Humphreys v. Butler

102 So. 817, 157 La. 633, 1925 La. LEXIS 1947

• Court: Supreme Court of Louisiana
• Decided: January 5, 1925
• Docket: No. 24213.
• Status: Published

Opinion

LAND, J.

On April 22, 1912, plaintiff placed title to the Magnolia plantation in the names of the defendants, Robert B. Butler, Charles.P. Gable, and John D. Schaffer, for the purpose of effecting a sale of said property. The plantation included a tract of 5.15 acres belonging to the Magnolia Manufacturing Company, whose stock was owned by plaintiff.

At that date, this property, with the exception of said tract, was incumbered with a special mortgage in a large amount in favor of the People’s Bank & Trust Company of Houma, La., securing the payment of certain promissory notes held by said Bank & Trust Company.

On April 22, 1912, defendants entered into the following written agreement with plaintiff, as to the sale of said plantation:

“Whenever we shall have sold or disposed of said entire properties for a sufficient amount to pay all the present indebtedness thereon, and such further indebtedness as may from time to time be attached thereto, including taxes and all incidental expenses that may be in connection therewith; then, in that event, we agree to pay the said Humphreys all surplus, over and above the amount necessary to discharge the above item of indebtedness, taxes, expenses, etc., .including interest at the rate of 8 per cent, per annum, up to and including a total valuation of $40,000 for said property.

“Any amount that said property may bring in excess of $40,000 shall be apportioned in the proportion of one-half to us and one-half to said Humphreys.”

On May 17, 1913, the People’s Bank & Trust Company foreclosed its mortgage and bought in the property at the sale for the price of $13,400.

In pursuance of an agreement entered into between defendants and said Bank & Trust Company, prior to the foreclosure, the Bank sold this property later on to the “Bayou Black Stock Farm, Limited,” organ.; ized by defendants, Shaffer excepted, and several associates, for the sum of $24,597.41; the sum of $4,597.41 being paid in cash, and the balance of the purchase price being represented by five notes, payable on May 19th of the respective years, 1914, 1915, 1916, 1917, and 1918, and secured by vendor’s lien. The following mortgages existing on this property at the date of its purchase by the Stock Farm Company, including privileged debts claimed by third oppositions, were paid by said company after the purchase of this property :

People’s Bank ................................ $ 314 14

J. C. Dupont ($150 and 10 per cent, interest) 165 00

A. M. Si J. C. Dupont.......................... 306 83

Geo. W. Hatch ............................... 173 35

Dibert-Stark & Brown........................ 54 05

Total mortgages and privileges.......... $1,013 37

The following additional indebtedness was also paid by the Stock Farm Company:

Butler and Gable (advances lor plaintiff).. $2,981 65

Costs (as per pr'oces verbal).................. 443 67

Operating expenses (as per procés verbal).. 1,372 65 Interest note signed by Butler and Gable.. 1,808 25

$6,606 22

Recapitulation.

Total cost ol property to Stock Farm Company:

Purchase price paid to Bank & Trust Company ....................................... $24,597 41

Mortgages paid on property alter purchase 1,013 37

Additional indebtedness paid after purchase ....................................... 6,606 22

Total cost ol property to Stock Farm Company ............................... $32,217 00

The basis of the present suit is the charge by plaintiff that defendants acted fraudulently and in violation of their fiduciary relations to him, by inducing the People’s Bank & Trust Company to foreclose its mortgage, and in acquiring this property through the organization of the Bayou Black Stock Farm, Limited, and that the purpose of defendants in so doing was to avoid their obligations to plaintiff under the contract to sell said plantation, and thereby divest him of his right, title, and interest in same.

For the alleged breach of said contract, and for the alleged violation of trust relations by defendants, plaintiff seeks to have the sale from the Bank & Trust Company to the Bayou Black Stock Farm Company rescinded and set aside, and to be decreed the owner of the property conveyed, subject to such debts or mortgages as were properly due to said Bank & Trust Company at the time of the foreclosure. Should the court deny the relief prayed for, plaintiff prays, in the alternative, for judgment against the defendants in solido in the ' sum of $15,000, the alleged difference between the mortgage indebtedness due on said property at the date of foreclosure, and the estimated value by plaintiff of the property sold, to wit, $40,000.

The allegations of plaintiff as to any actual fraud committed by defendants in the purchase of this property by the Stock Farm Company are not sustained by the evidence.

That defendants did not induce the Bank & Trust Company to foreclose the mortgage, after said company had agreed to an extension of one year, as alleged by plaintiff, is clearly established by the testimony of Butler, and of Montague, cashier of said Bank & Trust Company, who represented the same in the transfer of this property to the Stock Farm Company. On the contrary, it appears from the evidence that Butler in good faith sought to prevent the seizure and sale of this property, and, having failed to obtain a stay of the impending foreclosure proceedings, approached the Bank & Trust Company for the first time, to arrange for the purchase of the property from it by the Stock Farm Company, in order to protect defendants against loss from the obligations which they had incurred on behalf of plaintiff, who was in straitened circumstances, and powerless to avert the foreclosure of the mortgage against his property, by the payment of the debts due the Bank & Trust Company, or to obtain from said Company any further indulgence as to extensions.

