be able to get an extension of his option from Boggess, it was in fact too late, because Boggess for Luke on August 30, 1913, had sold the machinery to the United Iron Works, and the transaction was off.

It is the law of Missouri by statute that if a mortgagee under a mortgage buys in the property, the mortgagor may redeem within the year, if he gives a bond promptly to secure the mortgagee. Also the courts of Missouri recognize that a trustee under a mortgage stands charged with the usual liabilities of a trustee towards the mortgagor as well as the mortgagee, and holds any property purchased by him at such a sale charged with the trust. Rosenfield learned of the first provision from Spencer, Graystone & Spencer, attorneys of Joplin, as early as July 9, 1913. On September 16, 1913, Metzler, by letter, explained to Rosenfield that his lawyers had advised him that Luke had no right to take the property and sell it off, and that not only was he subject to a suit for redemption, but that an action might also lie for damages. Rosenfield at once took up the matter with Spencer, Graystone & Spencer, who wrote him on September 29, 1913, that Metzler had had an agreement with Luke and Boggess by which he should have till August 25, 1913, in which to sell off the machinery to the United Iron Works and redeem the property; that the agreement had lapsed; and that Boggess, having bought it in by his company, had sold the property. Rosenfield answered on October 2, 1913, showing his knowledge of the purchase of the property on foreclosure by the Boggess Land Company, and of the rights arising therefrom, and suggesting that Spencer, Graystone & Spencer take the case on a contingent fee. Spencer, Graystone & Spencer wrote on October 16, 1913, refusing to take the case on that basis.

On October 11, 1913, Metzler had an interview with Luke, in which he says he agreed to pay him $3,060 by a note and to cancel a claim he had against him for $2,000, for which Luke agreed to sell him the land. On October 13, 1913, the Boggess Land Company conveyed to Virginia Metzler, Metzler's mother, who in turn conveyed to him two days later. The plaintiff insists that the claim of $2,000 is spurious, and that the total consideration was the note in question. The matter is considered in the opinion which follows. It does not appear that Rosenfield or the plaintiff learned of the conveyances to Virginia Metzler, and from her to Metzler, for a period of over 18 months, that is, until the end of March 1915. Meanwhile, the value of the mine had greatly changed, owing to the demand caused by the great war. From October 25, 1912, till February, 1913, when the Federal Lead Company took a lease, the average cost of recovery from the mine had been over 80 cents a ton, and under the Federal...