Sunny Brook Zinc & Lead Co. v. Metzler

231 F. 304, 1916 U.S. Dist. LEXIS 1732

• Court: District Court, S.D. New York
• Decided: March 13, 1916
• Status: Published

Opinion

LEARNED HAND, District Judge

(after stating the facts as above). The case has been tried upon the assumption throughout that Rosenfieid was at no time acting in fraud of the plaintiff, and that notice to him or to his representatives, Bernheimer & Hollander, was notice to the plaintiff. The suit is not by a minority stockholder, seeking to avoid the consequences of the fraudulent acts of its directors; indeed no stockholders appear to be interested in the case save the Rosenfieid majority, and I shall therefore assume that Rosenfieid was throughout acting in behalf of the plaintiff. This is indeed clearly not the fact, because his telegram of September 4, 1913, was, beyond question, part of a negotiation intended to be on his own behalf and to secure the property for Metzler and himself to the exclusion of the company. It would be a different question altogether if the plaintiff should take the position tfiat after the telegram in question, no notice to Rosenfield could be notice to the company. For obvious reasons the plaintiff does not take that position, and, there being no evidence that any one in interest objects to this, I must accept the conduct of the cause as presented by the recognized authorities now in control of the plaintiff.

[1] The plaintiff’s theory is that Metzler, being a fiduciary, had no right to get the property for himself by any device whatever. This is too well established to require the citation of authorities; the question is of its application. When Metzler went to Joplin in July, 1913, he had absolute knowledge that no money would be forthcoming to redeem the property from the mortgage. His only duty was to get the best sale he could before foreclosure, or to protect the property at foreclosure, if he failed. He could not sell in advance, and on the day of the foreclosure he had no duty but to protect the equity of redemption so long as it lasted. He is criticized for not bidding at the sale, but his arrangement with Boggess before the sale, by which he got an option till August 23, 1913, afterwards extended till August 25, 1913, was all he could do. He had nothing to bid with, no cash, no contract, until his agreement of August 19, 1913, with United Iron Works, and I can see no purpose in his being present and standing idly by at the auction. He had done all he could in getting the option, though probably he intended to hold the property for himself and Rosenfield alone, a purpose certainly not technically regular, but, in view of the liens upon the property, not inconsistent wth substantial honesty.

[2, 3] However, it is quite apparent that had' he got the property under that option, he would have held it charged with a constructive' trust in favor of the plaintiff. A question arises as to the actual terms of this option, whether $18,000, as he advised Rosenfield, or $16,000, as the plaintiff maintains. That the amount due upon the mortgage was $18,000, and that Luke always insisted that he must get back the full amount of his debt, admit of no dispute. The reasons for doubting whether the option was for $16,000, rather than $18,000, are that in the letter of Spencer, Graystone & Spencer to Rosenfield of September 29, 1913, they say that Metzler had an agreement with ‘Boggess for a deed upon paying “something over $16,000,” and that later it was agreed, while Graystone was present, that the deed should pass upon payment of “something over $16,700.” It is impossible to reconcile this statement with Boggess’ determination to get back the amount due, unless the phrase “something over” includes $1,300, but I see no difficulty in supposing that it might do so. If not, Metzler must be supposed to be stealing $1,300 from Rosenfield, a purpose which the plaintiff says it corroborated because of his insistence upon Rosenfield’s keeping the matter secret from Luke, who would only •deal with Metzler personally, though Luke swears that Metzler always professed to be dealing for his principal. In Metzler’s wire to Luke of August 21, 1913, occurs the phrase:

“Now if you really want to help me, so that no one but myself will be benefited, this is the time to show it.”

I can see no reason for such language if Mctzler’s version is not true, and I can see a motive of self-protection on Luke’s part, who is a defendant, to represent that he never intended to cut the plaintiff out of the benefit of the transaction, and supposed that the plaintiff’s rights had terminated when he sold to Metzler.

This does not, however, alone settle the question of the amount of the option which Boggess gave Metzler, though it takes from it the most sinister feature. I do not think that Metzler’s wire to Luke of August 21, 1913, just mentioned, should be taken as indicating that the amount of the option was $16,000 rather than $18,000. He was interested in getting Luke to accept the notes of the United Iron Works in place of cash, and he was talking of that. Luke’s answer of September 3, 1913, was addressed to this wire and may have had» in mind only the failure to produce the cash. Yet the consideration mentioned in the deed somewhat corroborates Graystone’s recollection that the price was $16,700 because Luke had realized $13,600 from his own sale of the machinery which would have made the proper balance $3,000. On the other hand, Metzler’s story that the eventual sale to him involved also the settlement of his claim against Luke for $2,000 is undisputed, though Luke was not asked about it.