Defendants had assumed no obligation, under their written agreement with plaintiff, to pay off the mortgage indebtedness on the property, and thereby prevent the foreclosure and sale. The record is barren of evidence to show that there was any collusion between the defendants and the People’s Bank & Trust Company to stifle competition in the bidding on this property. Defendants did not bid at all at the foreclosure sale. The property was appraised at $20,000 by appraisers appointed for plaintiff and the Bank & Trust Company, and was sold for the price of $13,400, or two-thirds of its appraised value, even under executory process.

The charge by plaintiff that, at a time when he could have sold the property at $40,-000, he was induced by Butler to refuse to make the sale, and to place the ímoperty into his hands and those of his associates for sale, is not proven by the evidence in the ease. At no time did plaintiff receive an offer of $40,000 for this property. The highest estimate placed upon this- property before the foreclosure as disclosed by the record, is that of $26,675 made by the special committee of the Bank of Terrebonne for the purpose of determining whether the Bank should take up the first mortgage of the. People’s Bank & Trust Company for its own protection. When it is considered, therefore, that this property was purchased from said company, the adjudieatee at the sale, for $13,400, and was conveyed to the Stock Farm Company at a total cost of $32,217, a price of $5,542 in excess of the estimate placed upon the property by the Bank of Terrebonne, it cannot be sai'd from the record in this case that defendants, as agents for the sale of this property, violated their good faith with plaintiff by speculating upon the property of their principal.

Nor does the evidence before us establish the fact that defendants occupied any fiduciary relations to plaintiff as trustees. The title to this property was placed in the names of defendants merely to facilitate its sale. Defendants advanced various sums to plaintiff, who remained in the possession of the property and retained the management of the same, as supplies necessary to cultivate and raise the crops on the place. These sums were placed to the credit of plaintiff in bank and subject to his individual checks.

Under the state of facts disclosed by the record, even should we conclude that Butler acted as the attorney for plaintiff, we do not find that he has incurred any liability to plaintiff because of such relationship.

In I-Iyams v. Herndon, 36 Da. Ann. 879, this court said:

“It was long since settled in this state that the mere relation of attorney and client does not, of itself, disable the attorney of a judgment creditor from buying for his own account at a sale in execution, provided he act in perfect fairness and good faith, and in no manner in opposition to the interest of his client. Relf v. Ives, 10 La. 509.”

The testimony of E. P. Gable, R. B. Butler, C. C. Crisal, and John M. Foote, stockholders in the Bayou Black Stock Farm Company, clearly establishes the fact that this company was organized solely as a legitimate business enterprise, and without any ulterior motive to avoid any obligations to plaintiff. The stock was paid for at its face value.

These witnesses also testify that plaintiff was acquainted with the intention of said company to acquire the Magnolia plantation, that plaintiff was called upon to subscribe to the stock of the company, but declined because of financial difficulties, and that plaintiff was well aware of the purchase by said company of this property from the People’s Bank & Trust Company^

Plaintiff surrendered the possession of the place to the new manager appointed by the Stock Farm Company, and the only claim that plaintiff urged against said company at the time was that the sale of the property by the People’s Bank & Trust Company under its mortgage had not divested him of the ownership of certain live stock. This claim was recognized and settled by the Stock Farm Company.

The foreclosure sale under the mortgage of the People’s Bank & Trust Company was made Hay 17, 1913. Later on plaintiff filed a petition in bankruptcy in the federal District Court for the Eastern District of Louisiana, and recited in his schedule that he had no assets. At a creditors’ meeting held October 17, 1914, plaintiff stated under oath that he had no interest or equity in the Magnolia plantation.

On April 11, 1917, nearly four years after the foreclosure, and after the acquisition of this property by the Stock Farm Company, plaintiff filed the present suit.

It is obvious that plaintiff knew, as well in the year 1913, as in the year 1917, that Gable, Butler, and Schaffer were his agents for the sale of the Magnolia plantation, and that Butler was his attorney.

1-Iis acquiescence in this sale, for nearly four years, although he was acquainted with these facts, is a complete denial of the validity or seriousness of the claim by plaintiff in the present suit that his action is based, in fact, upon any mere breach of trust or fiduciary relations by defendants.

The whole suit of plaintiff is predicated patently upon the charge of actual fraud and collusion upon the part of defendants, said charge being unsupported by the actual facts of the case.

The 5.15 acres, with molasses house located thereon, and owned by the Magnolia Manufacturing Company, was sold by said company to the people’s Bank & Trust Company on the same day that the Magnolia plantation was purchased by the Stock Farm Company from said Bank & Trust Company, in order to convey this plantation as a unit to said Stock Farm Company. This small tract, formed a part of the Magnolia plantation, and was incumbered by a mortgage of more than $2,000, held by the Bank & Trust Company, the title to this property being in the Magnolia Manufacturing Company and not in plaintiff.

Plaintiff attacks the sale made by the Magnolia Manufacturing Company to said Bank & Trust Company as being without consideration, and alleges that Gable, acting as president, and Butler as secretary of said company, in making said sale, were without right or authority to execute the deed, as neither owned a single share of the stock of said company.

Plaintiff alleges that all of the stock of the Magnolia Manufacturing Company belonged to him, and was pledged by him to the People’s Bank and Trust Company as additional collateral to the mortgage held by said Bank & Trust Company.

In a letter of date June 6, 1913, from Butler to plaintiff, the latter is advised that the People’s Bank & Trust Company had purchased the Magnolia Plantation for $13,400, and that “Mr. Montague (cashier of said Bank & Trust Company), is getting a little impatient for a final adjustment of the matter, but I had hoped you would be able to return soon, as he desires to arrange a vendor’s lien on the entire property, and that cmild l)e accomplished more conveniently if you were here to turn over the .stock of the Magnolia Mfg. Company, than in your absence.” (Italics ours).

In response to this letter, plaintiff sent an order of date June 20, 1913, to the People’s Bank & Trust Company, the holder of all of the capital stock of the Magnolia Manufacturing Company, as collateral pledged to it by plaintiff, directing said Bank & Trust Company to deliver to Butler said certificates of stock and a mortgage note of some $2,000 bn the property of the Magnolia Manufacturing Company, as well as any and all col- laterals pledged by plaintiff to said Bank & Trust Company, in connection with tbe mortgages on said plantation.

Tbis was done by plaintiff, in response to the letter of Butler advising him that tbe cashier of tbe People’s Bank & Trust Company “desires to arrange a vendor’s lien on the entire property,” wbicb necessarily included a vendor’s lien on tbe 5.15-acre tract owned by tbe Magnolia Manufacturing Company, and forming a part of tbe Magnolia plantation. Tbis stock was used by Butler, under tbis express authorization, in tbe only way and for tbe only purpose for wbicb it could be so used, in taking corporate action for accomplishing a sale from tbe Magnolia Manufacturing Company to tbe People’s Bank & Trust Company, and for a resale from said Bank & Trust Company to tbe Stock Farm Company, in order to create a vendor’s lien in favor of tbe former company. As liens cannot be created by tbe mere convention of the parties, but arise from operation of law, the vendor’s lien contemplated in tbis case could be effected in no other way. Tbe People’s Bank & Trust Company had acquired title to all tbe Magnolia plantation at tbe foreclosure sale, except tbe 5.15 acres owned by tbe Magnolia Manufacturing Company, and wbicb was not covered by tbe special mortgage held and foreclosed by tbe Bank & Trust Company. This capital stock was, therefore, used by Butler, in the election of officers of tbe Magnolia Manufacturing Company, in tbe adoption of tbe necessary resolution for tbe sale by tbe board of directors, and. in tbe conveying of this tract of land to tbe Bank & Trust Company. Gable was elected president and Butler secretary under tbe stock delivered by plaintiff, tbe stock being indorsed in blank when pledged by plaintiff to tbe Bank & Trust Company. Tbe resolution authorizing tbis sale was unanimously adopted by the board of directors of the Magnolia Manufacturing Company, and C. P. Gable, president of said company, was designated as its duly authorized agent to make said sale.

Tbe price of tbis 5.15 acres was included in the purchase price paid by tbe Stock Farm Company to tbe People’s Bank & Trust Company for tbe entire Magnolia plantation, and plaintiff therefore received a credit for same on tbe «indebtedness due by him. Tbe surrender by tbe Bank & Trust Company to Butler, under plaintiff’s order, of all of tbe stock held by it as collateral, and of tbe special mortgage of more than $2,000 on tbe 5.15-acre tract owned by tbe Magnolia Manufacturing Company, was, necessarily, a valid consideration for tbe sale by said company to said Bank & Trust Company of said property, in order that it might, by a resale of tbe same.to tbe Stock Farm Company, retain a vendor’s lien, in lieu of tbe collateral and mortgage surrendered. If this is not true, then what consideration did tbe Bank & Trust Company receive from plaintiff for tbe surrender of its securities for its debt, if Butler and Gable were without authority to sell tbis property to tbe Bank?

It is therefore idle, under these circumstances, for plaintiff to contend thát there was no consideration for tbe sale from tbe Magnolia Manufacturing Company to tbe Bank & Trust Company, and that Butler and Gable were without right or authority to make said sale, in tbe face of the express authority granted by plaintiff in response to Butler’s letter, and evidenced by tbe order for tbe delivery of the stock to Butler, for tbe specific purpose of arranging for tbe granting of tbe vendor’s lien to tbe Bank & Trust Company.

Tbe judgment of tbe lower court rejected plaintiff’s demand at bis costs, and, in our opinion, said judgment is correct.

Judgment affirmed.

O’NIELL, C. J., concurs in the result.