It must be conceded, therefore, that the price of the option is not free from some doubt, yet on a consideration of the situation as a whole, I accept Metzler’s story. There can he no doubt, I think, that until Rosenfield’s refusal on the 22d, Metzler was exceedingly anxious to get back the property, which he had given every evidence that he thought valuable, and to serve which he had tried his best. He was also in desperate straits to finance the United Iron Works notes, and eventually failed because he could not. It seems to me most improbable that he would have loaded the terms in his wire to Rosenfield with an extra $1,300, which he meant to steal from Rosenfield when he was in such an extremity. - Had it not been for Gray-stone’s letter, the matter would have been clear enough, and as I have said, the language of that letter admits of the existence of an option of $18,000.

Metzler is again criticized for failing to tell Rosenfield of his option in season, but the contract with the United Iron Works was dated August 19, 1913, and already on the 18th Metzler was trying to get into touch with Rosenfield. His wire of the 20th told the whole truth to his principal as he knew it, and Rosenfield’s answer of the 22d relieved him absolutely of any further liability; it gave him a free hand to get the property for himself. Nothing in the law prevents a fiduciary in such a case to buy for himself; it would he absurd if it did.

[4] The option expired on the 25th, and Metzler thereafter rightly tried to interest Higginbotham, but unsuccessfully. Then on September 2, 1913, Rosenfield changed his mind and took up the negotiations once more. I agree with the plaintiff that Metzler consented to act again as a fiduciary, and that in so doing he assumed the old obligations and became subject to the same disabilities. His last letter of September 16, 1913, shows that he deemed himself to be still acting for the company.

[5-7] His duty, being to try to redeem the property from the mortgage, was necessarily limited by the rights which the plaintiff still had in it. Under the law of Missouri, when a mortgagee buys in under his power of sale, the mortgagor has the right, within a year, to redeem if he gives a bond, R. S. 1909, § 2829. But this bond must be given promptly, and 40 days’ delay has been held too much, Moss v. King, 212 Mo. 578, 111 S. W. 589. Rosenfield learned of this right as early as July 9, 1913, from Spencer, Graystone & Spencer, and allowed the right to lapse. However, that right is not exclusive of the old common-law right of redemption when a trustee buys in for himself under a power of sale. Arnett v. Williams, 226 Mo. 109, 125 S. W. 1154. Such a right had long been recognized in Missouri (Thornton v. Irwin, 43 Mo. 153), and applied equally whether the mortgagee was donee of the power, or some third person. It is not necessary to consider whether the statute is exclusive if the mortgagee is donee because in the case at bar there was a trustee, and it certainly was not.

The plaintiff’s rights, therefore, were limited to a redemption in case the trustee under the mortgage bought in for himself, which Boggess did through his company. Nor does it make any difference that the purchase was in fact for Luke, the mortgagee, who had transferred to Boggess by a collusive sale of the notes. These rights arise from Luke’s relation to the property, but a quite separate right arises from Metzler’s dealings with it. As Metzler had again assumed the character of fiduciary, I think he could not buy in the property until he was discharged of his obligations, and that his purchase of October 13, 1913, must be judged upon that basis. I shall consider each aspect separately.

The plaintiff’s rights against Luke were, of course, subject to the usual rule of equity, that inaction might make their subsequent assertion unjust. The statute itself fixes a year even when a bond is given, but the Missouri cases recognize a common-law limitation upon the common-law right (Landrum v. Union Bank, 63 Mo. 48; Kitchen v. St. Louis, etc., Ry. Co., 69 Mo. 224, 264), and the rule is well settled generally (Twin-Lick Oil Co. v. Marbury, 91 U. S. 587, 23 L. Ed. 328; Hoyt v. Latham, 143 U. S. 553, 12 Sup. Ct. 568, 36 L. Ed. 259; Hammond v. Hopkins, 143 U. S. 224, 12 Sup. Ct. 418, 36 L. Ed. 134; Clegg v. Edmondson, 8 De G. M. & G. 787). In considering the application of this rule the first question is the plaintiff’s knowledge of the facts. The only relevant facts to its right to redeem were that Boggess, the trustee, had bought in the property by his company, and that he had done so in the interest of Luke; indeed the latter fact is unnecessary. Metzler’s letter to Rosenfield of July 16, 1913, asserted that there would be no doubt of showing that the conveyance to Boggess of the notes was. an evasive subterfuge, and his letter of September 16, 1913, left little to conjecture. Rosenfield’s two letters of September 25 and October 2, 1913, to Spencer, Gray-stone & Spencer show that he had a quite correct understanding of the fact that Boggess was acting for Luke, and that the company was in the control of one or both. Spencer, Graystone & Spencer’s letter of September 29, 1913, leaves it without question that all three were in a community of interest, and it also informs Rosenfield that the price of the option was “something over $16,700” which, if it had been true, would have been information of the only fact not yet disclosed. It is clear that it was not from any lack of information that Rosenfield failed to proceed, for all the relevant facts were before him, but because he did not rate the value of the property highly enough to be willing to risk any more money in it. What he wanted, and all that "held him back, was that he should get some lawyer who would take the case upon a speculative basis. He shows the most certain determination to abandon the claim if he could not get it prosecuted for nothing.

It is quite true that the delay in the case amounts to less than two years, and that in the cases 'cited it was much longer, but the rule is in no wise rigid or fixed; it depends in each case upon what equity and fair dealing require. In Twin-Lick Oil Co. v. Marbury, supra, pages 592 and 593 of 91 U. S., 23 L. Ed. 328, where the delay was four years, the court says that in cases such as mines, where the value is variable and the valuations sudden, the time may be short; the same is held in Clegg v. Edmondson, supra. The case at bar is an extreme instance of the rule. Nothing could be clearer than the determination of the plaintiff to abandon the property as soon as it found it could not get the necessary work done for nothing; the case is not one of mere inaction, but of a proposed suit, abandoned because the property was thought valueless. Mines are notoriously speculative and men should be required to take their position regarding them with some consistency if one is to have the least security in dealing with them. To allow the owner of an equity of redemption after sale to- lie back for nearly two years and then to move only when the whole situation lias changed is to let him gamble on the mine at the expense of the mortgagee. It is not equity, but injustice.

[8] The remaining question is whether Metzler’s purchase of Luke’s title changes the situation and gives the plaintiff greater rights against Metzler than it had against Luke. Had Metzler waited until July 1, 1915, the plaintiff’s rights being then extinguished, and his own possible duties being long since ended, he could have bought the land free from, any obligation. Robertson v. Chapman, 152 U. S. 673, 14 Sup. Ct. 741, 38 L. Ed. 592; McKittrick v. Arkansas Central Ry. Co., 152 U. S. 473, 497, 14 Sup. Ct. 661, 38 L. Ed. 518. The question depends, I think, upon whether Metzler had still any duty to the plaintiff which his purchase prevented him loyally from fulfilling. A trustee may not buy in an adverse title, while he still has any duties to discharge, because that prevents his loyal adherence to his beneficiary. On September 20, 1913, Rosenfield wrote Metzler that he was unwilling to spend any money upon a suit, and that if Spencer, Graystone & Spencer would not take the suit upon a contingent fee, which in fact they would not do, he (Metzler) was to drop it as far as Rosenfield was concerned. What had Metzler to do further? He had told his principal all the facts, had urged a suit, and been told that no money was forthcoming. Was he not justified in assuming that his duties were at an end, and that his hands were free ? Must he assume that Rosenfield would, a second time, revoke his purpose and seek to recover the property? He was not dealing with children who are of one mind to-day and another to-morrow. He did what, any man would have done, who supposed he was dealing with responsible persons, and concluded that the thing was over, and that he was free. So he bought the property on October 13, 1913, having learned presumably that Spencer, Graystone & Spencer would not take the case for nothing.. On October 20,1913, came the next letter, suggesting that the case was •still open, and that some of the facts were undisclosed. What again was he to do ? Certainly, he acted as any one would have acted, that is, as though with such infirmity of will he could not deal in any way whatever, and that if they wished to do anything, they had the facts to ^egin. I confess I cannot see how any one could have had better warrant for his conduct or come out with cleaner skirts than he.

Now when after nearly two years of inaction Rosenfield again seeks to press the cause, the situation has totally changed. Metzler’s blind and unreasonable confidence in the property has, by a surprising windfall, become justified, and the scepticism of all the others concerned has been disappointed. They seek by this belated assertion of their rights to take from him the reward of his not very intelligent, but persistent faith, in the mine. It seems to me the extreme of injustice that they should be allowed to do so.

Bill dismissed, with costs.